Quarterly Report (10-q)

Purse Enhancement Payments to

Marketing Payments to

Horsemen (1)

Canterbury Park

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020.

☐ 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: 001‑37858

CANTERBURY PARK HOLDING CORPORATION

(Exact Name of Registrant as Specified in Its Charter)


Minnesota		47‑5349765
(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)

Securities registered pursuant Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of each exchange on which registered
Common Stock Common stock, $.01 par value	CPHC	Nasdaq

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	☒		NO	☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).


	YES	☒		NO	☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b‑2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b‑2).


	YES	☐		NO	☒

The Company had 4,694,138 shares of common stock, $.01 par value, outstanding as of May 1, 2020.

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Canterbury Park Holding Corporation

INDEX

			Page

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements (unaudited)

		Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019	2

		Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019	3

		Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019	4

		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019	5

		Notes to Condensed Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25

	Item 4.	Controls and Procedures	25

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	25

	Item 1A.	Risk Factors	25

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

	Item 3.	Defaults Upon Senior Securities	25

	Item 4.	Mine Safety Disclosures	26

	Item 5.	Other Information	26

	Item 6.	Exhibits	27

	Signatures		27

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PART 1 – FINANCIAL INFORMATION

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	March 31,		December 31,
	2020		2019
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	—	$	355,399
Restricted cash		3,081,073		2,308,955
Short-term investments		—		103,886
Accounts receivable, net of allowance of $19,250 for both periods		364,353		302,037
Inventory		288,878		390,118
Prepaid expenses		528,000		501,493
Income taxes receivable		88,075		—
Total current assets		4,350,379		3,961,888

LONG-TERM ASSETS
Deposits		49,500		49,500
Restricted cash - long-term portion		—		1,262,744
TIF receivable		9,857,413		9,708,856
Related party receivable		3,533,829		3,528,927
Operating lease right-of-use assets		72,911		74,832
Equity investment		2,992,633		2,992,633
Land, buildings and equipment, net		44,241,167		43,833,702
TOTAL ASSETS	$	65,097,832	$	65,413,082

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable		4,754,400		3,495,238
Card Casino accruals		1,655,005		2,167,056
Accrued wages and payroll taxes		890,059		2,254,379
Cash dividend payable		—		324,439
Accrued property taxes		1,274,571		1,019,658
Deferred revenue		1,354,821		1,482,130
Payable to horsepersons		448,175		557,696
Current portion of finance lease obligations		24,807		24,500
Current portion of operating lease obligations		27,855		29,776
Income taxes payable		—		120,960
Total current liabilities		10,429,693		11,475,832

LONG-TERM LIABILITIES
Deferred income taxes		4,663,500		4,404,300
Finance lease obligations, net of current portion		65,466		71,784
Operating lease obligations, net of current portion		45,056		45,056
Total long-term liabilities		4,774,022		4,521,140
TOTAL LIABILITIES		15,203,715		15,996,972

STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized, 4,694,138 and 4,644,522 respectively, shares issued and outstanding		46,941		46,445
Additional paid-in capital		23,035,735		22,733,933
Retained earnings		26,811,441		26,635,732
Total stockholders’ equity		49,894,117		49,416,110
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	65,097,832	$	65,413,082

See notes to condensed consolidated financial statements.

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended March 31,
	2020		2019
OPERATING REVENUES:
Pari-mutuel	$	1,296,026	$	1,490,809
Card Casino		7,561,172		7,899,964
Food and beverage		1,118,995		1,352,801
Other		972,766		847,224
Total Net Revenues		10,948,959		11,590,798

OPERATING EXPENSES:
Purse expense		1,103,394		1,395,538
Minnesota Breeders’ Fund		189,744		217,695
Other pari-mutuel expenses		220,849		268,366
Salaries and benefits		5,577,893		5,745,287
Cost of food and beverage and other sales		564,151		625,757
Depreciation and amortization		716,853		625,520
Utilities		290,611		322,115
Advertising and marketing		183,988		190,329
Professional and Contracted Services		972,324		966,386
Loss on disposal of assets		—		113,437
Other operating expenses		987,457		1,143,129
Total Operating Expenses		10,807,264		11,613,559
INCOME (LOSS) FROM OPERATIONS		141,695		(22,761)
OTHER INCOME
Interest income, net		163,690		63,240
Net Other Income		163,690		63,240
INCOME BEFORE INCOME TAXES		305,385		40,479
INCOME TAX BENEFIT (EXPENSE)		(50,164)		16,093
NET INCOME	$	255,221	$	56,572

Basic earnings per share	$	0.05	$	0.01
Diluted earnings per share	$	0.05	$	0.01
Weighted Average Basic Shares Outstanding		4,659,579		4,559,477
Weighted Average Diluted Shares		4,662,675		4,613,245
Cash dividends declared per share	$	0.00	$	0.07

See notes to condensed consolidated financial statements.

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


For the three months ended March 31, 2020
	Number of	Common		Additional		Retained
	Shares	Stock		Paid-in Capital		Earnings		Total
Balance at December 31, 2019	4,644,522	$	46,445	$	22,733,933	$	26,635,732	$	49,416,110

Exercise of stock options	24,250		242		200,548		—		200,790
Other share retirements	(9,920)		(99)		(44,587)		(79,512)		(124,198)
Stock-based compensation	—		—		57,606		—		57,606
401(K) stock match	17,179		172		160,795		—		160,967
Issuance of deferred stock awards	18,107		181		(72,560)		—		(72,379)
Net Income	—		—		—		255,221		255,221

Balance at March 31, 2020	4,694,138	$	46,941	$	23,035,735	$	26,811,441	$	49,894,117


For the three months ended March 31, 2019
	Number of	Common		Additional		Retained
	Shares	Stock		Paid-in Capital		Earnings		Total
Balance at December 31, 2018	4,527,685	$	45,277	$	21,420,886	$	25,268,187	$	46,734,350

Exercise of stock options	28,060		281		172,111		—		172,392
Other share retirements	(5,863)		(59)		(27,915)		(62,023)		(89,997)
Stock-based compensation	—		—		90,058		—		90,058
Dividend distribution	—		—		—		(320,226)		(320,226)
401(K) stock match	8,111		81		116,312		—		116,393
Issuance of deferred stock awards	10,968		110		(55,044)		—		(54,934)
Shares issued under Employee Stock Purchase Plan	5,697		57		67,282		—		67,339
Net income	—		—		—		56,572		56,572

Balance at March 31, 2019	4,574,658	$	45,747	$	21,783,690	$	24,942,510	$	46,771,947

See notes to condensed consolidated financial statements.

