**U.S. SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C.  20549**

 

## **FORM 10-Q**

 
| **(Mark One)** |
|----------------|
| **ý**     |   | **QUARTERLY REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD  ENDED MARCH 31, 2004.** |

 
| **o** |   | **TRANSITION REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD  FROM                TO              .** |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Commission File Number 001-31569**

 

### ****

### ** **

### **Canterbury Park Holding Corporation**

(Exact name of business issuer as specified in its charter)

 

| **Minnesota**                                                   |   | **41-1775532**                     |
|-----------------------------------------------------------------|--------|------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (IRS Employer  Identification No.) |
|                                                            |   |                               |
| **1100 Canterbury Road, Shakopee, Minnesota**                   |   | **55379**                          |
| (Address of principal executive offices)                        |   | (Zip Code)                         |
|                                                            |
| **(952) 445-7223**                                              |
| (Issuer’s Telephone Number)                                |

 

Indicate by check mark whetherthe Registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports, and (2) has been subjectto such filing requirements for the past 90days.   YES   ý   NO   o

 

**Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act.**   **YES**   o   **NO**   **ý**

 

The Company had 3,761,317shares of common stock, $.01 par value per share, outstanding as of May 10,2004.

 

Canterbury Park Holding Corporation

 

 

----

 

## **INDEX**

 
| **PART 1.**   | **FINANCIAL  INFORMATION** |                                                                                        |
|---------------|----------------------------|---------------------------------------------------------------------------------------------|
|          |                       |                                                                                        |   |
|          | Item 1.                    | Financial  Statements                                                                       |   |
|          |                       |                                                                                        |   |
|          |                       | Consolidated Balance Sheets as of  March 31, 2004 and December 31, 2003                     |   |
|          |                       |                                                                                        |   |
|          |                       | Consolidated Statements of Operations for  the periods ended  March 31, 2004 and 2003       |   |
|          |                       |                                                                                        |   |
|          |                       | Consolidated Statements of Cash Flows for  the periods ended  March 31, 2004 and 2003       |   |
|          |                       |                                                                                        |   |
|          |                       | Notes to Consolidated Financial Statements                                                  |   |
|          |                       |                                                                                        |   |
|          | Item 2.                    | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |   |
|          |                       |                                                                                        |   |
|          | Item 3.                    | Quantitative and Qualitative Disclosure  about Market Risk                                  |   |
|          |                       |                                                                                        |   |
|          | Item 4.                    | Controls and Procedures                                                                     |   |
|          |                       |                                                                                        |   |
| **PART  II.** | **OTHER  INFORMATION**     |                                                                                        |
|          |                       |                                                                                        |   |
|          | Item 1.                    | Legal Proceedings                                                                           |   |
|          |                       |                                                                                        |   |
|          | Item  2.                   | Changes  in Securities, Use of Proceeds and Issuer Purchase of Equity Securities            |   |
|          |                       |                                                                                        |   |
|          | Item 3.                    | Defaults Upon Senior Securities                                                             |   |
|          |                       |                                                                                        |   |
|          | Item 4.                    | Submission of Matters to a Vote of Security  Holders                                        |   |
|          |                       |                                                                                        |   |
|          | Item 5.                    | Other Information                                                                           |   |
|          |                       |                                                                                        |   |
|          | Item 6.                    | Exhibits and Report on Form 8-K                                                             |   |
|          |                       |                                                                                        |   |
|          | Signatures                 |                                                                                        |   |
|          |                       |                                                                                        |   |
|          | Exhibits                   |                                                                                        |   |

 

2

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**CANTERBURY PARK HOLDING CORPORATION ANDSUBSIDIARIES**

 

