- Quarterly Report (10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010.

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

FOR THE TRANSITION PERIOD FROM TO .

Commission File Number: 001-31569

CANTERBURY PARK HOLDING CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Minnesota		41-1775532
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1100 Canterbury Road

Shakopee, MN 55379

(Address of principal executive offices and zip 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 o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2).

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). YES o NO x

The Company had 4,037,615 shares of common stock, $.01 par value, outstanding as of August 12, 2010.

Table of Contents

Canterbury Park Holding Corporation

INDEX

			Page

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009	3

		Condensed Consolidated Statements of Operations for the periods Ended June 30, 2010 and 2009	4

		Condensed Consolidated Statements of Cash Flows for the periods Ended June 30, 2010 and 2009	5

		Notes to Condensed Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19

	Item 4.	Controls and Procedures	19

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	20

	Item 1A.	Risk Factors	20

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20

	Item 3.	Defaults Upon Senior Securities	20

	Item 4.	Removed and Reserved	20

	Item 5.	Other Information	20

	Item 6.	Exhibits	20

	Signatures		21

	Certifications		22

Table of Contents

PART 1 - FINANCIAL INFORMATION

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2010 AND DECEMBER 31, 2009 (Unaudited)

	June 30,		December 31,
	2010		2009
ASSETS
CURRENT ASSETS
Cash	$	4,335,065	$	4,741,197
Restricted cash	2,807,730		949,994
Short-term investments	373,911		365,894
Accounts receivable, net of allowance of $6,500	504,774		405,192
Inventory	367,797		178,512
Prepaid expenses	606,723		465,084
Income taxes receivable	—		168,979
Deferred income taxes	425,542		296,500
Due from Minnesota horsemen associations	34,676		32,353
Total current assets	9,456,218		7,603,705

LONG-TERM ASSETS
Deposits	20,000		20,000
Deferred income taxes	537,000		28,850
Long-term investments	250,000		250,000
Land, buildings and equipment, net of accumulated depreciation of $18,051,128 and $18,623,780, respectively	24,635,841		23,849,672
	$	34,899,059	$	31,752,227

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	$	4,595,209	$	2,061,658
Card Casino accruals	1,542,864		1,175,383
Accrued wages and payroll taxes	1,504,446		635,182
Due to MHBPA	146,151		35,422
Accrued property taxes	509,566		511,136
Income taxes payable	138,822		—
Payable to horsepersons	42,057		31,444
Total current liabilities	8,479,115		4,450,225

COMMITMENTS AND CONTINGENCIES (Note 6)	—		—

STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized, 4,037,615 and 4,021,702, respectively, shares issued and outstanding	40,376		40,217
Additional paid-in capital	15,786,240		15,648,200
Retained earnings	10,593,328		11,613,585
Total stockholders’ equity	26,419,944		27,302,002
	$	34,899,059	$	31,752,227

See notes to condensed consolidated financial statements.

Table of Contents

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
OPERATING REVENUES:
Pari-mutuel	$	3,124,218		$	3,508,009		$	4,945,249		$	5,514,721
Card Casino	5,989,675			5,110,371			10,927,083			10,214,599
Concessions	1,624,298			1,688,373			2,364,196			2,474,705
Other	758,800			919,858			1,080,812			1,265,073
Total Revenues	11,496,991			11,226,611			19,317,340			19,469,098
Less: Promotional Allowances	(43,112		)	(52,020		)	(74,848		)	(82,985		)
Net Revenues	11,453,879			11,174,591			19,242,492			19,386,113

OPERATING EXPENSES:
Purse expense	1,756,750			1,808,177			2,529,374			2,559,703
Minnesota Breeders’ Fund	227,242			239,993			370,169			394,882
Other pari-mutuel expenses	450,441			488,896			769,514			833,853
Salaries and benefits	5,160,576			4,775,900			9,001,292			8,475,290
Cost of sales	938,816			900,121			1,422,896			1,378,160
Depreciation	496,275			496,140			987,975			1,078,290
Loss on disposal of assets	—			—			909,540			—
Utilities	283,121			262,335			527,046			517,592
Advertising and marketing	545,645			547,825			708,436			663,075
Other	2,130,553			1,949,921			3,341,484			3,201,498
	11,989,419			11,469,308			20,567,726			19,102,343
NONOPERATING (EXPENSES) REVENUES:
Interest expense	(2,562		)	(2,981		)	(3,844		)	(4,435		)
Other, net	3,733			10,499			8,268			12,240
	1,171			7,518			4,424			7,805

(LOSS) INCOME BEFORE INCOME TAX BENEFIT (EXPENSE)	(534,369		)	(287,199		)	(1,320,810		)	291,575

INCOME TAX BENEFIT (EXPENSE) (Note 1)	153,400			114,100			300,200			(147,900		)

NET (LOSS) INCOME	$	(380,969	)	$	(173,099	)	$	(1,020,610	)	$	143,675

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING	4,035,993			3,956,583			4,034,320			3,952,280

WEIGHTED AVERAGE NUMBER OF DILUTIVE SHARES OUTSTANDING	4,035,993			3,956,583			4,034,320			3,962,297

BASIC NET (LOSS) INCOME PER COMMON SHARE (Note 1)	$	(.09	)	$	(.04	)	$	(.25	)	$	.04

DILUTED NET (LOSS) INCOME PER COMMON SHARE (Note 1)	$	(.09	)	$	(.04	)	$	(.25	)	$	.04

See notes to condensed consolidated financial statements.

