**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

** **

----

** **

**FORM 10-Q**

(MarkOne)
| **x**                                                   | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES  EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|
| ** **                                              | ** ** | ** **                                                                                     |
| **FOR THE  QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006.** |
| ** **                                              |
| **OR**                                                  |
| ** **                                              |
| **o**                                                   | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |

 

**FOR THE TRANSITION PERIOD FROM               TO             .**

**Commission File Number:  001-31569**

****

**CANTERBURY PARK HOLDING CORPORATION**

(Exact Name of Registrantas Specified in Its Charter)

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

 

**1100 Canterbury Road**

Shakopee, MN  55379

(Address ofprincipal executive offices and zip code)

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act.
|   | YES | o |   | NO | x |   |
|--------|-----|---|--------|----|---|--------|

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Act.
|   | YES | o |   | NO | x |   |
|--------|-----|---|--------|----|---|--------|

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 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 | x |   | NO | o |   |
|--------|-----|---|--------|----|---|--------|

 

Indicate by check mark whether the registrant isa large accelerated filer, an accelerated filer, or a non-accelerated filer (asdefined in Exchange Act Rule 12b-2).    

| Large accelerated filer | o | Accelerated  filer | o | Non-accelerated  filer | x |   |
|-------------------------|---|--------------------|---|------------------------|---|--------|

 

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

 

TheCompany had 4,079,386 shares of common stock, $.01 par value, outstanding as ofNovember 2, 2006.

 

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Canterbury ParkHolding Corporation

#### **INDEX**

|              | ** ** | ** **                | ** ** | ** **                                                                                  | ** ** | ** ** |
|--------------|------------|---------------------------|------------|---------------------------------------------------------------------------------------------|------------|------------|
| **PART I.**  | ** ** | **FINANCIAL INFORMATION** |       |                                                                                        |
|         |       | Item 1.                   |       | Financial Statements                                                                        |       |       |
|         |       |                      |       | Consolidated Balance  Sheets as of September 30, 2006 and December 31, 2005                 |       |       |
|         |       |                      |       | Consolidated  Statements of Operations for the periods ended September 30, 2006 and 2005    |       |       |
|         |       |                      |       | Consolidated  Statements of Cash Flows for the periods ended September 30, 2006 and 2005    |       |       |
|         |       |                      |       | 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 1A.                  |       | Risk Factors                                                                                |       |       |
|         |       | Item 2.                   |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                |       |       |
|         |       | Item 3.                   |       | Defaults Upon  Senior Securities                                                            |       |       |
|         |       | Item 4.                   |       | Submission of  Matters to a Vote of Security Holders                                        |       |       |
|         |       | Item 5.                   |       | Other Information                                                                           |       |       |
|         |       | Item 6.                   |       | Exhibits                                                                                    |       |       |
|         |       | Signatures                |       |                                                                                        |       |       |
|         |       | Exhibits                  |       |                                                                                        |       |       |
|              |            |                           |            |                                                                                             |            |            |  |  |

 

----

**PART 1 - FINANCIAL INFORMATION**

**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS****SEPTEMBER 30, 2006 (UNAUDITED) AND DECEMBER 31, 2005**
| ** **                                                                                                                         | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                                                                                                               | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                         |       |                         |       |                        |       |
| CURRENT ASSETS                                                                                                                     |       |                         |       |                        |       |
| Cash                                                                                                                               |       | $                            | 4,065,991  |                        | $          | 4,914,366 |   |
| Restricted cash                                                                                                                    |       | 2,180,293                    |       | 1,988,982                   |       |
| Short-term  investments                                                                                                            |       | 77,292                       |       |                        |       |
| Accounts  receivable, net of allowance of $53,600 and $82,600                                                                      |       | 1,011,726                    |       | 696,857                     |       |
| Inventory                                                                                                                          |       | 160,412                      |       | 158,470                     |       |
| Prepaid expenses                                                                                                                   |       | 990,679                      |       | 763,976                     |       |
| Income taxes  receivable                                                                                                           |       | 228,482                      |       |                        |       |
| Deferred income  taxes                                                                                                             |       | 267,300                      |       | 203,400                     |       |
| Due from MHBPA                                                                                                                     |       | 607,785                      |       |                        |       |
| Total current  assets                                                                                                              |       | 9,589,960                    |       | 8,726,051                   |       |
|                                                                                                                               |       |                         |       |                        |       |
| LONG-TERM ASSETS                                                                                                                   |       |                         |       |                        |       |
| Deposits                                                                                                                           |       | 20,000                       |       | 20,000                      |       |
| Land, buildings  and equipment, net of accumulated depreciation of $12,602,212 and  $11,428,154, respectively                      |       | 24,213,686                   |       | 22,694,438                  |       |
|                                                                                                                               |       | $                            | 33,823,646 |                        | $          | 31,440,489 |   |
|                                                                                                                               |       |                         |       |                        |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                     |       |                         |       |                        |       |
|                                                                                                                               |       |                         |       |                        |       |
| CURRENT LIABILITIES                                                                                                                |       |                         |       |                        |       |
| Accounts payable                                                                                                                   |       | $                            | 2,891,917  |                        | $          | 1,882,923 |   |
| Card club accruals                                                                                                                 |       | 2,239,817                    |       | 2,122,333                   |       |
| Accrued wages  and payroll taxes                                                                                                   |       | 1,440,579                    |       | 1,546,155                   |       |
| Accrued interest  payable                                                                                                          |       | 6,953                        |       | 7,303                       |       |
| Due to MHBPA                                                                                                                       |       |                         |       | 94,853                      |       |
| Accrued property  taxes                                                                                                            |       | 538,710                      |       | 403,357                     |       |
| Income taxes  payable                                                                                                              |       |                         |       | 66,108                      |       |
| Payable to  horsepersons                                                                                                           |       | 181,087                      |       | 366,266                     |       |
| Total current  liabilities                                                                                                         |       | 7,299,063                    |       | 6,489,298                   |       |
|                                                                                                                               |       |                         |       |                        |       |
| DEFERRED INCOME TAXES                                                                                                              |       | 464,700                      |       | 593,100                     |       |
|                                                                                                                               |       |                         |       |                        |       |
| COMMITMENTS AND  CONTINGENCIES (Note 4)                                                                                            |       |                         |       |                        |       |
|                                                                                                                               |       |                         |       |                        |       |
| STOCKHOLDERS’ EQUITY                                                                                                          |       |                         |       |                        |       |
| Common stock,  $.01 par value, 10,000,000 shares authorized, 4,070,885 and 3,959,885,  respectively, shares issued and outstanding |       | 40,709                       |       | 39,599                      |       |
| Additional  paid-in capital                                                                                                        |       | 14,724,288                   |       | 14,045,248                  |       |
| Accumulated  earnings                                                                                                              |       | 11,294,886                   |       | 10,273,244                  |       |
| Total  stockholders’ equity                                                                                                   |       | 26,059,883                   |       | 24,358,091                  |       |
|                                                                                                                               |       | $                            | 33,823,646 |                        | $          | 31,440,489 |   |
|                                                                                                                               |       |                         |       |                        |       |

 

See notes to consolidatedfinancial statements.

