UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Quarter Ended March 31, 2013

OR

¨ 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 incorporation or organization)	(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)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  ¨    NO  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company”, in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Shares outstanding of the registrant’s common stock (par value $0.0001) on May 2, 2013: 5,338,178

DOVER SADDLERY, INC. AND SUBSIDIARIES

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2013

PART I.	FINANCIAL INFORMATION	3
Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets – March 31, 2013 and December 31, 2012	3
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) – three months ended March 31, 2013 and 2012	4
	Condensed Consolidated Statements of Cash Flows – three months ended March 31, 2013 and 2012	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	20
PART II.	OTHER INFORMATION	21
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	24
SIGNATURES		25
EXHIBIT INDEX		26
Ex.-31.1	Certification of Principal Executive Officer
Ex.-31.2	Certification of Principal Financial Officer
Ex.-32.1	Certification by Chief Executive Officer and Chief Financial Officer

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DOVER SADDLERY, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, unaudited)

	March 31, 2013			December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	182		$	299
Accounts receivable		819			1,778
Inventory		22,583			19,915
Prepaid catalog costs		660			784
Prepaid expenses and other current assets		1,222			1,116
Deferred income taxes		378			300
Total current assets		25,844			24,192
Net property and equipment		5,147			5,034
Other assets:
Deferred income taxes		980			1,201
Intangibles and other assets, net		800			784
Total other assets		1,780			1,985
Total assets	$	32,771		$	31,211
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capital lease obligation and outstanding checks	$	1,204		$	337
Current portion – Term notes		786			589
Current portion – Capex Term Loan		468			—
Accounts payable		1,967			1,837
Accrued expenses and other current liabilities		4,995			6,348
Income taxes payable		—			936
Total current liabilities		9,420			10,047
Long-term liabilities:
Revolving line of credit		2,527			1,515
Capex Term Loan, net of current portion		1,872			—
Term notes, net of current portion		4,714			4,911
Capital lease obligation, net of current portion		100			121
Interest rate swap contract		291			320
Total long-term liabilities		9,504			6,867
Stockholder’s equity:
Common Stock, par value $0.0001 per share; 15,000,000 shares authorized; 6,134,043 and 6,133,343 issued and 5,338,178 and 5,337,478 outstanding as of March 31, 2013 and December 31, 2012, respectively		1			1
Additional paid in capital		46,045			45,973
Treasury stock, 795,865 shares at cost		(6,082	)		(6,082	)
Accumulated other comprehensive loss		(173	)		(189	)
Accumulated deficit		(25,944	)		(25,406	)
Total stockholders’ equity		13,847			14,297
Total liabilities and stockholders’ equity	$	32,771		$	31,211

See accompanying notes.

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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
	March 31, 2013			March 31, 2012
Revenues, net	$	18,026		$	18,156
Cost of revenues		11,626			11,229
Gross profit		6,400			6,927
Selling, general and administrative expenses		7,265			6,537
Income (loss) from operations		(865	)		390
Interest expense, financing and other related costs, net		124			109
Other investment income		(11	)		(7	)
Income (loss) before income tax provision (benefit)		(978	)		288
Provision (benefit) for income taxes		(440	)		146
Net income (loss)	$	(538	)	$	142
Net income (loss) per share
Basic	$	(0.10	)	$	0.03
Diluted	$	(0.10	)	$	0.03
Number of shares used in per share calculation
Basic		5,338,000			5,333,000
Diluted		5,338,000			5,591,000

DOVER SADDLERY, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands, unaudited)

	Three Months Ended
	March 31, 2013			March 31, 2012
Net income (loss)	$	(538	)	$	142
Other comprehensive income (loss), net:
Change in fair value of interest rate swap contract, net of $13K of tax		16			10
Total comprehensive income (loss)	$	(522	)	$	152

See accompanying notes.

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DOVER SADDLERY, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands, unaudited)

	Three Months Ended
	March 31, 2013			March 31, 2012
Operating activities:
Net income (loss)	$	(538	)	$	142
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		281			207
Deferred income taxes		131			(10	)
Income from investment in affiliate, net		(11	)		(7	)
Stock-based compensation		70			63
Gift card breakage income		(30	)		(483	)
Non-cash interest expense		3			3
Changes in current assets and liabilities:
Accounts receivable		959			180
Inventory		(2,668	)		(819	)
Prepaid catalog costs, prepaid expenses and other current assets		18			(52	)
Accounts payable		130			(243	)
Accrued expenses and other current liabilities and income taxes payable		(2,259	)		(1,534	)
Net cash used in operating activities		(3,914	)		(2,553	)
Investing activities:
Purchases of property and equipment		(376	)		(442	)
Investment in affiliates		(11	)		(10	)
Change in other assets		—			(11	)
Net cash used in investing activities		(387	)		(463	)
Financing activities:
Borrowings under revolving line of credit		1,012			3,468
Borrowings under Capex Term Loan		2,340			—
Change in outstanding checks		865			(579	)
Payments on capital leases		(20	)		(6	)
Payment of debt commitment fees		(15	)		—
Proceeds from exercise of stock options		2			—
Net cash provided by financing activities		4,184			2,883
Net decrease in cash and cash equivalents		(117	)		(133	)
Cash and cash equivalents at beginning of period		299			313
Cash and cash equivalents at end of period	$	182		$	180
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest	$	121		$	115
Income taxes	$	808		$	289
Supplemental disclosure of non-cash financing activities
Change in fair value of interest rate swap contract	$	29		$	17

See accompanying notes.

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DOVER SADDLERY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A. Nature of Business and Basis of Preparation

Dover Saddlery, Inc., a Delaware corporation (the “Company”), is a leading specialty retailer and the largest multi-channel marketer of equestrian products in the United States. The Company sells its products through a multi-channel strategy, including direct and retail, with stores located in Massachusetts, Delaware, Texas, New Hampshire, Maryland, Virginia, New Jersey, Georgia, Rhode Island, Colorado, Illinois, Pennsylvania, Minnesota and North Carolina. The Company provides a complete line of equestrian products, as well as specially–developed, private label offerings from its direct marketing headquarters, warehouse, and call center facility in Littleton, Massachusetts.

Revenues are recognized when payment is reasonably assured, the product is shipped and title and risk of loss have transferred to the customer. For direct merchandise sales, this occurs when product is delivered to the common carrier at the Company’s warehouse. For retail sales, this occurs at the point of sale.

The Company’s quarterly product sales have ranged from a low of approximately 20% to a high of approximately 32% of any calendar year’s results. The beginning of the spring outdoor riding season in the northern half of the country has typically generated a slightly stronger second quarter of the year, and the holiday buying season has generated additional demand for our equestrian product line in the fourth quarter of the year. Revenues for the first and third quarters of the calendar year have tended to be somewhat lower than the second and fourth quarters. The Company anticipates that its revenues will continue to vary somewhat by season.

The Company offers a comprehensive selection of products required to own, train and ride a horse, selling from under $1.00 to over $10,000 per product. The Company’s equestrian product line includes a broad variety of separate items, such as saddles, tack, specialized apparel, footwear, horse clothing, horse health and stable products. Separate reporting of the revenues of these numerous items is not practical.

The Company views its operations and manages its business as one operating segment utilizing a multi-channel distribution strategy. Market channel revenues are as follows (dollars in thousands):

	Three Months Ended
	March  31, 2013		March  31, 2012
Revenues, net – direct	$	10,784	$	11,299
Revenues, net – retail stores		7,242		6,857
Revenues, net – total	$	18,026	$	18,156

The accompanying condensed consolidated financial statements comprise those of the Company, its wholly-owned subsidiaries, and its investment in affiliates. All inter-company accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2013 and 2012 are unaudited. In management’s opinion, these unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2012 and include all adjustments, consisting of only usual, recurring adjustments, necessary for a fair presentation of the results for such interim periods. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results expected for the year ended December 31, 2013.

