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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
 For the Fiscal Quarter Ended March 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 000-51624
 Dover Saddlery, Inc.
 (Exact name of registrant as specified in its charter)
 DELAWARE
(State of other jurisdiction of 
incorporation or organization)
    
    04-3438294
(I.R.S. Employer Identification No.)
 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(Do not check if a smaller reporting company)
Smaller reporting company þ  o þ




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##### 



DOVER SADDLERY, INC. AND SUBSIDIARIES
 INDEX TO QUARTERLY REPORT ON FORM 10-Q
 FOR THE QUARTER ENDED MARCH 31, 2010
 PART I.
    
    FINANCIAL INFORMATION
    
    
    3Item 1.
    
    Condensed Consolidated Financial Statements (unaudited)
    
    
    3Consolidated Balance Sheets  March 31, 2010 and December 31, 2009
    
    
    3Consolidated Statements of Operations  three months ended March 31, 2010 and 2009
    
    
    4Consolidated
Statements of Cash Flows  three months ended March 31, 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
    
    
    16Item 4.
    
    Controls and Procedures
    
    
    17Item 4T.
    
    Controls and Procedures
    
    
    17PART II.
    
    OTHER INFORMATION
    
    
    17Item 1.
    
    Legal Proceedings
    
    
    17Item 1A.
    
    Risk Factors
    
    
    18Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3.
    
    Defaults Upon Senior Securities
    
    
    19Item 4.
    
    [Reserved]
    
    
    19Item 5.
    
    Other Information
    
    
    19Item 6.
    
    Exhibits
    
    
    20SIGNATURES
    
    
    21EXHIBIT INDEX
    
    
    22Ex-10.68 Second Amendment to Loan and Security Agreement with RBS CitizensEx-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
  2




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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)
 March 31,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    540
    
    
    $
    732Accounts receivable
    
    
    571
    
    
    
    827Inventory
    
    
    15,698
    
    
    
    15,301Prepaid catalog costs
    
    
    1,345
    
    
    
    1,164Prepaid expenses and other current assets
    
    
    1,246
    
    
    
    780Total current assets
    
    
    19,400
    
    
    
    18,804Net property and equipment
    
    
    3,295
    
    
    
    3,365Other assets:Deferred income taxes
    
    
    663
    
    
    
    709Intangibles and other assets, net
    
    
    600
    
    
    
    684Total other assets
    
    
    1,263
    
    
    
    1,393Total assets
    
    $
    23,958
    
    
    $
    23,562LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of capital lease obligation and outstanding checks
    
    $
    497
    
    
    $
    676Accounts payable
    
    
    2,720
    
    
    
    2,305Accrued expenses and other current liabilities
    
    
    3,383
    
    
    
    4,083Income taxes payable
    
    
    
    
    
    
    350Deferred income taxes
    
    
    
    
    
    
    22Total current liabilities
    
    
    6,600
    
    
    
    7,436Long-term liabilities:Revolving line of credit
    
    
    4,300
    
    
    
    3,000Subordinated notes payable, net
    
    
    5,130
    
    
    
    5,091Capital lease obligation, net of current portion
    
    
    173
    
    
    
    132Total long-term liabilities
    
    
    9,603
    
    
    
    8,223Stockholders equity:Common Stock, par value $0.0001 per share; 15,000,000 shares
authorized; issued 5,263,975 as of March 31, 2010 and December
31, 2009
    
    
    1
    
    
    
    1Additional paid in capital
    
    
    45,226
    
    
    
    45,181Treasury stock, 795,865 shares at cost
    
    
    (6,082
    )
    
    
    (6,082
    )Accumulated deficit
    
    
    (31,390
    )
    
    
    (31,197
    )Total stockholders equity
    
    
    7,755
    
    
    
    7,903Total liabilities and stockholders equity
    
    $
    23,958
    
    
    $
    23,562
  3




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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 EndedMarch 31,
    
    
    March 31,2010
    
    
    2009Revenues, net
    
    $
    16,226
    
    
    $
    16,401Cost of revenues
    
    
    10,380
    
    
    
    10,715Gross profit
    
    
    5,846
    
    
    
    5,686Selling, general and administrative expenses
    
    
    5,893
    
    
    
    6,566Loss from operations
    
    
    (47
    )
    
    
    (880
    )Interest expense, financing and other related costs, net
    
    
    251
    
    
    
    312Other investment loss, net
    
    
    3
    
    
    