3

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS****PERIODS ENDED SEPTEMBER 30, 2006 AND 2005(Unaudited)**
| ** **                                    | ** ** | **Three Months Ended Sept. 30,** | ** ** | **Nine Months Ended Sept. 30,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| OPERATING  REVENUES:                          |       |                                                 |       |                                                |       |   |   |   |   |
| Pari-mutuel                                   |       | $                                                    | 5,582,723  |                                                | $          | 5,687,055 |   | $ | 13,439,036 |   | $ | 13,464,243 |   |
| Card Club                                     |       | 7,267,860                                            |       | 7,389,380                                           |       | 22,242,520 |   | 22,100,292 |   |
| Concessions                                   |       | 2,323,305                                            |       | 2,216,992                                           |       | 5,046,333 |   | 4,901,517 |   |
| Admissions and parking                        |       | 319,031                                              |       | 296,518                                             |       | 641,669 |   | 550,859 |   |
| Publications                                  |       | 142,935                                              |       | 183,340                                             |       | 386,718 |   | 483,925 |   |
| Other                                         |       | 773,874                                              |       | 712,182                                             |       | 1,720,864 |   | 1,614,105 |   |
|                                          |       | 16,409,728                                           |       | 16,485,467                                          |       | 43,477,140 |   | 43,114,941 |   |
|                                          |       |                                                 |       |                                                |       |   |   |   |   |
| OPERATING  EXPENSES:                          |       |                                                 |       |                                                |       |   |   |   |   |
| Purse expense                                 |       | 3,194,133                                            |       | 3,282,390                                           |       | 7,097,685 |   | 7,027,620 |   |
| Minnesota Breeders’ Fund                 |       | 367,062                                              |       | 380,282                                             |       | 994,173 |   | 1,001,235 |   |
| Host track fees                               |       | 496,638                                              |       | 524,036                                             |       | 1,627,584 |   | 1,637,731 |   |
| Pari-mutuel taxes                             |       | 57,285                                               |       | 72,353                                              |       | 163,796 |   | 177,228 |   |
| Salaries and benefits                         |       | 6,169,663                                            |       | 5,931,916                                           |       | 17,174,495 |   | 16,331,836 |   |
| Cost of concessions and publication sales     |       | 1,229,624                                            |       | 1,173,533                                           |       | 2,803,067 |   | 2,808,039 |   |
| Depreciation                                  |       | 477,825                                              |       | 443,100                                             |       | 1,347,475 |   | 1,183,350 |   |
| Utilities                                     |       | 468,481                                              |       | 434,861                                             |       | 1,102,814 |   | 982,433 |   |
| Repairs, maintenance and supplies             |       | 357,210                                              |       | 409,483                                             |       | 1,088,239 |   | 1,096,204 |   |
| License fees and property taxes               |       | 206,395                                              |       | 169,440                                             |       | 590,800 |   | 478,630 |   |
| Advertising and marketing                     |       | 877,858                                              |       | 889,733                                             |       | 1,917,618 |   | 2,047,730 |   |
| Insurance                                     |       | 332,335                                              |       | 325,474                                             |       | 876,994 |   | 947,275 |   |
| Other                                         |       | 1,354,368                                            |       | 1,294,837                                           |       | 3,347,866 |   | 3,407,804 |   |
|                                          |       | 15,588,877                                           |       | 15,331,438                                          |       | 40,132,606 |   | 39,127,115 |   |
|                                          |       |                                                 |       |                                                |       |   |   |   |   |
| NONOPERATING  (EXPENSES) REVENUES:            |       |                                                 |       |                                                |       |   |   |   |   |
| Interest expense                              |       | (1,850                                               | )          | (2,958                                              | )          | (9,618 | ) | (9,698 | ) |
| Other, net                                    |       | 91,723                                               |       | 37,503                                              |       | 218,822 |   | 86,441 |   |
|                                          |       | 89,873                                               |       | 34,545                                              |       | 209,204 |   | 76,743 |   |
|                                          |       |                                                 |       |                                                |       |   |   |   |   |
| INCOME BEFORE  INCOME TAX EXPENSE             |       | 910,724                                              |       | 1,188,574                                           |       | 3,553,738 |   | 4,064,569 |   |
|                                          |       |                                                 |       |                                                |       |   |   |   |   |
| INCOME TAX  EXPENSE (Note 1)                  |       | (386,291                                             | )          | (500,202                                            | )          | (1,521,300 | ) | (1,841,620 | ) |
|                                          |       |                                                 |       |                                                |       |   |   |   |   |
| NET INCOME                                    |       | $                                                    | 524,433    |                                                | $          | 688,372 |   | $ | 2,032,438 |   | $ | 2,222,949 |   |
|                                          |       |                                                 |       |                                                |       |   |   |   |   |
| BASIC NET INCOME  PER COMMON SHARE (Note 1)   |       | $                                                    | .13        |                                                | $          | .18 |   | $ | .51 |   | $ | .57 |   |
|                                          |       |                                                 |       |                                                |       |   |   |   |   |
| DILUTED NET  INCOME PER COMMON SHARE (Note 1) |       | $                                                    | .12        |                                                | $          | .16 |   | .48 |   | $ | .53 |   |
|                                          |       |                                                 |       |                                                |       |   |   |   |   |

 

See notes to consolidatedfinancial statements.

4

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWSPERIODS ENDED SEPTEMBER 30, 2006 AND 2005 (Unaudited)**
| ** **                                                               | ** ** | **Nine Months Ended Sept. 30,** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                               | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| **Operating  Activities:**                                               |       |                                                |       |   |   |
| Net Income                                                               |       | $                                                   | 2,032,438  |   | $ | 2,222,949 |   |
| Adjustments to reconcile net income to net cash  provided by operations: |       |                                                |       |   |   |
| Depreciation                                                             |       | 1,347,475                                           |       | 1,183,350 |   |
| Stock-based compensation expense                                         |       | 192,950                                             |       |   |   |
| Excess tax benefit from exercise of stock options                        |       | (73,252                                             | )          |   |   |
| Gain on sale of property and equipment                                   |       | (52,855                                             | )          |   |   |
| Decrease in deferred income taxes                                        |       | (64,800                                             | )          | (144,699 | ) |
| (Increase) decrease in restricted cash                                   |       | (191,311                                            | )          | 375,998 |   |
| Increase in accounts receivable                                          |       | (314,869                                            | )          | (40,987 | ) |
| Increase in other current assets                                         |       | (228,645                                            | )          | (262,060 | ) |
| Decrease in income taxes payable                                         |       | (294,590                                            | )          | (49,000 | ) |
| Increase in accounts payable and accrued wages and  payroll taxes        |       | 705,468                                             |       | 380,390 |   |
| Increase in card club accruals                                           |       | 117,484                                             |       | 14,215 |   |
| (Decrease) increase in accrued interest                                  |       | (350                                                | )          | 3,553 |   |
| Increase in accrued property taxes                                       |       | 135,353                                             |       | 86,904 |   |
| Decrease in payable to horsepersons                                      |       | (185,179                                            | )          | (194,154 | ) |
| Decrease in due to MHBPA                                                 |       | (702,638                                            | )          | (294,201 | ) |
| Net cash provided by operations                                          |       | 2,422,679                                           |       | 3,282,258 |   |
| ** **                                                               |       |                                                |       |   |   |
| **Investing  Activities:**                                               |       |                                                |       |   |   |
| Additions to buildings and equipment                                     |       | (2,668,773                                          | )          | (3,077,098 | ) |
| Proceeds from sale of equipment                                          |       | 52,855                                              |       |   |   |
| Increase in short-term investments                                       |       | (77,292                                             | )          |   |   |
| Net cash used in investing activities                                    |       | (2,693,210                                          | )          | (3,077,098 | ) |
|                                                                     |       |                                                |       |   |   |
| **Financing  Activities**                                                |       |                                                |       |   |   |
| Proceeds from issuance of common stock                                   |       | 359,700                                             |       | 501,477 |   |
| Cash dividend to shareholders                                            |       | (1,010,796                                          | )          | (973,717 | ) |
| Excess tax benefit from exercise of stock options                        |       | 73,252                                              |       |   |   |
| Net cash used in financing activities                                    |       | (577,844                                            | )          | (472,240 | ) |
|                                                                     |       |                                                |       |   |   |
| Net decrease in  cash                                                    |       | (848,375                                            | )          | (267,080 | ) |
|                                                                     |       |                                                |       |   |   |
| Cash at  beginning of period                                             |       | 4,914,366                                           |       | 4,178,544 |   |
|                                                                     |       |                                                |       |   |   |
| Cash at end of  period                                                   |       | $                                                   | 4,065,991  |   | $ | 3,911,464 |   |
|                                                                     |       |                                                |       |   |   |
| Supplemental  disclosure of noncash investing activities:                |       |                                                |       |   |   |
| Additions to buildings and equipment funded through  accounts payable    |       | $                                                   | 197,950    |   | $ | 27,835 |   |
|                                                                     |       |                                                |       |   |   |
| Supplemental  disclosure of cash flow information:                       |       |                                                |       |   |   |
| Income taxes  paid, net of refunds                                       |       | $                                                   | 1,825,000  |   | $ | 1,920,000 |   |

 

See notes to consolidatedfinancial statements.