Certain footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to pertinent rules and regulations, although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading. The accompanying unaudited, condensed consolidated financial statements should be read in conjunction with the audited December 31, 2012 financial statements, which are included in our Amended Annual Report on Form 10-K/A for the fiscal year ended December 31, 2012, as filed with the Securities and Exchange Commission (the “SEC”) on June 5, 2013 (the “Amended 10-K”).

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B. Gift Certificates and Gift Certificate Breakage

The Company’s proceeds from the sale of gift cards are recorded as a liability and are recognized as revenue when the cards are redeemed for merchandise. Through the year ending December 31, 2011, all unredeemed gift card proceeds were reflected as a liability until redeemed. During the first quarter of 2012, the Company identified a history of redemption and breakage patterns associated with its gift cards, which support a change in the estimate of the term over which the Company recognizes income on gift card breakage. Accordingly, beginning with the first quarter of 2012, the Company began to recognize revenue from the breakage of gift cards when the likelihood of redemption of the gift card is remote and there is no legal obligation for the Company to remit the value of such unredeemed gift cards to any relevant jurisdiction.

The Company determines its gift card breakage rate based upon historical redemption patterns. Based on this historical information, the likelihood of a gift card remaining unredeemed can be reasonably estimated at the time of gift card issuance. From the point which the likelihood of redemption is deemed to be remote (gift cards that were issued three years prior and remain unredeemed) and for which there is no legal obligation to remit the value of such unredeemed gift cards to any relevant jurisdictions, breakage income is recognized over a two year period. Starting in the first quarter of 2012, gift card breakage income is recorded as revenue and is included on the condensed consolidated statements of income and comprehensive income. Breakage income of $30,146 was recognized as revenue, net, in the accompanying condensed consolidated statement of operations and comprehensive income (loss) during the three months ending March 31, 2013. Breakage income of $482,995, including the cumulative impact of the change of $441,362, was recognized as revenue, net, in the accompanying condensed consolidated statement of operations and comprehensive income (loss) during the three months ending March 31, 2012. The gift certificate liability balance was $1.2 million and $1.6 million as of March 31, 2013 and December 31, 2012, respectively and is included in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets.

C. Accounting for Stock-Based Compensation

The Company recognizes the fair value of compensation cost of stock-based awards on a straight-line basis over the requisite service period of the award. Stock-based compensation for the three months ended March 31, 2013 and 2012 was approximately $70,000 and $63,000, respectively.

There was no activity related to stock option grants, exercises or forfeitures for the three months ended March 31, 2013, except for the exercise of options to purchase 700 common shares, resulting in proceeds of $2,170 in the first quarter.

The amount of future stock-based compensation expense that may be recognized for outstanding, unvested options as of March 31, 2013 was approximately $940,500 to be recognized on a straight-line basis over the employee’s remaining weighted-average, requisite service period of 3.8 years. As of March 31, 2013 the intrinsic value of all “in the money” outstanding options was approximately $552,000.

D. Inventory

Inventory consists of finished goods in the Company’s mail-order warehouse and retail stores. The Company’s inventories are stated at the lower of cost, with cost determined by the first-in, first-out (FIFO) method, or net realizable value. The Company maintains a reserve for excess and obsolete inventory. This reserve was $120,000 as of March 31, 2013 and December 31, 2012. The Company continuously monitors the salability of its inventories to ensure adequate valuation of the related merchandise.

E. Advertising

The Company recognizes deferred costs over the period of expected future revenue, which is typically less than one year. Deferred costs as of March 31, 2013 and December 31, 2012 were $660,000 and $784,000, respectively and consisted of catalog costs. The combined marketing and advertising costs charged to selling, general, and administrative expenses for the three months ended March 31, 2013 and 2012 were $2,040,000 and $2,100,000, respectively.

F. Other Comprehensive Income (Loss)

Other comprehensive income (loss) is defined as the change in net assets of a business enterprise during a period from transactions generated from non-owner sources. Comprehensive income (loss) includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company’s only item of other comprehensive income (loss), other than reported net income, was the change in fair value of an interest rate swap. The other comprehensive income (loss), net of taxes ($12,826), for the three months ended March 31, 2013 and 2012 was $16,559 and $9,708, respectively.

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G. Net Income per Share

A reconciliation of the number of shares used in the calculation of basic and diluted net income per share is as follows (in thousands):

	Three Months Ended
	March 31, 2013		March 31, 2012
Basic weighted average common shares outstanding		5,338		5,333
Add: Dilutive effect of assumed stock option and warrant exercises less potential incremental shares purchased under the treasury method		—		258
Diluted weighted average common shares outstanding		5,338		5,591

For the three months ended March 31, 2013 and 2012, approximately 1,039,000 options and 1,034,000 options, respectively, to acquire common stock were excluded from the diluted weighted average shares calculation as the effect of such options is anti-dilutive. For the three months ended March 31, 2013, there were no potentially dilutive securities excluded as the Company was in a loss position.

H. Financing Agreements

Revolving Credit Facility

On March 29, 2013, the Company and the bank amended the Revolver Facility so that the Company can borrow three term loans for capital expenditures used to open new stores (the “Capex Term Loans”). Under the amended Revolver Facility, the Company can borrow up to $13,000,000, of which up to $1,000,000 can be in the form of letters of credit, up to $8,000,000 can be advanced as Capex Term Loans. The $13,000,000 maximum may be increased up to $20,000,000 at the discretion of the bank. Funds available under the revolving portion of the Revolver Facility shall be reduced by the outstanding balance of the letters of credit and term loans. The Company borrowed $2,340,000 as a Capex Term Loan on March 29, 2013 with equal principal repayments over 60 months. Any outstanding balances borrowed under the Revolver Facility are due in full on March 29, 2015 unless the Revolver Facility is renewed in 2014 for another year. The Revolver Facility bears interest at the base rate, announced from time to time by the bank, plus an applicable margin determined by the Company’s funded debt ratio. As of March 31, 2013 the LIBOR (base rate) was 0.20%, plus the applicable margin of 2.75%. Interest is payable monthly. At its option the Company may have all or a portion of the unpaid principal under the Revolver Facility bears interest at various LIBOR or prime rate options.

The Company is obligated to pay commitment fees of 0.25% per annum on the average daily, unused amount of the Revolver Facility during the preceding quarter. All assets of the Company collateralize the Revolver Facility. Under the terms of the Revolver Facility, the Company is subject to certain covenants including, among others, maximum funded debt ratios minimum fixed charge ratios, current asset ratios, and capital expenditures.

At March 31, 2013, the Company had the ability to borrow $13,000,000 on the Revolver Facility, subject to certain covenants, of which there was $2,527,000 outstanding under the revolving portion of the Revolver Facility and $2,340,000 outstanding under the Capex Term Loan, bearing interest at the net Revolver Facility rate of 2.95%. At December 31, 2012, the Company had $1,515,000 outstanding. For the period ending March 31, 2013, the Company was in compliance with all of the covenants under the Revolver Facility, including Capex Term Loans, and Term Note Facility (the “Credit Facility”).