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
	2020		2019
Operating Activities:
Net income	$	255,221	$	56,572
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		716,853		625,520
Stock-based compensation expense		57,606		90,058
Stock-based employee match contribution		160,967		116,312
Deferred income taxes		259,200		94,800
Loss from equity investment		—		2,377
Loss on disposal of assets		—		113,437
Changes in operating assets and liabilities:
Increase in accounts receivable		(67,218)		(69,385)
Decrease (increase) in other current assets		74,733		(40,457)
Increase (decrease) in income taxes receivable/payable		(645,771)		357,158
Decrease in operating lease right-of-use assets		1,921		1,939
Decrease in operating lease liabilities		(1,921)		(1,939)
Increase in accounts payable		960,781		302,777
Decrease in deferred revenue		(127,309)		(61,754)
(Decrease) increase in Card Casino accruals		(512,051)		417,322
Decrease in accrued wages and payroll taxes		(1,364,320)		(888,915)
Increase in accrued property taxes		254,913		222,443
Increase in payable to horsepersons		327,215		122,454
Net cash provided by operating activities		350,820		1,460,719

Investing Activities:
Additions to land, buildings, and equipment		(825,937)		(3,101,381)
Additions for TIF eligible improvements		(148,557)		(1,700,038)
Proceeds from sale of investments		103,886		—
Net cash used in investing activities		(870,608)		(4,801,419)

Financing Activities:
Proceeds from issuance of common stock		76,592		149,815
Payments against line of credit		(1,450,000)		—
Borrowings on line of credit		1,450,000		—
Cash dividend paid to shareholders		(324,439)		(316,938)
Payments for taxes related to net share settlement of equity awards		(72,379)		(54,934)
Principal payments on finance lease		(6,011)		(5,738)
Net cash used in financing activities		(326,237)		(227,795)

Net decrease in cash, cash equivalents, and restricted cash		(846,025)		(3,568,495)

Cash, cash equivalents, and restricted cash at beginning of period		3,927,098		11,203,998

Cash, cash equivalents, and restricted cash at end of period	$	3,081,073	$	7,635,503

Schedule of non-cash investing and financing activities
Additions to buildings and equipment funded through accounts payable	$	298,000	$	227,000
Transfer of future TIF reimbursed costs from PP&E		149,000		1,700,000
ROU assets obtained in exchange for operating lease obligations		—		15,000
Dividend declared		—		320,000

Supplemental disclosure of cash flow information:
Income taxes paid	$	—	$	—
Interest paid		11,000		2,000

See notes to condensed consolidated financial statements.

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business – The Company’s Racetrack operations are conducted at facilities located in Shakopee, Minnesota, approximately 25 miles southwest of downtown Minneapolis. In May 1994, the Company commenced year-round horse racing simulcast operations and hosted the first annual live race meet during the summer of 1995. The Company’s live racing operations are a seasonal business as it typically hosts live race meets each year from May until September. The Company earns additional pari-mutuel revenue by televising its live racing to out-of-state racetracks around the country. Canterbury Park’s Card Casino typically operates 24 hours a day, seven days a week and is limited by Minnesota State law to conducting card play on a maximum of 80 tables. The Card Casino currently offers a variety of poker and table games. The Company’s three largest sources of revenues include: Card Casino operations, pari-mutuel operations and food and beverage sales. The Company also derives revenues from related services and activities, such as admissions, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack. Additionally, the Company is developing approximately 140 acres of underutilized land surrounding the Racetrack in a project known as Canterbury Commons. The Company is pursuing several mixed-use development opportunities for this land, directly and through joint ventures.

In January 2020, an outbreak of a respiratory illness caused by a new strain of coronavirus was identified. The disease has since spread rapidly across the world, causing the World Health Organization to declare the outbreak a pandemic (the “COVID-19 Pandemic”) on March 12, 2020. Since that time, measures have been taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns.

On March 16, 2020, the Company announced that, based on the advice of Minnesota state and regulatory bodies, it was temporarily suspending all card casino, simulcast, and special events operations at Canterbury Park in response to concerns about the COVID-19 Pandemic. Canterbury Park determined this voluntary suspension of activities was in the best interest of the health and safety of its guests and team members and would provide the Company an opportunity to review and update operational best practices and strategies based on what was currently known about this public health situation and future developments.

Despite a strong start to the year, the disruptions arising from the COVID-19 Pandemic had a significant impact on the Company's financial condition and operations during the three months ended March 31, 2020. The duration and intensity of this global health emergency and related disruptions is uncertain. Given the dynamic nature of these circumstances, the impact on the Company’s consolidated results of operations, cash flows and financial condition in 2020 will be material, but cannot be reasonably estimated at this time as it is unknown when the COVID-19 Pandemic will end, when or how quickly the current travel restrictions will be modified or cease to be necessary and the resulting impact on the Company’s business and the willingness of customers to spend on entertainment.

The Company has a consolidated balance sheet with no long-term debt and an $8 million credit line that is anticipated to provide the Company with the necessary liquidity and financial flexibility to manage through this challenging operating environment. We have taken significant actions to mitigate the effects of the COVID-19 Pandemic on our operations, including initiating workforce reductions and furloughs, suspending the Company’s quarterly cash dividend, reducing working capital, postponing non-essential capital expenditures, reducing operating costs, and substantially reducing discretionary spending. We expect these countermeasures to partially mitigate the impacts of COVID-19 on our full year 2020 financial results. As the impact of the COVID-19 Pandemic on the economy and our operations evolves, we will continue to assess the impact on the Company and respond accordingly.

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Basis of Presentation and Preparation – The accompanying condensed consolidated financial statements include the accounts of the Company (Canterbury Park Holding Corporation and its subsidiaries Canterbury Park Entertainment, LLC; Canterbury Park Concession, Inc.; and Canterbury Development, LLC). Intercompany accounts and transactions have been eliminated. The preparation of these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2019, included in its Annual Report on Form 10‑K (the “2019 Form 10‑K”).

The condensed consolidated balance sheets and the related condensed consolidated statements of operations, stockholders’ equity, and the cash flows for the periods ended March 31, 2020 and 2019 have been prepared by Company management. In the opinion of management, all adjustments (which include only normal recurring adjustments, except where noted) necessary to present fairly the financial position, results of operations, statement of stockholders’ equity, and cash flows at March 31, 2020 and 2019 and for the periods then ended have been made.

Summary of Significant Accounting Policies – A detailed description of our significant accounting policies can be found in our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2019. There were no material changes in significant accounting policies during the quarter ended March 31, 2020.

Restricted Cash – Restricted cash represents refundable deposits and amounts due to horsemen for purses, stakes and awards, and amounts accumulated in card game progressive jackpot pools, the player pool and poker promotional fund to be used to repay card players in the form of promotions, giveaways, prizes, or by other means. Restricted cash also includes a deposit related to its development operations. The Company deposited $1.2 million with a bank in December 2018 to assist Doran Canterbury I to complete financing for a construction loan. On May 1, 2020, the bank released the deposit back to the Company. Therefore, the Company classified this as short term restricted cash on its Condensed Consolidated Balance Sheet.