5

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###### **CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****PERIODS ENDED SEPTEMBER 30, 2006 AND 2005**

1.    SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

The summary ofsignificant accounting policies is included in the notes to consolidatedfinancial statements in the 2005 Annual Report on form 10-K.

*Unaudited Financial Statements* -The consolidated balance sheet as of September 30, 2006 the consolidatedstatements of operations for the three and nine months ended September 30, 2006and 2005, the consolidated statements of cash flows for the nine months endedSeptember 30, 2006 and 2005, and the related information contained in thesenotes have been prepared by management without audit.  In the opinion of management, all adjustments(consisting only of normal recurring adjustments) which are necessary for afair presentation of financial position and results of operations for suchperiods have been made.  Results for aninterim period should not be considered as indicative of results for a fullyear.

*Revenue Recognition -*Our revenues are derived primarilyfrom the operations of a Card Club, pari-mutuel wagering on simulcast and livehorse races, concession sales and related activities.  Collection revenue from Card Club operationsand pari-mutuel commission and fee revenues are recognized at the time that thewagering process is complete.  Revenuesrelated to wagering activities including concession and publication sales, andparking and admission fees are recognized as revenue when the service has beenperformed or the product has been delivered.

*Estimates* - Thepreparation of the consolidated financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the consolidated financial statements and thereported amounts of revenues and expenses during the reporting period.  Actual results could differ from theseestimates.

*Reclassifications* —Certain prior year numbers have been reclassified to be consistent with currentperiod presentation.  Thesereclassifications had no effect on net earnings or stockholders’ equity.  In the consolidated statements of operations,the cost of sales for our gift shops, $55,095 for the three and nine monthsended September 30, 2005, has been reclassified to the cost of sales line itemfrom repairs, maintenance and supplies. In the accompanying consolidatedstatement of cash flows we reclassified acquisitions of building improvementsand equipment funded through accounts payable at September 30, 2005 to anoncash investing activity to be consistent with our 2006 presentation.  In the accompanying consolidated statement ofcash flows for the period ended September 30, 2005 we reclassified $27,835 to anoncash investing activity.  Theseacquisitions were previously presented as increases in accounts payable underoperating activities and additions to land, buildings and equipment underinvesting activities and resulted in decreases in these items from amountspreviously reported.

The Company has changed its accounting treatment for presentation ofcash flows related to restricted cash. The Company is now presenting all cash flows related to restricted cashwithin the operating activities section of the Statements of Cash Flows ratherthan the investing activities section. The Company believes this is a more proper presentation as it moreappropriately reflects the nature of the restricted cash activities.  The Company after considering the nature ofthis change in classification and having given appropriate weight to theguidance provided by Staff Accounting Bulletin No. 99, believed it issufficient to incorporate this change in this current and future filings, atwhich time we will reclassify prior periods presented, and not treat thischange in classification as an error requiring restatement.

6

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The following table presents the affect of the change in accountingtreatment for all fiscal years and interim periods where the cash flows fromrestricted cash were previously presented within the investing activitiessection of the Statements of Cash Flows:

 
| ** **                           | ** ** | ** **                                         | ** ** | **As Revised**                             | ** ** | **Previously Reported**                           | ** ** |
|--------------------------------------|------------|----------------------------------------------------|------------|-------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                           | ** ** | **Decrease  (increase) in  Restricted  Cash** | ** ** | **Net Cash  Provided by  Operations** | ** ** | **Net Cash  Used in  Investing  Activities** | ** ** | **Net Cash  Provided by  Operations** | ** ** | **Net Cash  Used in  Investing  Activities** | ** ** |
|                                 |       |                                               |       |                                            |       |                                                   |       |   |   |   |   |
| Fiscal Year  Ended December 31, 2003 |       | $                                                  | 468,093    |                                            | $          | 4,702,228                                              |       | $ | (3,638,832 | ) | $ | 4,234,135 |   | $ | (3,170,739 | ) |
|                                 |       |                                               |       |                                            |       |                                                   |       |   |   |   |   |
| Fiscal Year  Ended December 31, 2004 |       | (459,861                                           | )          | 6,335,800                                       |       | (4,386,261                                             | )          | 6,795,661 |   | (4,846,122 | ) |
|                                 |       |                                               |       |                                            |       |                                                   |       |   |   |   |   |
| Period Ended March 31, 2005          |       | 42,921                                             |       | 2,278,941                                       |       | (956,980                                               | )          | 2,236,020 |   | (914,059 | ) |
|                                 |       |                                               |       |                                            |       |                                                   |       |   |   |   |   |
| Period Ended June 30, 2005           |       | (2,428,494                                         | )          | 3,271,005                                       |       | (2,487,839                                             | )          | 5,699,499 |   | (4,916,333 | ) |
|                                 |       |                                               |       |                                            |       |                                                   |       |   |   |   |   |
| Period Ended September 30, 2005      |       | 375,998                                            |       | 3,282,258                                       |       | (3,077,098                                             | )          | 2,906,260 |   | (2,701,100 | ) |
|                                 |       |                                               |       |                                            |       |                                                   |       |   |   |   |   |
| Fiscal Year  Ended December 31, 2005 |       | (242,383                                           | )          | 4,714,453                                       |       | (3,777,869                                             | )          | 4,956,836 |   | (4,020,252 | ) |
|                                 |       |                                               |       |                                            |       |                                                   |       |   |   |   |   |
| Period Ended March 31, 2006          |       | (208,779                                           | )          | 1,604,836                                       |       | (861,656                                               | )          | 1,813,615 |   | (1,070,435 | ) |
|                                 |       |                                               |       |                                            |       |                                                   |       |   |   |   |   |
| Period Ended June 30, 2006           |       | $                                                  | (2,813,396 | )                                               | $          | 3,766,778                                              |       | $ | (2,313,987 | ) | $ | 6,580,174 |   | $ | (5,127,383 | ) |
|                                 |       |                                               |       |                                            |       |                                                   |       |   |   |   |   |

 

*Restricted Cash* -Restricted cash represents refundable deposits and amounts due to horsemen forpurses, stakes and awards, and amounts accumulated in the Player Pool andjackpot pools to be used to repay card club players in the form of promotions,giveaways, prizes, or by other means.

*Due from MHBPA*-**At September 30, 2006, the MHBPA owed theCompany $607,785 resulting from purse overpayments by the thoroughbred horsemenduring the live race meet ended September 4, 2006.  This receivable from the MHBPA was collectedin full on November 5, 2006.

*Income Taxes*- Income tax expenseis computed by applying the estimated annual effective tax rate to the year-to-dateincome.  Income taxes are accounted forunder the asset and liability method. Deferred tax assets and liabilities are recognized for the estimatedfuture tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and theirrespective tax bases.  Deferred taxassets and liabilities are measured using enacted tax rates in effect for theyear in which those temporary differences are expected to reverse.

*Net Income Per Share*- Basic net income per common shareis based on the weighted average number of common shares outstanding duringeach period.  The weighted average numberof common shares outstanding for the three and nine-month periods endedSeptember 30, 2006 were 4,014,617 and 3,991,308 respectively.  The weighted average number of common sharesoutstanding for the three and nine-month periods ended September 30, 2005 were3,902,260 and 3,890,365, respectively. Diluted net income per common share takes into effect the dilutiveeffect of potential common shares outstanding.

7

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The Company’s potentialcommon shares outstanding are stock options and shares of unvested (“restricted”)stock. After considering the dilutive effect of stock options outstanding, theweighted average shares used to calculate diluted earnings per share for thethree and nine-month periods ended September 30, 2006 were 4,199,268 and4,263,383, respectively. The weighted average shares used to calculate dilutedearnings per share for the three and nine-month periods ended September 30,2005 were 4,202,457 and 4,185,335, respectively.

