The dandruff could mean a yeast infection of the skin. The vet can tell you for sure and they have special shampoos and stuff to get rid of it, along with oral meds.
I'm sure your baby's coat will grow back soon. Next time use a detangler so you won't have to cut away the matts. I love Cowboy Magic also, I buy it at a western store, where they sell feed and western clothing, etc. You can also find it online. It might seem expensive, but it lasts a really long time, as a little goes a long way