**CONSOLIDATED BALANCE SHEETS**

**MARCH 31, 2004 AND DECEMBER 31, 2003**

 
|                                                                                                                               |   | **March 31,  2004** |       | **December  31,  2003** |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|-------------------------|--------|
| ASSETS                                                                                                                             |   |                |       |                    |   |
|                                                                                                                               |   |                |       |                    |   |
| CURRENT ASSETS                                                                                                                     |   |                |       |                    |   |
| Cash                                                                                                                               |   | $                   | 4,063,409  |                    | $      | 2,523,560 |   |
| Restricted Cash                                                                                                                    |   | 1,613,869           |       | 1,286,738               |   |
| Accounts receivable                                                                                                                |   | 613,690             |       | 369,976                 |   |
| Inventory                                                                                                                          |   | 146,344             |       | 135,298                 |   |
| Deposits                                                                                                                           |   | 20,000              |       | 20,000                  |   |
| Prepaid expenses                                                                                                                   |   | 681,788             |       | 848,959                 |   |
| Total current assets                                                                                                               |   | 7,139,100           |       | 5,184,531               |   |
|                                                                                                                               |   |                |       |                    |   |
|                                                                                                                               |   |                |       |                    |   |
| LAND, BUILDINGS AND EQUIPMENT, net of  accumulated depreciation of $9,010,300 and $8,725,300, respectively                         |   | 18,384,191          |       | 17,112,933              |   |
|                                                                                                                               |   |                |       |                    |   |
|                                                                                                                               |   | $                   | 25,523,291 |                    | $      | 22,297,464 |   |
|                                                                                                                               |   |                |       |                    |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                          |   |                |       |                    |   |
|                                                                                                                               |   |                |       |                    |   |
| CURRENT LIABILITIES                                                                                                                |   |                |       |                    |   |
| Accounts payable                                                                                                                   |   | $                   | 2,499,687  |                    | $      | 1,584,145 |   |
| Card club accruals                                                                                                                 |   | 1,742,947           |       | 1,294,826               |   |
| Accrued wages and payroll taxes                                                                                                    |   | 1,416,039           |       | 1,434,295               |   |
| Accrued interest                                                                                                                   |   | 3,338               |       | 2,158                   |   |
| Advance from MHBPA                                                                                                                 |   | 127,301             |       | 103,194                 |   |
| Accrued property taxes                                                                                                             |   | 292,700             |       | 223,907                 |   |
| Income taxes payable                                                                                                               |   | 414,799             |       | 95,499                  |   |
| Payable to horsepersons                                                                                                            |   | 459,805             |       | 344,343                 |   |
| Deferred tax liability                                                                                                             |   | 284,000             |       | 389,000                 |   |
| Total current liabilities                                                                                                          |   | 7,240,616           |       | 5,471,367               |   |
|                                                                                                                               |   |                |       |                    |   |
| COMMITMENTS AND CONTINGENCIES (Note 4)                                                                                             |   |                |       |                    |   |
|                                                                                                                               |   |                |       |                    |   |
| STOCKHOLDERS’ EQUITY                                                                                                          |   |                |       |                    |   |
|                                                                                                                               |   |                |       |                    |   |
| Common stock, $.01 par value, 10,000,000  shares authorized, 3,739,769 and 3,714,369, respectively, shares issued and  outstanding |   | 37,308              |       | 37,144                  |   |
| Additional paid-in capital                                                                                                         |   | 11,706,886          |       | 11,510,650              |   |
| Accumulated earnings                                                                                                               |   | 6,538,481           |       | 5,278,303               |   |
| Total stockholders’ equity                                                                                                    |   | 18,282,675          |       | 16,826,097              |   |
|                                                                                                                               |   | $                   | 25,523,291 |                    | $      | 22,297,464 |   |

 

See notes to consolidatedfinancial statements.

 

3

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**CANTERBURY PARK HOLDING CORPORATION ANDSUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**PERIODS ENDED MARCH 31, 2004 AND 2003**

 
|                                          |   | **Three  Months  Ended  March 31, 2004** |      | **Three  Months  Ended  March 31, 2003** |   |
|-----------------------------------------------|--------|------------------------------------------|-----------|------------------------------------------|--------|
|                                          |   |                                     |      |                                     |   |
| OPERATING REVENUES:                           |   |                                     |      |                                     |   |
| Pari-mutuel                                   |   | $                                        | 3,179,729 |                                     | $      | 3,125,627 |   |
| Card Club                                     |   | 6,888,201                                |      | 4,918,462                                |   |
| Concessions                                   |   | 826,922                                  |      | 728,077                                  |   |
| Admissions and parking                        |   | 38,718                                   |      | 25,186                                   |   |
| Publications                                  |   | 108,041                                  |      | 130,510                                  |   |
| Other operating revenue                       |   | 344,354                                  |      | 301,388                                  |   |
|                                          |   | 11,385,965                               |      | 9,229,250                                |   |
|                                          |   |                                     |      |                                     |   |
| OPERATING EXPENSES:                           |   |                                     |      |                                     |   |
| Pari-mutuel expenses                          |   |                                     |      |                                     |   |
| Statutory purses                              |   | 1,214,570                                |      | 896,988                                  |   |
| Host track fees                               |   | 519,838                                  |      | 520,310                                  |   |
| Pari-mutuel taxes                             |   | 50,982                                   |      | 42,597                                   |   |
| Minnesota breeders’ fund                 |   | 269,437                                  |      | 232,164                                  |   |
| Salaries and benefits                         |   | 4,177,853                                |      | 3,566,876                                |   |
| Cost of concessions and publication sales     |   | 571,228                                  |      | 496,036                                  |   |
| Depreciation and amortization                 |   | 285,000                                  |      | 288,168                                  |   |
| Utilities                                     |   | 243,584                                  |      | 247,756                                  |   |
| Repairs, maintenance and supplies             |   | 287,283                                  |      | 200,708                                  |   |
| License fees and property taxes               |   | 140,694                                  |      | 64,697                                   |   |
| Advertising and marketing                     |   | 368,308                                  |      | 365,586                                  |   |
| Insurance                                     |   | 249,309                                  |      | 176,098                                  |   |
| Other operating expenses                      |   | 727,651                                  |      | 673,938                                  |   |
|                                          |   | 9,105,737                                |      | 7,771,922                                |   |
|                                          |   |                                     |      |                                     |   |
| NONOPERATING (EXPENSES) REVENUES:             |   |                                     |      |                                     |   |
| Interest expense                              |   | (1,355                                   | )         | (2,162                                   | )      |
| Other, net                                    |   | 10,605                                   |      | 8,921                                    |   |
|                                          |   | 9,250                                    |      | 6,759                                    |   |
|                                          |   |                                     |      |                                     |   |
| INCOME BEFORE INCOME TAX EXPENSE              |   | 2,289,478                                |      | 1,464,087                                |   |
|                                          |   |                                     |      |                                     |   |
| INCOME TAX EXPENSE (Note 1)                   |   | (1,029,300                               | )         | (625,000                                 | )      |
|                                          |   |                                     |      |                                     |   |
| NET INCOME                                    |   | $                                        | 1,260,178 |                                     | $      | 839,087 |   |
|                                          |   |                                     |      |                                     |   |
| BASIC NET INCOME PER COMMON SHARE (Note 1)    |   | $                                        | .34       |                                     | $      | .23 |   |
|                                          |   |                                     |      |                                     |   |
| DILUTED NET INCOME PER COMMON SHARE (Note  1) |   | $                                        | .30       |                                     | $      | .21 |   |