*Fair values of FinancialInstruments —* Due tothe current classification of all financial instruments of the Company, giventhe short-term nature of the related account balances, carrying amountsreported in the consolidated balance sheets approximates fair value.

*StockBased Employee Compensation**—*In December 2004, the Financial Accounting Standards Board (FASB) revised SFASNo.123, Share Based Payment (SFAS No. 123R). This Statement supercedes APBOpinion No. 25, which resulted in no stock-based employee compensationcost related to stock options if the options granted had an exercise priceequal to the market value of the underlying common stock on the date of grant. SFASNo. 123R requires recognition of employee services provided in exchangefor a share-based payment based on the grant date fair market value. In April2005 the effective date of SFAS No. 123R was deferred to the fiscal yearbeginning after June 15, 2005. Consequently, the Company adopted SFAS No. 123Ras of January 1, 2006. As of the effective date, this Statement applies toall new awards issued as well as awards modified, repurchased, or cancelled. Additionally,for stock-based awards issued prior to the effective date, compensation costattributable to future services will be recognized as the remaining service isrendered. The Company elected to apply the modified prospective method ofadoption of SFAS No.123R.

The Company has an equitybased compensation plan, the 1994 Stock Plan which provides for the granting ofawards in the form of stock options, restricted stock, stock appreciationrights, and deferred stock to key employees and non-employees, includingdirectors of and consultants to the Company and any subsidiary, to purchase upto a maximum of 1,450,000 shares of common stock. During the first quarter of2006 the Company issued non-qualified stock options to the members of the Boardof Directors, granted incentive stock options to two executive officers andissued shares of common stock that were restricted in regard to ownership anddisposition rights (herein referred to as “restricted stock”) to key managementlevel employees.

SFAS123R requires the use of a fair value based measurement method when grantingstock options. The Company selected the Black-Scholes method to measurethe compensation cost for stock options. The Black-Scholes method requires theuse of significant assumptions to estimate the fair value of the stock optionawards. The expected term of the board of director options is equivalent to thehistorical exercise experience for these options. The expected term of the keyemployee options was the term of the option as the individuals have exhibited apattern of exercising options at or near the expiration date. The expectedvolatility was calculated primarily with reliance on historical volatilityrates. The Company has no reason to believe that future volatility of theshare price over the expected option term is likely to differ from its past. TheCompany assumed a dividend yield equivalent to historical dividend rates overthe vesting period. The risk-free rate utilized in the Black-Scholescalculations was the U.S. Constant Maturity Treasury Security for the periodequivalent to the term of the option.

The fair value of stockoptions granted under the Plan during first nine months of 2006 were estimatedon the date of grant using the Black-Scholes option-pricing model with thefollowing weighted average assumptions and results:

| Dividend yield                             |   | 1.74 | %       |
|--------------------------------------------|--------|------|---------|
| Weighted-average  volatility               |   | 25   | %       |
| Risk-free  interest rate                   |   | 4.50 | %       |
| Expected term of  stock options in years   |   | 8.6  |    |
| Fair value of stock  options on grant date |   | $    | 135,300 |   |
|                                            |        |      |         |  |

 

8

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A summary of stock optionactivity under the Plan as of September 30, 2006 and changes during thenine months then ended is presented below:

|                                         | ** ** | ** **         | ** ** | ** **   | ** ** | **Weighted**    | ** ** | ** **          | ** ** |
|-----------------------------------------|------------|--------------------|------------|--------------|------------|-----------------|------------|---------------------|------------|
| ** **                              | ** ** | ** **         | ** ** | **Weighted** | ** ** | **Average**     | ** ** | ** **          | ** ** |
| ** **                              | ** ** | ** **         | ** ** | **Average**  | ** ** | **Remaining**   | ** ** | **Aggregate**       | ** ** |
| ** **                              | ** ** | **Number of** | ** ** | **Exercise** | ** ** | **Contractual** | ** ** | **Grant Date** | ** ** |
| **Stock Options**                  | ** ** | **Shares**         | ** ** | **Price**    | ** ** | **Term**        | ** ** | **Fair Value** | ** ** |
| Outstanding at January 1,  2006    |       | 721,950            |       | $            | 9.35       |            |       |                |       |   |
|                                    |       |               |       |         |       |            |       |                |       |
| Granted                                 |       | 30,000             |       | $            | 14.43      |            |       |                |       |   |
| Exercised                               |       | (70,000            | )          | $            | 5.14       |            |       |                |       |   |
|                                    |       |               |       |         |       |            |       |                |       |
| Outstanding at September 30,  2006 |       | 681,950            |       | $            | 10.01      |            | 3.2 Years  |                | $          | 3,291,600 |   |
|                                    |       |               |       |         |       |            |       |                |       |
| Exercisable at September 30,  2006 |       | 651,950            |       | $            | 9.81       |            | 2.9 Years  |                | $          | 3,225,432 |   |

 

Each member of the Boardof Directors receives an annual recurring grant of 3,000 non-qualified stockoptions. On February 1, 2006 15,000 options were granted to the five boardmembers with an exercise price equal to the market price on the date of grantof $14.30. The stock options vest over a six-month period and expire in tenyears. The Company granted 15,000 incentive stock options to two executiveofficers of the Company on February 9, 2006. The exercise price of theseincentive stock options was the market value on the date of grant of $14.55. Thestock options vest ratably over a four-year period and expire in ten years. Sharesof restricted stock were granted to key management-level employees on February 9,2006. The Company granted 41,000 shares of restricted stock that vest 100%after four years. Employees who terminate employment prior to the vesting dateforfeit their right to the shares.

The compensation cost associated with the Board ofDirector options is $61,200 to be recognized as expense over the six-monthvesting period. The compensation cost associated with the employee stock optiongrant is $74,100 to be recognized ratably over the four-year vesting period. Thecompensation cost associated with the restricted stock grant was calculated asthe market price on the date of grant of $14.55 for the 41,000 shares (reducedby estimated forfeitures) of $589,275. This expense will be recognized ratablyover the four-year vesting period. The Company also recognized $7,807 relatedto a grant of employee stock options in 2004 which vested in February of 2006. Inaccordance with the modified prospective method, the total compensation costrelated to share based awards included in salaries and benefits expense for thefirst nine months of 2006 was $192,950.

A summary of the statusof the Company’s restricted stock as of September 30, 2006, and changesduring the nine months ended September 30, 2006, is presented below:

|                                                        | ** ** | ** ** | ** ** | **Weighted**        | ** ** |
|--------------------------------------------------------|------------|------------|------------|---------------------|------------|
| ** **                                             | ** ** | **Number** | ** ** | **Average**         | ** ** |
| ** **                                             | ** ** | **of**     | ** ** | **Grant Date** | ** ** |
| **Restricted Stock:**                             | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Nonvested  restricted stock at January 1, 2006    |       | 0          |       | 0                   |       |
|                                                   |       |       |       |                |       |
| Granted                                                |       | 41,000     |       | $                   | 14.55      |   |
| Vested                                                 |       | 0          |       | 0                   |       |
| Forfeited                                              |       | 0          |       | 0                   |       |
|                                                   |       |       |       |                |       |
| Nonvested restricted  stock at September 30, 2006 |       | 41,000     |       | $                   | 14.55      |   |

 

9

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As of September 30,2006, there was $491,062 of total unrecognized compensation cost related torestricted stock compensation arrangements granted under the Plan. That cost isexpected to be recognized over a period of 3.25 years.