Table of Contents

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited)

	Six Months Ended June 30,
	2010			2009
Operating Activities:
Net (loss) income	$	(1,020,610	)	$	143,675
Adjustments to reconcile net (loss) income to net cash provided by operations:
Depreciation	987,975			1,078,290
Loss on disposal of assets	909,540			—
Stock-based compensation expense	102,052			69,511
Increase in deferred income taxes	(634,732		)	(247,864		)
Increase in restricted cash	(1,857,736		)	(1,844,417		)
Increase in accounts receivable	(99,582		)	(453,133		)
Increase in other current assets	(330,924		)	(365,511		)
Decrease in income taxes receivable	307,801			395,763
Increase in accounts payable and accrued wages and payroll taxes	3,303,004			3,463,967
Increase in Card Casino accruals	367,481			69,214
(Decrease) increase in accrued property taxes	(1,570		)	8,394
Increase (decrease) in payable to horsepersons	10,613			(15,287		)
Increase in due to MHBPA	108,406			106,485
Net cash provided by operations	2,151,718			2,409,087

Investing Activities:
Additions to buildings and equipment	(2,585,198		)	(625,226		)
Proceeds from redemption of investments	20,476			57,471
Purchase of investments	(28,493		)	(57,615		)
Net cash used in investing activities	(2,593,215		)	(625,370		)

Financing Activities
Proceeds from issuance of common stock	34,499			245,495
Excess tax benefit from exercise of stock options	866			—
Net cash provided by financing activities	35,365			245,495

Net (decrease) increase in cash	(406,132		)	2,029,212

Cash at beginning of period	4,741,197			3,745,731

Cash at end of period	$	4,335,065		$	5,774,943

Supplemental disclosure of noncash investing activities:
Additions to buildings and equipment funded through accounts payable	$	111,298		$	69,213
Proceeds from issuance of common stock funded through shares swapped	$	251,530		$	15,880

Supplemental disclosure of cash flow information:
Income taxes paid, net of refunds	$	33,000		$	—

See notes to condensed consolidated financial statements.

Table of Contents

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited)

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in the opinion of management, contain all adjustments necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (GAAP), the financial position of Canterbury Park Holding Corporation as of June 30, 2010 and December 31, 2009; the results of its operations for the three and six months ended June 30, 2010 and 2009; and its cash flows for the six months ended June 30, 2010 and 2009. The condensed consolidated balance sheet as of December 31, 2009 was derived from the audited financial statements. All adjustments are of a normal, recurring nature, except as otherwise disclosed. Results for an interim period are not necessarily indicative of results for a full year.

The complete summary of significant accounting policies is included in the notes to consolidated financial statements in the 2009 Annual Report on Form 10-K.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business — Canterbury Park Holding Corporation (the “Company”) was incorporated under the laws of Minnesota and acquired land and buildings to conduct pari-mutuel horse racing operations (the “Racetrack”) in March 1994. The Racetrack is located in Shakopee, Minnesota, approximately 25 miles southwest of downtown Minneapolis. In May 1994, we commenced year-round horse racing simulcast operations and hosted the first annual live race meet during the summer of 1995. Our live racing operations are a seasonal business as we host live race meets each year from May until August. We earn additional pari-mutuel revenue by televising our live racing to out-of-state racetracks around the country. The Company began hosting unbanked card games in 2000. This segment, now called the Canterbury Park Card Casino, operates 24 hours a day, seven days a week. The Card Casino is limited by Minnesota State law to hosting unbanked card games at a maximum of 50 tables at any one time. The Card Casino currently offers a variety of poker and table games. Our three largest sources of revenues, Card Casino operations, pari-mutuel operations and concessions sales, generate cash revenues. We also derive revenues from related services and activities, such as advertising, parking and publication sales and from other entertainment events and activities held at the Racetrack.

Presentation — The Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows from the prior-period have been conformed to the 2010 presentation. This presentation change had no effect on net income, earnings per share, or stockholders’ equity.

Revenue Recognition — Our revenues are derived primarily from the operations of a Card Casino, pari-mutuel wagering on simulcast and live horse races, concession sales, and related activities. Collection revenue from Card Casino operations is recognized at the time that the wagering process is complete. Pari-mutuel revenues are recognized upon occurrence of the live race that is presented for wagering and after that live race is made official by the respective state’s racing regulatory body. Revenues related to concession sales are recognized as revenue when the service has been performed or the product has been delivered.

Estimates — The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Short-term Investments — Short-term investments consist of certificates of deposit held by the Company. The maturity dates of these investments vary but are less than one year in length.

Table of Contents

Restricted Cash — Restricted cash represents refundable deposits and amounts due to horsemen for purses, stakes and awards, and amounts accumulated in the player pool and jackpot pools to be used to repay Card Casino players in the form of promotions, giveaways, prizes, or by other means.