 

See notes to consolidatedfinancial statements.

 

4

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**CANTERBURY PARK HOLDING CORPORATION ANDSUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**PERIODS ENDED MARCH 31, 2004 AND 2003**

 
|                                                                           |   | **Three  Months  Ended  March 31, 2004** |      | **Three  Months  Ended  March 31, 2003** |   |
|--------------------------------------------------------------------------------|--------|------------------------------------------|-----------|------------------------------------------|--------|
|                                                                           |   |                                     |      |                                     |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                          |   |                                     |      |                                     |   |
| Net income                                                                     |   | $                                        | 1,260,178 |                                     | $      | 839,087 |   |
| Adjustments to reconcile net income to net  cash  provided by operations: |   |                                     |      |                                     |   |
| Depreciation and amortization                                                  |   | 285,000                                  |      | 288,168                                  |   |
| Deferred income taxes                                                          |   | (105,000                                 | )         | (6,000                                   | )      |
| Increase in restricted cash                                                    |   | (327,131                                 | )         | (180,336                                 | )      |
| (Increase) decrease in accounts receivable                                     |   | (243,714                                 | )         | 134,240                                  |   |
| Decrease (increase) in other current assets                                    |   | 156,125                                  |      | (188,861                                 | )      |
| Increase in income taxes payable                                               |   | 459,300                                  |      | 601,019                                  |   |
| Increase (decrease) in accounts payable and  accrued wages & payroll taxes |   | 897,286                                  |      | (14,447                                  | )      |
| Increase (decrease) in card club accruals                                      |   | 448,121                                  |      | (15,735                                  | )      |
| Increase in accrued interest                                                   |   | 1,180                                    |      | 1,560                                    |   |
| Increase in accrued property taxes                                             |   | 68,793                                   |      | 55,252                                   |   |
| Increase in payable to horsepersons                                            |   | 115,462                                  |      | 50,775                                   |   |
| Net cash provided by operations                                                |   | 3,015,600                                |      | 1,564,722                                |   |
|                                                                           |   |                                     |      |                                     |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                          |   |                                     |      |                                     |   |
| Additions to land, buildings and equipment                                     |   | (1,556,258                               | )         | (260,485                                 | )      |
|                                                                           |   |                                     |      |                                     |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                          |   |                                     |      |                                     |   |
| Proceeds from issuance of common stock                                         |   | 56,400                                   |      | 13,250                                   |   |
| Net proceeds on advance from MHBPA                                             |   | 24,107                                   |      | 271,212                                  |   |
| Net cash provided by financing activities                                      |   | 80,507                                   |      | 284,462                                  |   |
|                                                                           |   |                                     |      |                                     |   |
| NET INCREASE IN CASH                                                           |   | 1,539,849                                |      | 1,588,699                                |   |
|                                                                           |   |                                     |      |                                     |   |
| CASH AT BEGINNING OF PERIOD                                                    |   | 2,523,560                                |      | 1,654,038                                |   |
|                                                                           |   |                                     |      |                                     |   |
| CASH AT END OF PERIOD                                                          |   | $                                        | 4,063,409 |                                     | $      | 3,242,737 |   |
|                                                                           |   |                                     |      |                                     |   |
| INTEREST PAID                                                                  |   | $                                        | 0         |                                     | $      | 0 |   |
|                                                                           |   |                                     |      |                                     |   |
| INCOME TAXES PAID                                                              |   | $                                        | 675,000   |                                     | $      | 40,000 |   |

 

See notes to consolidatedfinancial statements.

 

5

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# **CANTERBURY PARKHOLDING CORPORATION AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**PERIODS ENDED MARCH 31, 2004 AND 2003**

 

1.               SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

The summary ofsignificant accounting policies is included in the notes to consolidatedfinancial statements in the 2003 Annual Report on Form 10-K.

 

*Income Taxes*- Income tax expense is computed by applying the estimated annual effective taxrate to the year-to-date income.