Deferred Revenue – Deferred revenue includes advance sales related to racing, events and corporate partnerships. Revenue from these advance billings is recognized when the related event occurs or services have been performed. Deferred revenue also includes advanced Cooperative Marketing Agreement (“CMA”) promotional funds, for which revenue is recognized when expenses are incurred.

Payable to Horsepersons - The Minnesota Pari-mutuel Horse Racing Act requires the Company to segregate a portion of funds (recorded as purse expense in the statements of operations) received from Card Casino operations and wagering on simulcast and live horse races, for future payment as purses for live horse races or other uses of the horsepersons’ association. Pursuant to an agreement with the Minnesota Horsemen’s Benevolent and Protective Association (“MHBPA”), the Company transferred into a trust account or paid directly to the MHBPA, $1,185,000 and $1,260,000 for the three months ended March 31, 2020 and 2019, respectively, related to thoroughbred races. Minnesota Statutes provide that amounts transferred into the trust account are the property of the trust and not of the Company, and therefore these amounts are not recorded on the Company’s Condensed Consolidated Balance Sheet.

Checks Written in Excess of Cash Balance – For the three months ended March 31, 2020, the Company included $945,000 of checks written in excess of cash balance within accounts payable on the Condensed Consolidated Balance Sheet. There were no checks written in excess of cash balance as of December 31, 2019.

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Revenue Recognition – The Company’s primary revenues with customers consist of Card Casino operations, pari-mutuel wagering on simulcast and live horse races, and food and beverage transactions. We determine revenue recognition through the following steps:

 Identification of the contract, or contracts, with a customer

 Identification of the performance obligations in the contract

 Determination of the transaction price

 Allocation of the transaction price to the performance obligation in the contract

 Recognition of revenue when, or as, we satisfy a performance obligation

The transaction price for a Card Casino contract is a set percentage of wagers and is recognized at the time that the wagering process is complete. The transaction price for pari-mutuel wagering is the commission received on a wager, exclusive of any track fees and is 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. The transaction price for food and beverage contracts is the net amount collected from the customer for these goods. Food and beverage services have been determined to be separate, stand-alone performance obligations and the transaction price is recorded as revenue as the good is transferred to the customer when delivery is made.

Contracts for Card Casino operations and pari-mutuel wagering involve two performance obligations for those customers earning points under the Company’s loyalty program and a single performance obligation for customers who do not participate in the program. The Company applies a practical expedient by accounting for its gaming contracts on a portfolio basis as these wagers have similar characteristics and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio would not differ materially from what would result if the guidance were applied on an individual wagering contract. For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with the loyalty points earned, the Company allocates an amount to the loyalty point contract liability based on the stand-alone redemption value of the points earned, which is determined by the value of a point that can be redeemed for a cash voucher, food and beverage voucher, racing admission, valet parking, or racing forms. Based on past experience, the majority of customers redeem their points for cash vouchers. Therefore, there are no further performance obligations by the Company.

We have two general types of liabilities related to contracts with customers: (1) our MVP Loyalty Program and (2) outstanding chip liability. These are included in the line item Card Casino accruals on the consolidated balance sheet. We defer the full retail value of these complimentary reward items until the future revenue transaction occurs.

The Company offers certain promotional allowances at no charge to patrons who participate in its player rewards program.

We evaluate our on-track revenue, export revenue, and import revenue contracts to determine whether we are acting as the principal or as the agent when providing services, which we consider in determining if revenue should be reported gross or net. An entity is a principal if it controls the specified service before that service is transferred to a customer.

The revenue we recognize for on-track revenue and import revenue is the commission we are entitled to retain for providing a wagering service to our customers. For these arrangements, we are the principal as we control the wagering service; therefore, any charges, including simulcast fees, we incur for delivering the wagering service are presented as operating expenses.

For export revenue, our customer is the third party wagering site such as a racetrack, OTB, or advance deposit wagering provider. Therefore, the revenue we recognize for export revenue is the simulcast host fee we earn for exporting our racing signal to the third party wagering site.

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2. STOCK-BASED COMPENSATION

Long Term Incentive Plan and Award of Deferred Stock

The Long Term Incentive Plan (the “LTI Plan”) authorizes the grant of Long Term Incentive Awards that provide an opportunity to Named Executive Officers (“NEOs”) and other Senior Executives to receive a payment in cash or shares of the Company’s common stock to the extent of achievement at the end of a period greater than one year (the “Performance Period”) as compared to Performance Goals established at the beginning of the Performance Period. Currently, there are two awards outstanding that are for three-year periods ending December 31, 2020 and 2021. As a result of the COVID-19 Pandemic, the Company has temporarily suspended its LTI Plan until there is more certainty about the Company’s reopening and future operations.

Board of Directors Stock Option, Deferred Stock Awards, and Restricted Stock Grants

The Company’s Stock Plan currently authorizes annual grants of restricted stock, deferred stock, stock options, or any combination of the three, to non-employee members of the Board of Directors at the time of the Company’s annual shareholders’ meeting as determined by the Board prior to each such meeting. Options granted under the Plan generally expire 10 years after the grant date. Restricted stock and deferred stock grants generally vest 100% one year after the date of the annual meeting at which they were granted, are subject to restrictions on resale for an additional year, and are subject to forfeiture if a board member terminates his or her board service prior to the shares vesting. The Board of Directors’ unvested deferred stock awards as of March 31, 2020 consisted of 12,604 shares with a weighted average fair value per share of $12.69. There were no unvested restricted stock or stock options outstanding at March 31, 2020.

Stock-based compensation expense related to the LTI Plan, deferred stock awards and restricted stock awards is included on the Condensed Consolidated Statements of Operations and totaled $58,000 and $90,000 for the three months ended March 31, 2020 and 2019, respectively.

Employee Stock Option Grants

The Company has granted incentive stock options to employees pursuant to the Company’s Stock Plan with an exercise price equal to the market price on the date of grant. The options vest over a 42‑month period and expire in 10 years.

A summary of stock option activity as of March 31, 2020 and changes during the three months then ended is presented below:


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

Outstanding at January 1, 2020	33,250	$	9.64
Granted	-		-
Exercised	(24,250)		8.28
Expired/Forfeited	-		-
Outstanding at March 31, 2020	9,000	$	13.30		0.8 Years	$	119,700

Exercisable at March 31, 2020	9,000	$	13.30		0.8 Years	$	119,700

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3. NET INCOME PER SHARE COMPUTATIONS

The following is a reconciliation of the numerator and denominator of the earnings per common share computations for the three months ended March 31, 2020 and 2019:


	Three Months Ended March 31,
	2020		2019
Net income (numerator) amounts used for basic and diluted per share computations:	$	255,221	$	56,572

Weighted average shares (denominator) of common stock outstanding:
Basic		4,659,579		4,559,477
Plus dilutive effect of stock options		3,096		53,768
Diluted		4,662,675		4,613,245

Net income per common share:
Basic	$	0.05	$	0.01
Diluted		0.05		0.01

Options to purchase 9,000 shares of common stock at an average price of $13.30 per share were outstanding but not included in the computation of diluted net income per share for the three months ended March 31, 2020 because the exercise price of the options exceeded the market price of the Company’s common stock at March 31, 2020.