Term Note Facility, Senior Subordinated Notes Payable and Warrants

On March 28, 2011, the Company borrowed $5,500,000 in the form of a 7-year term note (the “Term Note Facility”) from the bank to refinance the $5,000,000 senior subordinated notes and deferred interest on those notes. The initial floating rate interest on the $1,600,000 of principal (the variable interest rate portion of the Term Note Facility) was 5.4% consisting of a 1.0% LIBOR floor plus a 4.4% margin. The initial floating rate interest on the $3,900,000 of principal (fixed portion of the Term Note Facility with the interest rate swap discussed below) was LIBOR plus 4.4%. On April 1, 2011, the Company entered into an interest rate swap contract to fix the interest rate at 7.4% on $3,900,000 of the Term Note Facility principal. The remaining $1,600,000 of the principal bears a floating rate based on a base rate, with a minimum of 1.0% as announced from time to time by the bank, plus a 4.4% margin. As of March 31, 2013, the LIBOR rate (base rate) was 0.20%. The combined interest rate of 1.0% and 4.4% resulted in a total interest rate of 5.4% at March 31, 2013. Interest is payable monthly. The Company is obligated to repay $786,000 of principal annually commencing in April 2013 and extending to March 2018. The Company is further obligated to accelerate repayment of up to $1,600,000 in principal in the event it has excess cash flow determined by a cash flow recapture formula. All assets of the Company collateralize the Term Note Facility. Under the terms of the Term Note Facility, the Company is subject to certain covenants including, among others,

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maximum funded debt ratios, minimum fixed charge ratios, current asset ratios, and maximum capital expenditures. For the period ending March 31, 2013, the Company obtained a waiver for non-compliance with its Funded Debt Ratio covenant under the Credit Facility.

In connection with the issuance of retired subordinated notes, the Company issued warrants to the note holders, exercisable at any time after December 11, 2007 for an initial 118,170 shares of its common stock, which warrants have an exercise price of $2.75 per share. One holder, BCA Mezzanine Fund, L.P., owns 40% of those warrants and employs a related party to the Company, Board member Gregory Mulligan who holds a management position and indirect economic interest in BCA. The number of shares to be received for the warrants, upon exercise, is subject to change in the event of additional equity issuances and/or stock splits. The warrants were estimated to have a fair value of $272,000, which had been reflected as a discount of the note’s proceeds. The discount was amortized through interest expense while the notes were outstanding and the unamortized discount was fully expensed upon note retirement. The warrants issued are still outstanding and terminate on December 10, 2016.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Outstanding checks, net of cash balances in accounts with RBS Citizens, N.A., are included in current portion of capital lease obligation and outstanding checks in current liabilities.

Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, line of credit advances, capital leases and notes payable. The carrying value of cash and cash equivalents, accounts receivable, and accounts payable reflects fair value due to their short-term nature using level 3 inputs (see Note N for fair value disclosures).

The Company’s outstanding amounts under the Credit Facility are not measured at fair value on the accompanying condensed consolidated balance sheets. The Company determines the fair value of the amounts outstanding under the Credit Facility using an income approach, utilizing a discounted cash flow analysis based on current market interest rates for debt issues with similar remaining years to maturity, adjusted for applicable credit risk. Our Credit Facility is valued using level 2 inputs. The results of these calculations yield fair values that approximate carrying values. The value of our Credit Facility was $10,367,000 and $7,015,000 as of March 31, 2013 and December 31, 2012, respectively.

I. Investment in Affiliate

On April 11, 2008, the Company acquired 40% of the common stock of Hobby Horse Clothing Company, Inc. (“HH”), a privately-owned company, in exchange for 81,720 shares of unregistered Dover common stock. The Company accounts for this investment using the equity method. The total acquisition costs included $380,000 in common stock, as well as $33,300 in professional fees. Based on the purchase allocation, the total acquisition cost of $413,300 was allocated to the fair value of the Company’s share of net assets acquired, including approximately $138,000 of intangible assets, which represents the difference between the costs and underlying equity in HH’s net assets at the date of acquisition.

The Company’s equity share of HH’s net income, including the intangible asset customer list amortization (resulting from the purchase price allocation) is reflected as other investment income in the accompanying consolidated statements of operations and comprehensive income. The Company recorded net gain of approximately $13,000 for the three months ending March 31, 2013 compared to a net gain recorded of approximately $8,000 for the same period in 2012. In addition, the Company increased its investment in HH by $11,000 during the three months ending March 31, 2013. The resulting carrying value at March 31, 2013 and December 31, 2012 is approximately $272,000 and $248,000, respectively and is included in intangibles and other assets, net, in the accompanying condensed consolidated balance sheets.

In May 2010, the Company launched a joint venture to provide equine pharmaceuticals to the equine marketplace. The venture, HorsePharm.com, LLC (“HP”), was established as a limited liability company, and Dover has a non-controlling interest of 50%. The Company accounts for this investment using the equity method. Thus, during the second quarter of 2010, Dover recorded its portion of the initial investment in HP of $60,000. For the three months ending March 31, 2013 the Company recorded a net loss of approximately $(2,000) for its share of the joint venture’s operating results compared to a net loss recorded of approximately $(1,000) for the same period in 2012. The carrying value at March 31, 2013 and December 31, 2012, was approximately $20,000 and $22,000, respectively, which is included in intangibles and other assets, net, in the accompanying condensed consolidated balance sheets. The operating agreement governing HP contains a buy/sell feature that can be exercised for a price established by the HP member who initiates the buy/sell feature. The HP member that receives the offer can elect to buy the other member’s interest or sell its interest at the offered price.

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J. Income Taxes

At March 31, 2013, the Company maintains a liability of $3,000, for unrecognized tax benefits. Although the Company believes it has adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. The Company adjusts these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.

The Company records interest and penalties related to income taxes as a component of provision for income taxes. The Company recognized nominal interest and penalty expense for the three months ended March 31, 2013 and 2012.

Tax years 2009 through 2012 remain subject to examination by the IRS, and 2007 through 2012 tax years remain subject to examination by Massachusetts, and 2006 through 2012 by various other jurisdictions.

K. Related Party Transactions

In October of 2004, the Company entered into a lease agreement with a minority stockholder. The agreement, which relates to the Plaistow, NH retail store, is a five-year lease with options to extend for an additional fifteen years. In October 2009, the Company exercised its first option to extend the lease for additional five years. During the three months ended March 31, 2013 and 2012, the Company expensed in connection with this lease $54,000 and $53,000, respectively.

In order to expedite the efficient build-out of leasehold improvements in its new retail stores, the Company utilizes the services of a real estate development company owned by a non-executive Company employee and minority stockholder to source construction services and retail fixtures. Total payments made to the real estate development company for the three months ended March 31, 2013 and 2012, consisting primarily of reimbursements for materials and outside labor for the fit-up of stores, were $140,000 and $142,000, respectively.

L. Commitments and Contingencies

Lease Commitments

The Company leases its facilities and certain fixed assets that may be purchased for a nominal amount on the expiration of the leases under non-cancelable operating and capital leases that extend through 2022. These leases, which may be renewed for periods ranging from one to five years, include fixed rental agreements as well as agreements with rent escalation clauses.

In connection with retail locations, the Company enters into various operating lease agreements, with escalating rental payments. The effects of variable rent disbursements have been expensed on a straight-line basis over the life of the lease. As of March 31, 2013 and December 31, 2012, there was approximately $788,000 and $754,000, respectively, of deferred rent recorded in accrued expenses and other current liabilities on the condensed consolidated balance sheets.

Contingencies

From time to time, the Company is exposed to litigation relating to our products and operations. The Company is not currently engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material, adverse affect on our financial condition or results of operations.

