** **

**U.S.SECURITIES AND EXCHANGE COMMISSION**

**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 SEPTEMBER 30, 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**

 

 

### **CanterburyPark Holding Corporation**

(Exact name of business issuer as specified inits 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 whether the Registrant (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.   YES  ý   NO  o

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act.   YES  o   NO   ý

 

The Company had 3,820,399 shares of common stock, $.01 par value pershare, outstanding as of November 12, 2004.

 

 

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Canterbury Park Holding Corporation

 

#### **INDEX**

#### ** **

| **PART  I.** | **FINANCIAL  INFORMATION** |                                                                                        |
|--------------|----------------------------|---------------------------------------------------------------------------------------------|
| ** **   | ** **                 | ** **                                                                                  |   |
|         | Item 1.                    | Financial  Statements                                                                       |   |
|         |                       |                                                                                        |   |
|         |                       | Consolidated Balance Sheets as of  September 30, 2004 and December 31, 2003                 |   |
|         |                       |                                                                                        |   |
|         |                       | Consolidated Statements of Operations for  the periods ended  September 30, 2004 and 2003   |   |
|         |                       |                                                                                        |   |
|         |                       | Consolidated Statements of Cash Flows for  the periods ended  September 30, 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 Disclosures  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 Reports on Form 8-K                                                            |   |
|         |                       |                                                                                        |   |
|         | Signatures                 |                                                                                        |   |
|         |                       |                                                                                        |   |
|         | Exhibits                   |                                                                                        |   |

 

2

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**PART I.****  FINANCIAL INFORMATION**

** **

###### **ITEM1**.  FINANCIAL STATEMENTS

 

###### **CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATEDBALANCE SHEETS**

**SEPTEMBER 30, 2004 AND DECEMBER 31, 2003**

 
| ** **                                                                                                                         | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| **ASSETS**                                                                                                                         |       |                    |       |                   |       |
|                                                                                                                               |       |                    |       |                   |       |
| CURRENT ASSETS                                                                                                                     |       |                    |       |                   |       |
| Cash                                                                                                                               |       | $                       | 4,216,657  |                   | $          | 2,523,560 |   |
| Restricted cash                                                                                                                    |       | 2,066,872               |       | 1,286,738              |       |
| Accounts receivable                                                                                                                |       | 631,556                 |       | 369,976                |       |
| Inventory                                                                                                                          |       | 175,275                 |       | 135,298                |       |
| Deposits                                                                                                                           |       | 20,000                  |       | 20,000                 |       |
| Prepaid expenses                                                                                                                   |       | 1,090,700               |       | 848,959                |       |
| Deferred income taxes                                                                                                              |       | 227,000                 |       | 189,000                |       |
| Total current assets                                                                                                               |       | 8,428,060               |       | 5,373,531              |       |
|                                                                                                                               |       |                    |       |                   |       |
| LAND, BUILDING, AND EQUIPMENT, net of  accumulated depreciation of $9,655,050 and $8,725,300, respectively                         |       | 19,444,077              |       | 17,112,933             |       |
|                                                                                                                               |       |                    |       |                   |       |
|                                                                                                                               |       | $                       | 27,872,137 |                   | $          | 22,486,464 |   |
|                                                                                                                               |       |                    |       |                   |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                      |       |                    |       |                   |       |
|                                                                                                                               |       |                    |       |                   |       |
| CURRENT LIABILITIES                                                                                                                |       |                    |       |                   |       |
| Accounts payable                                                                                                                   |       | $                       | 2,435,506  |                   | $          | 1,584,145 |   |
| Card club accruals                                                                                                                 |       | 2,352,785               |       | 1,294,826              |       |
| Accrued wages and payroll taxes                                                                                                    |       | 2,206,765               |       | 1,434,295              |       |
| Accrued interest                                                                                                                   |       | 6,912                   |       | 2,158                  |       |
| Due to MHBPA                                                                                                                       |       | 37,248                  |       | 103,194                |       |
| Accrued property taxes                                                                                                             |       | 289,046                 |       | 223,907                |       |
| Income taxes payable                                                                                                               |       | 291,087                 |       | 95,499                 |       |
| Payable to horsepersons                                                                                                            |       | 285,217                 |       | 344,343                |       |
| Total current liabilities                                                                                                          |       | 7,904,566               |       | 5,082,367              |       |
|                                                                                                                               |       |                    |       |                   |       |
| DEFERRED INCOME TAXES COMMITMENTS AND  CONTINGENCIES (Note 4)                                                                      |       | 582,000                 |       | 578,000                |       |
|                                                                                                                               |       |                    |       |                   |       |
| STOCKHOLDERS’ EQUITY                                                                                                          |       |                    |       |                   |       |
| Common stock, $.01 par value, 10,000,000  shares authorized, 3,788,517 and 3,714,369, respectively, shares issued and  outstanding |       | 37,885                  |       | 37,144                 |       |
| Additional paid-in capital                                                                                                         |       | 12,111,270              |       | 11,510,650             |       |
| Accumulated earnings                                                                                                               |       | 7,236,416               |       | 5,278,303              |       |
| Total stockholders’ equity                                                                                                    |       | 19,385,571              |       | 16,826,097             |       |
|                                                                                                                               |       | $                       | 27,872,137 |                   | $          | 22,486,464 |   |

 

See notes to consolidated financialstatements.

