##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
   o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
  Dover Saddlery, Inc.
 (Exact name of registrant as specified in its charter)
 DELAWARE
    
    04-3438294(State of other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 525 Great Road, Littleton, MA 01460
 (Address of principal executive offices)
 (978)  952-8062   (Registrants telephone number, including area code)
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if smaller reporting company)
  o þ




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##### 



DOVER SADDLERY, INC. AND SUBSIDIARIES
 INDEX TO QUARTERLY REPORT ON FORM 10-Q
 FOR THE QUARTER ENDED SEPTEMBER 30, 2010
 PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements (unaudited)Consolidated Balance Sheets 
September 30, 2010 and December 31, 2009
    
    
    3Consolidated Statements of Operations 
three and nine months ended September 30, 2010 and 2009
    
    
    4Consolidated Statements of Cash Flows 
nine months ended September 30, 2010 and 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4.
    
    Controls and Procedures
    
    
    18PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    19Item 1A.
    
    Risk Factors
    
    
    19Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3.
    
    Defaults Upon Senior Securities
    
    
    21Item 4.
    
    [Reserved]
    
    
    21Item 5.
    
    Other Information
    
    
    21Item 6.
    
    Exhibits
    
    
    22SIGNATURES
    
    
    23EXHIBIT INDEX
    
    
    24EX-31.1 Certification of Principal Executive OfficerEX-31.2 Certification of Principal Financial OfficerEX-32.1 Certification by Chief Executive Officer and Chief Financial Officer




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##### Table of Contents



PART I.   FINANCIAL INFORMATION
 
 Item 1.   Financial Statements.
 DOVER SADDLERY, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
 (In thousands, except share and per share data)
 (unaudited)
 September 30,
    
    
    December 31,2010
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    676
    
    
    $
    732Accounts receivable
    
    
    624
    
    
    
    827Inventory
    
    
    16,159
    
    
    
    15,301Prepaid catalog costs
    
    
    1,337
    
    
    
    1,164Prepaid expenses and other current assets
    
    
    999
    
    
    
    780Deferred income taxes
    
    
    61
    
    
    
    Total current assets
    
    
    19,856
    
    
    
    18,804Net property and equipment
    
    
    3,176
    
    
    
    3,365Other assets:Deferred income taxes
    
    
    749
    
    
    
    709Intangibles and other assets, net
    
    
    665
    
    
    
    684Total other assets
    
    
    1,414
    
    
    
    1,393Total assets
    
    $
    24,446
    
    
    $
    23,562LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of capital lease obligation and outstanding checks
    
    $
    1,143
    
    
    $
    676Accounts payable
    
    
    1,661
    
    
    
    2,305Accrued expenses and other current liabilities
    
    
    3,974
    
    
    
    4,083Income taxes payable
    
    
    26
    
    
    
    350Deferred income taxes
    
    
    
    
    
    
    22Total current liabilities
    
    
    6,804
    
    
    
    7,436Long-term liabilities:Revolving line of credit
    
    
    3,261
    
    
    
    3,000Subordinated notes payable, net
    
    
    5,207
    
    
    
    5,091Capital lease obligation, net of current portion
    
    
    119
    
    
    
    132Total long-term liabilities
    
    
    8,587
    
    
    
    8,223Stockholders equity:Common Stock, par value $0.0001 per share; 15,000,000 shares
authorized; issued 5,277,161 as of   September 30, 2010 and
5,263,975 as of December 31, 2009
    
    
    1
    
    
    
    1Additional paid in capital
    
    
    45,336
    
    
    
    45,181Treasury stock, 795,865 shares at cost
    
    
    (6,082
    )
    
    
    (6,082
    )Accumulated deficit
    
    
    (30,200
    )
    
    
    (31,197
    )Total stockholders equity
    
    
    9,055
    
    
    
    7,903Total liabilities and stockholders equity
    
    $
    24,446
    
    
    $
    23,562




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DOVER SADDLERY, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Operations
 (In thousands, except share and per share data)
 (unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    September 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues, net
    
    $
    18,614
    
    
    $
    18,545
    
    
    $
    54,695
    
    
    $
    54,056Cost of revenues
    
    
    11,525
    
    
    
    11,744
    
    
    
    34,308
    
    
    
    34,507Gross profit
    
    
    7,089
    
    
    
    6,801
    
    
    
    20,387
    
    
    
    19,549Selling, general and administrative expenses
    
    
    6,218
    
    
    
    5,869
    
    
    
    18,274
    
    
    