Income Taxes — Income tax expense is computed by applying the estimated annual effective tax rate to the year-to-date income. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to reverse.

The Company and its consolidated subsidiaries file income tax returns in the United States (“U.S.”) federal jurisdiction. The Company is no longer subject to U.S. federal examinations by tax authorities for years prior to 2007 or by State of Minnesota tax authorities for years prior to 2003. We do not believe there will be any material changes in our unrecognized tax positions over the next twelve months.

Net Income (Loss) Per Share — Basic net income (loss) per common share is based on the weighted average number of common shares outstanding during each period. The weighted average number of common shares outstanding for the three and six-month period ended June 30, 2010 were 4,035,993 and 4,034,320, respectively. The weighted average number of common shares outstanding for the three and six-month period ended June 30, 2009 were 3,956,583 and 3,952,280, respectively. Diluted net income per common share takes into effect the dilutive effect of potential common shares outstanding. The Company’s potential common shares outstanding are stock options. After considering the dilutive effect of stock options outstanding, the weighted average shares used to calculate diluted earnings per share for the three and six-month periods ended June 30, 2010 were 4,035,993 and 4,034,320, respectively. Weighted average shares of 126 and 8,296 were considered anti-dilutive and excluded from the computation of common equivalent shares for the three and six-month period ended June 30, 2010, as the Company reported a net loss for those periods. The weighted average shares used to calculate diluted earnings per share for the three and six-month periods ended June 30, 2009 were 3,956,583 and 3,962,297, respectively. Weighted average shares of 74 were considered anti-dilutive and excluded from the computation of common equivalent shares for the three months ended June 30, 2009, as the Company reported a net loss for that period.

Recent Accounting Pronouncements — In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (“ASU 2010-06”) — “Fair Value Measurements and Disclosures.” ASU 2010-06 amends Accounting Standards Codification (“ASC”) 820-10, “Fair Value Measurements and Disclosures”, and requires new disclosures surrounding certain fair value measurements. ASU 2010-06 was effective for the first interim or annual reporting period beginning on or after December 15, 2009, except for certain disclosures about purchases, sales, issuances and settlements in the rollforward of activity in Level 3 fair value measurements, which are effective for the first interim and annual reporting periods beginning on or after December 15, 2010. The adoption of ASU 2010-06 did not have a material effect on the Company’s consolidated financial statements.

In April 2010, the FASB issued Accounting Standards Update No. 2010-16 (“ASU 2010-16”) “Entertainment—Casinos (Topic 924): Accruals for Casino Jackpot Liabilities.” ASU 2010-16 codifies the consensus reached in Emerging Issues Task Force Issue No. 09-F, “Casino Base Jackpot Liabilities.” ASU 2010-16 amends the ASC to clarify that an entity should not accrue jackpot liabilities, or portions thereof, before a jackpot is won if the entity can avoid paying the jackpot. Jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot. The guidance in this ASU applies to both base and progressive jackpots. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments should be applied by recording a cumulative-effect adjustment to opening retained earnings in the period of adoption. We are currently evaluating the requirements of ASU 2010-16 and have not yet determined the impact on our consolidated financial statements.

Table of Contents

2. STOCK BASED COMPENSATION

Stock based compensation is recorded at fair value as of the date of grant and included in the salaries and benefits expense line item on the consolidated statements of operations and amounted to $102,052 and $69,511 during the six months ended June 30, 2010 and 2009, respectively.

Each non-employee member of the Board of Directors receives an annual recurring grant of 3,000 non-qualified stock options on the first business day in February. On February 1, 2010, 15,000 options were granted to the five non-employee board members with an exercise price per share equal to the market price on the date of grant of $7.05. The stock options vested over a six-month period and expire in ten years. The compensation cost associated with this grant of Board of Director options is $45,450 and will be recognized as expense over the six-month vesting period. On February 2, 2009, 15,000 options were granted to the five non-employee board members with an exercise price per share equal to the market price on the date of grant of $6.66.

In addition, on February 25, 2010, 86,500 options were granted to employees with an exercise price per share equal to the market price on the date of grant of $8.28. The stock options vest over a 42-month period and expire in ten years. The compensation cost associated with this grant of employee options is $282,355 to be recognized as expense over the 42-month vesting period. On April 23, 2009, 100,000 options were granted to employees with an exercise price per share equal to the market price on the date of grant of $6.00.

The number of shares granted and the weighted average fair value per share during the periods presented were:

	Six Months Ended
	June 30, 2010			June 30, 2009
		Weighted			Weighted
		Average			Average
		Fair Value			Fair Value
	Grant	Per Share		Grant	Per Share

Board stock options	15,000	$	3.03	15,000	$	1.26
Employee stock options	86,500	$	3.79	100,000	$	1.07

Total shares	101,500			115,000

The fair value of stock options granted under the Company’s 1994 Stock Plan during the first six months of 2010 and 2009 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions and results:

	2010			2009
Dividend yield	0.00		%	4.12		%
Weighted-average volatility	43		%	26		%
Risk-free interest rate	2.66		%	2.93		%
Expected term of stock options in years	6.0			6.3
Fair value of stock options on grant date	$	327,805		$	111,455