There were no out-of-the money options at March 31, 2019; thus, all outstanding options to purchase shares of common stock were included in the computation of diluted net income per share.

4. GENERAL CREDIT AGREEMENT

The Company has a general credit and security agreement with a financial institution, which provides a revolving credit line up to $8,000,000 and allows for letters of credit in the aggregate amount of up to $2,000,000 to be issued under the credit agreement. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. This agreement was amended as of September 30, 2019 to extend the maturity date to September 30, 2020. As of March 31, 2020, the outstanding balance on the line of credit was $0.

5. OPERATING SEGMENTS

The Company has four reportable operating segments: horse racing, Card Casino, food and beverage, and development. The horse racing segment primarily represents simulcast and live horse racing operations. The Card Casino segment represents operations of Canterbury Park’s Card Casino, the food and beverage segment represents food and beverage operations provided during simulcast and live racing, in the Card Casino, and during special events. The development segment represents our real estate development operations. 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 process to produce those products and services. The Minnesota Racing Commission regulates the horse racing and Card Casino segments.

Depreciation, interest and income taxes are allocated to the segments, but no allocation is made to the food and beverage segment for shared facilities. However, the food and beverage 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.

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The following tables represent a disaggregation of revenues from contracts with customers along with the Company’s operating segments (in 000’s):


	Three Months Ended March 31, 2020
	Horse Racing		Card Casino		Food and Beverage		Development		Total
Net revenues from external customers	$	2,197	$	7,561	$	1,182	$	9	$	10,949
Intersegment revenues		70		—		262		—		332
Net interest (expense) income		(9)		—		—		173		164
Depreciation		398		261		58		—		717
Segment (loss) income before income taxes		(896)		965		(160)		74		(17)
Segment tax expense (benefit)		(94)		158		(26)		12		50

	March 31, 2020
Segment Assets	$	31,020	$	3,252	$	25,239	$	29,302	$	88,813


	Three Months Ended March 31, 2019
	Horse Racing		Card Casino		Food and Beverage		Development		Total
Net revenues from external customers	$	2,292	$	7,900	$	1,399	$	-	$	11,591
Intersegment revenues		116		-		303		-		419
Net interest income		8		-		-		55		63
Depreciation		578		4		44		-		626
Segment (loss) income before income taxes		(1,176)		1,110		(88)		(22)		(176)
Segment tax expense (benefit)		(414)		441		(35)		(8)		(16)

	December 31, 2019
Segment Assets	$	31,618	$	3,327	$	25,430	$	29,074	$	89,449

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


	Three Months Ended March 31, 2020
	2020		2019
Revenues
Total net revenue for reportable segments	$	11,281	$	12,010
Elimination of intersegment revenues		(332)		(419)
Total consolidated net revenues	$	10,949	$	11,591


Income before income taxes
Total segment income before income taxes	$	(17)	$	(176)
Elimination of intersegment income before income taxes		322		216
Total consolidated income before income taxes	$	305	$	40


	March 31,		December 31,
	2020		2019
Assets
Total assets for reportable segments	$	88,813	$	89,449
Elimination of intercompany balances		(23,715)		(24,036)
Total consolidated assets	$	65,098	$	65,413

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6. COMMITMENTS AND CONTINGENCIES

In accordance with an Earn Out Promissory 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 (a) $700,000 per Operating Year, as defined, or (b) 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 would be required to pay these amounts is remote. At the date (if any) that these two conditions are met, the five minimum payments would be discounted back to their present value and the sum of those discounted payments would be capitalized as part of the purchase price in accordance with GAAP. The purchase price will be further increased if payments become due under the “20% of Net Pretax Profit” calculation. The first payment would be due 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 entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community (“SMSC”), which became effective March 4, 2012, was amended in the first quarter of each of 2015, 2016, 2017, and 2018, and will expire on December 31, 2022. The CMA contains certain covenants which, if breached, would trigger an obligation to repay a specified amount related to such covenant. At this time, management believes it unlikely that any breach of a covenant will occur, and that therefore the possibility that the Company will be required to pay the specified amount related to any covenant breach is remote.

The Company is periodically involved in various claims and legal actions arising in the normal course of business. Management believes that the resolution of any pending claims and legal actions at March 31, 2020 and as of the date of this report, will not have a material impact on the Company’s consolidated financial positions or results of operations.

In August 2018, the Company entered into a Contract for Private Redevelopment with the City of Shakopee in connection with a Tax Increment Financing District (“TIF District”). The Company is obligated to construct certain infrastructure improvements within the TIF District, and will be reimbursed by the City of Shakopee by future tax increment revenue generated from the developed property. The total amount of funding that Canterbury will be paid as reimbursement under the TIF program for these improvements is not guaranteed and will depend on future tax revenues generated from the developed property.

7. COOPERATIVE MARKETING AGREEMENT

As discussed above in Note 6, on March 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse industry. Under the CMA, as amended, this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. These payments have no direct impact on the Company’s consolidated financial statements or operations.

Under the terms of the CMA, as amended, the SMSC made a payment of $7.4 million during the first three months of 2019, primarily for purse enhancements for the live race meet. As of the date of this filing, the SMSC has not made a payment for the 2020 live race meet.

Under the CMA, as amended, SMSC also agreed to make “Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits, and events.

In the respective first quarters of 2015, 2016, 2017, and 2018, the CMA was amended to adjust the payment amounts between the “Purse Enhancement Payments to Horsemen” and “Marketing Payments to Canterbury Park.”

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SMSC is currently obligated to make the following purse enhancement and marketing payments for 2021 through 2022:

1 Includes $100,000 each year payable to various horsemen associations

The amounts earned from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s condensed consolidated statements of operations. For the three months ended March 31, 2020, the Company recorded $68,000 in other revenue, incurred $30,000 in advertising and marketing expense, and incurred $38,000 in depreciation related to the SMSC marketing funds. For the three months ended March 31, 2019, the Company recorded $75,000 in other revenue and incurred $18,000 in advertising and marketing expense and $57,000 in depreciation related to the SMSC marketing funds.

Under the CMA, the Company agreed for the term of the CMA, which is currently scheduled to terminate on December 31, 2022, that it would not promote or lobby the Minnesota legislature for expanded gambling authority and will support the SMSC’s lobbying efforts against expanding gambling authority.