M. Interest Rate Swap

The Company uses an interest rate swap contract as a cash flow hedge to eliminate the cash flow exposure of interest rate movements on variable rate debt. The Company accounts for its interest rate swap contract in accordance with FASB ASC 815, Derivatives and Hedging. FASB ASC 815 requires all derivatives, including interest rate swaps, to be recorded on the balance sheet at fair value. The increase or decrease in the fair value of the hedge is initially included as a component of other comprehensive income and is subsequently reclassified into earnings and recorded as interest expense, when interest on the related debt is paid. The Company values the interest rate swap contract in accordance with FASB ASC 820, Fair Value Measurement and Disclosures. The Company documents its risk management strategy and hedge effectiveness at the inception of and during the term of the hedge. The Company’s interest rate risk management strategy is to stabilize cash flow requirements by maintaining the interest rate swap contract to convert variable rate debt to fixed rate debt.

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The Company is exposed to interest rate risk primarily through its borrowing activities. The Company uses an interest rate swap contract as a cash flow hedge to eliminate the cash flow exposure of interest rate movements on variable rate debt. The Company’s term note is a variable rate instrument. On April 1, 2011, the Company entered into a 7-year interest rate swap contract on the notional value of $3,900,000 of the term note which requires payment of a fixed interest rate of interest (7.4%) and the receipt of a variable rate of interest, based on one month LIBOR rate, on the $3,900,000.

The Company designated this interest rate swap contract as an effective cash flow hedge. The Company adjusts the interest rate swap to fair value with the change accounted for through other comprehensive income (loss), as the contracts are considered effective in offsetting the interest rate exposure of the forecasted interest rate payments hedged. The Company anticipates that this contract will continue to be effective as long as there are no pre-payments of the hedged portion of the term note. The Company does not believe any of the amounts currently reported in accumulated other comprehensive loss will be reclassified into earnings in 2013. The fair value of the interest rate swap at March 31, 2013 and December 31, 2012 was a liability of $290,840 and $320,225, respectively.

The Company does not hold any derivative instruments that are not designated as a hedging instrument. The following table presents information about the fair value of the Company’s derivative instruments that have been designated as hedging instruments as of March 31, 2013 and December 31, 2012.

	Liability Derivatives as of:
	March 31, 2013			December 31, 2012
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Interest rate swap contract	Interest rate swap contract	$	290,840	Interest rate swap contract	$	320,225

The following table presents information about the effects of the Company’s derivative instruments:

	Location of Gain Recognized on Derivative	Amount of Gain Recognized Net of Tax, in Other  Comprehensive Gain (Loss) for the three months ended March 31
		2013		2012
Interest rate swap contact	Other comprehensive gain	$	16,559	$	9,708

N. Fair Value

FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value, and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described below:

Level 1 -	Pricing inputs are quoted prices available in active markets for identical investments as of the reporting date. The Company does not have any investments meeting the criteria of Level 1 inputs.
Level 2 -	Pricing inputs are quoted prices for similar investments, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. The Company’s derivatives discussed above, meet the criteria of a Level 2 input.
Level 3 -	Pricing inputs include unobservable inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability, which are developed based on the best information available. Level 3 includes private investments that have no market activity. The Company does not have any investments meeting the criteria of Level 3 inputs.

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The Company accounts for its interest rate swap as a derivative financial instrument in accordance with the related guidance. Under this guidance, derivatives are carried on the balance sheet at fair value. The fair value of the Company’s interest rate swap is determined based on observable market data in combination with expected cash flows. The fair value of the Company’s interest rate swap was determined using projected future cash flows, discounted at the mid-market implied forward LIBOR. The value at March 31, 2013 is included in long-term liabilities.

The following table presents the financial instruments carried at fair value in accordance with the FASB ASC 820 hierarchy noted above:

	Level 1		Level 2			Level 3		Total
Interest Rate Swap Contract as of March 31, 2013		—	$	(290,840	)		—	$	(290,840	)
Interest Rate Swap Contract as of December 31, 2012		—	$	(320,225	)		—	$	(320,225	)

O. Recent Accounting Pronouncements

In February 2013, the FASB issued Accounting Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income. The guidance in this ASU requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (U.S. GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under U .S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account instead of directly to income or expense in the same reporting period. The amendments in this ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. Public companies are required to comply with the requirements of this ASU for all reporting periods (interim and annual) beginning after December 15, 2012. The Company adopted this amendment in the first quarter of 2013 and it did not have an impact on its condensed consolidated financial statements.

P. Subsequent Events

On April 18^th, 2013, the Company opened its eighteenth Dover-branded store in Huntington Station, NY.

The Company has evaluated all events or transactions through the date of this filing. During this period, the Company did not have any other material subsequent events that impacted its condensed consolidated financial statements…

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 Amended Annual Report on Form 10-K/A for the fiscal year ended December 31, 2012, as filed with the Securities and Exchange Commission (the “SEC”) on June 5, 2013 (the “Amended 10-K”) (“fiscal 2012”) and in our subsequent periodic reports on Form 10-Q. We disclaim any intent or obligation to update any forward-looking statement.

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Overview

The Company is a leading, specialty retailer and the largest multi-channel marketer of equestrian products in the U.S. For over 35 years, Dover Saddlery has been a premier upscale marketing brand in the English-style riding industry. We sell our products through a multi-channel strategy, including direct and retail. This multi-channel strategy has allowed us to use catalogs and our proprietary database of over two million names of equestrian enthusiasts as the primary marketing tools to increase catalog sales and to drive additional business to our e-commerce websites and retail stores.

The Company, like most retailers in the first quarter of 2013, experienced weakening sales demand in its stores opened for more than a year. Consumer confidence fell in the first quarter as compared to the fourth quarter of 2012 which contributed to the Company’s slow down in comp store sales. Additionally, heavy snowstorms in the first quarter of 2013 as compared to the same period last year, discouraged shopping and outdoor riding activities.

Based on the Company’s achieved 2012 revenue growth, the Company opened three new stores last year, and opened an additional store in Huntington, NY in the second quarter of 2013. The Company will continue to pursue other new store locations that may be opened in 2013. However, our strategy to increase the number of retail store locations is based on finding optimal locations where demand for equestrian products is high and adequate capital to invest in its store expansion plan.

Consolidated Performance and Trends

The Company reported a net loss in the first quarter of 2013 of $(538,000) or $(0.10) per share, compared to net income of $142,000 or $0.03 per diluted share for the corresponding period in 2012, a decrease of 477.5%.

The first quarter of 2013 results reflect our continuing efforts to execute our growth strategy in the retail market channel where revenues increased 5.6% to $7.2 million in the quarter. This trend of increased revenue in the retail market channel may be slowed or eroded by delays in the execution of our new store expansion strategy, constraints in available capital, and interim declines in consumer demand at our retail stores impacted by continued economic uncertainty and consequential consumer behavior. The Company responds to fluctuations in revenues primarily by delaying the opening of new stores, adjusting marketing efforts and operations to support our retail stores and managing costs. The success of our new store growth plan is dependent upon the response of our customers to these marketing strategies and evolving market conditions. Our direct market channel revenues decreased 4.6%, to $10.8 million in the first quarter of 2013, primarily due to the cumulative impact of the change in accounting for gift card breakage income of $441,362 recorded in the first quarter of 2012. We respond to fluctuations in our direct customers’ response by adjusting the quantities of catalogs mailed and other internet marketing and customer-related strategies and tactics in order to maximize revenues and manage costs.

Given continued economic uncertainty, it is very difficult to accurately predict economic trends; however, we have resumed our store rollout strategy since 2011 and plan to continue to execute on prime new locations throughout 2013.

Single Reporting Segment

The Company operates and manages its business as one operating segment utilizing a multi-channel, distribution strategy.