The following tableillustrates the effect on net income and earnings per share if the Company hadapplied the fair value recognition provisions of SFAS No. 123, *Accounting for Stock-Based Compensation,*tostock-based employee compensation to periods prior to January 1, 2006.

|                                                                                                                                          | ** ** | **Three**                    | ** ** | **Nine**                     | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                               | ** ** | **Months**                   | ** ** | **Months**                   | ** ** |
| ** **                                                                                                                               | ** ** | **Ended**                    | ** ** | **Ended**                    | ** ** |
| **Stock Based Employee Compensation**                                                                                     | ** ** | **Sept. 30, 2005** | ** ** | **Sept. 30, 2005** | ** ** |
| Net Income:                                                                                                                              |       |                         |       |                         |       |
|                                                                                                                                     |       |                         |       |                         |       |
| As reported                                                                                                                              |       | $                            | 688,372    |                         | $          | 2,222,949 |   |
|                                                                                                                                     |       |                         |       |                         |       |
| Deduct: Pro forma stock-based compensation expense  determined under fair value based method for all awards, net of related tax  effects |       | (47,844                      | )          | (454,261                     | )          |
|                                                                                                                                     |       |                         |       |                         |       |
| Pro forma net income                                                                                                                     |       | $                            | 640,528    |                         | $          | 1,768,688 |   |
|                                                                                                                                     |       |                         |       |                         |       |
| Earnings Per  Share:                                                                                                                     |       |                         |       |                         |       |
|                                                                                                                                     |       |                         |       |                         |       |
| Basic — as  reported                                                                                                                |       | $                            | .18        |                         | $          | .57 |   |
|                                                                                                                                     |       |                         |       |                         |       |
| Basic — pro  forma                                                                                                                  |       | $                            | .16        |                         | $          | .46 |   |
|                                                                                                                                     |       |                         |       |                         |       |
| Diluted — as  reported                                                                                                              |       | $                            | .16        |                         | $          | .53 |   |
|                                                                                                                                     |       |                         |       |                         |       |
| Diluted — pro forma                                                                                                                 |       | $                            | .15        |                         | $          | .42 |   |

 

*NewAccounting Pronouncements**—*In September 2006, the FASBissued SFAS No. 157, *Fair ValueMeasurements,* which defines fair value, establishes a framework formeasuring fair value, and expands disclosures about fair value measurements.The provisions of SFAS No. 157 are effective for fiscal years beginningafter November 15, 2007. The Company is evaluating the impact the adoptionof SFAS No. 157 will have on its financial statements.

In June 2006, the FASBissued FASB Interpretation No. 48 (FIN 48), *Accounting for Uncertainty in Income Taxes—an interpretation of FASBStatement No. 109.*FIN 48 prescribes a recognition thresholdand measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return. TheCompany must determine whether it is “more-likely-than-not” that a tax positionwill be sustained upon examination, including resolution of any related appealsor litigation processes, based on the technical merits of the position. Once itis determined that a position meets the more-likely-than-not recognitionthreshold, the position is measured to determine the amount of benefit torecognize in the financial statements. FIN 48 applies to all tax positionsrelated to income taxes subject to FASB Statement No. 109, *Accounting for Income Taxes*. FIN 48 isapplicable for fiscal years beginning after December 15, 2006. The Companyis evaluating the impact the adoption of FIN 48 will have on its financialstatements.

10

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2.               BORROWINGS UNDERCREDIT AGREEMENT

Borrowings under theCompany’s credit agreement with Bremer Bank include a commercial revolvingcredit line, which provides for maximum advances of $2,250,000 with interest atthe prime rate. The Company had no borrowings under this credit line at September 30,2006. The credit agreement contains certain covenants requiring the Company tomaintain certain financial ratios. The Company was in compliance with theserequirements as of September 30, 2006. Management believes that fundsavailable under this line of credit, along with funds generated from card cluband simulcast operations, will be sufficient to satisfy its liquidity andcapital resource requirements during 2006.

3.               OPERATING SEGMENTS

During the first ninemonths of 2006 and 2005, the Company had three reportable operating segments: horseracing, card club and concessions. The card club segment primarily representsoperations of the Canterbury Card Club. The horseracing segment primarilyrepresents simulcast and live horse racing operations, and the concessionssegment primarily represents concessions provided during simulcast and liveracing, in the card club, and during special events. The Company’s reportableoperating segments are strategic business units that offer different productsand services. They are managed separately because the segments differ in thenature of the products and services provided as well as processes to producethose products and services. The horse racing and card club segments areregulated by the State of Minnesota Racing Commission.

The accounting policiesof the operating segments are the same as those described in the summary ofsignificant accounting policies in the 2005 Annual Report on Form 10-K.

Depreciation, interestexpense and income taxes are allocated to the segments but no allocation ismade to concessions for shared facilities. However, the concessions segmentpays approximately 25% of gross revenues earned on live racing and specialevent days to the horse racing segment for use of the facilities.

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

11

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|                                     | ** ** | **Nine Months Ended September 30, 2006** | ** ** |
|-------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                          | ** ** | **Card Club**                                                | ** ** | **Horse Racing** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
| Revenues from  external customers   |       | $                                                                 | 22,242     |   | $ | 16,133 |   | $ | 5,102 |   | $ | 43,477 |   |
|                                |       |                                                              |       |   |   |   |   |   |   |
| Intersegment  revenues              |       |                                                              |       | 354 |   | 1,705 |   | 2,059 |   |
|                                |       |                                                              |       |   |   |   |   |   |   |
| Net interest income                 |       |                                                              |       | 209 |   |   |   | 209 |   |
|                                |       |                                                              |       |   |   |   |   |   |   |
| Depreciation                        |       | 433                                                               |       | 823 |   | 91 |   | 1,347 |   |
|                                |       |                                                              |       |   |   |   |   |   |   |
| Segment income  before income taxes |       | 4,178                                                             |       | (636 | ) | 1,235 |   | 4,777 |   |
|                                |       |                                                              |       |   |   |   |   |   |   |
| Segment Assets                      |       | $                                                                 | 3,706      |   | $ | 29,419 |   | $ | 6,006 |   | $ | 39,131 |   |

 

|                                     | ** ** | **Nine Months Ended September 30, 2005** | ** ** |
|-------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                          | ** ** | **Card Club**                                                | ** ** | **Horse Racing** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
| Revenues from  external customers   |       | $                                                                 | 22,100     |   | $ | 16,110 |   | $ | 4,905 |   | $ | 43,115 |   |
|                                |       |                                                              |       |   |   |   |   |   |   |
| Intersegment  revenues              |       |                                                              |       | 320 |   | 1,497 |   | 1,817 |   |
|                                |       |                                                              |       |   |   |   |   |   |   |
| Net interest  income                |       |                                                              |       | 77 |   |   |   | 77 |   |
|                                |       |                                                              |       |   |   |   |   |   |   |
| Depreciation                        |       | 411                                                               |       | 690 |   | 82 |   | 1,183 |   |
|                                |       |                                                              |       |   |   |   |   |   |   |
| Segment income before  income taxes |       | 4,602                                                             |       | (504 | ) | 1,153 |   | 5,251 |   |
|                                     |            |                                                                   |            |  |  |  |  |  |  |  |  |  |  |

 

|                | ** ** | **At December 31, 2005** | ** ** |
|----------------|------------|-----------------------------------------|------------|
| Segment Assets |       | $                                       | 3,493      |   | $ | 27,191 |   | $ | 4,821 |   | $ | 35,505 |   |
|                |            |                                         |            |  |  |  |  |  |  |  |  |  |  |

 

The following arereconciliations of reportable segment revenue, income before income taxes, andassets, to the Company’s consolidated totals (in 000’s):

|                                                         | ** ** | **Nine Months Ended Sept. 30,** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                              | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| Revenues                                                |       |                                                |       |   |   |
| Total revenue for reportable segments                   |       | $                                                   | 45,536     |   | $ | 44,932 |   |
| Elimination of intersegment revenues                    |       | (2,059                                              | )          | (1,817 | ) |
| Total consolidated revenues                             |       | $                                                   | 43,477     |   | $ | 43,115 |   |
|                                                    |       |                                                |       |   |   |
| Income before  income taxes                             |       |                                                |       |   |   |
| Total segment income before income taxes                |       | $                                                   | 4,777      |   | $ | 5,251 |   |
| Elimination of intersegment income before income  taxes |       | (1,223                                              | )          | (1,186 | ) |
| Total  consolidated income before income taxes          |       | $                                                   | 3,554      |   | $ | 4,065 |   |

 

|                                         | ** ** | **Sept. 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| Assets                                  |       |               |       |                  |       |
| Total assets for reportable segments    |       | $                  | 39,131     |                  | $          | 35,505 |   |
| Elimination of intercompany receivables |       | (5,307             | )          | (4,065                | )          |
| Total  consolidated assets              |       | $                  | 33,824     |                  | $          | 31,440 |   |

 

12

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4.     CONTINGENCIES

In accordance with an Earn Out Note, given to theprior owner of the Racetrack as part of the consideration paid by the Companyto acquire the Racetrack in 1994, if (i) off-track betting becomes legallypermissible in the State of Minnesota and (ii) the Company begins to conductoff-track betting with respect to or in connection with its operations, theCompany will be required to pay to the IMR Fund, L.P. the greater of $700,000per operating year, as defined, or 20% of the net pretax profit, as defined foreach of five operating years. At this time, management believes that thelikelihood that these two conditions will be met, and that the Company will berequired to pay these amounts is remote. 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 capitalized aspart of the purchase price in accordance with generally accepted accountingprinciples. The purchase price will be further increased if payments become dueunder the “20% of Net Pretax Profit” calculation. The first payment is to bemade 90 days after the end of the third operating year in which off-trackbetting is conducted by the Company. Remaining payments would be made within 90days of the end of each of the next four operating years.

