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Liquidity and Capital Resources:
Cash
provided by operating activities for the six months ended June 30, 2011 was
$3,046,371 and was the result of several factors. Depreciation during the first
six months of 2010 was $937,230, and the Company experienced an increase in
accounts payable and accrued wages and payroll taxes of $3,011,184, caused
primarily by a seasonal increase of $1.33 million in horsemen payables. These
items were somewhat offset by a net loss of $137,501 and an increase in
restricted cash of $1,329,973, resulting primarily from the increase in
horsemen payables of $1.33 million. Cash provided by operating activities
during the six month period ended 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.
Net
cash used in investing activities for the first six months of 2011 was $418,035
due to purchasing a variety of fixtures and equipment for operational purposes.
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.
During
the period January 1, 2011 through June 30, 2011, cash provided by financing
activities consisted of proceeds and excess tax benefits received upon the
exercise of stock options of $225,495. During the six month period ended 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.
The
Company has a general credit agreement with Bremer Bank, which provides a
revolving credit line of up to $3,000,000 until May 6, 2012 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, 2011 or December 31, 2010. This 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, 2011.
Unrestricted
cash balances at June 30, 2011 were $8,305,293 compared to $5,451,462 at
December 31, 2010. 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 its
liquidity and capital resource requirements during 2011 for regular operations.
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 2010 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.
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Table of Contents
Property
and Equipment -
We have significant capital invested
in our property and equipment, which represents approximately 63.8% of our
total assets at June 30, 2011. 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. If the sum of the related
expected future net cash flows is 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, 2010.
Suspension of Operations July 1 to July 21, 2011:
Effective
at midnight on June 30, 2011, the Company suspended all of its gaming
operations. This action stemmed from the inability of Minnesotas Governor and
Legislature to reach agreement on the States budget for the biennium beginning
July 1, 2011. The inability to reach an agreement forced many state agencies to
immediately shut down because no monies had been appropriated for their operations.
The Minnesota Racing Commission (MRC), the agency which regulates Canterbury
Parks pari-mutuel and Card Casino gaming operations, was one of the many state
agencies ordered to close, and, without this regulatory oversight, the Company
was directed to cease gaming operations pending the appropriation of funds for
the MRC. Eventually, a budget agreement was approved on July 20, 2011 which
included an appropriation for the MRC, and Canterbury Park resumed all
operations on July 21, 2011. The suspension of operations for the first 20 days
of July is expected to have a material, adverse effect on the Companys results
of operations for the quarter ending September 30, 2011, as well as on its
fiscal year results as compared to the same periods in 2010.
Legislation:
The
Company supported legislation introduced in the 2011 session of the Minnesota
Legislature that would authorize slot machines and other video lottery
terminals to be operated at the Racetrack (a business model that is generally
called a Racino). 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 surrounding community, and provide new revenues for state and
local governments facing significant budgetary challenges. No action was taken
in either the regular session of the Minnesota Legislature ending in May 2011,
or the special session that was held in July 2011, regarding the Racino
proposal.
The
Companys efforts to obtain legislative approval for a Racino have 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 Companys interests will be enacted into law, and
it is possible bills adverse to the Company could be enacted.
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Table of Contents
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, 2010 and in the
Companys other filings with the Securities and Exchange Commission.
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I
TEM 3:
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Canterbury
Park is not required to provide the information requested by this Item as it
qualifies as a smaller reporting company.
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I
TEM 4:
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CONTROLS
AND PROCEDURES
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(a)
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Evaluation
of Disclosure Controls and Procedures:
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The
Companys Chief Executive Officer, Randall D. Sampson, and Chief Financial
Officer, David C. Hansen, have reviewed the Companys 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 Companys 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 Companys 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.
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(b)
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Changes in
Internal Control Over Financial Reporting:
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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, 2011 that have materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
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21
Table of Contents
P
ART II
OTHER INFORMATION
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I
tem 1.
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Legal Proceedings
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|
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Not
Applicable.
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I
tem 1A.
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Risk Factors
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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, 2010, and the statement of risk
factors presented therein are incorporated by reference herein.
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I
tem 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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(a)
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Not
Applicable.
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(b)
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Not
Applicable.
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(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 Companys
common stock. During the first six months of 2011, the Company did not
repurchase any shares of common stock. As of June 30, 2011, there are 33,457
shares at maximum that the Company may buy back as a result of this
repurchase program.
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I
tem 3.
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Defaults Upon Senior Securities
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Not
Applicable.
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I
tem 4.
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Removed and Reserved
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I
tem 5.
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Other Information
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Not
Applicable.
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I
tem 6.
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Exhibits
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(a)
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The
following exhibits are included herein:
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11
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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.
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31.1
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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).
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31.2
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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).
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32
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Certfications
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
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22
Table of Contents
S
IGNATURES
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.
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Canterbury Park Holding Corporation
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Dated:
August 15, 2011
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/s/
Randall D. Sampson
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Randall D.
Sampson,
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President,
and Chief Executive Officer
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Dated:
August 15, 2011
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/s/
David C. Hansen
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David C.
Hansen,
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Vice
President, and Chief Financial Officer
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23
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