8. REAL ESTATE DEVELOPMENT

Equity Investment

On April 2, 2018, the Company’s subsidiary Canterbury Development LLC, entered into an Operating Agreement (“Operating Agreement”) with an affiliate of Doran Companies (“Doran”), a national commercial and residential real estate developer, as the two members of a Minnesota limited liability company named Doran Canterbury I, LLC (Doran Canterbury I). Doran Canterbury I was formed as part of a joint venture between Doran and Canterbury Development LLC to construct an upscale apartment complex on land adjacent to the Company’s Racetrack (the “Project”). Doran Canterbury I is developing Phase I of the Project, which will include approximately 300 units, a heated parking ramp, and a clubhouse.

On September 27, 2018, Canterbury Development LLC contributed approximately 13 acres of land as its equity contribution in the Doran Canterbury I joint venture and became a 27.4% equity member. On December 20, 2018, financing for Doran Canterbury I was secured. As the Company is able to assert significant influence, but not control, over Doran Canterbury I’s operational and financial policies, the Company accounts for the joint venture as an equity method investment.

In connection with the execution of the Amended Doran Canterbury I Agreement, on August 18, 2018, Canterbury Development LLC entered into an Operating Agreement with Doran Shakopee, LLC as the two members of a Minnesota limited liability company entitled Doran Canterbury II, LLC (“Doran Canterbury II”). Under the Doran Canterbury II Operating Agreement, Doran Canterbury II will pursue development of Phase II of the Project, which is expected to begin upon rental stabilization of Phase I. Phase II will include an additional 300 apartment units. Canterbury Development’s equity contribution to Doran Canterbury II for Phase II will be approximately 10 acres of land. In connection with its contribution, Canterbury Development became a 27.4% equity member in Doran Canterbury II with Doran owning the remaining 72.6%.

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Tax Increment Financing

On August 8, 2018, the City Council of the City of Shakopee, Minnesota approved a Contract for Private Redevelopment (“Redevelopment Agreement”) between the City of Shakopee Economic Development Authority (“Shakopee EDA”) and Canterbury Park Holding Corporation and its subsidiary Canterbury Development LLC in connection with a Tax Increment Financing District (“TIF District”) that the City had approved in April 2018. The City of Shakopee, the Shakopee EDA and the Company entered into the Redevelopment Agreement on August 10, 2018.

Under the Redevelopment Agreement, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, including the development of public streets, utilities, sidewalks, and other public infrastructure. More specifically, the Company is obligated to construct improvements on Shenandoah Drive and Barenscheer Boulevard with these improvements required to be substantially complete on or before December 31, 2019 and December 31, 2020, respectively. As of December 31, 2019, improvements to Shenandoah Drive were substantially complete.

Under the Redevelopment Agreement, the City of Shakopee has agreed that a portion of the tax increment revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing infrastructure improvements. The total estimated cost of TIF eligible improvements to be borne by the Company is $23,336,500. A detailed Schedule of the Public Improvements under the Redevelopment Agreement, the timeline for their construction and the source and amount of funding is set forth on Exhibit C of the Redevelopment Agreement, which was filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2018. The total amount of funding that Canterbury will be paid as reimbursement under the TIF program for these improvements is not guaranteed, however, and will depend on future tax revenues generated from the developed property. As of March 31, 2020, the Company recorded a TIF receivable of $9,857,000, which represents $9,580,000 of principal and $277,000 of interest.

The Company expects to finance its improvements under the Redevelopment Agreement with funds from its current operating resources and existing credit facility and, potentially, third-party financing sources.

Purchase and Sale Agreement

On March 13, 2020, the Company entered into an agreement to sell approximately 12 acres of land on the East side of the Racetrack to a third party for total consideration of approximately $2.5 million. Closing is subject to the satisfaction of certain customary conditions. The Company expects the transaction to close in 2020.

9. LEASES

The Company determines if an arrangement is a lease or contains a lease at inception. The Company leases certain office equipment under finance leases. We also lease equipment related to our horse racing operations under operating leases. For lease accounting purposes, we do not separate lease and nonlease components, nor do we record operating or finance lease assets and liabilities for short term leases.

As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. We recognize expense for operating leases on a straight-line basis over the lease term. The Company’s lease agreements do not contain any variable lease payments, material residual value guarantees or any restrictive covenants.

Lease costs related to operating leases were $2,031 and $2,127 for the three months ended March 31, 2020 and 2019, respectively. The total lease expenses for leases with a term of twelve months or less for which the Company elected

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not to recognize a lease asset or liability was $80,680 and $116,691 for the three months ended March 31, 2020 and 2019, respectively.

Lease costs included in depreciation and amortization related to our finance leases were $5,949 for the three months ended March 31, 2020 and 2019. Interest expense related to our finance leases was immaterial.

The following table shows the classification of the right of use assets on our consolidated balance sheets:


		Three Months Ended March 31,
	Balance Sheet Location	2020		2019
Assets
Finance	Land, buildings and equipment, net (1)	$	90,273	$	$ 115,254
Operating	Operating lease right-of-use assets		72,911		13,074
Total Leased Assets		$	163,184	$	$ 128,328

1 – Finance lease assets are net of accumulated amortization of $29,744 and $5,949 as of March 31, 2020 and 2019, respectively.

The following table shows the lease terms and discount rates related to our leases:


	Three Months Ended March 31,
	2020	2019
Weighted average remaining lease term (in years):
Finance	3.4	4.5
Operating	1.2	1.8
Weighted average discount rate (%):
Finance	5.0%	5.0%
Operating	5.5%	5.0%

The maturity of operating leases and finance leases as of March 31, 2020 are as follows:


Three Months Ended March 31, 2020	Operating leases		Finance leases
2020 remaining	$	29,315	$	21,557
2021		23,100		28,743
2022		23,100		28,743
2023		—		19,332
Total minimum lease obligations		75,515		98,375
Less: amounts representing interest		(2,604)		(8,102)
Present value of minimum lease payments		72,911		90,273
Less: current portion		(27,855)		(24,807)
Lease obligations, net of current portion	$	45,056	$	65,466

10. RELATED PARTY RECEIVABLES

On December 20, 2018, the Company entered into a loan agreement with Doran Family Holdings, which is the controlling partner in the Doran Canterbury I joint venture. The Company loaned Doran Family Holdings $2,910,000 net of loan origination fees, and received a promissory note totaling $2,940,000 bearing interest at 5%. The note will mature at the earliest of (i) the date of closing by Doran Canterbury II, LLC on Phase II Project Financing; (ii) the closing on any purchase of the Phase II Land by Doran Shakopee, LLC pursuant to its option under Section 3.9(a) of the Doran Canterbury II Operating Agreement; (iii) the date of final determination that the Phase II Project will not

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be developed by Doran Canterbury II, LLC; or (iv) three (3) years following the date of the note. Management believes no allowance for doubtful accounts is necessary.