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Results of Operations

The following table sets forth our unaudited results of operations as a percentage of revenues for the periods shown (1):

	Three Months Ended
	March 31, 2013			March 31, 2012
Revenues, net		100.0	%		100.0	%
Cost of revenues		64.5			61.8
Gross profit		35.5			38.2
Selling, general and administrative expenses		40.3			36.0
Income (loss) from operations		(4.8	)		2.1
Interest expense, financing and other related costs, net		0.7			0.6
Other investment income		0.1			0.0
Income (loss) before income tax provision (benefit)		(5.4	)		1.6
Provision (benefit) for income taxes		(2.4	)		0.8
Net income (loss)		(3.0	)		0.8

(1) Certain of these amounts may not properly sum due to rounding

The following table presents certain selected unaudited operating data (dollars in thousands):

	Three Months Ended
	March 31, 2013			March 31, 2012
Revenues, net – direct	$	10,784		$	11,299
Revenues, net – retail stores		7,242			6,857
Revenues, net – total	$	18,026		$	18,156
Other operating data:
Number of retail stores (1)		18			15
Capital expenditures		376			442
Gross profit margin		35.5	%		38. 2	%
Adjusted EBITDA (2)		(515	)		660
Adjusted EBITDA margin (2)		(2.9	)%		3.6	%

(1) Includes seventeen Dover-branded stores and one Smith Brothers store as of March 31, 2013.

(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) 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.

Adjusted EBITDA has some limitations as an analytical tool, and you should not consider it in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities or any other measure calculated in accordance with U.S. generally accepted accounting principles. Some of the limitations are:

• 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;

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• 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 earnings per share; and

• Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

The following table reconciles net income to Adjusted EBITDA (in thousands):

	Three Months Ended
	March 31, 2013			March 31, 2012
Net income (loss)	$	(538	)*	$	142	**
Depreciation		263			207
Amortization of intangible assets		17			—
Stock-based compensation		70			63
Interest expense, financing and other related costs, net		124			109
Other investment income		(11	)		(7	)
Provision (benefit) for income taxes		(440	)		146
Adjusted EBITDA	$	(515	)*	$	660	**

(*) Includes gift card breakage income of $30,146 for the three months ended March 31, 2013.

(**) Includes the cumulative impact of the change in gift card breakage income of $441,362 recorded in the first quarter of 2012 and breakage income of $41,632 for the three months ended March 31, 2012.

Three Months Ended March 31, 2013 Compared to the Three Months Ended March 31, 2012

Revenues

Total revenues decreased $0.1 million, or 0.7%, to $18.0 million for the three months ended March 31, 2013 from $18.1 million for the three months ended March 31, 2012. Revenues in our direct market channel decreased $0.5 million, or 4.6%, to $10.8 million from $11.3 million in the corresponding period in 2012. Revenues in our retail market channel increased $0.4 million, or 5.6%, to $7.2 million from $6.8 million in 2012. The decrease in our direct market channel was due primarily to the recognition of cumulative gift card breakage revenue of $354,573 recorded for the three months ended March 31, 2012. The increase in revenues from our retail market channel was due to sales from three additional retail stores that were not operating in the first quarter of 2012; this was offset by the cumulative impact of the gift card breakage revenue recorded for the three months ended March 31, 2012 of $86,790. Same store sales for the three month period decreased 8.1% over the prior year. A fall off in consumer confidence and heavy snowstorms in the first quarter as compared to the fourth quarter of 2012 depressed same store sales. In addition, gift card breakage revenue of $30,146 was recognized during the three months ending March 31, 2013. For the three months ended March 31, 2012, $482,995 was recognized, which included a cumulative impact of $441,362. The revenue was recognized in both retail and direct market channels based on where the gift card was issued.

Gross Profit

Gross profit for the three months ended March 31, 2013 decreased $0.5 million, or 7.6%, to $6.4 million as compared to the $6.9 million corresponding period in 2012. Gross profit, as a percentage of revenues, for the three months ended March 31, 2013 decreased 2.7% to 35.5% from 38.2% for the corresponding period in 2012. The decrease in gross profit of $0.5 million was primarily

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attributable to decreased revenues caused by the cumulative impact of breakage income in 2012. The decrease in gross profit as a percentage of revenues was attributable to the cumulative impact of $441,362 in gift card breakage and variations in our overall product mix and promotions.

Selling, General and Administrative

Selling, general and administrative expenses increased $0.7 million, or 11.1% to $7.3 million for the three months ended March 31, 2013 from $6.5 million for the three months ended March 31, 2012. SG&A expenses, as a percentage of revenues, increased to 40.6% of revenues from 35.7% of revenues for the corresponding period in 2012, primarily as a result of cumulative gift card breakage revenue recorded in 2012. SG&A increased primarily due to an additional $421,000 in labor costs, $103,000 in lease expense and $51,000 in Professional fees. Labor costs increased due to additional stores and a lower overhead allocation for the quarter. Lease expense increased primarily due to the additional number of stores as compared to last year.

Interest Expense

Interest expense, including amortization of financing costs, attributed to our Term Note Facility and Revolver Facility increased $15,000 or 14.5%, to $124,000 from $109,000 due to the increased outstanding balance of our Revolver Facility.

Other Investment Income

The net gain from investment activities consists of the Company’s share of net earnings or loss of its affiliate as they occur. The Company’s net investment gain for the three months ending March 31, 2013 was $11,000, an increase of $4,000 over its net investment gain of $7,000 in 2012. The Company’s investment income or loss from investment activities are related to our investments in Hobby Horse Clothing Company, Inc. (“HH”) and Horsepharm, LLC (“HP”).

Income Tax Provision (Benefit)

The benefit for income taxes was $440,000 for the three months ended March 31, 2013, reflecting an effective tax rate of 45%, compared to tax provision of $146,000 for the corresponding period in 2012, reflecting effective tax rate of 51%. The effective tax rate for the quarter is based upon management’s best estimates of the estimated effective rates for each entire year.

Net Income (loss)

The net income (loss) for the three months ended March 31, 2013 decreased $680,000 or 477.5%, to $(538,000) from $142,000 for the corresponding period in 2012. This decrease in profitability of $681,000 was due primarily to increased SG&A expenses related to marketing, lease expense, professional fees and labor costs that increased at a higher pace than revenue and gross margin. In addition, cumulative gift card breakage revenue (as explained in Revenues above) in 2012 reduced the gross margin contribution. The resulting income per diluted share decreased to $(0.10) for the three months ended March 31, 2013 as compared to $0.03 for the corresponding period in 2012.

Seasonality and Quarterly Fluctuations

Since 2001, our quarterly product sales have ranged from a low of approximately 20% to a high of approximately 32% of any calendar year’s results. The beginning of the spring outdoor riding season in the northern half of the country has typically generated a slightly stronger second quarter of the year, and the holiday buying season has generated additional demand for our normal equestrian product lines in the fourth quarter of the year. Revenues for the first and third quarters of the calendar year have tended to be somewhat lower than the second and fourth quarters. We anticipate that our revenues will continue to vary somewhat by season. The timing of our new retail store openings has had, and is expected to continue to have, a significant impact on our quarterly results. We will incur one-time expenses related to the opening of each new store. As we open new stores, (i) revenues may spike and then settle, and (ii) pre-opening expenses, including occupancy and management overhead, are incurred, which may not be offset by correlating revenues during the same financial reporting period. As a result of these factors, new retail store openings may result in temporary declines in operating profit, both in dollars and as a percentage of sales.