Table of Contents

A summary of stock option activity as of June 30, 2010 and changes during the six months then ended is presented below:

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number of		Exercise		Contractual	Grant Date
Stock Options	Shares		Price		Term	Fair Value

Outstanding at January 1, 2010	403,244		$	10.15

Granted	101,500		$	8.10
Exercised	(50,369	)	$	5.68
Expired/Forfeited	(75,000	)	$	15.57

Outstanding at June 30, 2010	379,375		$	9.10	6.5 Years	$	3,454,094

Exercisable at June 30, 2010	216,000		$	10.47	4.4 Years	$	2,260,874

A summary of stock option activity as of June 30, 2009 and changes during the six months then ended is presented below:

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number of		Exercise		Contractual	Grant Date
Stock Options	Shares		Price		Term	Fair Value

Outstanding at January 1, 2009	470,000		$	11.12

Granted	115,000		$	6.09
Exercised	(59,000	)	$	4.43
Expired/Forfeited	(85,000	)	$	15.57

Outstanding at June 30, 2009	441,000		$	9.85	4.6 Years	$	4,342,630

Exercisable at June 30, 2009	322,250		$	11.13	2.7 Years	$	3,588,168

Employee Stock Ownership Plan — Prior to 2008, the Company contributed shares of its common stock to its Employee Stock Ownership Plan (“ESOP”). However, on October 24, 2008, the Company announced it would not contribute shares to the ESOP for fiscal 2008. Since then, the Company has not taken any action to reinstate contributions to the ESOP.

Table of Contents

3. FAIR VALUE

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Assets and liabilities measured at fair value on a recurring basis for June 30, 2010 and December 31, 2009 are summarized below:

	Fair Value Measurements as of June 30, 2010
Description	Total		Level 1		Level 2		Level 3

Short-term investments (Certificates of Deposit)	$	373,911	$	—	$	373,911	$	—
Long-term investments (Certificates of Deposit)	$	250,000	$	—	$	250,000	$	—

Total	$	623,911	$	—	$	623,911	$	—

	Fair Value Measurements as of December 31, 2009
Description	Total		Level 1		Level 2		Level 3

Short-term investments (Certificates of Deposit)	$	365,894	$	—	$	365,894	$	—
Long-term investments (Certificates of Deposit)	$	250,000	$	—	$	250,000	$	—

Total	$	615,894	$	—	$	615,894	$	—

4. GENERAL CREDIT AGREEMENT

The Company has a general credit agreement with Bremer Bank, which provides a revolving credit line. On May 8, 2010, the Company signed an amendment with Bremer Bank extending the expiration date from June 30, 2010 to May 8, 2011, while keeping previous provisions intact. The Company had no borrowings under this credit line at June 30, 2010 and December 31, 2009. The credit agreement contains certain covenants requiring the Company to maintain certain financial ratios. The Company was in compliance with these requirements as of June 30, 2010. The Company believes that unrestricted funds available in its cash accounts, funds available under this line of credit, along with funds generated from operations, will be sufficient to satisfy its liquidity and capital resource requirements during 2010.

Table of Contents

5. OPERATING SEGMENTS

During the first six months of 2010 and 2009, the Company had three reportable operating segments: horse racing, Card Casino, and concessions. The horse racing segment primarily represents simulcast and live horse racing operations. The Card Casino segment primarily represents operations of Canterbury Park’s Card Casino, and the concessions segment primarily represents food and beverage operations provided during simulcast and live racing, in the Card Casino, and during special events. The Company’s reportable operating segments are strategic business units that offer different products and services. They are managed separately because the segments differ in the nature of the products and services provided as well as processes to produce those products and services. The Minnesota Racing Commission (“MRC”) regulates the horse racing and Card Casino segments.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the 2009 Annual Report on Form 10-K.

Depreciation, interest expense and income taxes are allocated to the segments but no allocation is made to concessions for shared facilities. However, the concessions segment pays approximately 25% of gross revenues earned on live racing and special event days to the horse racing segment for use of the facilities.

The following tables provide information about the Company’s operating segments (in 000’s):

	Six Months Ended June 30, 2010
	Horse Racing			Card Casino		Concessions			Total

Net revenues from external customers	$	5,950		$	10,927	$	2,365		$	19,242

Intersegment revenues	275			—		713			988

Net interest income	4			—		—			4

Depreciation	594			320		74			988

Segment (loss) income before income taxes	(1,256		)	71		(4		)	(1,189		)

Segment (loss) income before income taxes and one-time loss on disposal of assets	(1,256		)	981		(4		)	(279		)

	At June 30, 2010

Segment Assets	$	32,492	$	1,628	$	10,057	$	44,177

	Six Months Ended June 30, 2009
	Horse Racing			Card Casino		Concessions		Total

Net revenues from external customers	$	6,693		$	10,215	$	2,478	$	19,386

Intersegment revenues	304			—		686		990

Net interest income	8			—		—		8

Depreciation	675			322		81		1,078

Segment (loss) income before income taxes	(810		)	1,252		252		694

	At December 31, 2009

Segment Assets	$	28,279	$	2,841	$	9,636	$	40,756

Table of Contents

The following are reconciliations of reportable segment revenue, income before income taxes, and assets, to the Company’s consolidated totals (in 000’s):