 

3

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

** **

# **CONSOLIDATEDSTATEMENTS OF OPERATIONS**

# **PERIODSENDED SEPTEMBER 30, 2004 AND 2003**

 
| ** **                                    | ** ** | **Three Months Ended Sept 30,** | ** ** | **Nine Months Ended Sept 30,** | ** ** |
|-----------------------------------------------|------------|---------------------------------|------------|--------------------------------|------------|
| ** **                                    | ** ** | **2004**                        | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| OPERATING REVENUES:                           |       |                            |       |                           |       |   |   |   |   |
| Pari-mutuel                                   |       | $                               | 6,275,927  |                           | $          | 5,884,669 |   | $ | 14,583,881 |   | $ | 14,137,965 |   |
| Card Club                                     |       | 7,659,464                       |       | 6,199,672                      |       | 21,336,206 |   | 16,848,722 |   |
| Concessions                                   |       | 2,137,388                       |       | 1,889,596                      |       | 4,576,402 |   | 4,076,495 |   |
| Admissions and parking                        |       | 284,736                         |       | 277,965                        |       | 512,833 |   | 520,771 |   |
| Publications                                  |       | 207,061                         |       | 201,796                        |       | 511,901 |   | 533,801 |   |
| Other operating revenue                       |       | 715,228                         |       | 527,852                        |       | 1,567,195 |   | 1,221,429 |   |
|                                          |       | 17,279,804                      |       | 14,981,550                     |       | 43,088,418 |   | 37,339,183 |   |
|                                          |       |                            |       |                           |       |   |   |   |   |
| OPERATING EXPENSES:                           |       |                            |       |                           |       |   |   |   |   |
| Statutory purses                              |       | 3,456,172                       |       | 3,083,140                      |       | 7,143,428 |   | 6,274,264 |   |
| Minnesota breeders’ fund                 |       | 403,320                         |       | 364,125                        |       | 1,029,492 |   | 931,655 |   |
| Host track fees                               |       | 564,047                         |       | 524,029                        |       | 1,779,192 |   | 1,688,004 |   |
| Pari-mutuel taxes                             |       | 91,838                          |       | 85,875                         |       | 216,435 |   | 196,780 |   |
| Salaries and benefits                         |       | 5,904,160                       |       | 5,177,683                      |       | 15,462,026 |   | 13,442,933 |   |
| Cost of concessions and publication sales     |       | 1,081,772                       |       | 933,221                        |       | 2,543,707 |   | 2,232,303 |   |
| Depreciation and amortization                 |       | 333,750                         |       | 333,428                        |       | 929,750 |   | 912,768 |   |
| Utilities                                     |       | 413,715                         |       | 373,356                        |       | 931,741 |   | 919,139 |   |
| Repairs, maintenance and supplies             |       | 391,923                         |       | 387,560                        |       | 1,206,506 |   | 1,053,252 |   |
| License fees and property taxes               |       | 162,689                         |       | 161,191                        |       | 457,875 |   | 293,278 |   |
| Advertising and marketing                     |       | 930,403                         |       | 813,365                        |       | 2,143,221 |   | 1,970,033 |   |
| Insurance                                     |       | 295,227                         |       | 264,602                        |       | 850,583 |   | 669,323 |   |
| Other operating expenses                      |       | 1,364,100                       |       | 1,215,335                      |       | 3,199,609 |   | 3,010,209 |   |
|                                          |       | 15,393,116                      |       | 13,716,910                     |       | 37,893,565 |   | 33,593,941 |   |
| NONOPERATING (EXPENSES) REVENUES:             |       |                            |       |                           |       |   |   |   |   |
| Interest expense                              |       | (1,567                          | )          | (528                           | )          | (8,000 | ) | (5,113 | ) |
| Other, net                                    |       | 8,990                           |       | 12,997                         |       | 31,824 |   | 33,355 |   |
|                                          |       | 7,423                           |       | 12,469                         |       | 23,824 |   | 28,242 |   |
|                                          |       |                            |       |                           |       |   |   |   |   |
| INCOME BEFORE INCOME TAX EXPENSE              |       | 1,894,111                       |       | 1,277,109                      |       | 5,218,677 |   | 3,773,484 |   |
|                                          |       |                            |       |                           |       |   |   |   |   |
| INCOME TAX EXPENSE (Note 1)                   |       | (829,907                        | )          | (701,562                       | )          | (2,313,435 | ) | (1,765,298 | ) |
|                                          |       |                            |       |                           |       |   |   |   |   |
| NET INCOME                                    |       | $                               | 1,064,204  |                           | $          | 575,547 |   | $ | 2,905,242 |   | $ | 2,008,186 |   |
|                                          |       |                            |       |                           |       |   |   |   |   |
| BASIC NET INCOME PER COMMON SHARE (Note 1)    |       | $                               | .28        |                           | $          | .16 |   | $ | .77 |   | $ | .55 |   |
|                                          |       |                            |       |                           |       |   |   |   |   |
| DILUTED NET INCOME PER COMMON SHARE (Note  1) |       | $                               | .26        |                           | $          | .14 |   | $ | .70 |   | $ | .50 |   |

 

See notes to consolidated financial statements.

 