    18,370Income from operations
    
    
    871
    
    
    
    932
    
    
    
    2,113
    
    
    
    1,179Interest expense, financing and other related costs, net
    
    
    255
    
    
    
    346
    
    
    
    766
    
    
    
    996Other investment (income) loss, net
    
    
    37
    
    
    
    20
    
    
    
    (384)
    
    
    
    1Income before income tax provision
    
    
    579
    
    
    
    566
    
    
    
    1,731
    
    
    
    182Provision for income taxes
    
    
    259
    
    
    
    294
    
    
    
    734
    
    
    
    161Net income
    
    $
    320
    
    
    $
    272
    
    
    $
    997
    
    
    $
    21Net income per shareBasic
    
    $
    0.06
    
    
    $
    0.05
    
    
    $
    0.19
    
    
    $
    0.00Diluted
    
    $
    0.06
    
    
    $
    0.05
    
    
    $
    0.18
    
    
    $
    0.00Number of shares used in per share calculationBasic
    
    
    5,277,000
    
    
    
    5,187,000
    
    
    
    5,270,000
    
    
    
    5,187,000Diluted
    
    
    5,386,000
    
    
    
    5,247,000
    
    
    
    5,413,000
    
    
    
    5,233,000




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DOVER SADDLERY, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statement of Cash Flows
(In thousands)
 (unaudited)
 Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009Operating activities:Net income
    
    
    $997
    
    
    
    $         21Adjustments to reconcile net income to net cash provided by (used in)
operating
activitiesDepreciation and amortization
    
    
    550
    
    
    
    585Deferred income taxes
    
    
    (124)
    
    
    
    (12)Income from investment in affiliates, net
    
    
    (382)
    
    
    
    1Stock-based compensation
    
    
    136
    
    
    
    135Non-cash interest expense
    
    
    205
    
    
    
    259Changes in current assets and liabilities:Accounts receivable
    
    
    203
    
    
    
    173Inventory
    
    
    (858)
    
    
    
    928Prepaid catalog costs and other current assets
    
    
    (392)
    
    
    
    (214)Accounts payable
    
    
    (644)
    
    
    
    (125)Accrued expenses, other current liabilities and income taxes payable
    
    
    (433)
    
    
    
    (250)Net cash provided by (used in) operating activities
    
    
    (742)
    
    
    
    1,501Investing activities:Distributions from investment in affiliate
    
    
    330
    
    
    
    Purchases of property and equipment
    
    
    (271)
    
    
    
    (386)Investment in affiliates
    
    
    (60)
    
    
    
    Change in other assets
    
    
    50
    
    
    
    (27)Net cash provided by (used in) investing activities
    
    
    49
    
    
    
    (413)Financing activities:Borrowings (payments) under revolving line of credit, net
    
    
    261
    
    
    
    (1,000)Change in outstanding checks
    
    
    459
    
    
    
    50Payment of financing costs
    
    
    (12)
    
    
    
    (40)Payments on capital leases
    
    
    (90)
    
    
    
    (102)Proceeds from exercise of stock options
    
    
    19
    
    
    
    Net cash provided by (used in) financing activities
    
    
    637
    
    
    
    (1,092)Net decrease in cash and cash equivalents
    
    
    (56)
    
    
    
    (4)Cash and cash equivalents at beginning of period
    
    
    732
    
    
    
    448Cash and cash equivalents at end of period
    
    $
    676
    
    
    $
    444Supplemental disclosure of cash flow informationCash paid during the period for:Interest
    
    $
    562
    
    
    $
    738Income taxes
    
    $
    1,182
    
    
    $
    353Supplemental disclosure of non-cash financing activitiesEquipment acquired under capital leases
    
    $
    85
    
    
    $
    




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DOVER SADDLERY, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 A.  Nature of Business and Basis of Preparation
      Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues,
net  direct
    
    $
    11,654
    
    
    $
    11,864
    
    
    $
    36,257
    
    
    $
    36,042Revenues,
net  retail stores
    
    
    6,960
    
    
    
    6,681
    
    
    
    18,438
    
    
    
    18,014Revenues,
net  total
    
    $
    18,614
    
    
    $
    18,545
    
    
    $
    54,695
    
    
    $
    54,056




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B.  Accounting for Stock-Based Compensation
    C.  Inventory
  D.  Advertising
  E.  Comprehensive Income
  F.  Net Income per Share
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    September 30,
    
    
    September 30,2010
    
    2009
    
    2010
    
    2009Basic weighted average common shares outstanding
    
    
    5,277
    
    
    5,187
    
    
    