	Six Months Ended June 30,
	2010			2009
Revenues
Total net revenue for reportable segments	$	20,230		$	20,376
Elimination of intersegment revenues	(988		)	(990		)
Total consolidated net revenues	$	19,242		$	19,386

(Loss) income before income taxes
Total segment (loss) income before income taxes	$	(1,189	)	$	694
Elimination of intersegment income before income taxes	(132		)	(402		)
Total consolidated (loss) income before income taxes	$	(1,321	)	$	292

	June 30,			December 31,
	2010			2009
Assets
Total assets for reportable segments	$	44,177		$	40,756
Elimination of intercompany receivables	(9,278		)	(9,004		)
Total consolidated assets	$	34,899		$	31,752

6. COMMITMENTS AND CONTINGENCIES

In accordance with an Earn Out Note, given to the prior owner of the Racetrack as part of the consideration paid by the Company to acquire the Racetrack in 1994, if (i) off-track betting becomes legally permissible in the State of Minnesota and (ii) the Company begins to conduct off-track betting with respect to or in connection with its operations, the Company will be required to pay to the IMR Fund, L.P. the greater of $700,000 per operating year, as defined, or 20% of the net pretax profit, as defined for each of five operating years. At this time, management believes that the likelihood that these two conditions will be met, and that the Company will be required to pay these amounts is remote. At the date (if any) that these two conditions are met, the five minimum payments will be discounted back to their present value and the sum of those discounted payments will be capitalized as part of the purchase price in accordance with generally accepted accounting principles. The purchase price will be further increased if payments become due under the “20% of Net Pretax Profit” calculation. The first payment is to be made 90 days after the end of the third operating year in which off-track betting is conducted by the Company. Remaining payments would be made within 90 days of the end of each of the next four operating years.

The Company periodically is subject to claims or involved in legal proceedings arising in the normal course of business. At June 30, 2010, management believes that the resolution of any pending claims or legal proceedings will not have a material impact on the consolidated financial statements.

7. LOSS ON DISPOSAL OF ASSETS

In January 2010, and in accordance with Minnesota Statute 240, the Company obtained approval from the MRC to remodel its existing card room. Construction and architectural contracts with various firms were signed shortly thereafter, and the card room was moved to a temporary location on the mezzanine level on January 25, 2010. The Company used cash on hand to fund the project and avoided drawing on its line of credit. As part of the remodeling project, the Company disposed of assets during the first quarter of 2010 with an original cost of $2,354,619 and associated accumulated depreciation of $1,445,079, resulting in a loss on disposal of $909,540. The remodeling project was completed during the second quarter of 2010 and on April 14, 2010, Canterbury Park opened its new Card Casino.

Table of Contents

ITEM 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Canterbury Park Holding Corporation, our operations, financial results, and present business environment. This MD&A is provided as a supplement to — and should be read in conjunction with — our condensed consolidated financial statements and the accompanying notes to the financial statements (the “Notes”).

Overview:

Canterbury Park Holding Corporation (the “Company”) owns and operates the Canterbury Park Racetrack and Card Casino in Shakopee, Minnesota (the “Racetrack”). The primary businesses of the Company are simulcast and live pari-mutuel horse racing, hosting unbanked card games, and food and beverage operations.

The Racetrack is the only pari-mutuel thoroughbred and quarter horse racing facility in the State of Minnesota. The Racetrack earns revenues from pari-mutuel take-out on races simulcast year-round to Canterbury Park from racetracks throughout the country and from live race meets featuring thoroughbred and quarter horse racing. Live race meets commence in the month of May and conclude in August. During live race meets, the Company televises its races to out-of-state racetracks around the country, and earns additional pari-mutuel revenue on wagers placed on races at the out-of-state racetracks.

Canterbury Park’s Card Casino (the “Card Casino”) hosts “unbanked” card games in which players compete against each other and not against the house. The Card Casino is open twenty-four hours a day, seven days a week. Under Minnesota law, the Company is required to pay up to 14% of the gross Card Casino revenues to the Racetrack’s purse fund and the State of Minnesota Breeders’ Fund.

The Company also generates revenues from concessions, as well as from other activities such as parking fees, program and other racing publication sales, and corporate sponsorships. Additional revenues are derived from the use of the Racetrack facilities for special events such as concerts, craft shows and snowmobile racing.

Operations Review for the Three and Six Months Ended June 30, 2010 and June 30, 2009:

The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA and Adjusted EBITDA, which are non-GAAP measures, for the periods ended June 30, 2010 and 2009:

	June 30,			June 30,
	2010			2009
Net (loss) income	$	(1,020,610	)	$	143,675
Interest income, net of interest expense	(4,424		)	(7,805		)
Income tax (benefit) expense	(300,200		)	147,900
Depreciation	987,975			1,078,290
EBITDA	$	(337,259	)	$	1,362,060
Loss on disposal of assets	909,540			—
Adjusted EBITDA	$	572,281		$	1,362,060

EBITDA represents earnings before interest income, income tax expense, and depreciation and amortization. EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles (“GAAP”), and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance, or cash flows from operating activities as a measure of liquidity. EBITDA has been presented as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry. Moreover, other companies that provide EBITDA information may calculate EBITDA differently than we do. Adjusted EBITDA is calculated as

Table of Contents

EBITDA with the addition of material, one-time non-cash expenses. During the six months ended June 30, 2010, this included the loss on disposal of assets during the remodel of our card room.