The Company is periodically involved in various legalactions arising in the normal course of business. At September 30, 2006,management believes that the resolution of any legal actions outstanding willnot have a material impact on the consolidated financial statements.

13

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

The followingManagement’s Discussion and Analysis of Financial Condition and Results ofOperations (“MD&A”) is intended to help the reader understand CanterburyPark Holding Corporation, our operations and our present business environment. ThisMD&A is provided as a supplement to – and should be read in conjunctionwith – our consolidated financial statements and the accompanying notes to thefinancial statements (the “Notes”). This MD&A is divided into the followingsections:

·                  *Overview*

·                  *Operations Review* — an analysis of ourCompany’s consolidated results of operations for the three months and ninemonths presented in our consolidated financial statements. 

·                  *Contingencies*

·                  *Liquidity and Capital Resources*— ananalysis of the sources and uses of cash.

·                  *Critical Accounting Policies and Estimates*

·                  *Commitments and Contractual Obligations*

·                  *Legislation*

·                  *Forward-Looking Statements*— cautionaryinformation about forward-looking statements and a description of certain risksand uncertainties that could cause our actual results to differ materially fromthe Company’s historical results or our current expectations or projections.

**Overview:**

Canterbury Park Holding Corporation (the “Company”)owns and operates the Canterbury Park Racetrack and Card Club in Shakopee,Minnesota (the “Racetrack”). 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 racingfacility 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 featuringthoroughbred and quarter horse racing. Live race meets commence in the month ofMay and conclude in September. During live race meets, the Company televisesits races to out-of-state racetracks around the country, and earns additionalpari-mutuel revenue on wagers placed at the out-of-state racetracks.

Canterbury Park’s Card Club (the “Card Club”) hosts “unbanked”card games in which players compete against each other and not against thehouse. The Card Club is open twenty-four hours a day, seven days a week. UnderMinnesota law, the Company is required to pay up to 14% of the gross Card Clubrevenues to the Racetrack’s purse fund and the State of Minnesota Breeders’Fund. However, the Company has agreed with the Minnesota Horsemen’s Benevolentand Protective Association (“MHBPA”) to pay 15% of Card Club revenues into thepurse fund for 2006 and 2005.

The Company also generates revenues from otheractivities such as admission and parking fees and from the sale of food and beverage,programs and other racing publications, and corporate sponsorships. Additionalrevenues are derived from an RV park and the use of the Racetrack facilitiesfor special events such as concerts, craft shows and snowmobile racing.

14

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**Operations Review forthe**Three andNine Months EndedSeptember 30, 2006 and September 30, 2005:

Total operating revenues increased approximately$362,000 or .8% during the nine months ended September 30, 2006 compared to thenine months ended September 30, 2005, and decreased approximately $76,000 or..5% for the three months ended September 30, 2006 compared to the three monthsended September 30, 2005. The increase for the nine months is due to primarilyto a .6% growth in Card Club revenues, along with a 3.0% increase in concessionrevenues and a 16.5% increase in admission revenues, partially offset by adecrease of 20.1% in publication revenues.

Pari-mutuel revenues are down $25,000 or .2% in thenine-month period ended September 30, 2006 compared to the same period in 2005,and decreased approximately $104,000 or 1.8% for the three-month period endedSeptember 30, 2006 compared to the same period in 2005. An increase in feesreceived for simulcasting our live races to out-of-state racetracks of $200,000offset reductions in commission revenues from simulcast racing. Revenuerecognized due to uncashed winning tickets decreased $25,000 compared to thesame period in 2005.

Total on-track handle (simulcast and live racinghandle) for the nine months ended September 30, 2006 was down $1,051,000compared to the nine-month period in 2005. Total on-track handle for thequarter ended September 30, 2006 was down $1,184,000 compared to the thirdquarter of 2005. Import handle, or wagering by out-of-state tracks on racesconducted at the Racetrack, increased $5,066,000 or 35.7% for the nine monthsended September 30, 2006, compared to the same period last year primarily dueto increases at certain out-of-state wagering locations simulcasting live racesfrom the Racetrack.

Total handle wagered on simulcast races year-to-datein 2006 is down compared to last year, primarily due to declines during thethird quarter of 2006. Simulcast handle was down $337,000 or .8% year-to-dateand down $949,000 or 6.4% for the third quarter of 2006 compared to therespective periods of 2005. The average daily simulcast handle on 2006 livemeet racing days decreased .4% from $512,912 in 2005 to $494,838 in 2006.

On-track live handle decreased by $714,000 or 4.1% forthe 2006 live meet compared to the live meet in 2005 due partly to the factthat the Company was forced to cancel, shorten or delay live racing on six daysduring of 2006 due to inclement or dangerously hot weather conditions. Forfurther information, see the “Summary of Pari-mutuel Data” below.

We believe that general reductions in patron wageringcan be partially attributed to competition from internet wagering and othergaming options, as well as the general downturn in economic conditions during2006, including record high gasoline prices and increasing interest rates,which reduce our patrons’ disposable income and negatively impact our revenues.

15

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|                                                 | ** ** | **Nine Months Ended Sept. 30,** | ** **     |
|-------------------------------------------------|------------|-----------------------------------------------------|----------------|
| **Summary of Pari-mutuel Data:** | ** ** | **2006**                                            | ** **     | **2005** | ** ** |
| Racing Days                                     |       |                                                |           |   |   |
| Simulcast only                                  |       | 205                                                 |           | 205 |   |
| Live and Simulcast                              |       | 68                                                  |           | 68 |   |
| **Total  Number of Racing Days**                | ** ** | **273**                                             | ** **     | **273** | ** ** |
|                                            |       |                                                |           |   |   |
| On-Track Handle                                 |       |                                                |           |   |   |
| Simulcast racing handle on simulcast only days  |       | $                                                   | 27,553,000     |   | $ | 27,375,000 |   |
| Live and Simulcast days:                        |       |                                                |           |   |   |
| Live racing handle                              |       | 16,877,000                                          |           | 17,591,000 |   |
| Simulcast racing handle                         |       | 16,772,000                                          |           | 17,287,000 |   |
| Total On-Track Handle                           |       | 61,202,000                                          |           | 62,253,000 |   |
|                                            |       |                                                |           |   |   |
| Out-of-State  Live Handle                       |       | 19,246,000                                          |           | 14,180,000 |   |
|                                            |       |                                                |           |   |   |
| **Total  Handle**                               | ** ** | **$**                                               | **80,448,000** | ** ** | **$** | **76,433,000** | ** ** |
|                                            |       |                                                |           |   |   |
| On-Track Average  Daily Handle                  |       |                                                |           |   |   |
| Simulcast only racing days                      |       | $                                                   | 134,405        |   | $ | 133,537 |   |
| Live and  simulcast racing days                 |       | $                                                   | 494,838        |   | $ | 512,912 |   |

 