In 2018, the Company incurred $268,000 of costs for preliminary grading work on parcels of land the Company has designated for Doran Canterbury II. The Company will be fully reimbursed for these costs upon the commencement of the Doran Canterbury II project and thus, recorded the amount as a receivable. Although there is a possibility Doran Canterbury II will not materialize, the Company currently believes this likelihood is remote.

In 2019, the Company loaned money to the Doran Canterbury I joint venture in two separate loans in the amounts of $178,100 and $137,000, respectively. These member loans bear interest at the rate equal to the Prime Rate plus two percent per annum. The Company expects to be fully reimbursed for these member loans when the joint venture achieves positive cash flow.

11. SUBSEQUENT EVENTS

As part of its development efforts, the Company has recently entered into two real estate purchase and sale agreements.

On April 7, 2020, the Company entered into an agreement to sell approximately 11.3 acres of land on the West side of the Racetrack to a third party for total consideration of approximately $2,400,000. Closing is subject to the satisfaction of certain customary conditions. The Company expects the transaction to close in 2020.

On April 15, 2020, the Company entered into an agreement to sell approximately 2.4 acres of land on the West side of the Racetrack to a third party for total consideration of approximately $1,100,000. Closing is subject to the satisfaction of certain customary conditions. The Company expects the transaction to close in 2020.

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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, our financial results and financial condition and our 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,” “we,” “our,” or “us”) conducts pari-mutuel wagering operations and hosts “unbanked” card games at its Canterbury Park Racetrack and Card Casino facility (the “Racetrack”) in Shakopee, Minnesota, which is approximately 25 miles southwest of downtown Minneapolis. The Racetrack is the only facility in the State of Minnesota that offers live pari-mutuel thoroughbred and quarter horse racing.

The Company’s pari-mutuel wagering operations include both wagering on thoroughbred and quarter horse races during live meets at the Racetrack each year from May through March, and year-round wagering on races held at out-of-state racetracks that are televised simultaneously at the Racetrack (“simulcasting”). Unbanked card games, in which patrons compete against each other, are hosted in the Card Casino at the Racetrack. The Card Casino typically operates 24 hours a day, seven days a week. The Card Casino offers both poker and table games at up to 80 tables. The Company also derives revenues from related services and activities, such as concessions, parking, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack.

COVID-19 Pandemic:

We are mitigating negative impacts to our operating results by taking signification actions, as discussed below.

On April 1, 2020, as a result of the temporary closures and suspended operations described above, the Company announced that all Canterbury Park employees, except for a limited number of key personnel required for basic ongoing maintenance, security and management needs, were being placed on an unpaid furlough. The Company has continued to pay the employer share of health, dental, vison and life insurance for these furloughed employees. The Company also implemented a salary reduction for all remaining non-furloughed employees based on a combination of the employee’s

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salary and the employee’s responsibilities during the temporary shutdown. The Company expects these salary reductions to remain in effect until the Company’s business operations begin to return to normal.

On March 16, 2020, the Company announced that the Company’s Board of Directors suspended its quarterly cash dividend until the Company’s business operations return to normal.

Other additional measures taken by the Company include postponing non-essential capital expenditures, reducing operating costs, and substantially reducing discretionary spending.

These countermeasures are expected to partially mitigate the impacts of the COVID-19 Pandemic on our full year 2020 financial results. The Company has a strong consolidated balance sheet with no long-term debt and an $8 million credit line that is anticipated to provide the Company with the necessary liquidity and financial flexibility to manage through this challenging operating environment. Additionally, as mentioned in notes 8 and 11 of the Notes to Financial Statements, the Company expects to close on three land sales in 2020, which would generate a substantial cash inflow for the Company.

As the impact of the COVID-19 Pandemic on the economy and our operations evolves, we will continue to assess the impact on the Company and respond accordingly.

Operations Review for the Three Months Ended March 31, 2020:

EBITDA

EBITDA represents earnings before interest, income tax expense, and depreciation and amortization. EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles in the United States of America (“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 is presented as a supplemental disclosure because it is a widely used measure of performance and a basis for valuation of companies in our industry. Moreover, other companies that provide EBITDA information may calculate EBITDA differently than we do. Adjusted EBITDA reflects additional adjustments to net income to eliminate unusual items. For the three months ended March 31, 2020 and 2019, adjusted EBITDA excluded the loss on disposal of assets.

The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA and to adjusted EBITDA (defined above) which are non-GAAP financial measures, for the three months ended March 31, 2020 and 2019:

Summary of EBITDA Data


	Three Months Ended March 31,
	2020		2019
NET INCOME	$	255,221	$	56,572
Interest income, net		(163,690)		(63,240)
Income tax (benefit) expense		50,164		(16,093)
Depreciation		716,853		625,520
EBITDA		858,548		602,759
Loss on disposal of assets		—		113,437
ADJUSTED EBITDA	$	858,548	$	716,196

Adjusted EBITDA increased $142,000, or 19.9%, and increased as a percentage of net revenues to 7.8% from 6.2% for the three months ended March 31, 2020 as compared to the same period in 2019. The increase is primarily due to a reduction in operating expenses compared to the same period in 2019.

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Revenues:

Total net revenues for the three months ended March 31, 2020 were $10,949,000, a decrease of $642,000, or 5.5%, compared to total net revenues of $11,591,000 for the three months ended March 31, 2019. This decrease consists of decreases in pari-mutuel, card casino, and food and beverages revenue of 13.1%, 4.3%, and 17.3%, respectively, slightly offset by an increase in other revenue of 14.8%. The decreases were driven by the COVID-19 Pandemic, which resulted in a temporary shutdown of operations effective March 16, 2020. See below for a further discussion of our sources of revenues.

Pari-Mutuel Data Revenue:


	Three Months Ended March 31,
	2020		2019
Simulcast	$	1,015,000	$	1,217,000
Other revenue		281,000		274,000
Total Pari-Mutuel Revenue	$	1,296,000	$	1,491,000

Total pari-mutuel revenue decreased $195,000, or 13.1%, for the three months ended March 31, 2020 compared to the same period in 2019. The decrease is primarily due to the COVID-19 Pandemic described above, as pari-mutuel revenue was relatively flat for the first two months of 2020 compared to the same period in 2019.

Card Casino Revenue:


	Three Months Ended March 31,
	2020		2019
Poker Games	$	1,657,000	$	1,930,000
Table Games		5,076,000		5,197,000
Total Collection Revenue		6,733,000		7,127,000
Other Poker Revenue		483,841		427,235
Other Table Games Revenue		344,159		345,765
Total Card Casino Revenue	$	7,561,000	$	7,900,000

The primary source of Card Casino revenue is a percentage of the wagers received from players as compensation for providing the Card Casino facility and services, which is referred to as “collection revenue.” Other Revenue presented above includes fees collected for the administration of tournaments, amounts earned as reimbursement of the administrative costs of maintaining jackpot funds, and amounts related to the outstanding chip liability that we expect will not be redeemed in the future.