4

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** **

**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**PERIODS ENDED SEPTEMBER 30, 2004 AND 2003**

 
| ** **                                                               | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                               | ** ** | **2004**                            | ** ** | **2003** | ** ** |
|                                                                     |       |                                |       |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                    |       |                                |       |   |   |
| Net Income                                                               |       | $                                   | 2,905,242  |   | $ | 2,008,186 |   |
| Adjustments to reconcile net income to net  cash provided by operations: |       |                                |       |   |   |
| Depreciation and amortization                                            |       | 929,750                             |       | 912,768 |   |
| Tax benefit from exercise of stock options                               |       | 335,900                             |       | 161,947 |   |
| (Decrease) increase in deferred income  taxes                            |       | (34,000                             | )          | 44,000 |   |
| (Increase) decrease in restricted cash                                   |       | (780,134                            | )          | 485,340 |   |
| Increase in accounts receivable                                          |       | (261,580                            | )          | (196,356 | ) |
| Increase in other current assets                                         |       | (281,718                            | )          | (806,918 | ) |
| Increase in income taxes payable                                         |       | 195,588                             |       | 532,370 |   |
| Increase in accounts payable and accrued  wages & payroll taxes      |       | 1,623,831                           |       | 1,025,716 |   |
| Increase in card club accruals                                           |       | 1,057,959                           |       | 59,471 |   |
| Increase in accrued interest                                             |       | 4,754                               |       | 1,121 |   |
| Increase in accrued property taxes                                       |       | 65,139                              |       | 52,717 |   |
| Decrease in payable to horsepersons                                      |       | (59,126                             | )          | (101,705 | ) |
| Decrease in due to MHBPA                                                 |       | (65,946                             | )          | — |   |
| Net cash provided by operations                                          |       | 5,635,659                           |       | 4,178,657 |   |
|                                                                     |       |                                |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                    |       |                                |       |   |   |
| Additions to land, building and equipment                                |       | (3,260,894                          | )          | (1,239,561 | ) |
| Net cash used in investing activities                                    |       | (3,260,894                          | )          | (1,239,561 | ) |
|                                                                     |       |                                |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                    |       |                                |       |   |   |
| Proceeds from issuance of common stock                                   |       | 265,461                             |       | 198,184 |   |
| Decrease in due to MHBPA                                                 |       | —                              |       | (313,786 | ) |
| Cash dividend to shareholders                                            |       | (947,129                            | )          | (551,696 | ) |
| Net cash used in financing activities                                    |       | (681,668                            | )          | (667,298 | ) |
|                                                                     |       |                                |       |   |   |
| NET INCREASE IN CASH                                                     |       | 1,693,097                           |       | 2,271,798 |   |
|                                                                     |       |                                |       |   |   |
| CASH AT BEGINNING OF PERIOD                                              |       | 2,523,560                           |       | 1,654,038 |   |
|                                                                     |       |                                |       |   |   |
| CASH AT END OF PERIOD                                                    |       | $                                   | 4,216,657  |   | $ | 3,925,836 |   |
|                                                                     |       |                                |       |   |   |
| INTEREST PAID                                                            |       | $                                   | 0          |   | $ | 0 |   |
|                                                                     |       |                                |       |   |   |
| INCOME TAXES PAID                                                        |       | $                                   | 1,805,000  |   | $ | 1,040,000 |   |

 

See notes to consolidated financialstatements.

 

5

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**CANTERBURY PARK HOLDING CORPORATION ANDSUBSIDIARIES**

** **

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**PERIODS ENDED SEPTEMBER 30, 2004 AND 2003**

** **

1.               SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

 

The summary of significant accounting policies is included in the notesto consolidated financial statements in the 2003 Annual Report on Form 10-K.

 

*Unaudited Financial Statements*- The consolidated balance sheet as of September 30, 2004, the consolidatedstatements of operations for the three and nine months ended September 30, 2004and 2003, the consolidated statements of cash flows for the nine months endedSeptember 30, 2004 and 2003, and the related information contained in thesenotes have been prepared by management without audit.  In the opinion of management, all accruals(consisting only of normal recurring accruals) which are necessary for a fairpresentation 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.

 

*Restricted Cash –*Restricted cash represents refundabledeposits and amounts due to horsepersons for purses, stakes and awards, andamounts accumulated in the Player Pool to be used to repay players in the formof promotions, giveaways, prizes or by other means.

* *

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

 

*Reclassifications*–Certain prior period numbers have been reclassified to be consistent withcurrent period presentation. These reclassifications had no effect on netearnings or stockholders’ equity.

 

*Fair Values of Financial Instruments*– Due to the current classification of all financial instruments of theCompany, given the short-term nature of the related account balances, carryingamounts reported in the consolidated balance sheets approximate fair value.

 

*Net Income Per Share*–Basic net income per common share is based on the weighted average number ofcommon shares outstanding during each year. The weighted average number of common shares outstanding for the threeand nine-month periods ended September 30, 2004 were 3,788,517 and 3,760,468,respectively.  The weighted averagenumber of common shares outstanding for the three and nine-month periods endedSeptember 30, 2003 were 3,679,462 and 3,662,977, respectively.  Diluted net income per common share takesinto effect the dilutive effect of potential common shares outstanding.  The Company’s only potential common sharesoutstanding are stock options.  After consideringthe dilutive effect of stock options outstanding, the weighted average sharesused to calculate diluted earnings per share for the three and nine-monthperiods ended September 30, 2004 were 4,142,184 and 4,130,445 respectively.  The weighted average shares used to calculatediluted earnings per share for the three and nine-month periods ended September30, 2003 were 4,053,772 and 4,019,636, respectively.

 

*Stock Based Employee Compensation*-At September 30, 2004, the Company has a stock option plan which provides forthe granting 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 1,450,000 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 onnet income and

 

6

----

 

earnings per share if the Company had applied the fair valuerecognition provisions of FASB Statement No. 123, *Accounting for Stock-Based Compensation,*to stock-basedemployee compensation.