    7Loss before income tax benefit
    
    
    (301
    )
    
    
    (1,199
    )Benefit for income taxes
    
    
    (108
    )
    
    
    (609
    )Net loss
    
    $
    (193
    )
    
    $
    (590
    )Net loss per shareBasic
    
    $
    (0.04
    )
    
    $
    (0.11
    )Diluted
    
    $
    (0.04
    )
    
    $
    (0.11
    )Number of shares used in per share calculationBasic
    
    
    5,264,000
    
    
    
    5,187,000Diluted
    
    
    5,264,000
    
    
    
    5,187,000
  4




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DOVER SADDLERY, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(In thousands)
(unaudited)
 Three Months EndedMarch 31,
    
    
    March 31,2010
    
    
    2009Operating activities:Net loss
    
    $
    (193
    )
    
    $
    (590
    )Adjustments to reconcile net loss to net cash used in operating activitiesDepreciation and amortization
    
    
    188
    
    
    
    213Deferred income taxes
    
    
    24
    
    
    
    341Loss from investment in affiliate, net
    
    
    3
    
    
    
    7Stock-based compensation
    
    
    45
    
    
    
    46Non-cash interest expense
    
    
    68
    
    
    
    85Changes in current assets and liabilities:Accounts receivable
    
    
    256
    
    
    
    231Inventory
    
    
    (397
    )
    
    
    (1,110
    )Prepaid catalog costs and other current assets
    
    
    (647
    )
    
    
    (1,258
    )Accounts payable
    
    
    415
    
    
    
    221Accrued expenses, other current liabilities and income taxes payable
    
    
    (1,050
    )
    
    
    (494
    )Net cash used in operating activities
    
    
    (1,288
    )
    
    
    (2,308
    )Investing activities:Purchases of property and equipment
    
    
    (31
    )
    
    
    (241
    )Change in other assets
    
    
    50
    
    
    
    (4
    )Net cash provided by (used in) investing activities
    
    
    19
    
    
    
    (245
    )Financing activities:Borrowings under revolving line of credit, net
    
    
    1,300
    
    
    
    2,300Change in outstanding checks
    
    
    (194
    )
    
    
    93Payment of financing costs
    
    
    
    
    
    
    (40
    )Payments on capital leases
    
    
    (29
    )
    
    
    (37
    )Net cash provided by financing activities
    
    
    1,077
    
    
    
    2,316Net (decrease) increase in cash and cash equivalents
    
    
    (192
    )
    
    
    (237
    )Cash and cash equivalents at beginning of period
    
    
    732
    
    
    
    448Cash and cash equivalents at end of period
    
    $
    540
    
    
    $
    211Supplemental disclosure of cash flow informationCash paid during the period for:Interest
    
    $
    185
    
    
    $
    226Income taxes
    
    $
    503
    
    
    $
    203Supplemental 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
 A. Nature of Business and Basis of Preparation
      Three Months EndedMarch 31, 2010
    
    
    March 31, 2009Revenues, net  direct
    
    $
    11,701
    
    
    $
    11,722Revenues, net  retail stores
    
    
    4,525
    
    
    
    4,679Revenues, net  total
    
    $
    16,226
    
    
    $
    16,401
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B. Accounting for Stock-Based Compensation
    C. Inventory
  D. Advertising
  E. Comprehensive Income (Loss)
  F. Net Loss Per Share
  Three Months EndedMarch 31,
    
    March 31,2010
    
    2009Basic weighted average common shares outstanding
    
    
    5,264
    
    
    
    5,187Add: Dilutive effect of assumed stock option and
warrant exercises less potential incremental shares
purchased under the treasury method
    
    
    
    
    
    
    Diluted weighted average common shares outstanding
    
    
    5,264
    
    
    
    5,187
  G. Financing Agreements
 Revolving Credit Facility
  7




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Senior Subordinated Notes Payable and Warrants
     Cash and Cash Equivalents
  Financial Instruments
  8




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H. Investment in Affiliate
     I. Income Taxes
   J. Related Party Transactions
   9




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K. Commitments and Contingencies
 Lease Commitments
  .
 Contingencies
   L. Recent Accounting Pronouncements
   10




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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 are 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
   Consolidated Performance and Trends
    11




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Single Reporting Segment
  Results of Operations
  Three Months EndedMarch 31, 2010
    
    March 31, 2009Revenues, net
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    64.0
    
    
    
    65.3Gross profit
    
    
    36.0
    
    
    