Adjusted EBITDA as a percentage of net revenues declined significantly to 3.0% for the first six months ended June 30, 2010 compared to 7.0% for the first six months ended June 30, 2009.

Total net revenues decreased $143,621, or 0.7%, during the six months ended June 30, 2010 compared to the six months ended June 30, 2009, and increased $279,288, or 2.5%, for the three months ended June 30, 2010 compared to the three months ended June 30, 2009. The six-month variance was due primarily to a reduction of 10.3% in pari-mutuel revenues and an increase in Card Casino revenues of 7.0% for the six months ended June 30, 2010 compared to the same period in the prior year. The three-month variance was due primarily to a reduction of 10.9% in pari-mutuel revenues and an increase in Card Casino revenues of 17.2% for the three months ended June 30, 2010 compared to the same period in the prior year.

Pari-mutuel revenues decreased $569,472, or 10.3%, in the six-month period ended June 30, 2010 compared to the same period in 2009, and decreased $383,791, or 10.9%, for the three-month period ended June 30, 2010 compared to the same period in 2009. Total handle wagered for the first half of 2010 was down $3.2 million, or 10.9%, compared to the same period last year. The decrease is attributable to the economic recession that has adversely impacted discretionary spending on entertainment. In addition, inclement weather during the first half of 2010 resulted in the cancellation of a significant number of races at racetracks simulcasting their signal to our racetrack. Severe weather also resulted in the cancellation of one of the Company’s live race days, further adversely impacting handle wagered. Finally, the Company believes that an increasing number of Minnesota residents are unlawfully wagering on horse races over the Internet. See the “Summary of Pari-mutuel Data” below.

	Six Months Ended June 30,
	2010		2009
Summary of Pari-mutuel Data:

Racing Days
Simulcast only	156		155
Live and Simulcast	25		26
Total Number of Racing Days	181		181

On-Track Handle
Simulcast racing handle on simulcast only days	$	14,114,000	$	15,365,000
Live and Simulcast days:
Live racing handle	3,942,000		4,871,000
Simulcast racing handle	4,044,000		4,970,000
Total On-Track Handle	22,100,000		25,206,000

Out-of-State Live Handle	4,281,000		4,392,000

Total Handle	$	26,381,000	$	29,598,000

On-Track Average Daily Handle
Simulcast only racing days	$	90,474	$	99,129
Live and simulcast racing days	$	319,440	$	378,500

Total Card Casino revenue increased $712,484, or 7.0%, for the first six months of 2010 and $879,304, or 17.2%, for the second quarter of 2010 compared to the same periods in 2009. The primary source of Card Casino revenue is a percentage of the wagers received from the players as compensation for providing the Card Casino facility and services, referred to as the “collection revenue.” Other revenue includes fees collected for the administration of tournaments, and amounts earned as reimbursement of the administrative costs of maintaining jackpot funds. Poker collection revenue fell $328,457, or 5.5%, compared to the first six months of 2009, but increased $112,351, or 4.0%, for the quarter ended June 30 compared to

Table of Contents

the same period in 2009. In addition, Table Games collection revenue increased $861,033, or 24.8%, compared to the first half of 2009 and $672,675, or 36.0%, for the quarter ended June 30 compared to the same period in 2009. The increases in the second quarter are largely due to the opening of the Company’s new Card Casino on April 14, 2010. While the continued economic recession and unlawful wagering on poker over the Internet continues to adversely affect Card Casino revenues, the Company believes these factors were more than offset by the new Card Casino that has provided both an exciting and an inviting atmosphere and sparked an increase in gaming play by patrons. Total Card Casino revenues represented 56.8% and 52.3% of net revenues for the six-month and three-month periods ended June 30, 2010, respectively. The three-month percentage is usually lower in the second quarter of any calendar year due to substantially increased revenue from live racing. See the “Summary of Card Casino Data” below:

	Six Months Ended June 30,
	2010		2009
Summary of Card Casino Data:

Poker Games	$	5,669,000	$	5,998,000
Table Games	4,327,000		3,466,000
Total Collection Revenue	9,996,000		9,464,000

Other Revenue	931,000		751,000
Total Card Casino Revenue	$	10,927,000	$	10,215,000

Number of Days Offered	181		181
Average Revenue per Day	$	60,370	$	56,436

Concessions revenues decreased $110,509, or 4.5%, and $64,075, or 3.8%, for the six-month and three-month periods ended June 30, 2010, respectively, compared to the same period in the prior year. The decrease is primarily attributable to discounted prices in the temporary card room location due to our remodeling project which was completed on April 14, 2010. In addition, the cancellation of one of our live racing days due to weather resulted in lower concession sales for that day compared to the same day in 2009.

Total operating expenses increased $1,465,383, or 7.7%, and $520,111, or 4.5%, for the six-month and three-month periods ended June 30, 2010, respectively, compared to the same period in the prior year. Factors contributing to these increases are discussed in greater detail below.