 

***Stock Based EmployeeCompensation Table:***

*** ***
| ** **                                                                                                                                    | ** ** | **Three  Months Ended****September 30,** | ** ** | **Nine  Months Ended****September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                                                                    | ** ** | **2004**                                 | ** ** | **2003**                                | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net Income:                                                                                                                                   |       |                                     |       |                                    |       |   |   |   |   |
| As reported                                                                                                                                   |       | $                                        | 1,064,204  |                                    | $          | 575,547 |   | $ | 2,905,242 |   | $ | 2,008,186 |   |
| Deduct: Total stock-based employee  compensation expense determined under fair value based method for all awards,  net of related tax effects |       | (104,169                                 | )          | (47,445                                 | )          | (354,034 | ) | (188,107 | ) |
|                                                                                                                                          |       |                                     |       |                                    |       |   |   |   |   |
| Pro forma net income                                                                                                                          |       | $                                        | 960,035    |                                    | $          | 528,102 |   | $ | 2,551,208 |   | $ | 1,820,079 |   |
|                                                                                                                                          |       |                                     |       |                                    |       |   |   |   |   |
| Earnings Per Share:                                                                                                                           |       |                                     |       |                                    |       |   |   |   |   |
| Basic - as reported                                                                                                                           |       | $                                        | .28        |                                    | $          | .16 |   | $ | .77 |   | $ | .55 |   |
|                                                                                                                                          |       |                                     |       |                                    |       |   |   |   |   |
| Basic – pro forma                                                                                                                        |       | $                                        | .25        |                                    | $          | .14 |   | $ | .68 |   | $ | .50 |   |
|                                                                                                                                          |       |                                     |       |                                    |       |   |   |   |   |
| Diluted - as reported                                                                                                                         |       | $                                        | .26        |                                    | $          | .14 |   | $ | .70 |   | $ | .50 |   |
|                                                                                                                                          |       |                                     |       |                                    |       |   |   |   |   |
| Diluted - pro forma                                                                                                                           |       | $                                        | .23        |                                    | $          | .13 |   | $ | .62 |   | $ | .45 |   |

 

2.               BORROWINGS UNDER CREDIT AGREEMENT

 

Borrowings under the Company’s credit agreement with Bremer Bankinclude a commercial revolving credit line, which provides for maximum advancesof $2,250,000 with interest at the prime rate until April 20, 2005.  The Company had no borrowings under thiscredit line at September 30, 2004.  Thecredit agreement contains certain covenants requiring the Company to maintain certainfinancial ratios.  The Company was incompliance with these requirements as of September 30, 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.

 

7

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3.               OPERATING SEGMENTS

 

During the first nine months of 2004 and 2003, the Company had threereportable operating segments:  horseracing, card club and concessions.  Thecard club segment primarily represents operations of the Canterbury CardClub.  The horseracing segment primarilyrepresents simulcast and live horse racing operations, and the concessionssegment primarily represents food and beverage provided during the 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 areregulated by the State of Minnesota Racing Commission.

 

The accounting policies of the operating segments are the same as thosedescribed in the summary of significant accounting policies included in the2003 Annual Report on Form 10-K.

 

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

 

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

 
| ** **                         | ** ** | **Nine Months Ended September 30, 2004** | ** ** |
|------------------------------------|------------|------------------------------------------|------------|
| ** **                         | ** ** | **Card Club**                            | ** ** | **Horse Racing** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
| Revenues from external customers   |       | $                                        | 21,336     |   | $ | 17,105 |   | $ | 4,647 |   | $ | 43,088 |   |
|                               |       |                                     |       |   |   |   |   |   |   |
| Intersegment revenues              |       | —                                   |       | 341 |   | 1,433 |   | 1,774 |   |
|                               |       |                                     |       |   |   |   |   |   |   |
| Net interest income                |       | —                                   |       | 24 |   | — |   | 24 |   |
|                               |       |                                     |       |   |   |   |   |   |   |
| Depreciation and amortization      |       | 374                                      |       | 556 |   | — |   | 930 |   |
|                               |       |                                     |       |   |   |   |   |   |   |
| Segment income before income taxes |       | 4,966                                    |       | 243 |   | 1,135 |   | 6,344 |   |
|                               |       |                                     |       |   |   |   |   |   |   |
| Segment Assets                     |       | $                                        | 3,831      |   | $ | 23,924 |   | $ | 3,181 |   | $ | 30,936 |   |

 
| ** **                         | ** ** | **Nine Months Ended September 30, 2003** | ** ** |
|------------------------------------|------------|------------------------------------------|------------|
| ** **                         | ** ** | **Card Club**                            | ** ** | **Horse Racing** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
| Revenues from external customers   |       | $                                        | 16,849     |   | $ | 16,411 |   | $ | 4,080 |   | $ | 37,339 |   |
|                               |       |                                     |       |   |   |   |   |   |   |
| Intersegment revenues              |       | —                                   |       | 334 |   | 1,143 |   | 1,477 |   |
|                               |       |                                     |       |   |   |   |   |   |   |
| Net interest income                |       | —                                   |       | 28 |   | — |   | 28 |   |
|                               |       |                                     |       |   |   |   |   |   |   |
| Depreciation and amortization      |       | 366                                      |       | 547 |   | — |   | 913 |   |
|                               |       |                                     |       |   |   |   |   |   |   |
| Segment income before income taxes |       | 3,380                                    |       | 418 |   | 864 |   | 4,662 |   |
|                                    |            |                                          |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **     | ** ** | **Twelve Months Ended December 31, 2003** | ** ** |
|----------------|------------|-------------------------------------------|------------|
|           |       |                                      |       |   |   |   |   |   |   |
| Segment Assets |       | $                                         | 3,727      |   | $ | 18,648 |   | $ | 1,905 |   | $ | 24,281 |   |
|                |            |                                           |            |  |  |  |  |  |  |  |  |  |  |

 