 

*Unaudited FinancialStatements* - The consolidated balance sheet as ofMarch 31, 2004, the consolidated statements of operations for the three monthsended March 31, 2004 and 2003, the consolidated statements of cash flows forthe three months ended March 31, 2004 and 2003, and the relatedinformation contained in these notes have been prepared by management withoutaudit.  In the opinion of management,all accruals (consisting of normal recurring accruals) which are necessary fora fair presentation of financial position and results of operations for such periodshave been made.  Results for an interimperiod should not be considered as indicative of results for a full year.

 

*Net Income Per Share –*Basicnet income per common share is based on the weighted average number of commonshares outstanding during each period. The weighted average number of commonshares outstanding for the three months ended March 31, 2004 and March 31, 2003were 3,727,993 and 3,639,051, respectively. Diluted net income per common share takes into effect the dilutiveeffect of potential common shares outstanding. The Company’s only potential common shares outstanding are stockoptions.  After considering the dilutiveeffect of stock options outstanding, the weighted average shares used tocalculate diluted earnings per share for the three months ended March 31, 2004and 2003 were 4,158,204 and 4,045,541, respectively.

 

*Stock Based Employee Compensation*- At March 31, 2004, the Company has a stock option plan which provides for thegranting of awards in the form of stock options, restricted stock, stockappreciation rights, and deferred stock to key employees and non-employees,including directors of and consultants to the Company and any subsidiary, topurchase up to a maximum of 1,150,000 shares of common stock.  The Company accounts for that plan under therecognition and measurement principles of APB Opinion No. 25, *Accounting for Stock Issued to Employees,*and related interpretations.  Nostock-based employee compensation cost is reflected in net income, as alloptions granted under the plan had an exercise price equal to the market valueof the underlying common stock on the date of grant.  The following table illustrates the effect on net income andearnings per share if the Company had applied the fair value recognitionprovisions of FASB Statement No. 123, *Accountingfor Stock-Based Compensation,*to stock-based employee compensation.

 

6

----

 

*Stock Based Employee Compensation Table:*

 
|                                                                                                                                                |   | **Three  Months Ended March 31,** |      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|-----------|
|                                                                                                                                                |   | **2004**                          |      | **2003** |   |
| Net Income:                                                                                                                                         |   |                              |      |   |   |
| As reported                                                                                                                                         |   | $                                 | 1,260,178 |   | $ | 839,087 |   |
| Deduct:   Total stock-based employee compensation expense determined under fair  value based method for all awards, net of related tax effects |   | (115,783                          | )         | (64,653 | ) |
| Pro forma net income                                                                                                                                |   | $                                 | 1,144,395 |   | $ | 774,433 |   |
|                                                                                                                                                |   |                              |      |   |   |
| Earnings Per Share:                                                                                                                            |   |                              |      |   |   |
| Basic - as reported                                                                                                                                 |   | $                                 | .34       |   | $ | .23 |   |
|                                                                                                                                                |   |                              |      |   |   |
| Basic - pro forma                                                                                                                                   |   | $                                 | .31       |   | $ | .21 |   |
|                                                                                                                                                |   |                              |      |   |   |
| Diluted - as reported                                                                                                                               |   | $                                 | .30       |   | $ | .21 |   |
|                                                                                                                                                |   |                              |      |   |   |
| Diluted - pro forma                                                                                                                                 |   | $                                 | .28       |   | $ | .19 |   |

 

2.               BORROWINGS UNDERCREDIT AGREEMENT

 

The Companyhas a credit agreement with Bremer Bank N.A. that provides for a revolvingcredit line of up to $2,250,000 with interest at the prime rate.  The Company had no borrowings under thiscredit line at March 31, 2004.  Thecredit agreement contains certain covenants requiring the Company to maintaincertain financial ratios.  The Companywas in compliance with these requirements as of March 31, 2004.  Management believes that funds availableunder this line of credit, along with funds generated from card club andsimulcast operations, will be sufficient to satisfy its liquidity and capitalresource requirements during 2004.

 

3.               OPERATING SEGMENTS

 

During thefirst three months of 2004 and 2003, the Company had three reportable operatingsegments:  card club, horse racing andconcessions.  The card club segmentprimarily represents operations of the Canterbury Card Club. The horseracingsegment primarily represents simulcast and live racing operations, and theconcessions segment primarily represents concessions provided during simulcastand live racing, in the card club and during special events.  The Company’s reportable operating segmentsare strategic business units that offer different products and services.  They are managed separately because thesegments differ in the nature of the products and services provided as well asprocesses to produce those products and services.  The horse racing and card club segments are regulated by theState of Minnesota Racing Commission.

 

The accountingpolicies of the operating segments are the same as those described in thesummary of significant accounting policies in the 2003 Annual Report on Form10-K.