Liquidity and Capital Resources

For the three months ended March 31, 2013, our cash was reduced by $117,000. Cash was utilized primarily for seasonal working capital requirements. The source for cash generated related to increased balances in depreciation and amortization and increased borrowings under our Revolver Facility. On March 29, 2013, the Company and the bank amended the Revolver Facility so

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that the Company can borrow three Capex Term Loans for capital expenditures used to open new stores. Under the amended Revolver Facility, the Company can borrow up to $13,000,000, of which up to $1,000,000 can be in the form of letters of credit and up to $8,000,000 can be advanced as Capex Term Loans, and increase the $13,000,000 maximum up to $20,000,000 at the discretion of the bank. For the period ending March 31, 2013, the Company obtained a waiver for non-compliance with its Funded Debt Ratio covenant under the Credit Facility and subsequently amended the Revolver Facility to replace the funded debt ratio covenant with a tangible net worth to total liabilities covenant to track the performance of new-store cash flows relative to borrowings used to open the stores.

If necessary, we plan in the future to seek additional financing from banks and leasing companies, or through public offerings or private placements of debt or equity securities, strategic relationships, or other arrangements. In the event we fail to meet our financial covenants with our bank, we may not have access through our line of credit to sufficient working capital to pursue our growth strategy or in certain situations, continuing operations, or if our covenant non-compliance triggers a default, our loans may be called requiring the repayment of all amounts on our loans.

Operating Activities

Cash utilized in our operating activities for the three months ended March 31, 2013 was $3.9 million compared to $2.5 million for the corresponding period in 2012. For the three months ended March 31, 2013, cash outflows of $3.4 million consisted primarily of seasonal increases in inventory and initial stocking of new stores, prepaid and other assets and a net loss of $538,000, in addition, reductions in accrued expenses, gift certificate liability and other current liabilities and income taxes payable of $2.1 million. Cash inflows were attributable to the results of operations which consisted of reductions in accounts receivable, deferred taxes, non-cash expenses of depreciation, amortization, stock based compensation and non-cash interest and other expenses and increases in accounts payable, totaling $1.6 million. For the three months ended March 31, 2012, cash outflows consisted primarily of seasonal increases in inventory and initial stocking of new stores, deferred taxes and prepaid and other assets of $0.9 million, as well as reductions in accrued expenses, restated gift certificate liability and other current liabilities, income taxes payable and accounts payable of $2.2 million. Cash inflows were attributable to the results of operations which consisted of restated net income, reduction in accounts receivable, non-cash expenses of depreciation, amortization and non-cash interest and other expenses, totaling $0.6 million of cash.

Investing Activities

Cash utilized from our investing activities was $387,000 for the three months ended March 31, 2013 compared to cash utilized of $463,000 for the corresponding period in 2012. Investing activities consisted primarily of retail store improvement costs and new store equipment and fixtures.

Financing Activities

Net cash provided by our financing activities was $4.2 million for the three months ended March 31, 2013, compared to $2.9 million provided in the corresponding period in 2012. For the three months ended March 31, 2013, we funded our seasonal operating activities and investing activities with net borrowings of $1.0 million under our revolving credit and $2.3 million under the new term loan. For the three months ended March 31, 2012, we funded our seasonal operating activities and investing activities with net borrowings of $3.5 million under our Revolver Facility.

Revolving Credit Facility

On March 29, 2013, the Company and the bank amended the Revolver Facility so that the Company can borrow three term loans for capital expenditures used to open new stores, Capex Term Loans. Under the amended Revolver Facility, the Company can borrow up to $13,000,000, of which up to $1,000,000 can be in the form of letters of credit and up to $8,000,000 can be advanced as Capex Term Loans. The $13,000,000 maximum may be increased up to $20,000,000 at the discretion of the bank. Funds available under the revolving portion of the Revolver Facility shall be reduced by the outstanding balance of the letters of credit and Capex Term Loans. The Company borrowed $2,340,000 as a Capex Term Loan on March 29, 2013 with equal principal repayments over 60 months. The Company may also borrow an additional $2,500,000 by December 31, 2013 and $3,000,000 by December 31, 2014 to fund capital expenditures for store openings. The Capex Term Loans to be funded in 2014 and 2015 will be interest only for 6 months followed by equal principal repayments over 54 months. Any outstanding balances borrowed under the Revolver Facility are due in full on March 29, 2015 unless the Revolver Facility is renewed in 2014 for another year. The Revolver Facility bears interest at the base rate, announced from time to time by the bank, plus an applicable margin determined by the Company’s funded debt ratio. As of March 31, 2013 the LIBOR (base rate) was 0.20%, plus the applicable margin of 2.95%. Interest is payable monthly. At its option the Company may have all or a portion of the unpaid principal under the Revolver Facility bear interest at various LIBOR or prime rate options.

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The Company is obligated to pay commitment fees of 0.25% per annum on the average daily, unused amount of the Revolver Facility during the preceding quarter. All assets of the Company collateralize the Revolver Facility. Under the terms of the Revolver Facility, the Company is subject to certain covenants including, among others, maximum funded debt ratios, minimum fixed charge ratios, current asset ratios, and capital expenditures.

At March 31, 2013, the Company had the ability to borrow $13,000,000 on the Revolver Facility, subject to certain covenants, of which there was $2,527,000 outstanding under the revolving portion of the Revolver Facility and $2,340,000 outstanding as a Capex Term Loan, bearing interest at the net Revolver Facility rate of 2.95%. At December 31, 2012, the Company had $1,515,000 outstanding. For the period ending March 31, 2013, the Company obtained a waiver for non-compliance with its Funded Debt Ratio covenant under the Credit Facility.

Term Note Facility, Senior Subordinated Notes Payable and Warrants

On March 28, 2011, the Company borrowed $5,500,000 in the form of a 7-year term note, the Term Note Facility, from the bank to refinance the $5,000,000 senior subordinated notes and deferred interest on those notes. The initial floating rate interest on the $1,600,000 of principal (the variable interest rate portion of the Term Note Facility) was 5.4% consisting of a 1.0% LIBOR floor plus a 4.4% margin. The initial floating rate interest on the $3,900,000 of principal (fixed portion of the Term Note Facility with the interest rate swap discussed below) was LIBOR plus 4.4%. On April 1, 2011, the Company entered into an interest rate swap contract to fix the interest rate at 7.4% on $3,900,000 of the Term Note Facility principal. The remaining $1,600,000 of the principal bears a floating rate based on a base rate, with a minimum of 1.0% as announced from time to time by the bank, plus a 4.4% margin. As of March 31, 2013, the LIBOR rate (base rate) was 0.20%. The combined interest rate of 1.0% and 4.4% resulted in a total interest rate of 5.4% at March 31, 2013. Interest is payable monthly. The Company is obligated to repay $786,000 of principal annually commencing in April 2013 and extending to March 2018. The Company is further obligated to accelerate repayment of up to $1,600,000 in principal in the event it has excess cash flow determined by a cash flow recapture formula. All assets of the Company collateralize the Term Note Facility. Under the terms of the Term Note Facility, the Company is subject to certain covenants including, among others, maximum funded debt ratios, minimum fixed charge ratios, current asset ratios, and maximum capital expenditures. For the period ending March 31, 2013, the Company obtained a waiver for non-compliance with its Funded Debt Ratio covenant under the Credit Facility.