8

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

 
| ** **                                              | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                              | ** ** | **2004**                            | ** ** | **2003** | ** ** |
| Revenues                                                |       |                                |       |   |   |
| Total revenue for reportable segments                   |       | $                                   | 44,862     |   | $ | 38,816 |   |
| Elimination of intersegment revenues                    |       | (1,774                              | )          | (1,477 | ) |
| Total consolidated revenues                             |       | $                                   | 43,088     |   | $ | 37,339 |   |
|                                                    |       |                                |       |   |   |
| Income before income taxes                              |       |                                |       |   |   |
| Total segment income before income taxes                |       | $                                   | 6,344      |   | $ | 4,662 |   |
| Elimination of intersegment income before  income taxes |       | (1,125                              | )          | (889 | ) |
| Total consolidated income before income  taxes          |       | $                                   | 5,219      |   | $ | 3,773 |   |

 
| ** **                              | ** ** | **September 30  2004** | ** ** | **December 31  2003** | ** ** |
|-----------------------------------------|------------|------------------------|------------|-----------------------|------------|
| Assets                                  | ** ** | ** **             | ** ** | ** **            | ** ** |
| Total assets for reportable segments    |       | $                      | 30,936     |                  | $          | 24,281 |   |
| Elimination of intercompany receivables |       | (3,064                 | )          | (1,795                | )          |
| Total consolidated assets               |       | $                      | 27,872     |                  | $          | 22,486 |   |

 

4.               CONTINGENCIES

 

In accordance with an Earn Out Note, given to the prior owner of theracetrack as part of the consideration paid by the Company to acquire theracetrack in 1994, if (i) off-track betting becomes legally permissible in theState of Minnesota and (ii) the Company begins to conduct off-track betting withrespect to or in connection with its operations, the Company will be requiredto pay to the IMR Fund, L.P. the greater of $700,000 per operating year, asdefined, or 20% of the net pretax profit, as defined, for each of fiveoperating years.  At this time,management believes that the likelihood that these two conditions will be met, and that the Company will be requiredto pay these amounts, is remote.  In theevent these conditions are met and the subsequent payments made, they will becapitalized a part of the purchase price in accordance with generally acceptedaccounting principles.

 

The Company is periodically involved in various legal actions arisingin the normal course of business.  AtSeptember 30, 2004, management believes that the resolution of any legalactions outstanding will not have a material impact on the consolidatedfinancial statements.

 

9

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| **ITEM 2.** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL** |
|-------------|-------------------------------------------------------------|
| ** **  | **CONDITION AND RESULTS  OF OPERATIONS**                    |

 

**General**

 

Canterbury Park Holding Corporation (the “Company”) owns and operatesthe Canterbury Park Racetrack and Card Club in Shakopee, Minnesota.  The primary businesses of the Company aresimulcast and live pari-mutuel horse racing, hosting unbanked card games, andfood and beverage operations.

 

The Racetrack is the only pari-mutuel horse racing facility in theState of Minnesota.  The Racetrack earnsrevenues from pari-mutuel take-out on races simulcast year-round to CanterburyPark from racetracks throughout the country and from live race meets featuringthoroughbred and quarter horse racing. Live race meets commence in the month of May and conclude inSeptember.  During live race meets, theCompany televises its races to out-of-state racetracks around the country, andearns additional pari-mutuel revenue on wagers placed at the out-of-stateracetracks.

 

Canterbury Parks’ Card Club (the “Card Club”) is authorized underMinnesota law to host “unbanked” card games in which players compete againsteach other and not against the house. The Company receives a percentage of the wagers from the players ascompensation for providing the Card Club facility and services.  The Card Club is open twenty-four hours aday, seven days a week.  Under Minnesotalaw, the Company is required to pay up to 14% of gross Card Club revenues tothe Racetrack’s purse fund and the State of Minnesota Breeders’ Fund.  However, the Company has agreed with theMinnesota Horsemen’s Benevolent and Protective Association (the “MHBPA”) to pay15% of Card Club revenues into the purse and breeders’ funds for 2004.

 

The Company also generates revenues from other activities such asadmissions and parking fees and from the sale of food and beverage, programsand other racing publications, and corporate sponsorships. Additional revenuesare derived from an RV park and the use of the Racetrack facilities for specialevents such as concerts, craft shows and snowmobile racing.

 

**Results of Operations for the****Three and****Nine****Months Ended September 30, 2004 and September 30, 2003**

 

Total operating revenues increased approximately $5.7 million or 15.4%during the nine months ended September 30, 2004 compared to the nine monthsended September 30, 2003, and increased approximately $2.3 million or 15.3% forthe three months ended September 30, 2004 compared to the three months endedSeptember 30, 2003.

 

Pari-mutuel revenues increased approximately $446,000 or 3.2% in thenine month period ended September 30, 2004 compared to the same period in 2003.Total handle for the nine months ended September 30, 2004 increased $5.9million or 7.5% compared to total handle during the nine-month period in 2003.Total handle wagered on simulcast races year-to-date in 2004 increased $1.3million or 2.7% compared to year-to-date September 30, 2003 partly due to thepositive response from our simulcasting patrons to the $1.8 million renovationof our simulcast center, but also to favorable weather conditions in 2004,compared to the

 

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cancellation of nearly 100racing programs in 2003 caused by severe weather at other racetracks.  In addition, on-track live handle increasedby $281,000 or 1.6% compared to the same period in 2003 primarily due to twoadditional live racing days.  Finally,out-of-state live handle increased $4.4 million, or 33.5%, in the first ninemonths of 2004 compared to the same period last year due in part to the Company’ssuccessful hosting of the nationally recognized Claiming Crown racingevent.  See the “Summary of Pari-mutuelData” below.