 

7

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

 

The followingtable provides information about the Company’s operating segments (in 000’s):

 
|                               |   | **Three  Months Ended March 31, 2004** |   |
|------------------------------------|--------|----------------------------------------|--------|
|                               |   | **Card Club**                          |   | **Horse  Racing** |   | **Concessions** |   | **Total** |   |
|                               |   |                                   |   |   |   |   |   |   |   |
| Revenues from external customers   |   | $                                      | 6,888  |   | $ | 3,671 |   | $ | 827 |   | $ | 11,386 |   |
|                               |   |                                   |   |   |   |   |   |   |   |
| Intersegment revenues              |   |                                   |   | 22 |   | 455 |   | 477 |   |
|                               |   |                                   |   |   |   |   |   |   |   |
| Net Interest expense               |   |                                   |   | (9 | ) |   |   | (9 | ) |
|                               |   |                                   |   |   |   |   |   |   |   |
| Depreciation and amortization      |   | 117                                    |   | 168 |   |   |   | 285 |   |
|                               |   |                                   |   |   |   |   |   |   |   |
| Segment income before income taxes |   | 1,459                                  |   | 807 |   | 165 |   | 2,431 |   |
|                               |   |                                   |   |   |   |   |   |   |   |
| Segment Assets                     |   | $                                      | 3,622  |   | $ | 21,838 |   | $ | 2,069 |   | $ | 27,529 |   |

 
|                               |   | **Three  Months Ended March 31, 2003** |   |
|------------------------------------|--------|----------------------------------------|--------|
|                               |   | **Card Club**                          |   | **Horse  Racing** |   | **Concessions** |   | **Total** |   |
|                               |   |                                   |   |   |   |   |   |   |   |
| Revenues from external customers   |   | $                                      | 4,919  |   | $ | 3,582 |   | $ | 728 |   | $ | 9,229 |   |
|                               |   |                                   |   |   |   |   |   |   |   |
| Intersegment revenues              |   |                                   |   | 28 |   | 319 |   | 347 |   |
|                               |   |                                   |   |   |   |   |   |   |   |
| Net Interest expense               |   |                                   |   | (7 | ) |   |   | (7 | ) |
|                               |   |                                   |   |   |   |   |   |   |   |
| Depreciation and amortization      |   | 136                                    |   | 152 |   |   |   | 288 |   |
|                               |   |                                   |   |   |   |   |   |   |   |
| Segment income before income taxes |   | 624                                    |   | 830 |   | 84 |   | 1,538 |   |
|                                    |        |                                        |        |  |  |  |  |  |  |  |  |  |  |

 
|           |   | **At December 31, 2003** |   |
|----------------|--------|--------------------------|--------|
|           |   |                     |   |   |   |   |   |   |   |
| Segment Assets |   | $                        | 3,727  |   | $ | 18,459 |   | $ | 1,905 |   | $ | 24,092 |   |
|                |        |                          |        |  |  |  |  |  |  |  |  |  |  |

 

8

----

 

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

 
|                                                          |   | **Quarter  Ended  March 31,2004** |   | **Quarter  Ended  March 31,2003** |   |
|---------------------------------------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|
| Revenues:                                                     |   |                              |   |                              |   |
| Total revenue for reportable segments                         |   | $                                 | 11,863 |                              | $      | 9,576 |   |
| Elimination of intersegment revenues                          |   | (477                              | )      | (347                              | )      |
| Total consolidated revenues                                   |   | $                                 | 11,386 |                              | $      | 9,229 |   |
|                                                          |   |                              |   |                              |   |
| Income before income taxes:                                   |   |                              |   |                              |   |
| Total segment income before  income taxes                     |   | $                                 | 2,431  |                              | $      | 1,538 |   |
| Elimination of intersegment income  before  income taxes |   | (142                              | )      | (74                               | )      |
| Total consolidated income before income  taxes                |   | $                                 | 2,289  |                              | $      | 1,464 |   |

 
|                                    |   | **March 31,  2004** |   | **December 31,  2003** |   |
|-----------------------------------------|--------|---------------------|--------|------------------------|--------|
| Assets:                                 |   |                |   |                   |   |
| Total assets for reportable segments    |   | $                   | 27,529 |                   | $      | 24,092 |   |
| Elimination of intercompany receivables |   | (2,006              | )      | (1,795                 | )      |
| Total consolidated assets               |   | $                   | 25,523 |                   | $      | 22,297 |   |

 

4.               CONTINGENCIES

 

In accordancewith an Earn Out Note, given to the prior owner of the racetrack as part of theconsideration paid by the Company to acquire the racetrack, if (i) off-trackbetting becomes legally permissible in the State of Minnesota and (ii) theCompany begins to conduct off-track betting with respect to or in connectionwith its operations, the Company will be required to pay to the IMR Fund, L.P.the greater of $700,000 per operating year, as defined, or 20% of the netpretax profit, as defined, for each of five operating years.  At the date (if any) that these twoconditions are met, the five minimum payments will be discounted back to theirpresent value and the sum of those discounted payments will be recorded as anincrease to the purchase price.  The purchaseprice will be further increased if payments become due under the 20% of “NetPre-Tax Profit calculation”.  The firstpayment is to be made 90 days after the end of the third operating year inwhich off-track betting is conducted by the Company.  Remaining payments would be made within 90 days of the end ofeach of the next four operating years.