As indicated by the table above, total Card Casino revenue decreased $339,000, or 4.3%, for the three months ended March 31, 2020, compared to the same period in 2019. The Company had increased growth in table games and poker revenue in the first two months of the 2020 first quarter compared to the same period in 2019, however, these increases were offset by a substantial revenue decrease in March 2020 due to the COVID-19 Pandemic described above.

Food and Beverage Revenue:

Food and beverage revenue decreased $234,000, or 17.3%, for the three months ended March 31, 2020 compared to the same period in 2019. The Company had increased growth in food and beverage revenues in the first two months of the 2020 first quarter compared to the same period in 2019; however, this increase was offset by a substantial revenue decrease in March 2020 due to the COVID-19 Pandemic described above.

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Other Revenue:

Other revenue increased $126,000, or 14.8%, for the three months ended March 31, 2020 compared to the same period in 2019. The increase is primarily due to an increase in space rental revenue and other operating revenues.

Operating Expenses:

Total operating expenses decreased $806,000, or 6.9%, for the three months ended March 31, 2020 compared to the same period in 2019. The following paragraphs provide further detail regarding certain operating expenses.

Purse expense decreased $292,000, or 20.9% for the three months ended March 31, 2020 compared to the same period in 2019. The decrease is due to lower pari-mutuel and Card Casino revenues, as well as a change in the purse payment structure related to changes in our horsemen contract for 2019.

Salaries and benefits decreased $167,000, or 2.9%, for the three months ended March 31, 2020, compared to the same period in 2019. The decrease is partially due to a decrease in expenses related to our bonus plans, as these have been temporarily suspended as a result of the COVID-19 Pandemic. Additionally, labor costs were unusually high in the 2019 first quarter as a result of inefficiencies caused by the Card Casino construction in January and February and re-opening in March 2019.

Other operating expenses decreased $156,000, or 13.6%, for the three months ended March 31, 2020, compared to the same period in 2019. The decrease is primarily due to timing as well the Company delaying certain expenditures as a result of the COVID-19 Pandemic.

During the three months ended March 31, 2019, the Company recorded a loss on disposal of assets totaling $113,000. This primarily related to a write-off of assets disposed of in remodeling our Card Casino in 2019.

Net income for the three months ended March 31, 2020 and 2019 was $255,000 and $57,000, respectively.

Contingencies:

The Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community, which became effective on March 4, 2012, and was amended in the respective first quarters of 2015, 2016, 2017, and 2018, and will expire December 31, 2022. The CMA contains specific covenants that, if breached, would trigger an obligation to repay a specified amount related to these covenants. At this time, management believes that the likelihood that the breach of a covenant would occur and that the Company would be required to pay the specified amount related to a covenant is remote.

The Company continues to analyze the feasibility of various options related to the development of our underutilized land. The Company may incur substantial costs during the feasibility and predevelopment process, but the Company believes available funds are sufficient to cover the near-term costs. See Liquidity and Capital Resources for more information on liquidity and capital resource requirements.

Liquidity and Capital Resources:

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The Company’s cash, cash equivalents, and restricted cash balance at March 31, 2020 was $3,081,000 compared to $3,927,000 as of December 31, 2019. The Company believes that unrestricted funds available in its cash accounts, amounts available under its revolving line of credit, along with funds generated from operations and future land sales, will be sufficient to satisfy its liquidity and capital resource requirements for regular operations, as well as its planned development expenses during 2020. However, if the Company engages in any additional significant real estate development, additional financing would more than likely be required.

Given its number of employees and the nature of its primary operations, the Company does not currently qualify for any of the federal lending assistance offered by the CARES Act that was passed in late March and April 2020, including the Paycheck Protection Program or other CARES Acts small business lending programs.

Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2020 was $351,000 primarily as a result of the following: The Company reported net income of $255,000, depreciation of $717,000, and stock-based compensation and 401(k) match totaling $219,000. The Company also experienced an increase in accounts payable of $961,000. This was partially offset by a decrease in accrued wages and payroll taxes of $1,400,000 and card casino accruals of $512,000.

Net cash provided by operating activities for the three months ended March 31, 2019 was $1,461,000 primarily as a result of the following: The Company reported net income of $57,000, which included a loss on disposal of assets of $113,000. Cash from operating activities was increased by noncash charges from depreciation of $626,000 and stock-based compensation and 401(k) match totaling $206,000. The Company also experienced an increase in accounts payable of $303,000, card casino accruals of $417,000, and a decrease in income taxes receivable of $357,000. This was partially offset by a decrease in accrued wages and payroll taxes of $889,000.

Investing Activities

Net cash used in investing activities for the first three months of 2020 and 2019 was $871,000 and $4,801,000, respectively, primarily for additions to land, buildings, and equipment and additions for TIF eligible improvements.

Financing Activities

Net cash used in financing activities during the first three months of 2020 and 2019 was $326,000 and $228,000, primarily due to cash dividends paid to shareholders, partially offset by proceeds from the issuance of common stock.

Critical Accounting Policies and Estimates:

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 GAAP. 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 2 to our consolidated financial statements in our 2019 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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Property and Equipment - We have significant capital invested in our property and equipment, which represents 68.0% of our total assets at March 31, 2020. We use 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 undiscounted future net cash flows. If the sum of the related expected future net cash flows is less than the carrying value, management would determine how much of an impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. We have determined that no impairment of these assets exists at March 31, 2020.

Stock-Based Compensation – Accounting guidance requires measurement of services provided in exchange for a share-based payment based on the grant date fair market value. We use our judgment in determining the assumptions used to determine the fair value of equity instruments granted using a Black-Scholes model. The Company also grants Long Term Incentive Awards under the Long Term Incentive Plan (the “LTI Plan”) under which Company executive officers and other senior executives have the opportunity to receive a payout of shares of the Company’s common stock at the end of a three-year period. Management must make a number of assumptions to estimate future results to determine the compensation expense of the LTI Plan. As a result of the COVID-19 Pandemic, the Company has temporarily suspended its LTI Plan until there is more certainty about the Company’s reopening and future operations.

Commitments and Contractual Obligations:

The Company entered into the CMA with the SMSC on June 4, 2012, that was amended in January 2015, 2016, 2017, and March 2018 and expires December 31, 2022. See “Cooperative Marketing Agreement” below.