Total expense for statutory purses and the Minnesota Breeders’ Fund decreased 1.9% to $2,899,543 for the first six months ended June 30, 2010 compared to the first six months ended June 30, 2009. The decrease was due primarily to a reduction in racing purse and breeders’ fund expenses due to lower live and simulcast revenues in the first half of 2010 compared to the first half of 2009.

The following table provides additional information regarding purse and Breeders’ Fund Expense:

					Minnesota
	Purse Expense				Breeders’ Fund Expense
	Six Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009

Card Casino	$	1,164,000	$	1,071,000	$	126,000	$	119,000

Simulcast Horse Racing	978,000		1,032,000		205,000		227,000

Live Horse Racing	387,000		457,000		39,000		49,000

	$	2,529,000	$	2,560,000	$	370,000	$	395,000

Table of Contents

Salaries and benefits increased $526,002, or 6.2%, in the 2010 six-month period ended June 30 and $384,676, or 8.1%, in the three-month period ended June 30, 2010 compared to the same periods last year. The increase is primarily due to an increase in the Federal minimum wage which became effective after the 2009 second quarter, an increase in hours worked to support the growth in Card Casino revenues, and an increase in the state unemployment tax rate.

Loss on disposal of assets in the amount of $909,540 were recorded during the first quarter of 2010 and related to the remodeling of our existing card room. There was no loss on disposal of assets during the six-month period ended June 30, 2009.

Other operating expenses increased $139,986, or 4.4%, in the 2010 six-month period ended June 30 and $180,632, or 9.3%, in the three-month period ended June 30, 2010 compared to the same periods last year. The increase is primarily due to increased expenditures in support of legislation that would authorize electronic gaming devices at the Racetrack.

Loss before income taxes was $1,320,810 for the six months ended June 30, 2010 compared to income before income taxes of $291,575 for the six months ended June 30, 2009. After an income tax benefit of $300,200 for the six months ended June 30, 2010, net loss was $1,020,610 in 2010 compared to net income of $143,675 in 2009. For the quarter ended June 30, 2010, the Company recorded a $534,369 loss before income tax benefit compared to a loss before income tax benefit of $287,199 for the quarter ended June 30, 2009, a decrease of $247,170 or 86.1%. After an income tax benefit of $153,400 in the second quarter of 2010, net loss was $380,969 compared to a net loss of $173,099 for the second quarter of 2009, a decrease of $207,870 or 120.1%.

Contingencies:

There have been no material changes in the contingencies reported under Item 7 in our Annual Report on Form 10-K for our year ended December 31, 2009 and such information is incorporated herein by reference.

Liquidity and Capital Resources:

Cash provided by operating activities during the period January 1, 2010 through June 30, 2010 was $2,151,718 and was the result of several factors. During the first quarter of 2010, the Company incurred a one-time loss on disposal of assets in the amount of $909,540 relating to the remodel of our card room. In addition, depreciation during the first six months of 2010 was $987,975, and the Company experienced an increase in accounts payable and accrued wages and payroll taxes of $3,303,004, caused primarily by a seasonal increase of $1.73 million in horsemen payables. These items were somewhat offset by a net loss of $1,020,610 and an increase in restricted cash of $1,857,736, resulting primarily from the increase in horsemen payables of $1.73 million. Cash provided by operating activities during the period January 1, 2009 through June 30, 2009 was $2,409,087, resulting primarily from net income of $143,675, depreciation of $1,078,290, and an increase in accounts payable and accrued wages and payroll taxes of $3,463,967, caused primarily by a seasonal increase of $1.66 million in horsemen payables, a $617,000 increase in trade accounts payable, and a $240,000 increase in deferred revenues for corporate sponsorships. These items were partially offset by an increase in restricted cash of $1,844,417, resulting primarily from the increase in horsemen payables of $1.66 million. Pursuant to an agreement with the MHBPA, during the six months ended June 30, 2010 and 2009, the Company transferred into a trust account or paid directly to the MHBPA approximately $2,225,000 and $2,200,000, respectively.

Net cash used in investing activities for the first six months of 2010 was $2,593,215 due primarily to costs to remodel our card room totaling approximately $2,271,000. Net cash used in investing activities for the first six months of 2009 of $625,370 was primarily due to upgrades to our grandstand totaling approximately $243,000 and the purchase of equipment for our backside operations totaling approximately $161,000.

During the period January 1, 2010 through June 30, 2010, cash provided by financing activities consisted of proceeds and excess tax benefits received upon the exercise of stock options of $35,365. During

Table of Contents

the period January 1, 2009 through June 30, 2009, cash provided by financing activities consisted solely of proceeds received upon the exercise of stock options of $245,495.

The Company has a general credit agreement with Bremer Bank, which provides a revolving credit line of up to $3,000,000 until May 8, 2011 with interest at the prime rate but not less than 4.5% per annum. The Company had no borrowings under the line of credit at June 30, 2010 or December 31, 2009. The credit agreement contains covenants requiring the Company to maintain certain financial ratios. The Company was in compliance with these requirements at all times throughout the quarter ended June 30, 2010.