 

**Summary ofPari-mutuel Data:**

 
| ** **                        | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------|------------|-------------------------------------|------------|
| ** **                        | ** ** | **2004**                            | ** ** | **2003** | ** ** |
| **Racing Days**                   | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Simulcast only days               |       | 207                                 |       | 208 |   |
| Live and simulcast days           |       | 67                                  |       | 63 |   |
| Live Harness days                 |       | 0                                   |       | 2 |   |
| Total Racing Days                 |       | 274                                 |       | 273 |   |
| ** **                        | ** ** | ** **                          | ** ** | ** ** | ** ** |
| **On-Track Handle**               | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Simulcast only days               |       | $                                   | 31,492,000 |   | $ | 31,401,000 |   |
| Live and simulcast days           | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Live racing                       |       | 17,990,000                          |       | 17,709,000 |   |
| Simulcast racing                  |       | 17,657,000                          |       | 16,479,000 |   |
| **Out-of-state Live Handle**      |       | 17,473,000                          |       | 13,090,000 |   |
| Total Handle                      |       | $                                   | 84,612,000 |   | $ | 78,679,000 |   |
| ** **                        | ** ** | ** **                          | ** ** | ** ** | ** ** |
| **On-Track Average Daily Handle** | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Simulcast only days               |       | $                                   | 152,135    |   | $ | 150,966 |   |
| Live and simulcast days           |       | $                                   | 532,045    |   | $ | 525,969 |   |

 

The Company receives a percentage of the wagers from the players ascompensation for providing the Card Club facility and service, referred to asthe “collection revenue”, which totaled $20.7 million for the nine-month endedSeptember 30, 2004, an increase of 26.9% compared to $16.3 million in2003.  Collection revenue totaled $7.4million for the three month period ended September 30, 2004, an increase of22.3% compared to $6 million in 2003. The year to date increase is primarilydue to the rapidly growing interest in the Card Club poker games caused by the popularityof televised poker tournaments, and the steady growth in the Card Club casinogames.  The Company also receives aspecified percentage of the jackpot fund collection as reimbursement foradministrative costs of maintaining the jackpot funds, and collects fees foradministering tournaments, which represents “other revenue”. Card Club revenuesrepresented 49.5% and 44.3% of total revenues for the nine-month andthree-month periods ended September 30, 2004, respectively. See the “Summary ofCard Club Data” below.

 

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**Summary ofCard Club Data:**

 
| ** **               | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------|------------|-------------------------------------|------------|
| ** **               | ** ** | **2004**                            | ** ** | **2003** | ** ** |
|                     |       |                                |       |   |   |
| Poker Games              |       | $                                   | 11,970,000 |   | $ | 8,292,000 |   |
| Casino Games             |       | 8,716,000                           |       | 8,010,000 |   |
| Total Collection Revenue |       | 20,686,000                          |       | 16,302,000 |   |
|                     |       |                                |       |   |   |
| Other Revenue            |       | 650,000                             |       | 547,000 |   |
| Total Card Club Revenue  |       | $                                   | 21,336,000 |   | $ | 16,849,000 |   |
|                     |       |                                |       |   |   |
| Number of Days Offered   |       | 274                                 |       | 273 |   |
| Average Revenue per Day  |       | $                                   | 77,869     |   | $ | 61,717 |   |

 

Concession sales for the nine-month and three-month periods endedSeptember 30, 2004 increased 12.3% and 13.1%, respectively, compared to thesame periods in 2003.  The increase isprimarily due to the increased patronage in the Card Club and the increasednumber of live racing days.

 

Other operating revenues for the nine-month and three-month periodsended September 30, 2004 increased approximately $346,000 or 28.3% and $187,000or 35.5%, respectively, compared to the same periods in 2003.  The increase is primarily due to increasedcash services fees, corporate sponsorships and revenues from in-housephotography related to live racing.

 

Operating expenses increased $4.3 million or 12.8% during the ninemonth period ended September 30, 2004 compared to the nine month period endedSeptember 30, 2003, and $1.7 million or 12.2% during the three months endedSeptember 30, 2004 compared to the three month period ended September 30,2003.  However, total operating expensesas a percentage of total operating revenues were 87.9% for the nine-monthperiod ended September 30, 2004 compared to 90.0% for 2003 as the increase invariable operating expenses was outpaced by the increase in operating revenues,particularly card club revenue from higher wagering taking place in the cardclub.

 

Purse and Breeders’ Fund related expenses have increased approximately$211,000 or 2.6% and $252,000 or .7%, respectively, during the nine and threemonth periods of 2004 compared to 2003, due primarily to increased payments tothe purse fund from Card Club revenues. Effective January 1, 2004, as permitted by applicable law, the Companyagreed with the Minnesota Horseman’s Benevolent and Protective Association (the“MHBPA”) to pay 15% of all Card Club gross revenues as purse monies compared to14% in 2003. In addition, the increased volume of Card Club revenues hascontributed to the increase in the related purse expense. Salaries and benefitsincreased approximately $2 million, or 15%, in the nine-month period and$726,000, or 14%, in the three-month period compared to the same periods lastyear primarily associated with an increase of approximately 13% in total hoursworked caused by higher levels of operations in the Card Club and concessions,an overall increase in salary and wages rates, and nearly 40% increase in groupmedical costs caused by increases in the number of participants and premiumrates.  Cost of sales expense increasedapproximately $311,000 or 13.9% in the nine-month period and $149,000 or 15.9%in the three-month period compared to the same periods last year due to theincrease in associated revenues. Repairs, maintenance and supplies expense increased approximately$153,000 or 14.6% for the 2004

 

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nine month period and approximately $4,000 or 1.1% for the 2004 threemonth period compared to the same periods in 2003 due to software purchases andadditional chip purchases related to the Card Club. Advertising and marketingexpenses increased approximately $173,000 or 8.8% in the nine-month period and$117,000 or 14.4% in the three-month period compared to the same periods lastyear due primarily to increased participation in the patron loyalty program.Insurance expense increased approximately $181,000 or 27.1% for the nine-monthperiod and $31,000 or 11.6% for the three-month period compared to the sameperiods in 2003 due to increased premiums for workers compensation and generalliabiltity insurance. Other operating expenses increased approximately $189,000or 6.3% in the nine-month period and $149,000, or 12.2%, in the three-monthperiod compared to 2003 primarily due to consulting and other services relatedto our live race meet and other regulatory matters.