Legislation:

Minimum Wage Legislation

In 2014, Minnesota legislation enacted into law an increase in the minimum wage that must be paid to most Company employees. Beginning January 1, 2018, the minimum wage was set to increase at the beginning of each year by the rate of inflation with a maximum increase of up to 2.5% per year. The minimum wage for 2020 is $10.00 per hour. Prior to August 1, 2014, the Company employed a large number of individuals who received an hourly wage equal to or slightly above $7.25 per hour. As a result, this legislation had an adverse financial impact on the Company in 2014 through 2019, and will continue to have an adverse impact on the Company. We have implemented measures to partially mitigate the impact of this increase by raising our prices and reducing our employee count. These measures could themselves have an adverse effect because higher prices and diminished service levels may discourage customers from visiting the Racetrack.

Cooperative Marketing Agreement:

On June 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse industry. Under the CMA, as amended, this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. These payments have no direct impact on the Company’s consolidated financial statements or operations.

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In each of the respective first quarters of 2015, 2016, 2017, and 2018, the CMA was amended to adjust the payment amounts between the “Purse Enhancement Payments to Horsemen” and “Marketing Payments to Canterbury Park.” SMSC is currently obligated to make the following purse enhancement and marketing payments for 2020 through 2022:

1 Includes $100,000 each year payable to various horsemen associations

Under the CMA, the Company has agreed for the 10‑year term of the CMA expiring December 31, 2022 that it will not promote or lobby the Minnesota legislature for expanded gambling authority and will support the SMSC’s lobbying efforts against expanding gambling authority.

Redevelopment Agreement:

As mentioned above in note 8 of Notes to Financial Statements, on August 10, 2018, the City of Shakopee, the City of Shakopee Economic Development Authority, and the Company entered into a Redevelopment Agreement in connection with a Tax Increment Financing District (“TIF District”) that the City had approved in April 2018. Under the Redevelopment Agreement, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, including the development of public streets, utilities, sidewalks, and other public infrastructure and the City of Shakopee agreed that a portion of the tax revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing these improvements. The Company expects to finance its improvements under the Redevelopment Agreement with funds from its current operating resources and existing credit facility and, potentially, third-party financing sources.

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, we may make forward-looking statements concerning possible or anticipated future financial performance, prospective business activities or plans that are typically preceded by words such as “believes,” “expects,” “anticipates,” “intends” or similar expressions. For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that these forward-looking statements are subject to risks and uncertainties that could affect our actual results and cause actual results to differ materially from those indicated in the forward-looking statements. These risks and uncertainties include, but are not limited to:

material fluctuations in attendance at the Racetrack;

any short-term or long-term effect that the COVID-19 Pandemic may have on the economy generally, or us as an entertainment venue, including reluctance from customers to visit our Racetrack or Card Casino or social distancing measures that we may voluntarily take that would limit attendance at our facilities;

the fact that we are currently unsure when we can reopen or commence live racing;

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decline in interest in wagering on horse races at the Racetrack, at other tracks, or on unbanked card games offered at the Card Casino;

competition from other venues offering unbanked card games or other forms of wagering;

greater-than-anticipated expenses or a lower-than-anticipated return on the development of our underutilized land, including our joint venture to develop a luxury apartment complex;

competition from other sports and entertainment options;

increases in compensation and employee benefit costs;

increases in the percentage of revenues allocated for purse fund payments;

higher-than-expected expenses related to new marketing initiatives;

the impact of wagering products and technologies introduced by competitors;

legislative and regulatory decisions and changes, including decision or actions related to sports betting that would adversely affect our betting environment;

any legal, judicial, legislative or regulatory action or event that would adversely affect our ten-year Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community, which enhances the purses for daily racing at Canterbury Park and supports cooperative marketing programs for the two organizations, benefiting the stability and quality of live horse racing;

the fact that under the Redevelopment Agreement with the City of Shakopee, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, and the amounts that Canterbury Park will be paid as reimbursement under the TIF program for these improvements is not guaranteed, but will depend in part on future tax revenues generated from the developed property;

the success of the Company’s Canterbury Commons real estate development, including our reliance upon our joint venture partner Doran Companies to construct and profitably operate the upscale apartment complex;

the fact that 2019 first quarter construction activity in our Card Casino resulted in a decline in Card Casino revenues and any future construction activity may result in similar decline;

the fact the infrastructure improvements that we are making pursuant to the Redevelopment Agreement with the City of Shakopee together with improvements we are making to our parking facilities may disrupt traffic flow in a manner that discourages our customers from visiting our facilities, thereby affecting our revenue and profitability;

our ability to develop and maintain high-quality food and beverage offerings that we can market and sell to our Racetrack and Card Casino patrons, as well as future residents of the new Triple Crown Apartments at Canterbury that are being developed by the Doran–Canterbury joint ventures;

the general health of the gaming sector; and

other factors that are beyond our ability to control or predict.

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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Note applicable.

ITEM 4: CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures:

The Company’s President and Chief Executive Officer, Randall D. Sampson and Chief Financial Officer, Randy J. Dehmer, 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 have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) that occurred during our fiscal quarter ended March 31, 2020 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

Not Applicable.

Item 1A. Risk Factors

There have been no changes to the Risk Factors listed in the Form 10-K for the year ended December 31, 2019.

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

(a)Not Applicable.

(b)Not Applicable.

(c)On December 17, 2007, the Company’s Board of Directors adopted a plan that authorized the repurchase of up to 250,000 shares of the Company’s common stock pursuant to Exchange Act Rule 10b‑18 in open market transactions, block purchases of privately negotiated transactions (the “2008 Stock Repurchase Plan”). From its adoption until August 13, 2012, the Company repurchased 216,543 shares under the 2008 Stock Repurchase Plan and, on that date, authorized the repurchase of an additional 100,000 shares of the Company’s common stock. The Company did not repurchase any shares during the first quarter of 2020. The maximum number of shares that may yet be purchased under the above authorizations is 128,781 as of March 31, 2020.

Item 3. Defaults upon Senior Securities

Not Applicable.

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Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Not Applicable.

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Item 6. Exhibits

3.1		Bylaws of Canterbury Park Holding Corporation, as amended April 17, 2020.

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

99.1		Press Release dated May 12, 2020 announcing 2020 First Quarter Results.

101		The following financial information from Canterbury Park Holding Corporation’s Quarterly Report on Form 10‑Q for the quarterly period ended March 31, 2020, formatted in eXtensible Business Reporting Language XBRL: (i) Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, (ii) Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2020 and March 31, 2019, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the Three Months ended March 31, 2020 and March 31, 2019, (iv) Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2020 and March 31, 2019, and (v) Notes to Financial Statements.

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: May 13, 2020	/s/ Randall D. Sampson

	Randall D. Sampson,
	Executive Chairman, President, and Chief Executive Officer

Dated: May 13, 2020	/s/ Randy J. Dehmer
	Randy J. Dehmer, Chief Financial Officer