    5,270
    
    
    5,187Add: Dilutive effect of assumed stock option and
warrant exercises less potential incremental shares
purchased under the treasury method
    
    
    109
    
    
    60
    
    
    
    143
    
    
    46Diluted weighted average common shares outstanding
    
    
    5,386
    
    
    5,247
    
    
    
    5,413
    
    
    5,233




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G.  Financing Agreements
 Revolving Credit Facility
     Senior Subordinated Notes Payable and Warrants




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Cash and Cash Equivalents
  Financial Instruments
  H.  Investment in Affiliates




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I.  Income Taxes
   J.  Related Party Transactions
    K.  Commitments and Contingencies
 Lease Commitments
  .




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##### Table of Contents



Contingencies
  L.  Recent Accounting Pronouncements
   M.  Subsequent Events
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This Quarterly Report on Form 10-Q , including the following discussion, contains
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995 that involve substantial risks and uncertainties. For this purpose, any statements contained
herein that are not statements of historical fact may be deemed to be forward-looking statements.
Without limiting the generality of the foregoing, the words projected, anticipated, planned,
expected, and similar expressions are intended to identify forward-looking statements. In
particular, statements regarding future financial targets or trends are forward-looking statements.
Forward-looking statements are not guarantees of our future financial performance, and undue
reliance should not be placed on them. Our actual results, performance or achievements may differ
significantly from the results, performance or achievements discussed in or implied by the
forward-looking statements. Factors that could cause such a difference detailed in Item 1A. Risk
Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (fiscal
2009) and in our subsequent periodic reports on Form 10-Q . We disclaim any intent or obligation to
update any forward-looking statement.
 Overview




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Consolidated Performance and Trends
    Single Reporting Segment
  Results of Operations
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2010
    
    2009
    
    2010
    
    2009Revenues, net
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    61.9
    
    
    
    63.3
    
    
    
    62.7
    
    
    
    63.8Gross profit
    
    
    38.1
    
    
    
    36.7
    
    
    
    37.3
    
    
    
    36.2Selling, general and administrative expenses
    
    
    33.4
    
    
    
    31.6
    
    
    
    33.4
    
    
    
    34.0Income from operations
    
    
    4.7
    
    
    
    5.0
    
    
    
    3.9
    
    
    
    2.2Interest expense, financing and other related costs, net
    
    
    1.4
    
    
    
    1.9
    
    
    
    1.4
    
    
    
    1.8Other investment (income) loss, net
    
    
    0.2
    
    
    
    0.1
    
    
    
    (0.7)
    
    
    
    0.1Income before income tax provision
    
    
    3.1
    
    
    
    3.1
    
    
    
    3.2
    
    
    
    0.3Provision for income taxes
    
    
    1.4
    
    
    
    1.6
    
    
    
    1.3
    
    
    
    0.3Net income
    
    
    1.7
    
    
    
    1.5
    
    
    
    1.8
    
    
    
    




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    

September
30,
    
    

September 30,
    
    

September
30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues,
net  direct
    
    $
    11,654
    
    
    $
    11,864
    
    
    $
    36,257
    
    
    $
    36,042Revenues,
net  retail stores
    
    
    6,960
    
    
    
    6,681
    
    
    
    18,438
    
    
    
    18,014Revenues,
net  total
    
    $
    18,614
    
    
    $
    18,545
    
    
    $
    54,695
    
    
    $
    54,056Other operating data:Number of retail stores (1)
    
    
    13
    
    
    
    13
    
    
    
    13
    
    
    
    13Capital expenditures
    
    
    57
    
    
    
    105
    
    
    
    271
    
    
    
    386Gross profit margin
    
    
    38.1%
    
    
    
    36.7%
    
    
    
    37.3%
    
    
    
    36.2%Adjusted
EBITDA (2)
    
    
    1,094
    
    
    
    1,159
    
    
    
    2,799
    
    
    
    1,899Adjusted
EBITDA margin (2)
    
    
    5.9%
    
    
    
    6.2%
    
    
    
    5.1%
    
    
    
    3.5%
 (1)
    
    Includes twelve Dover-branded stores and one Smith Brothers store.(2)
    
    When we use the term Adjusted EBITDA, we are referring to net income minus interest
income and other income plus interest expense, income taxes, non-cash stock-based
compensation, depreciation, amortization and other investment income, net. We present
Adjusted EBITDA because we consider it an important supplemental measure of our performance
and believe it is frequently used by securities analysts, investors and other interested
parties in the evaluation of companies in our industry.
  