 

The Company isperiodically involved in various legal actions arising in the normal course ofbusiness.  At March 31, 2004, managementbelieves that the resolution of any legal actions outstanding will not have amaterial impact on the consolidated financial statements.

 

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**ITEM 2:****                            MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**General:**

 

CanterburyPark Holding Corporation (the “Company”) owns and operates Canterbury ParkRacetrack and Card Club in Shakopee, Minnesota.  The primary businesses of the Company are pari-mutuel horseracing, hosting unbanked card games, and food and beverage operations.

 

The Racetrackis the only pari-mutuel horse racing facility in the State of Minnesota.  The Racetrack earns revenues frompari-mutuel take-out on races simulcast year-round to Canterbury Park fromracetracks throughout the country and from live race meets featuring thoroughbredand quarter horse racing. The Company conducts live horse racing at itsfacility generally from mid-May until early September each year.  During live race meets, the Companytelevises its races to out-of-state racetracks around the country, and earnsadditional pari-mutuel revenue on wagers placed at the out-of-state racetracks.

 

CanterburyPark’s Card Club (the “Card Club”) is authorized under Minnesota law to host“unbanked” card games in which players compete against each other and notagainst the house.  The Company receivesa percentage of the wagers from the players as compensation for providing theCard Club facility and services.  TheCard Club is open twenty-four hours a day, seven days a week. The Minnesota Racing Commission isauthorized by Minnesota law to regulate Card Club and horse racingoperations.  The law requires that up to14% of the gross revenue generated by the Card Club be paid to the Racetrack’spurse fund and the State of Minnesota Breeders’ Fund.  However, the Company has agreed with the MHBPA to pay 15% of CardClub revenues into the purse fund for 2004.

 

The Companyalso generates revenues from other activities such as from the sale of food andbeverage, programs and other racing publications, and admissions and parking fees.The Company also offers advertising signage space similar to that appearing atmany sports stadiums. Finally, additional revenues are derived from a RV parkand the use of the Racetrack facilities for special events such as concerts,craft shows and snowmobile racing.

 

**Results of Operations for the Three MonthsEnded March 31, 2004 and March 31, 2003:**

 

Totaloperating revenues increased $2,156,715, or 23.4%, during three months endedMarch 31, 2004 compared to the three months ended March 31, 2003.

 

Pari-mutuelrevenue increased $54,102, or 1.7% in the three-month period ended March 31,2004 compared to the same period in 2003. Total wagering handle for the three month period ended March 31, 2004was up $205,459 or 1.4%, compared to total handle during the same quarter ayear ago.   Total pari-mutuel expensesincluding state pari-mutuel taxes, contributions to the Minnesota Breeders’Fund, statutory purses and host fees were $2,054,827 and $1,692,059 for the quartersended March 31, 2004 and 2003, respectively. The increase is due primarily to an increase in purse expense related tothe increased level of Card Club operations.

 

Card Clubrevenues increased 40.0% to $6,888,201 for the first three months of 2004compared to $4,918,462 for the same period in 2003.  The increase is primarily due to growing interest in the CardClub’s poker games partially generated by the popularity of televised pokertournaments and steady growth in patrons of the Card Club’s Casino Games room.

 

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Concessionrevenues increased 13.6% to $826,922 for the quarter ended March 31, 2004compared to $728,077 for the first quarter of 2003 primarily due to theincrease in attendance in the Card Club.

 

Operatingexpenses in the first quarter of 2004 (excluding pari-mutuel expenses)increased by approximately $971,000, or 16.0%, compared to 2003 primarily dueto increased business in the Card Club, and costs associated with the Company’sregulatory licenses.  Salary and benefitcosts, increased $610,977, or 17.1% primarily due to increases in healthinsurance rates along with increased labor rates and hours worked consistentwith the increased operating levels. Repairs, maintenance and supplies increased $86,575, or 43.1% comparedto 2003, primarily due to software purchases and chip expenses related to theCard Club.  License fees and propertytaxes increased $75,997, or 117.5% due to increased costs related to licensefees assessed to the Company by the Minnesota Racing Commission. Insuranceexpense increased $73,211, or 41.6% due to increased property and liabilityinsurance rates.

 

Income beforeincome taxes increased $825,391, or 56.4%, to $2,289,478 for the three monthsended March 31, 2004, from $1,464,087 for the three months ended March 31,2003.  Income tax expense was $1,029,300and $625,000 for the first quarter of 2004 and 2003, respectively, resulting innet income of $1,260,178 and $839,087, respectively.

 

#### **Commitments andContingencies:**

 

There havebeen no material changes in our outstanding commitments and contingencies sincethose reported at December 31, 2003.

 

**Liquidityand Capital Resources:**

 

Cash providedby operating activities for the three months ended March 31, 2004 was$3,015,600 and resulted principally from net income of $1,260,178, depreciationand amortization of $285,000, an increase in income taxes payable of $459,300,an increase in accounts payable and accrued wages & payroll taxes of$897,286, an increase in card club accruals of $448,121, offset by an increasein accounts receivable of $243,714 and an increase in restricted cash of$327,131. During the period January 1, 2003 through March 31, 2003, cashprovided by operating activities was $1,564,722, which resulted principallyfrom net income of $839,087, depreciation and amortization of $288,168, anincrease in income taxes payable of $601,019, a decrease in accounts receivableof $134,240, offset by an increase in restricted cash of $180,336 and anincrease in current assets of $188,861.