In connection with the issuance of the retired subordinated notes, the Company issued warrants to the note holders, exercisable at any time after December 11, 2007 for an initial 118,170 shares of its common stock, which warrants have an exercise price of $2.75 per share. One holder of the retired notes, BCA Mezzanine Fund., L.P. (“BCA”), owns 40% of those warrants and employs a related party to the Company, Board member Gregory Mulligan who holds a management position and indirect economic interest in BCA. The number of shares to be received for the warrants, upon exercise, is subject to change in the event of additional equity issuances and/or stock splits. The warrants were estimated to have a fair value of $272,000, which had been reflected as a discount of the retired note’s proceeds. The discount was amortized through interest expense while the notes were outstanding and the unamortized discount was fully expensed upon note retirement. The warrants issued are still outstanding and terminate on December 10, 2016.

Working Capital and Capital Expenditure Needs

The Company believes our existing cash, cash equivalents, expected cash to be provided by our operating activities, and funds available through our Revolver Facility will be sufficient to meet our currently planned working capital and capital expenditure needs over at least the next twelve months. We anticipate increasing capital expenditures by adding stores in 2013 and beyond. Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our marketing and sales activities, the expansion of our retail stores, the acquisition of new capabilities or technologies and the continuing market acceptance of our products. To the extent that existing cash, cash equivalents, cash from operations and cash from our Revolver Facility under the conditions and covenants of our credit facilities are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. Although we are currently not a party to any agreement or letter of intent with respect to potential investments in, or acquisitions of, businesses, services or technologies which we anticipate would require us to seek additional equity or debt financing, we may enter into these types of arrangements in the future. There is no assurance that additional funds would be available on terms favorable to us or at all. Funds from our Revolver Facility may not be available if we fail to meet the financial covenants contained in the loan agreements with our lender. For the period ending March 31, 2013, the Company obtained a waiver for non-compliance with its Funded Debt Ratio covenant under the Credit Facility.

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Critical Accounting Policies and Estimates

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our Amended Annual Report on Form 10-K/A for the fiscal year ended December 31, 2012, as filed with the Securities and Exchange Commission (the “SEC”) on June 5, 2013 (the “Amended 10-K”), in Note 3 of the Notes to the Consolidated Financial Statements and the “Critical Accounting Policies and Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations; as supplemented by the disclosures in this Quarterly Report in the Notes to Condensed Consolidated Financial Statements. As discussed in Note B of the Notes to the unaudited Condensed Consolidated Financial Statements, beginning in the first quarter of 2012, we began to recognize income from the breakage of gift cards when the likelihood of redemption of the gift card is remote. In addition, we define our same store sales to include sales from all stores open for a full fifteen months following a grand opening, or a conversion to a Dover-branded store.

Item 3. Quantitative and Qualitative Disclosures about Market Risk. 

At March 31, 2013, there had not been a material change in any of the market risk information disclosed by us in our Amended 10-K. More detailed information concerning market risk can be found in Item 7A under the sub-caption “Quantitative and Qualitative Disclosures about Market Risk” of the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 39 of our Amended 10-K.

The Company’s objective in managing our long-term exposure to interest rate and foreign currency rate changes is to limit the material impact of the changes on cash flows and earnings and to lower our overall borrowing costs. We have calculated the effect of a 10% change in interest rates over a month-long period for both our debt obligations and our marketable securities investments and determined the effect to be immaterial. We do not foresee or expect any significant changes in the management of foreign currency or interest rate exposures or in the strategies we employ to manage such exposures in the near future.

Foreign Currency Risk

All of the Company’s revenues are derived from transactions denominated in U.S. dollars. We purchase products in the normal course of business from foreign manufacturers. As such, we have exposure to adverse changes in exchange rates associated with those product purchases, but this exposure has not been significant.

Interest Rate Sensitivity

The Company had cash and cash equivalents totaling $182,000 at March 31, 2013. The unrestricted cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. We intend to maintain our portfolio of cash equivalents, including money market funds and certificates of deposit. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value as a result of changes in interest rates. As of March 31, 2013, all of our investments were held in money market funds.

The Company’s exposure to market risk also relates to the increase or decrease in the amount of interest expense we must pay our outstanding debt instruments, primarily certain borrowings under our Revolver Facility and on the $1,600,000 of the Term Note Facility that bear interest at a floating rate. The advances under the Revolver Facility and the $1,600,000 of principal of the Term Note Facility bears a variable rate of interest determined as a function of the prime rate and the published LIBOR rate at the time of the borrowing. If interest rates were to increase by two percent, the additional interest expense as of March 31, 2013 would be approximately $97,000 annually. At March 31, 2013, $2,526,537 was outstanding under the revolving portion of the Revolver Facility and $2,340,000 was outstanding under the Capex Term Loan.

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2013. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Based on our recent Analysis and Correction, our principal executive officer and principal financial officer have now concluded that, as of March 31, 2013, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weakness as of those respective dates in our internal control over financial reporting described below. Despite the existence of the material weakness, we believe that the consolidated financial statements included in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 present, in all material respects, our financial position, results of operations, comprehensive income and cash flows for the periods ending March 31, 2013 and 2012, respectively, in conformity with generally accepted accounting principles in the U.S. (“U.S. GAAP”).

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process defined by, or under the supervision of, a company’s principal executive and principal financial officers and effected by management and other personnel, under the oversight of the board of directors, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:

• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance to U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Our management conducts regular periodic evaluations of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis by our internal controls.

Based on our most recent evaluation in May 2013, management identified a material weakness in our internal control over financial reporting in accounting for gift card liabilities as of December 31, 2012 and March 31, 2013. Specifically, as of those respective dates, we did not have adequately designed controls in place to ensure the appropriate accounting for and disclosure of gift card liability in accordance with U.S. GAAP. Management has, therefore, now concluded that we did not maintain effective internal control over financial reporting as of December 31, 2012 and March 31, 2013.

Historical context is critical to understanding the nature of this deficiency. Through the year ending December 31, 2011, all unredeemed gift card proceeds were reflected as a liability until redeemed. During the first quarter of 2012, the Company identified a history of redemption and breakage patterns associated with its gift cards, which supported a change in the estimate of the term over which the Company recognizes income on gift card breakage. Beginning with the first quarter of 2012, the Company began to recognize revenue from the breakage of gift cards, based on the homogenous pool method of estimating liabilities from comparable groups of gift cards.

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During the review of the 2013 first quarter consolidated financial statements, management discovered that certain estimates of its gift card liabilities in 2011 and 2012 were materially overstated due to errors in accumulating and summarizing detail gift card activity. After a detailed analysis of the Company’s estimated gift certificate liabilities, management determined that the Company should revise its activity accumulation process and change to the itemization method for estimating gift card liabilities, based on a new database to track each gift card from and after January 1, 2013.

Inherent Limitation on the Effectiveness of Internal Controls

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

Changes in Internal Control over Financial Reporting

As a result of the material weakness described above, management will present a proposed remediation plan to our audit committee and our board of directors concerning our internal control over financial reporting by July 25, 2013. Remedying the material weakness described above will require management time and attention over the coming months and may result in additional incremental expenses. Although we do not anticipate this, any failure on our part to remedy our identified weakness or any additional errors or delays in our financial reporting would have a material effect on our business and could have a substantial impact on the trading price of our common stock. Subject to oversight by our board of directors, our chief executive officer will be responsible for implementing management’s internal control remediation plan, approved by our audit committee and accepted and approved by our board of directors.

Except as described above, there have been no changes in our internal control over financial reporting during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, the Company is exposed to litigation relating to our products and operations. The Company is not currently engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material, adverse affect on the Company’s financial condition or results of operations.

Item 1A. Risk Factors.