    
    Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital
expenditures or capital commitments;
    
    Adjusted EBITDA does not reflect changes in, or cash requirements for, our working
capital needs;
    
    Adjusted EBITDA does not reflect the impact of an impairment charge that might be taken,
when future results are not achieved as planned, in respect of goodwill resulting from any
premium the Company might pay in the future in connection with potential acquisitions;
    
    Adjusted EBITDA does not reflect the interest expense or cash requirements necessary to
service interest or principal payments on our debt;
    
    Although depreciation and amortization are non-cash charges, the assets being depreciated
and amortized will often have to be replaced in the future, and Adjusted EBITDA does not
reflect any cash requirements for such replacements;
    
    Although stock-based compensation is a non-cash charge, additional stock options might be
granted in the future, which might have a future dilutive effect on earnings and EPS; and
    
    Other companies in our industry may calculate Adjusted EBITDA differently than we do,
limiting its usefulness as a comparative measure.




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Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    
    

September 30,
    

September 30,
    
    

September 30,2010
    
    
    2009
    
    2010
    
    
    2009Net income
    
    $
    320
    
    
    
    
    $
    272
    
    
    $
    997
    
    
    $
    21Depreciation
    
    
    176
    
    
    
    
    
    181
    
    
    
    545
    
    
    
    580Amortization of intangible assets
    
    
    2
    
    
    
    
    
    2
    
    
    
    5
    
    
    
    5Stock-based compensation
    
    
    45
    
    
    
    
    
    44
    
    
    
    136
    
    
    
    135Interest expense, financing and other related costs, net
    
    
    255
    
    
    
    
    
    346
    
    
    
    766
    
    
    
    996Other investment (income) loss, net
    
    
    37
    
    
    
    
    
    20
    
    
    
    (384)
    
    
    
    1Provision for income taxes
    
    
    259
    
    
    
    
    
    294
    
    
    
    734
    
    
    
    161Adjusted EBITDA
    
    $
    1,094
    
    
    
    
    $
    1,159
    
    
    $
    2,799
    
    
    $
    1,899
 Three Months Ended September 30, 2010 Compared to the Three Months Ended September 30, 2009
 Revenues
  Gross Profit
  Selling, General and Administrative
  Interest Expense
  Income Tax Provision




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Net Income
  Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009
 Revenues
  Gross Profit
  Selling, General and Administrative
  Interest Expense
  Other Investment Income
  Income Tax Provision




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Net Income
  Seasonality and Quarterly Fluctuations
  Liquidity and Capital Resources
  Operating Activities
  Investing Activities




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Financing Activities
  Revolving Credit Facility
  Senior Subordinated Notes Payable and Warrants
   Working Capital and Capital Expenditure Needs




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Critical Accounting Policies and Estimates
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
   Foreign Currency Risk
  Interest Rate Sensitivity
   
 Item 4.  Controls and Procedures.




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PART II.  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
   Our cost savings initiatives may have a negative impact on our market share in the short run.




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Current economic conditions and the global financial crisis may have an impact on our business and
financial condition in ways that we currently cannot predict.
  A decline in discretionary consumer spending and related externalities could reduce our revenues.
   Material changes in cash flow and debt levels may adversely affect our growth and credit
facilities, require the immediate repayment of all our loans, and limit the ability to open new
stores.




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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3.  Defaults Upon Senior Securities.
  
 Item 4.  [Reserved]
 
 Item 5.  Other Information.




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Item 6.  Exhibits.
 Exhibit List
 Number
    
    Description*31.1
    
    Certification of Principal Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a)*31.2
    
    Certification of Principal Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a)32.1
    
    Certification by Chief Executive Officer and Chief Financial Officer of Periodic Report Pursuant to 18
U.S.C. Section 
1350
 
 *
    
    Filed herewith.
    
    Furnished herewith.




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##### Table of Contents



SIGNATURES
  DOVER SADDLERY, INC.Dated: November 12, 2010
    
    By:
    
    /s/   David R. PearceDavid R. Pearce, Chief Financial Officer(Principal Financial Officer)




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EXHIBIT INDEX
 Number
    
    Description*31.1
    
    Certification of Principal Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a)*31.2
    
    Certification of Principal Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a)32.1
    
    Certification by Chief Executive Officer and Chief Financial Officer of Periodic Report Pursuant to 18
U.S.C. Section 
1350
 
 *
    
    Filed herewith.
    
    Furnished herewith.