##### 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
 For the Fiscal Quarter Ended June 30, 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
    
    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




---



##### 



DOVER SADDLERY, INC. AND SUBSIDIARIES
 INDEX TO QUARTERLY REPORT ON FORM 10-Q
 FOR THE QUARTER ENDED JUNE 30, 2010
 PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements (unaudited)Consolidated Balance Sheets 
June 30, 2010 and December 31, 2009
    
    
    3Consolidated Statements of Operations 
three and six months ended June 30, 2010 and 2009
    
    
    4Consolidated Statements of Cash Flows 
six months ended June 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
    
    
    19PART 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-10.69   Third 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 Executice Officer and Chief Financial Officer
  2




---



##### 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)
 June 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    904
    
    
    $
    732Accounts receivable
    
    
    706
    
    
    
    827Inventory
    
    
    16,188
    
    
    
    15,301Prepaid catalog costs
    
    
    713
    
    
    
    1,164Prepaid expenses and other current assets
    
    
    1,086
    
    
    
    780Deferred income taxes
    
    
    85
    
    
    
    Total current assets
    
    
    19,682
    
    
    
    18,804Net property and equipment
    
    
    3,295
    
    
    
    3,365Other assets:Deferred income taxes
    
    
    691
    
    
    
    709Intangibles and other assets, net
    
    
    722
    
    
    
    684Total other assets
    
    
    1,413
    
    
    
    1,393Total assets
    
    $
    24,390
    
    
    $
    23,562LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of capital lease obligation and outstanding checks
    
    $
    612
    
    
    $
    676Accounts payable
    
    
    1,798
    
    
    
    2,305Accrued expenses and other current liabilities
    
    
    3,785
    
    
    
    4,083Income taxes payable
    
    
    288
    
    
    
    350Deferred income taxes
    
    
    
    
    
    
    22Total current liabilities
    
    
    6,483
    
    
    
    7,436Long-term liabilities:Revolving line of credit
    
    
    3,900
    
    
    
    3,000Subordinated notes payable, net
    
    
    5,168
    
    
    
    5,091Capital lease obligation, net of current portion
    
    
    149
    
    
    
    132Total long-term liabilities
    
    
    9,217
    
    
    
    8,223Stockholders equity:Common Stock, par value $0.0001 per share; 15,000,000 shares
authorized; issued 5,277,161 as of June 30 ,2010 and 5,263,975 as
of December 31, 2009
    
    
    1
    
    
    
    1Additional paid in capital
    
    
    45,291
    
    
    
    45,181Treasury stock, 795,865 shares at cost
    
    
    (6,082
    )
    
    
    (6,082
    )Accumulated deficit
    
    
    (30,520
    )
    
    
    (31,197
    )Total stockholders equity
    
    
    8,690
    
    
    
    7,903Total liabilities and stockholders equity
    
    $
    24,390
    
    
    $
    23,562
  3




---



##### Table of Contents



DOVER SADDLERY, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues, net
    
    $
    19,855
    
    
    $
    19,110
    
    
    $
    36,081
    
    
    $
    35,511Cost of revenues
    
    
    12,404
    
    
    
    12,049
    
    
    
    22,783
    
    
    
    22,764Gross profit
    
    
    7,451
    
    
    
    7,061
    
    
    
    13,298
    
    
    
    12,747Selling, general and administrative expenses
    
    
    6,163
    
    
    
    5,934
    
    
    
    12,056
    
    
    
    12,500Income from operations
    
    
    1,288
    
    
    
    1,127
    
    
    
    1,242
    
    
    
    247Interest expense, financing and other related costs, net
    
    
    259
    
    
    
    338
    
    
    
    510
    
    
    
    650Other investment income, net
    
    
    (423
    )
    
    
    (26
    )
    
    
    (420
    )
    
    
    (19
    )Income (loss) before income tax provision (benefit)
    
    
    1,452
    
    
    
    815
    
    
    
    1,152
    
    
    
    (384
    )Provision (benefit) for income taxes
    
    
    583
    
    
    
    475
    
    
    
    475
    
    
    
    (134
    )Net income (loss)
    
    $
    869
    
    
    $
    340
    
    
    $
    677
    
    
    $
    (250
    )Net income (loss) per shareBasic
    
    $
    0.16
    
    
    $
    0.07
    
    
    $
    0.13
    
    
    $
    (0.05
    )Diluted
    
    $
    0.16
    
    
    $
    0.06
    
    
    $
    0.12
    
    
    $
    (0.05
    )Number of shares used in per share calculationBasic
    
    
    5,268,000
    
    
    
    5,187,000
    
    
    
    5,266,000
    
    
    
    5,187,000Diluted
    
    
    5,454,000
    
    
    
    5,259,000
    
    
    
    5,425,000
    
    
    
    5,187,000
  4




---



##### Table of Contents



DOVER SADDLERY, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statement of Cash Flows