 

Income before income taxes was $5,218,677 forthe nine months ended September 30, 2004 compared to $3,773,484 for thenine months ended September 30, 2003. After income tax expense of $2,313,435 for the nine months ended September 30,2004, net income was $2,905,242 in 2004 compared to $2,008,186 in 2003.  Our effective income tax rate for the ninemonths ended September 30, 2004 was 44.3% compared to 46.8% for the sameperiod a year ago.  The difference in theeffective rate is due to the non-deductibility of certain lobbying expenses forincome tax purposes.  Income beforeincome taxes for the quarter ended September 30, 2004 was $1,894,111compared to $1,277,109 for the quarter ended September 30, 2003.  After income tax expense of $829,907 in thethird quarter of 2004, net income was $1,064,204 compared to $575,547 for thethird quarter of 2003.

 

##### **Commitmentsand Contingencies**

 

On July 9, 2004, the Company paid a specialcash dividend of $.25 per share of common stock payable to shareholders ofrecord on June 25, 2004.  TheCompany has not adopted any policies regarding dividend payments and there canbe no assurance that any dividend will be paid in the future.

 

There have been no additional material changesin our outstanding commitments and contingencies since those reported at December 31,2003.

 

**Liquidity and Capital Resources**

 

During the period January 1, 2004through September 30, 2004, cash provided by operating activities was$5,635,659, which resulted primarily from net income of $2,905,242;depreciation and amortization of $929,750; an increase in Card Club accruals of$1,057,959 including an increase of $376,508 for jackpot funds and the playerpool, and prize money for the Fall Classic poker tournament of $504,000; and anincrease in accounts payable and accrued wages and payroll taxes of $1,623,831,due to an increase in accounts payable of $851,000 primarily attributable to anincrease of $279,000 in vendor payables, an increase of $159,000 for MVPProgram rewards, a $151,000 increase in uncashed winning tickets and anincrease of $158,000 in host fees payable. Also, accrued wages rose $772,000 compared to December 31, 2003 dueto an increase in the number of days accrued at September 30 compared to December 31.These items were partially offset by an increase in restricted cash of $780,134due primarily to a $377,000 increase in the Card Club’s jackpot pools andplayer pool caused by timing differences due to jackpots, prizes and giveawayspaid to the players; an increase in accounts receivable of $261,580 due toguest fees from other racetracks and receivables from group sales; and anincrease in other current assets of $281,718 due to an

 

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increase in prepaid expenses including rising insurance premiums andlicense fees assessed by the Minnesota Racing Commission.  Pursuant to an agreement with the MHBPA,during the nine months ended September 30, 2004 and 2003, the Companytransferred into a trust account for these purposes or paid directly to theMHBPA approximately $6,450,000 and $5,920,000 respectively.  At September 30, 2004, the Company hadan additional liability to the MHBPA of $37,248.  This liability will be paid in 2004,including interest earned at the prime-lending rate.

 

During the period January 1, 2003through September 30, 2003, cash provided by operating activities was$4,178,657, which resulted principally from net income of $2,008,186, anincrease in accounts payable and accrued wages and payroll taxes of $1,025,716and depreciation and amortization of $912,768. These items were partiallyoffset by an increase in other current assets of $806,918.  The increase in accounts payable and accruedwages and payroll taxes is due primarily to increases in vendor payables andwages related to the live race meet.

 

Net cash used in investing activities for thefirst nine months of 2004 of $3,260,894, resulted primarily from buildingimprovements related to the renovation of the club-level of the Racetrack’sgrandstand facility for approximately $1.8 million, the acquisition of gamingequipment for the Card Club, and other equipment and building improvementprojects.  During the nine-month periodended September 30, 2003, net cash used for investment purposes wasapproximately $1.2 million resulting primarily from a variety of buildingimprovement projects.

 

During the period January 1, 2004through September 30, 2004, cash used in financing activities was$681,668, representing a special cash dividend to shareholders of $947,129,which was partially offset by $265,461 from the exercise of stock options.  During the period January 1, 2003through September 30, 2003, cash used in financing activities was $667,298representing a special cash dividend to shareholders of $551,696, and paymentsto the MHBPA of $313,786, which were partially offset by $198,184 from theexercise of stock options.

 

The Company has renewed a general creditagreement with Bremer Bank, which provides a revolving credit line of up to$2,250,000 with interest at the prime rate until April 20, 2005.  The Company had no borrowings under the lineof credit at September 30, 2004 or December 31, 2003.  The credit agreement contains certaincovenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements at all times throughout the quarter ended September 30, 2004.

 

Unrestricted cash balances at September 30,2004 were $4,216,657 compared to $2,523,560 at December 31, 2003. TheCompany believes that the funds available in its cash accounts, amountsavailable under the general credit and security agreement, along with fundsgenerated from operations, will be sufficient to satisfy its liquidity andcapital resource requirements during 2004 for regular operations.

 

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##### **CriticalAccounting Policies**

 

Thepreparation of consolidated financial statements in conformity with generallyaccepted accounting principles requires management to make estimates thateffect the amounts reported and disclosed in the consolidated financialstatements. By their nature, these estimates are subject to an inherent degreeof uncertainty. These estimates are based on our experience and various otherassumptions that are believed to be reasonable in the circumstances, theresults of which form the basis for making judgments about the carrying valuesof assets and liabilities. On an ongoing basis, we evaluate our estimates.However, actual results could differ from those estimates.

 

Oursignificant accounting policies are included in Note 1 to our consolidatedfinancial statements in our 2003 Annual Report on Form 10-K. We believe thefollowing critical accounting policies affect our more significant judgmentsand estimates used in the preparation of our consolidated financial statements.