Total Card Club revenue increased .6% or $142,000 forthe first nine months of 2006 compared to the same period in 2005. Card Clubrevenue decreased $122,000 or 1.6 % for the three months ended September 30,2006 compared to the same three-month period in 2005. The primary source ofCard Club revenue is a percentage of the wagers received from the players ascompensation for providing the Card Club facility and services, referred to asthe “collection revenue”. The Company also receives a specified percentage ofthe jackpot fund collection as reimbursement for administrative costs ofmaintaining the jackpot funds, and collects fees for administering tournaments,which represents “other revenue”. The increase in revenue for the nine monthsis due primarily to increased utilization of three tables resulting from theirconversion to hosting poker games, rather than Casino Games, beginning late inDecember 2005. Revenues are down slightly for the three months primarily due tothe economic factors discussed above, and increasing competition from NativeAmerican casinos, which have expanded their gaming options to include many ofthe same unbanked card games as those offered at the Card Club. Card Clubrevenues represented 51.2% and 51.3% of total revenues for the nine-month andthree-month periods ended September 30, 2006, respectively. For furtherinformation, see the “Summary of Card Club Data” below.

|                                                    | ** ** | **Nine Months Ended Sept. 30,** | ** ** |
|----------------------------------------------------|------------|-----------------------------------------------------|------------|
| **Summary of Card Club Data:** | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| Poker Games                                        |       | $                                                   | 13,657,000 |   | $ | 13,575,000 |   |
| Casino Games                                       |       | 8,061,000                                           |       | 8,039,000 |   |
| Total Collection Revenue                           |       | 21,718,000                                          |       | 21,614,000 |   |
|                                               |       |                                                |       |   |   |
| Other Revenue                                      |       | 525,000                                             |       | 486,000 |   |
| Total Card Club Revenue                            |       | $                                                   | 22,243,000 |   | $ | 22,100,000 |   |
|                                               |       |                                                |       |   |   |
| Number of Days Offered                             |       | 273                                                 |       | 273 |   |
| Average Revenue  per Day                           |       | $                                                   | 81,476     |   | $ | 80,952 |   |

 

Concessions revenues increased $145,000 or 3.0%, and$106,000 or 4.8% for the nine-month and three-month periods ended September 30,2006, respectively, compared to the prior year. The increase is primarilyattributable to higher sales in the restaurant, concessions stands and barsduring live racing, and to a modest price increase effective January 2006.

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Admission and parking revenues increased $91,000 or16.5% and $23,000 or 7.6% during the nine and three-month periods endedSeptember 30, 2006 compared to the same periods in 2005 primarily due toincreases in admission and reserved seating prices

Total operating expenses increased approximately$1,005,000 or 2.6% during the nine-month period ended September 30, 2006compared to the nine-month period ended September 30, 2005, and $257,000 or1.7% during the three months ended September 30, 2006 compared to the three-monthperiod ended September 30, 2005.

Total purse and Minnesota Breeders’ Fund expensesdecreased approximately $63,000 or .8% and $101,000 or 2.8%, respectively,during the nine and three-month periods of 2006 compared to 2005 as presentedin the table below. Purse expense associated with Card Club revenues increasedslightly consistent with the increase in revenues. An increase in simulcastpurse expense, despite lower handle, occurred due to a negotiation of acomponent of the purse rate with the horsemen affecting handle wagered in theoff-season only. The decrease in live racing purse expense is due to lower liveracing handle, partially offset by higher purse expense associated withwagering by out-of-state racetracks. The fluctuations in Minnesota Breeders’Fund Expense are consistent with changes in handle from 2005 to 2006.

|                         | ** ** | ** **                                          | ** ** | ** **                                          | ** ** | **Minnesota** | ** ** |
|-------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|---------------|------------|
| ** **              | ** ** | **Purse Expense**                              | ** ** | **Breeders’ Fund Expense**           | ** ** |
| ** **              | ** ** | **Nine Months Ended Sept. 30,** | ** ** | **Nine Months Ended Sept. 30,** | ** ** |
| ** **              | ** ** | **2006**                                            | ** ** | **2005**                                            | ** ** | **2006**      | ** ** | **2005** | ** ** |
| Card Club               |       | $                                                   | 3,002,000  |                                                | $          | 2,984,000     |       | $ | 333,000 |   | $ | 331,000 |   |
|                    |       |                                                |       |                                                |       |          |       |   |   |
| Simulcast Horse  Racing |       | 2,400,000                                           |       | 2,343,000                                           |       | 492,000       |       | 494,000 |   |
|                    |       |                                                |       |                                                |       |          |       |   |   |
| Live Horse  Racing      |       | 1,696,000                                           |       | 1,701,000                                           |       | 169,000       |       | 176,000 |   |
|                    |       |                                                |       |                                                |       |          |       |   |   |
|                    |       | $                                                   | 7,098,000  |                                                | $          | 7,028,000     |       | $ | 994,000 |   | $ | 1,001,000 |   |

 

Salaries and benefits expense increased approximately$843,000 or 5.2% in the nine-month period and approximately $238,000 or 4.0% inthe three-month period compared to the same periods last year. The increase isdue to several factors including the impact of an increase of a $1 per hour inthe minimum wage imposed by Minnesota Law effective August 2005 which resultedin an estimated increase of $197,000 in hourly labor costs for the first ninemonths of 2006; a $193,000 expense related to the adoption of SFAS 123R; anestimated increase of $186,000 in wages due to increases in salary and wagerates, offset by a decrease in hours worked; an estimated increase of $173,000in retirement benefits due to timing differences of accrued expenses; and anestimated increase of $94,000 in group medical costs attributable to increasedpremium rates.

Depreciation expense increased $164,000 or 13.9%during the first nine months of 2006, compared to 2005, due to significantinvestments in the stable area and training facilities during 2005 and into2006. Utilities expense is up $120,000 or 12.3% due to increases in energycosts for electricity and natural gas in 2006 compared to the same period in2005. In addition, real estate taxes have increased by $112,000 for the firstnine months of 2006 compared to 2005 due primarily to higher assessmentsrelated to improvements to the grandstand and stable areas. Advertising andmarketing expenses have decreased by $130,000 compared to 2005 due primarily toa reduction of $156,000 in marketing expenses associated with our legislativeefforts during the 2006 session. Insurance costs have decreased compared to2005 primarily due to reductions in property and liability premiumsattributable to changes in policy features.

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Other operatingexpenses decreased $60,000 due primarily to a decrease in professional servicesyear-to-date in 2006 compared to 2005 pertaining to issues related toSarbanes-Oxley of $97,000 in the first half of 2005 that did not recur in 2006and to a reduction of $66,000 in professional fees associated with ourlegislative efforts.  These decreaseswere partially offset by an increase of $82,000 in contracted services,primarily related to administrative costs of live racing and increased costs ofCard Club regulation by the Minnesota Racing Commission. Total operatingexpenses as a percentage of total operating revenues were 92.3% for thenine-month period ended September 30, 2006 compared to 90.8% for 2005 as therevenue volumes increased slightly, but were insufficient to cover theadditional fixed expenses such as depreciation, utilities, property taxes andhigher costs of regulation of the Card Club and live racing.

Income beforeincome taxes was $3,553,738 for the nine months ended September 30, 2006compared to $4,064,569 for the nine months ended September 30, 2005.  After income tax expense of $1,521,300 forthe nine months ended September 30, 2006, net income was $2,032,438 in 2006compared to $2,222,949 in 2005.  Incomebefore income taxes for the quarter ended September 30, 2006 was $910,724compared to $1,188,574 for the quarter ended September 30, 2005.  After income tax expense of $386,291 in thethird quarter of 2006, net income was $524,433 compared to $688,372 for thethird quarter of 2005.  The effectiveincome tax rate year-to-date in 2006 is 42.8% compared to 45.3% for theyear-to-date period in 2005.  Thereduction in the rate is due to a decrease in the anticipated annual effectivetax rate for 2006 resulting from a reduction in permanent differences includinga significant decrease in non-deductible lobbying expenses.

#### **Contingencies:**

There have been nomaterial changes in our contingencies since those reported at December 31,2005.