(In thousands)
(unaudited)
 Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009Operating activities:Net income (loss)
    
    $
    677
    
    
    $
    (250
    )Adjustments to reconcile net income (loss) to net cash used in
operating activitiesDepreciation and amortization
    
    
    372
    
    
    
    403Deferred income taxes
    
    
    (89
    )
    
    
    36Income from investment in affiliates, net
    
    
    (420
    )
    
    
    (19
    )Stock-based compensation
    
    
    91
    
    
    
    90Non-cash interest expense
    
    
    136
    
    
    
    155Changes in current assets and liabilities:Accounts receivable
    
    
    121
    
    
    
    230Inventory
    
    
    (887
    )
    
    
    133Prepaid catalog costs and other current assets
    
    
    145
    
    
    
    110Accounts payable
    
    
    (507
    )
    
    
    (937
    )Accrued expenses, other current liabilities and income taxes payable
    
    
    (360
    )
    
    
    (371
    )Net cash used in operating activities
    
    
    (721
    )
    
    
    (420
    )Investing activities:Distributions from investment in affiliate
    
    
    330
    
    
    
    Purchases of property and equipment
    
    
    (214
    )
    
    
    (281
    )Investment in affiliates
    
    
    (60
    )
    
    
    Change in other assets
    
    
    50
    
    
    
    (25
    )Net cash provided by (used in) investing activities
    
    
    106
    
    
    
    (306
    )Financing activities:Borrowings under revolving line of credit, net
    
    
    900
    
    
    
    500Change in outstanding checks
    
    
    (73
    )
    
    
    242Payment of financing costs
    
    
    
    
    
    
    (40
    )Payments on capital leases
    
    
    (59
    )
    
    
    (68
    )Proceeds from exercise of stock options
    
    
    19
    
    
    
    Net cash provided by financing activities
    
    
    787
    
    
    
    634Net (decrease) increase in cash and cash equivalents
    
    
    172
    
    
    
    (92
    )Cash and cash equivalents at beginning of period
    
    
    732
    
    
    
    448Cash and cash equivalents at end of period
    
    $
    904
    
    
    $
    356Supplemental disclosure of cash flow informationCash paid during the period for:Interest
    
    $
    376
    
    
    $
    496Income taxes
    
    $
    627
    
    
    $
    238Supplemental disclosure of non-cash financing activitiesEquipment acquired under capital leases
    
    $
    85
    
    
    $
    
  5




---



##### Table of Contents



DOVER SADDLERY, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)
 A. Nature of Business and Basis of Preparation
      Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues, net  direct
    
    $
    12,901
    
    
    $
    12,456
    
    
    $
    24,603
    
    
    $
    24,178Revenues, net  retail stores
    
    
    6,954
    
    
    
    6,654
    
    
    
    11,478
    
    
    
    11,333Revenues, net  total
    
    $
    19,855
    
    
    $
    19,110
    
    
    $
    36,081
    
    
    $
    35,511
   6




---



##### Table of Contents



B. Accounting for Stock-Based Compensation
     C. Inventory
  D. Advertising
  E. Comprehensive Income (Loss)
  F. Net Income (Loss) Per Share
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2010
    
    2009
    
    2010
    
    2009Basic weighted average common shares outstanding
    
    
    5,268
    
    
    
    5,187
    
    
    
    5,266
    
    
    
    5,187Add: Dilutive effect of assumed stock option and
warrant exercises less potential incremental shares
purchased under the treasury method
    
    
    186
    
    
    
    72
    
    
    
    159
    
    
    
    Diluted weighted average common shares outstanding
    
    
    5,454
    
    
    
    5,259
    
    
    
    5,425
    
    
    
    5,187
 7




---



##### Table of Contents



G. Financing Agreements
 Revolving Credit Facility
     Senior Subordinated Notes Payable and Warrants
    8




---



##### Table of Contents



Cash and Cash Equivalents
  Financial Instruments
  H. Investment in Affiliates
      I. Income Taxes
  9




---



##### Table of Contents



J. Related Party Transactions
    K. Commitments and Contingencies
 Lease Commitments
  .
 Contingencies
  10




---



##### Table of Contents



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
   11




---



##### Table of Contents



Consolidated Performance and Trends
    Single Reporting Segment
  Results of Operations
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2010
    
    2009
    
    2010
    
    2009Revenues, net
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    62.5
    
    
    
    63.0
    
    
    
    63.1
    
    
    
    64.1Gross profit
    
    
    37.5
    
    
    
    37.0
    
    
    
    36.9
    
    
    
    35.9Selling, general and administrative expenses
    
    
    31.0
    
    
    
    31.1
    
    
    
    33.4
    
    
    
    35.2Income from operations
    
    
    6.5
    
    
    
    5.9
    
    
    
    3.4
    
    
    
    0.7Interest expense, financing and other related costs, net
    
    
    1.3
    
    
    