 

Net cash usedin investing activities for the first quarter of 2004 of $1,556,258 resultedprimarily from building improvements related to the renovation of theclub-level facility for $1.1 million, and the acquisitions of equipment.  This compared to $260,485 in the firstquarter of 2003, related primarily to the acquisitions of equipment.

 

Cash providedby financing activities during the first three months of 2004 consisted ofproceeds received upon the exercise of stock options of $56,400 and netproceeds from the advance from the Minnesota Horsemen’s Benevolent andProtective Association (the “MHBPA”) of $24,107. Cash provided by financingactivities during the first three months of 2003 consisted of proceeds receivedupon the exercise of stock options of $13,250, and net proceeds from theadvance from the MHBPA of $271,212.

 

The Company isrequired by statute to segregate a portion of funds received from revenues inthe Card Club and wagering on simulcast and live horse races for future paymentas purses for live horse races at the Racetrack or other uses of Minnesota’shorsepersons associations.  Pursuant toan agreement with the MHBPA, during the three months ended March 31, 2004 and2003, the Company transferred into a trust account for these purposes or paiddirectly to the MHBPA approximately $1,075,000 and $550,000 respectively.  At March 31, 2004, the Company had anadditional liability to

 

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MHBPA of $127,301.  This liability will be paid in 2004,including interest earned at the prime-lending rate, in accordance with theagreement with the MHBPA.

 

The Company has acredit agreement with Bremer Bank N. A. that provides a revolving credit linepermitting advances of up to $2,250,000 with interest at the prime rate.  The Company had no borrowings under the lineof credit at March 31, 2004 or December 31, 2003.  The credit agreement contains certain covenants requiring theCompany to maintain certain financial ratios. The Company was in compliance with these requirements at all timesthroughout the quarter ended March 31, 2004.

 

Unrestrictedcash balances at March 31, 2004 were $4,063,409 compared to $2,523,560 atDecember 31, 2003.  The Company believesthat funds available in its cash accounts, amounts available under the generalcredit and security agreement, along with funds generated from operations, willbe sufficient to satisfy its liquidity and capital resource requirements during2004 for regular operations.  If the “Racino”as discussed below under “Pending Legislation” receives necessary legislativeapproval, the Company will require substantial additional debt and/or equityfinancing.  The Company believes thatsuch financing with reasonable terms can be obtained.

 

**CriticalAccounting Policies:**

 

The preparation of consolidated financial statementsin conformity with generally accepted accounting principles requires managementto make estimates that effect the amounts reported and disclosed in theconsolidated financial statements. By their nature, these estimates are subjectto an inherent degree of uncertainty. Theses estimates are based on ourexperience and various other assumptions that are believed to be reasonable inthe circumstances, the results of which form the basis for making judgmentsabout the carrying values of assets and liabilities. On an ongoing basis, weevaluate our estimates. However, actual results could differ from thoseestimates.

 

Our significant accounting policies are included inNote 1 to our consolidated financial statements in our 2003 Annual Report onForm 10-K. We believe the following critical accounting policies affect ourmore significant judgments and estimates used in the preparation of ourconsolidated financial statements.

 

*Land, Buildings and Equipment*— We have significant capital invested in our property and equipment, whichrepresents approximately 72% of our total assets. We utilize our judgment invarious ways including: determining whether an expenditure is considered amaintenance expense or a capital asset; determining the estimated useful livesof assets; and determining if or when an asset has been impaired. Our propertyand equipment is evaluated for impairment whenever circumstances indicate thatthe carrying value of an asset may not be recoverable from the estimated futurecash flows expected to result from its use. If the sum of the expected futurecash flows (undiscounted and without interest charges) is less than thecarrying amount, we recognize an impairment loss. The impairment lossrecognized is the amount by which the carrying amount exceeds the fair valueand is charged to operations in the period in which such impairment isdetermined by management. We do not believe that any impairment has occurred oris likely to occur in the near future.

 

*Regulation-*Ourbusiness can be materially impacted both positively and negatively bylegislative and regulatory changes, such as those previously described.Significant negative changes resulting from these activities could result in animpairment of our property and equipment in accordance with generally acceptedaccounting standards. Additional information regarding how our business can beimpacted by legislative and regulatory changes are included in Item 1 (vi), andItem 1 (vii), respectively, in our 2003 Annual Report on Form 10-K.