Unrestricted cash balances at June 30, 2010 were $4,335,065 compared to $4,741,197 at December 31, 2009. The Company believes that funds available in its cash accounts, amounts available under the general credit and security agreement, along with funds generated from operations, will be sufficient to satisfy the liquidity and capital resource requirements of its business operations during 2010.

Critical Accounting Policies and Estimates:

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time the consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with generally accepted accounting principles. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are included in Note 1 to our consolidated financial statements in our 2009 Annual Report on Form 10-K. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Property and Equipment - We have significant capital invested in our property and equipment, which represents approximately 71.2% of our total assets at June 30, 2010. We utilize our judgment in various ways including: determining whether an expenditure is considered a maintenance expense or a capital asset; determining the estimated useful lives of assets; and determining if or when an asset has been impaired or has been disposed. Management periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected future net cash flows. Should the sum of the related expected future net cash flows be less than the carrying value, we will determine whether an impairment loss should be recognized. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. To date, we have determined that no impairment of these assets exists.

Stock Based Employee Compensation — ASC 718, Compensation — Stock Compensation (“ASC 718”), requires recognition of employee services provided in exchange for a share-based payment based on the grant date fair market value. We utilize our judgment in determining the assumptions used to determine the fair value of options granted using a Black-Scholes model.

Commitments and Contractual Obligations:

There have been no material changes in our outstanding commitments and contractual obligations since those reported at December 31, 2009.

Table of Contents

Legislation:

As discussed in our previous filings with the SEC, the Company supported legislation that would authorize electronic gaming devices at the Racetrack (referred to as a “Racino”) during the 2010 session of the Minnesota Legislature. However, the Minnesota Legislature adjourned without taking action on the proposed Racino legislation. Based on the success of Racinos in several other states, we continue to believe that if a Racino was authorized at the Racetrack on similar terms to legislation approved in other states, it would stimulate economic growth in the horse racing and related agriculture businesses in Minnesota, provide growth and development opportunities that would add jobs at the Racetrack, and provide new tax revenues for state and local governments facing significant deficit issues.

The effort to obtain legislative authority for initiatives favorable to the Company has required, and will continue to require, substantial expenditures. Due to the inherent uncertainty of the outcome of legislative activities, there can be no assurance that any bills favorable to the Company’s interests will be enacted into law, and it is possible bills adverse to the Company could be enacted.

Forward-Looking Statements:

From time to time, in reports filed with the Securities and Exchange Commission, in press releases, and in other communications to shareholders or the investing public, the Company may make forward-looking statements concerning possible or anticipated future financial performance, business activities or plans which are typically preceded by the words “believes,” “expects,” “anticipates,” “intends” or similar expressions. For such forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that such forward-looking statements are subject to risks and uncertainties which could cause actual performance, activities or plans to differ significantly from those indicated in the forward-looking statements. Such risks and uncertainties include, but are not limited to: fluctuations in attendance at the Racetrack, material changes in the level of wagering by patrons, decline in interest in the unbanked card games offered in the Card Casino, legislative and regulatory changes, the impact of wagering products and technologies introduced by competitors; increases in the percentage of revenues allocated for purse fund payments; increase in compensation and employee benefit costs; the economic health of the gaming sector; higher than expected expense related to new marketing initiatives; and other factors discussed under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2009 and in the Company’s other filings with the Securities and Exchange Commission.

Table of Contents

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Canterbury Park is not required to provide the information requested by this Item as it qualifies as a smaller reporting company.

ITEM 4: CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures:

The Company’s Chief Executive Officer, Randall D. Sampson, and Chief Financial Officer, David C. Hansen, have reviewed the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based upon this review, these officers have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that the disclosure controls are also effective to ensure that information required to be disclosed in the Company’s Exchange Act reports is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting:

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934) that occurred during our fiscal quarter ended June 30, 2010 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Not Applicable.

Item 1A. Risk Factors

There have been no material changes to the Risk Factors reported under Item 1A in the Form 10-K for the year ended December 31, 2009, and the statement of risk factors presented therein are incorporated by reference herein.

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

(a) Not Applicable.

(b) Not Applicable.

(c) On January 16, 2008, the Company announced that its Board of Directors had authorized a program to repurchase up to an additional 250,000 shares of the Company’s common stock. During the first six months of 2010, the Company did not repurchase any shares of common stock. As of June 30, 2010, there are 33,457 shares at maximum that the Company may buy back as a result of this repurchase program.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Removed and Reserved

Item 5. Other Information

Not Applicable.

Item 6. Exhibits

(a) The following exhibits are included herein:

11 Statement re computation of per share earnings — See Net Income Per Share under Note 1 of Notes to Consolidated Financial Statements under Part 1, Item 1, which is incorporated herein by reference.

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (rules 13a-14 and 15d-14 of the Exchange Act).

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (rules 13a-14 and 15d-14 of the Exchange Act).

32 Certfications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

Table of Contents

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.

	Canterbury Park Holding Corporation

Dated: August 16, 2010	/s/ Randall D. Sampson
	Randall D. Sampson,
	President, and Chief Executive Officer

Dated: August 16, 2010	/s/ David C. Hansen
	David C. Hansen,
	Vice President, and Chief Financial Officer