    1.8
    
    
    
    1.4
    
    
    
    1.8Other investment income, net
    
    
    2.1
    
    
    
    0.1
    
    
    
    1.2
    
    
    
    (0.1
    )Income (loss) before income tax provision (benefit)
    
    
    7.3
    
    
    
    4.3
    
    
    
    3.2
    
    
    
    (1.1
    )Provision (benefit) for income taxes
    
    
    2.9
    
    
    
    2.5
    
    
    
    1.3
    
    
    
    (0.4
    )Net income (loss)
    
    
    4.4
    
    
    
    1.8
    
    
    
    1.9
    
    
    
    (0.7
    )
 
 (1)
    
    Certain of these amounts may not properly sum due to rounding 12




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues, net  direct
    
    $
    12,901
    
    
    $
    12,456
    
    
    $
    24,603
    
    
    $
    24,178Revenues, net  retail stores
    
    
    6,954
    
    
    
    6,654
    
    
    
    11,478
    
    
    
    11,333Revenues, net  total
    
    $
    19,855
    
    
    $
    19,110
    
    
    $
    36,081
    
    
    $
    35,511Other operating data:Number of retail stores (1)
    
    
    13
    
    
    
    13
    
    
    
    13
    
    
    
    13Capital expenditures
    
    
    183
    
    
    
    41
    
    
    
    214
    
    
    
    281Gross profit margin
    
    
    37.5
    %
    
    
    37.0
    %
    
    
    36.9
    %
    
    
    35.9
    %Adjusted EBITDA(2)
    
    
    1,518
    
    
    
    1,361
    
    
    
    1,705
    
    
    
    740Adjusted EBITDA margin(2)
    
    
    7.6
    %
    
    
    7.1
    %
    
    
    4.7
    %
    
    
    2.1
    %
 
 (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 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.
 13




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    869
    
    
    $
    340
    
    
    $
    677
    
    
    $
    (250
    )Depreciation
    
    
    183
    
    
    
    188
    
    
    
    369
    
    
    
    400Amortization of intangible assets
    
    
    2
    
    
    
    2
    
    
    
    3
    
    
    
    3Stock-based compensation
    
    
    45
    
    
    
    44
    
    
    
    91
    
    
    
    90Interest expense, financing and other related costs, net
    
    
    259
    
    
    
    338
    
    
    
    510
    
    
    
    650Other investment income, net
    
    
    (423
    )
    
    
    (26
    )
    
    
    (420
    )
    
    
    (19
    )Provision (benefit) for income taxes
    
    
    583
    
    
    
    475
    
    
    
    475
    
    
    
    (134
    )Adjusted EBITDA
    
    $
    1,518
    
    
    $
    1,361
    
    
    $
    1,705
    
    
    $
    740
 Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009
 Revenues
  Gross Profit
  Selling, General and Administrative
  Interest Expense
  Other Investment Income
  14




---



##### Table of Contents



Income Tax Provision
  Net Income
  Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009
 Revenues
  Gross Profit
  Selling, General and Administrative
  Interest Expense
  Other Investment Income
  15




---



##### Table of Contents



Income Tax Provision (Benefit)
  Net Income (Loss)
  Seasonality and Quarterly Fluctuations
  Liquidity and Capital Resources
  Operating Activities
  16




---



##### Table of Contents



Investing Activities
  Financing Activities
  Revolving Credit Facility
  Senior Subordinated Notes Payable and Warrants
   Working Capital and Capital Expenditure Needs
  17




---



##### Table of Contents



Critical Accounting Policies and Estimates
  
 Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk.
   Foreign Currency Risk
  Interest Rate Sensitivity
   18




---



##### Table of Contents



Item 4.
    
    Controls and Procedures.
    
 PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings.
  
 Item 1A.
    
    Risk Factors.
   19




---



##### Table of Contents



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.
   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.
   20




---



##### Table of Contents



Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3.
    
    Defaults Upon Senior Securities.
  
 Item 4.
    
    [Reserved]
 
 Item 5.
    
    Other Information.
   21




---



##### Table of Contents



Item 6.
    
    Exhibits.
 Exhibit List
 Number
    
    Description*10.69
    
    Third Amendment to Loan and Security Agreement with RBS Citizens dated August 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 the Periodic Report Pursuant
to 18 U.S.C. Section 1350
 
 *
    
    Filed herewith.
    
    Furnished herewith.
    
    Indicates a management contract or compensatory plan or arrangement 22




---



##### Table of Contents



SIGNATURES
  DOVER SADDLERY, INC.Dated: August 13, 2010
    By:
    /s/   Michael W. BrunsMichael W. Bruns, Chief Financial Officer(Principal Financial Officer) 23




---



##### Table of Contents



EXHIBIT INDEX
 Number
    
    Description*10.69
    
    Third Amendment to Loan and Security Agreement with RBS Citizens dated August 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 24