    34.7Selling, general and administrative expenses
    
    
    36.3
    
    
    
    40.0Loss from operations
    
    
    (0.3
    )
    
    
    (5.4
    )Interest expense, financing and other related costs, net
    
    
    1.5
    
    
    
    1.9Other investment loss, net
    
    
    
    
    
    
    Loss before income tax benefit
    
    
    (1.9
    )
    
    
    (7.3
    )Benefit for income taxes
    
    
    (0.7
    )
    
    
    (3.7
    )Net loss
    
    
    (1.2
    )
    
    
    (3.6
    )
 
   Three Months EndedMarch 31, 2010
    
    
    March 31, 2009Revenues, net  direct
    
    $
    11,701
    
    
    $
    11,722Revenues, net  retail stores
    
    
    4,525
    
    
    
    4,679Revenues, net  total
    
    $
    16,226
    
    
    $
    16,401Other operating data:Number of retail stores (1)
    
    
    13
    
    
    
    13Capital expenditures
    
    
    31
    
    
    
    241Gross profit margin
    
    
    36.0
    %
    
    
    34.7
    %Adjusted EBITDA(2)
    
    
    186
    
    
    
    (621
    )Adjusted EBITDA margin(2)
    
    
    1.1
    %
    
    
    (3.8
    )%
 
 (1)
    
    Includes twelve Dover-branded stores and one Smith Brothers store; the North Kingstown,
RI Dover-branded store was opened in Q1 2009.(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, non-cash goodwill impairment charge, depreciation, amortization and other
investment loss, 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. 12




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
    
    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.
  Three Months EndedMarch 31,
    
    
    March 31,2010
    
    
    2009Net loss
    
    $
    (193
    )
    
    $
    (590
    )Depreciation
    
    
    186
    
    
    
    211Amortization of intangible assets
    
    
    2
    
    
    
    2Stock-based compensation
    
    
    45
    
    
    
    46Interest expense, financing and other related costs, net
    
    
    251
    
    
    
    312Other investment loss, net
    
    
    3
    
    
    
    7Benefit for income taxes
    
    
    (108
    )
    
    
    (609
    )Adjusted EBITDA
    
    $
    186
    
    
    $
    (621
    )
 Three Months Ended March 31, 2010 Compared to the Three Months Ended March 31, 2009
 Revenues
  13




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Gross Profit
  Selling, General and Administrative
  Interest Expense
  Income Tax Benefit
  Net Loss
  Seasonality and Quarterly Fluctuations
  Liquidity and Capital Resources
  14




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Operating Activities
  Investing Activities
  Financing Activities
  Revolving Credit Facility
  Senior Subordinated Notes Payable and Warrants
  15




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Working Capital and Capital Expenditure Needs
  Critical Accounting Policies and Estimates
  
 Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk.
   Foreign Currency Risk
  16




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Interest Rate Sensitivity
   
 Item 4.
    
    Controls and Procedures.
  
 Item 4T.
    
    Controls and Procedures.
    
 PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings.
  17




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Item 1A.
    
    Risk Factors.
   Our cost savings initiatives may have a negative impact on our market share in the short run.
  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.
   18




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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.
    
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3.
    
    Defaults Upon Senior Securities.
  
 Item 4.
    
    [Reserved.]
  
 Item 5.
    
    Other Information.
  19




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Item 6.
    
    Exhibits.
 Exhibit List
 Number
    
    Description10.67
    
    Amended and Restated 2005 Equity Incentive Plan (attached to the Companys Current Report on Form 8-K dated May 5, 2010 and filed with the SEC on May 10, 2010)*10.68
    
    Second Amendment to Loan and Security Agreement with RBS Citizens dated May 10, 2010*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.
    
    Indicates a management contract or compensatory plan or arrangement 20




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SIGNATURES
  DOVER SADDLERY, INC.Dated: May 13, 2010
    By:
    /s/   Michael W. BrunsMichael W. Bruns, Chief Financial Officer(Principal Financial Officer) 21




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EXHIBIT INDEX
 Number
    
    Description10.67
    
    Amended and Restated 2005 Equity Incentive Plan (attached to the Companys Current Report on Form 8-K dated
 May 5, 2010 and filed with the SEC on May 10, 2010)*10.68
    
    Second Amendment to Loan and Security Agreement with RBS Citizens dated May 10, 2010*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.
    
    Indicates a management contract or compensatory plan or arrangement 22