An investment in our common stock involves a high degree of risk. You should carefully consider the specific risk factors listed under Part I, Item 1A of our Amended 10-K, together with all other information included or incorporated in our reports filed with the Securities and Exchange Commission. Any such risks may materialize, and additional risks not known to us, or that we now deem immaterial, may arise. In such event, our business, financial condition, results of operations or prospects could be materially adversely affected. If that occurs, the market price of our common stock could fall, and you could lose all or part of your investment.

This Quarterly Report on Form 10-Q includes or incorporates forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the use of the words “believes”, “anticipates”, “plans”, “expects”, “may”, “will”, “would”, “intends”, “estimates”, and other similar expressions, whether in the negative or affirmative. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in the forward-looking statements made. We have included important factors in the cautionary statements below that we believe could cause actual results to differ materially from the forward-looking statements contained herein. The forward-looking statements do not reflect the potential impact of any future acquisitions, mergers or dispositions. We do not assume any obligation to update any forward-looking statements contained herein. In addition to the list of significant risk factors set forth in the Company’s Amended 10-K, we continue to call your attention to the following information that might be considered material in evaluating the risks of our business and an investment in our common stock:

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A decline in discretionary consumer spending and related externalities could reduce the Company’s revenues.

The Company’s revenues depend to a degree on discretionary consumer spending, which may decrease due to a variety of factors beyond our control. These include unfavorable general business, financial and economic conditions, increases in interest rates, increases in inflation, stock market uncertainty, war, terrorism, fears of war or terrorism, increases in consumer debt levels and decreases in the availability of consumer credit, adverse or unseasonable weather conditions, adverse changes in applicable laws and regulations, increases in taxation, adverse unemployment trends and other factors that adversely influence consumer confidence and spending. Any one of these factors could result in adverse fluctuations in our revenues generally. Our revenues also depend on the extent to which discretionary consumer spending is directed towards recreational activities generally and equestrian activities and products in particular. Reductions in the amounts of discretionary spending directed to such activities would reduce our revenues.

The Company’s customers’ purchases of discretionary items, including our products, may decline during periods when disposable income is lower, or periods of actual or perceived unfavorable economic conditions. If this occurs, our revenues would decline, which may have a material adverse effect on our business.

Material changes in cash flow and debt levels may adversely affect the Company’s growth and credit facilities, require the immediate repayment of all our loans, and limit the ability to open new stores.

During seasonal and cyclical changes in our revenue levels, to fund our retail growth strategy, and to fund increases in our direct business, we make use of our credit facilities, which are subject to EBITDA, fixed charge ratio, maximum capital expenditure limitations, total liabilities and related covenants. If we are out of compliance with our covenants at the end of a fiscal period, it may adversely affect our growth prospects, require the consent of our lender to open new stores or fund additional borrowings, or in the worst case, trigger a loan default and require the repayments of all amounts then outstanding on our loans. In the event of our insolvency, liquidation, dissolution or reorganization, the lender under our Revolver Facility and Term Note Facility would be entitled to payment in full from our assets before distributions, if any, were made to our stockholders.

In order to execute our retail store expansion strategy, we may need to borrow additional funds, raise additional equity financing or finance our planned expansion from profits. Our borrowings may be restricted by financial covenants; or we may also need to raise additional capital in the future to respond to competitive pressures or unanticipated financial requirements. We may not be able to obtain additional financing, including the amendment, extension or refinancing of our Revolver Facility, on commercially reasonable terms or at all. A failure to obtain additional financing or an inability to obtain financing on acceptable terms could require us to incur indebtedness at high rates of interest or with substantial restrictive covenants, including prohibitions on payment of dividends.

We may obtain additional financing by issuing equity securities that will dilute the ownership interests of existing shareholders. If we are unable to obtain additional financing, we may be forced to scale back operations or be unable to address opportunities for expansion or enhancement of our operations.

Management’s determination that a material weakness exist in our internal controls over financial reporting could have a material adverse impact on the Company.

We are required to maintain internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. In Item 4 of this Quarterly Report, management reports that a material weakness exists in the Company’s internal control over financial reporting. Due to this material weakness, management has concluded that as of March 31, 2013 and 2012, the Company’s disclosure controls and procedures were not effective. Consequently, and pending the Company’s remediation of the matters underlying the material weakness, our business and results of operations could be harmed, we may be unable to report properly or timely the results of our operations, and investors may lose faith in the reliability of our financial statements. Accordingly, the price of our securities may be adversely and materially impacted.

The Company’s market is highly competitive, and we may not continue to compete successfully.

The Company competes in a highly competitive marketplace with a variety of retailers, dealers and distributors. The equestrian products market is highly fragmented with approximately 10,000 retail store locations nationwide. Many of these are small businesses that have a loyal customer base that compete very effectively in their local markets. We plan to apply our historic

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disciplines to confront the significant competition that we face in each of our local markets. We may, therefore, not be able to generate sufficient sales to support our new retail store locations. There are also a significant number of sporting goods stores, mass merchandisers and other better funded companies that could decide to enter into or expand their equestrian products offerings. Liquidating inventory sales by our former competitors may cause us temporarily to lose business and perhaps even to lose customers. In addition, if our continuing competitors reduce their prices and continue free shipping practices, we may have to reduce our prices in order to compete. Our cost cutting and overhead efficiency measures in fiscal 2010 may also have had some negative effect on our market share in the short run. We may be forced to increase our advertising or mail a greater number of catalogs in order to generate the same or even lower level of sales. Any one of these competitive factors could adversely affect our revenues and profitability. It is possible that increased competition or improved performance by our competitors may reduce our market share, may reduce our profit margin, and may adversely affect our business and financial performance in other ways.

The Company’s business may be adversely affected by pricing pressures from fluctuations in energy and/or commodity costs.

Fluctuations in the price, availability and quality of fabrics and other raw materials used to manufacture the Company’s products, as well as the price for labor and transportation have contributed to, and may continue to contribute to, ongoing pricing pressures throughout the Company’s supply chain. The price and availability of such inputs to the manufacturing process may fluctuate significantly, depending on several factors, including commodity costs (such as higher cotton prices), energy costs (such as fuel), inflationary pressures from emerging markets, increased labor costs, weather conditions and currency fluctuations. Any or all of these impacts could have a material adverse impact on the Company’s business, financial condition and results of operations. We may be unable to pass such price increases along to the Company’s customers and be unable to maintain the Company’s gross margins. In addition, the increase in energy and commodity costs could adversely affect consumer spending and demand for the Company’s products.

Changes in subjective assumptions, estimates and judgments by management resulting from external factors or accounting standards could significantly affect our financial results.

Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, including, but not limited to, revenue recognition, sales returns reserves, gift-card breakage income, inventories, vendor rebates and other consideration, self-insurance liabilities, income taxes, litigation, and other contingent liabilities, are highly complex and involve many subjective assumptions, estimates and judgments by our management. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported or expected financial performance. For example, our future performance might be adversely affected by variability in inflation rates of health care costs, resulting from the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, which expands health care coverage to many uninsured individuals and expands coverage to those already insured, and might cause material increases in health care costs or accruals for us and our vendors, that in turn could adversely affect our revenues, margins or both.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The Company did not issue or sell any equity securities in the three months ended March 31, 2013; other than as the result of the exercise in February 2013 of options to purchase 700 common shares, resulting in proceeds of $2,170, which the Company applied in full for general working capital purposes.

Item 3. Defaults Upon Senior Securities.

There were no defaults on the Company’s senior securities in the three months ended March 31, 2013.

Item 4. Mine Safety Disclosures.

Not Applicable

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.

† Indicates a management contract or compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DOVER SADDLERY, INC.
Dated: June 5, 2013	By:	/s/ David R. Pearce
		David 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.

† Indicates a management contract or compensatory plan or arrangement

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