**Liquidity and Capital Resources:**

Cash provided byoperating activities during the period January 1, 2006 through September 30,2006 was $2,422,679, resulting primarily from net income of $2,032,438;depreciation of $1,347,475; an increase in accounts payable and accrued wagesand payroll taxes of $705,468 consisting of a $241,000 increase in tradeaccounts payable, a $156,000 increase in deferred revenues for corporatesponsorships, a $313,000 increase in amounts payable to out-of-state tracks forsettlements. Pursuant to an agreement with the MHBPA, during the nine monthsended September 30, 2006 and 2005, the Company transferred into a trust accountor paid directly to the MHBPA approximately $7,025,000 and $6,500,000,respectively.  At September 30, 2006, theMHBPA owed the Company $607,785 resulting from purse overpayments by thethoroughbred horsemen during the live race meet that ended September 4,2006.  This receivable from the MHBPA wascollected in full on November 5, 2006.

Net cash used ininvesting activities for the first nine months of 2006 and 2005 of $2,693,210and $3,077,098, respectively, resulted primarily from improvements to thebackside barns and facilities related to live racing.  The Company also invested in short-termcertificates of deposit totaling $77,292 during the first nine months of 2006and received proceeds upon the sale of fully depreciated equipment of $52,855.

During the periodJanuary 1, 2006 through September 30, 2006, cash used in financing activitieswas $577,844 resulting from a $.25 per share cash dividend paid to shareholdersof $1,010,796, partially offset by the receipt of $359,700 from the exercise ofstock options.  During the period January1, 2005 through September 30, 2005, cash used in financing activities was$472,240 representing a $.25 per share cash dividend paid to shareholders of$973,717, partially offset by the receipt of $501,477 from the exercise ofstock options.

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The Company hasrenewed a general credit agreement with Bremer Bank, which provides a revolvingcredit line of up to $2,250,000 with interest at the prime rate until April 20,2007.  The Company had no borrowingsunder the line of credit at September 30, 2006 or December 31, 2005.  The credit agreement contains certain covenantsrequiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements at all times throughout the quarter ended September 30, 2006.

Unrestricted cashbalances at September 30, 2006 were $4,040,991 compared to $4,914,366 atDecember 31, 2005. The Company believes that the funds available in its cashaccounts, amounts available under its line of credit, along with fundsgenerated from operations, will be sufficient to satisfy its liquidity andcapital resource requirements for regular operations for the foreseeablefuture.

##### **CriticalAccounting Policies and Estimates:**

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 2005 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 71.6% of our total assets. We utilize our judgment in variousways including: 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. We do not believe that any impairment has occurred oris likely to occur in the near future.

*Regulation-*Our business can be materially impacted both positively andnegatively by legislative and regulatory changes, such as those describedbelow.  Significant negative changesresulting from these activities could result in an impairment of our propertyand equipment in accordance with generally accepted accounting standards.Additional information regarding how our business can be impacted bylegislative and regulatory changes are included in Item 1 (vi), and Item 1(vii), respectively, in our 2005 Annual Report on Form 10-K.

*Stock Based Employee Compensation*- In December 2004, the Financial Accounting Standards Board (FASB) revisedSFAS No.123, Share Based Payment (SFAS No. 123R).  This Statement supercedes APB Opinion No. 25,which resulted in no stock-based employee compensation cost related to stockoptions if the options granted had an exercise price equal to the market valueof the underlying common stock on the date of grant.  SFAS No. 123R requires recognition ofemployee services provided in exchange for a share-based payment based on thegrant date fair market value.  TheCompany adopted SFAS No. 123R as of January 1, 2006.  As of the effective date, this Statementapplies to all new awards issued as well as awards modified, repurchased, orcancelled.  Additionally, for stock-basedawards issued prior to the effective date, compensation cost attributable tofuture services will be recognized as the remaining service is rendered.  The Company elected to apply the modifiedprospective method of adoption of SFAS No.123R.

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**Commitmentsand Contractual Obligations:**

Therehave been no material changes in our outstanding commitments and contingenciessince those reported at December 31, 2005.

**Legislation:**

 In2006 the Company supported legislation to place a proposed amendment of theMinnesota Constitution on the November 2006 ballot that would have establisheda framework under which electronic gaming could be conducted at the Racetrack.  The extension of the Company’s business toinclude electronic gaming at the Racetrack, often referred to as a “Racino”,contemplated adding approximately 3,000 electronic gaming devices, as well as40 table games, a 250-room hotel, an Olympic scale horse park and additionalrestaurant venues.  Legislation was alsointroduced in 2006 to remove the 50-table limit currently imposed by Minnesotalaw and allow Canterbury Park to offer “banked” games in the Card Club.  No action was, however, taken on either ofthese bills in 2006.  In the future, theCompany may support legislation similar to the bills introduced in 2006, orother legislation that would increase gaming options at Canterbury Park,although at this time no decision has been made as to the Company’s legislativestrategy for 2007.  The effort to supportlegislation that would increase gaming options at Canterbury Park has required,and similar efforts in the future will require, substantial expenditures.  Due to the inherent uncertainty of theoutcome of legislative activities, there can be no assurance that any suchactivities will result in bills favorable to the Company’s interests beingenacted into law, and it is possible bills adverse to the Company could beenacted.

**Forward-Looking Statements:**

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.  For suchforward-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 and uncertaintiesinclude, but are not limited to: fluctuations in attendance at the Racetrack,material changes in the level of wagering by patrons, decline in interest inthe unbanked card games offered at the Card Club, legislative and regulatorychanges, 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.

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**ITEM3:      QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

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 September 30, 2006 we have no debtborrowings under 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, and short-term government and corporate bonds.

**ITEM4:     CONTROLS AND PROCEDURES**

**(a)           Evaluationof Disclosure Controls and Procedures:**

Management, with the participation of the Company’s principal executiveofficer, Randall D. Sampson, and principal financial officer, David C. Hansen,has evaluated the effectiveness of the design and operation of the disclosurecontrols and procedures, as defined in Rules 13a-15(e) under the SecuritiesExchange Act of 1934, as of the end of the period covered by this report.  Management has concluded that the Company’sdisclosure controls and procedures are effective to ensure that informationrequired to be disclosed in the reports that the Company files under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in the rules and forms of the SEC and that the disclosurecontrols are also effective to ensure that information required to be disclosedin the Company’s Exchange Act reports is accumulated and communicated tomanagement, including the principal executive officer and principal financialofficer, to allow timely decisions regarding required disclosure.

**(b)           Changes inInternal Control Over Financial Reporting:**

There have been no 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 registrant’s internal control over financial reporting.

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**PART II****OTHER INFORMATION**

Item 1.                  **Legal Proceedings**

Not Applicable.

Item 1A.        **Risk Factors**

There have been nomaterial changes to the Risk Factors since those reported in the         Form 10-K for the year ended December 31,2005.

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

     Not Applicable.

Item 3.                  **Defaults Upon Senior Securities**

     Not Applicable.

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

                                                     NotApplicable.

Item 5.                  **Other Information**

                                                     NotApplicable.

Item 6.                  **Exhibits**

                                                     (a)                             Thefollowing exhibits are included herein:

11                            Statement recomputation of per share earnings — See Net Income Per Share under Note 1 ofNotes to Consolidated Financial Statements under Part 1, Item 1, which isincorporated herein by reference.

31.1                   Certificationof Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002 (rules 13a-14 and 15d-14 of the Exchange Act).

31.2                   Certificationof Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002 (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).

**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

**CanterburyPark Holding Corporation**
| Dated:   November 14, 2006 |   | /s/ Randall D. Sampson                 |   |
|--------------------------------------|--------|----------------------------------------|--------|
|                                 |   | Randall D. Sampson,                    |
|                                 |   | President, and Chief Executive Officer |

 
| Dated:   November 14, 2006 |   | /s/ David C. Hansen                         |   |
|--------------------------------------|--------|---------------------------------------------|--------|
|                                 |   | David C. Hansen,                            |
|                                 |   | Vice President, and Chief Financial Officer |

 

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