 

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**PendingLegislation:**

 

On February18, 2003 a bill was introduced in the Minnesota Legislature, to allowelectronic gaming devices to be operated by the Minnesota State Lottery at theRacetrack.  This concept often referredto as a “Racino”, as proposed for Canterbury Park would include 2,000 gamingdevices, a 250-room hotel, an Olympic scale horse park and additionalrestaurant venues.  The bill wasapproved in May 2003 by a 71 to 60 margin by the Minnesota House ofRepresentatives.  However, on May 29,2003 the Minnesota Legislature adjourned the first year of its regular sessionwithout taking further action on the Racino legislation. The MinnesotaLegislature reconvened for the second year of its regular session in February2004, and the Racino legislation is pending in the Minnesota Senate because itpassed in the Minnesota House of Representatives in 2003. Based on the successof several Racinos in other states, the Company believes that if thislegislation becomes law, it will enhance horse racing with increased purses,provide growth and development opportunities for the Company, and producesignificant new tax revenues for state and local governments.

 

In addition,legislation was introduced in 2004 to remove the 50-table limit in the CardClub imposed by current Minnesota law. Also, the Minnesota House of Representatives Omnibus Tax Bill includes a5% franchise fee on Card Club gross revenues. These bills have also passed the Minnesota House, and are pending in theMinnesota Senate.

 

The effort toobtain legislative authority for these initiatives has required, and willcontinue to require, substantial expenditures and there can be no assurancethat any bill favorable to the Company’s interests will be enacted into law.

 

**FactorsAffecting Future Performance:**

 

From time to time,in reports filed with the Securities and Exchange Commission, in pressreleases, and in other communications to shareholders or the investing public,the Company may make forward-looking statements concerning possible oranticipated future financial performance, business activities or plans whichare typically preceded by the words “believes,” “expects,” “anticipates,”“intends” or similar expressions.  Forsuch forward-looking statements, the Company claims the protection of the safeharbor for forward-looking statements contained in federal securitieslaws.  Shareholders and the investingpublic should understand that such forward-looking statements are subject torisks and uncertainties which could cause actual performance, activities orplans to differ significantly from those indicated in the forward-lookingstatements.  Such risks anduncertainties include, but are not limited to: material fluctuations inattendance at the Racetrack, material changes in the level of wagering bypatrons, decline in interest in the unbanked card games offered at the CardClub, legislative and regulatory changes, the impact of wagering products andtechnologies introduced by competitors; increases in the percentage of revenuesallocated for purse fund payments; increases in compensation and employeebenefit costs; the general health of the gaming sector; higher than expectedexpense related to new marketing initiatives; and other factors discussed fromtime to time in the Company’s filings with the Securities and ExchangeCommission.

 

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**ITEM3:    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

We are exposed to marketrisk from changes in interest rates on borrowings under our commercialrevolving credit line that bears interest at the prime rate.  At March 31, 2004 we have no debt borrowingsunder our credit facility.

 

We have no derivativefinancial instruments or derivative commodity instruments in our cash and cashequivalents and marketable securities. We invest cash and cash equivalents in investment grade, highly liquidinvestments, consisting of money market instruments, bank certificates ofdeposit, overnight investments in commercial paper, and short term governmentand corporate bonds.

 

**ITEM4:    CONTROLS AND PROCEDURES**

 

(a)                                Evaluation of Disclosure Controls and Procedures:

 

The Company’s Chief Executive Officer, Randall D. Sampson, and ChiefFinancial Officer, David C. Hansen, have evaluated the Company’s disclosurecontrols and procedures as of the end of the period covered by thisreport.  Based upon that review, theyhave concluded that these disclosure controls and procedures are effective inensuring that material information related to the Company that is required tobe disclosed is made known to them by others within the Company.

 

(b)                               Changes in Internal Control Over Financial Reporting:

 

There have been no significant changes in internal control overfinancial reporting that occurred during the fiscal quarter covered by thisreport that have materially affected, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

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**PARTII**

**OTHER INFORMATION**

 

**Item 1.**                                   LegalProceedings

 

Not applicable

 

**Item 2.**                                   Changesin Securities, Use of Proceeds and Issuer Purchase of Equity Securities

 

Not applicable

 

**Item 3.**                                   Defaults Upon SeniorSecurities

 

Not applicable

 

**Item 4.**                                   Submission ofMatters to a Vote of Security Holders

 

Not applicable

 

**Item 5.**                                   OtherInformation

 

Not applicable

 

**Item 6.**                                   Exhibits and Reportson Form 8-K

** **

(a)                       The following exhibits areincluded herein:

 

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

 

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

 

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

 

(b)                      Reports on Form 8-K

 

On March 26, 2004 the Company filed a current report on Form 8-K withthe Securities and Exchange Commission, reporting under Item 12 the financialresults for the year ended December 31, 2003.

 

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**SIGNATURES**

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|                      | Canterbury  Park Holding Corporation        |
|---------------------------|---------------------------------------------|
|                      |                                        |
| Dated:  May 14, 2004 |   /s/  Randall D. Sampson         |
|                      | Randall D.  Sampson,                        |
|                      | President  and Chief Executive Officer      |
|                      |                                        |
|                      |                                        |
|                      |                                        |
| Dated:  May 14, 2004 |   /s/  David C. Hansen            |
|                      | David C.  Hansen,                           |
|                      | Vice  President and Chief Financial Officer |

 

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