 

*Land, Buildings and Equipment* - We havesignificant capital invested in our property and equipment, which representsapproximately 70% of our total assets. We utilize our judgment in various waysincluding: determining whether an expenditure is considered a maintenanceexpense or a capital asset; determining the estimated useful lives of assets;and determining if or when an asset has been impaired. Our property andequipment is evaluated for impairment whenever circumstances indicate that thecarrying 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.

 

*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.

 

**Legislation:**

 

On February 18, 2003, a bill wasintroduced in the Minnesota Legislature, to allow electronic gaming devices tobe operated by the Minnesota State Lottery at the Racetrack.  This concept often referred to as a “Racino”,as proposed for Canterbury Park would include 2,000 gaming devices, a 250-roomhotel, an Olympic scale horse park and additional restaurant venues.  The bill was approved in May 2003 by a 71 to60 margin by the Minnesota House of Representatives, but no further action wastaken on this legislation by the Minnesota Legislature in 2003. The MinnesotaLegislature reconvened for the second year of its regular session in February 2004,with the Racino legislation pending in the Minnesota Senate.  In addition, other legislation was introducedin the 2004 session to remove the 50-table limit in the Card Club imposed bycurrent Minnesota Law. Finally, the Minnesota House of Representatives OmnibusTax bill included a 5% franchise fee on Card Club gross revenues. Both of these2004 bills passed the Minnesota House and were also pending in the Minnesota Senate.However,

 

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on May 16, 2004 the Minnesota Legislature adjourned without takingfurther action on any of these bills.

 

The Minnesota Legislature will begin a newbiannual session in January 2005, and the Company expects the Racinolegislation will be reintroduced at that time. Based on the success of severalRacinos in other states, the Company believes that if this legislation becomeslaw, it will enhance horse racing with increased purses, provide growth anddevelopment opportunities for the Company, and produce significant new taxrevenues for state and local governments. The effort to obtain legislative authority for these initiatives hasrequired, and will continue to require, substantial expenditures and there canbe no assurance that any bill favorable to the Company’s interests will beenacted into law.

 

**Factors Affecting Future Performance:**

 

Fromtime to time, in reports filed with the Securities and Exchange Commission, inpress releases, and in other communications to shareholders or the investingpublic, 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 investing publicshould understand that such forward-looking statements are subject to risks anduncertainties which could cause actual performance, activities or plans todiffer significantly from those indicated in the forward-looking statements.  Such risks and uncertainties include, but arenot limited to: material fluctuations in attendance at the Racetrack, materialchanges in the level of wagering by patrons, decline in interest in theunbanked card games offered at the Card Club, legislative and regulatory decisionsand changes, the impact of wagering products and technologies introduced bycompetitors; increases in the percentage of revenues allocated for purse fundpayments; increase in compensation and employee benefit costs; the generalhealth of the gaming sector; higher than expected expense related to newmarketing initiatives; and other factors discussed from time to time in theCompany’s filings with the Securities and Exchange Commission.

 

16

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**ITEM 3:     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK**

 

Weare exposed to market risk from changes in interest rates on borrowings underour commercial revolving credit line that bears interest at the primerate.  At September 30, 2004 we haveno debt borrowings under our credit facility.

 

Wehave no derivative financial instruments or derivative commodity instruments inour cash and cash equivalents and marketable securities.  We invest cash and cash equivalents ininvestment grade, highly liquid investments, consisting of money marketinstruments, bank certificates of deposit, and short-term government andcorporate bonds.

 

**ITEM 4:     CONTROLSAND PROCEDURES**

 

(a)           Evaluation of Disclosure Controls and Procedures:

 

The Company’sChief Executive Officer, Randall D. Sampson, and Chief Financial Officer, DavidC. Hansen, have evaluated the Company’s disclosure controls and procedures asof the end of the period covered by this report.  Based upon that review, they have concludedthat these controls and procedures are effective in ensuring that materialinformation related to the Company is made known to them by others within theCompany.

 

(b)                                 Changesin Internal Control Over Financial Reporting:

 

There havebeen no significant changes in internal control over financial reporting thatoccurred during the fiscal quarter covered by this report that have materiallyaffected, or are reasonably likely to materially affect, the registrant’sinternal control over financial reporting.

 

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**Part II - OTHER INFORMATION**

 

Item 1.                                     **Legal Proceedings**

 

Not Applicable

 

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

 

Not Applicable

 

Item 3.                                     **Defaults Upon Senior****Securities**

 

Not Applicable

 

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

 

Not Applicable

 

Item 5.                                     **Other Information**

 

Not Applicable

 

Item 6.                                     **Exhibits and Reports onForm 8-K**

 

(a)                                  Thefollowing exhibits are included herein:

 

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

 

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

 

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

 

(b)                                 Reportson Form 8-K

 

OnAugust 13, 2004 the Company filed a current report on Form 8-K with theSecurities and Exchange Commission, reporting under Item 12 the results for thesecond quarter ended June 30, 2004.

 

OnAugust 14, 2004 the Company filed a current report on Form 8-K with theSecurities and Exchange Commission, reporting under Item 5 that Brian C.Barenscheer, a director of the Company since 1994 and the Chairman of the AuditCommittee of the Board, passed away on August 13, 2004.

 

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**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 
|                          | **Canterbury Park Holding Corporation**     |
|-------------------------------|---------------------------------------------|
|                          |                                        |
| Dated: November 15, 2004 |   /s/ Randall D. Sampson          |   |
|                          | Randall D. Sampson,                         |
|                          | President, and Chief Executive Officer      |
|                          |                                        |
| Dated: November 15, 2004 |   /s/ David C. Hansen             |   |
|                          | David C. Hansen,                            |
|                          | Vice President, and Chief Financial Officer |

 

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