Table of Contents

** **

 

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

**(Mark One)**
| **x** | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|--------------------------------------------------------------------------------------------------------|

** **

**FOR THEQUARTERLY PERIOD ENDED JUNE 30, 2008.**

** **

**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 Registrant as Specified in Its Charter)

 

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

 

**1100Canterbury 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 ofthe Securities Act.

 
| YES | o |   | NO | x |
|-----|---|--------|----|---|

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.

 
| YES | o |   | NO | x |
|-----|---|--------|----|---|

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

 
| YES | x |   | NO | o |
|-----|---|--------|----|---|

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company (asdefined in Exchange Act Rule 12b-2).
|   |   | Large  accelerated filer |   | o | Accelerated  filer         |   | o |   |
|--------|--------|--------------------------|--------|---|----------------------------|--------|---|--------|
|   |   | Non-accelerated  filer   |   | o | Smaller  reporting company |   | x |   |

 

Indicateby check mark whether the registrant is a shell company (as defined in ExchangeAct Rule 12b-2).

 
| YES | o |   | NO | x |
|-----|---|--------|----|---|

 

TheCompany had 3,979,025 shares of common stock, $.01 par value, outstanding as ofAugust 14, 2008.

 

 

 

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Table of Contents

 

Canterbury ParkHolding Corporation

 

#### **INDEX**

#### ** **

| ** **        | ** **                 | ** **                                                                                  | **Page** |
|-------------------|----------------------------|---------------------------------------------------------------------------------------------|----------|
| **PART I.**  | **FINANCIAL  INFORMATION** | ** **                                                                                  |
| ** **        | ** **                 | ** **                                                                                  |
|              | Item 1.                    | Financial Statements                                                                        |     |
|              |                       |                                                                                        |     |
|              |                       | Consolidated  Balance Sheets as of June 30, 2008 and December 31, 2007            | 3        |
|              |                       |                                                                                        |     |
|              |                       | Consolidated  Statements of Operations for the periods ended June 30, 2008 and 2007    | 4        |
|              |                       |                                                                                        |     |
|              |                       | Consolidated  Statements of Cash Flows for the periods ended June 30, 2008 and 2007    | 5        |
|              |                       |                                                                                        |     |
|              |                       | Notes to Consolidated Financial Statements                                                  | 6        |
|              |                       |                                                                                        |     |
|              | Item 2.                    | Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 13       |
|              |                       |                                                                                        |     |
|              | Item 3.                    | Quantitative  and Qualitative Disclosures about Market Risk                                 | 19       |
|              |                       |                                                                                        |     |
|              | Item 4.                    | Controls and  Procedures                                                                    | 19       |
|              |                       |                                                                                        |     |
| **PART II.** | **OTHER INFORMATION**      |                                                                                        |
| ** **        | ** **                 |                                                                                        |
|              | Item 1.                    | Legal Proceedings                                                                           | 20       |
|              |                       |                                                                                        |     |
|              | Item 1A.                   | Risk Factors                                                                                | 20       |
|              |                       |                                                                                        |     |
|              | Item 2.                    | Unregistered Sales of Equity  Securities and Use of Proceeds                                | 20       |
|              |                       |                                                                                        |     |
|              | Item 3.                    | Defaults Upon Senior Securities                                                             | 20       |
|              |                       |                                                                                        |     |
|              | Item 4.                    | Submission of Matters to a Vote of  Security Holders                                        | 20       |
|              |                       |                                                                                        |     |
|              | Item 5.                    | Other Information                                                                           | 20       |
|              |                       |                                                                                        |     |
|              | Item 6.                    | Exhibits                                                                                    | 21       |
|              |                       |                                                                                        |     |
|              | Signatures                 | 22                                                                                          |
|              |                       |                                                                                        |
|              | Certifications             | 23                                                                                          |

 

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**PART 1- FINANCIAL INFORMATION**

 

**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**JUNE30, 2008 AND DECEMBER 31, 2007 (Unaudited)**

 
| ** **                                                                                                                         | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                         | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| **ASSETS**                                                                                                                         |       |              |       |                  |       |
| CURRENT ASSETS                                                                                                                     |       |              |       |                  |       |
| Cash                                                                                                                               |       | $                 | 6,941,873  |                  | $          | 7,050,389 |   |
| Restricted cash                                                                                                                    |       | 4,540,559         |       | 2,032,632             |       |
| Short-term  investments                                                                                                            |       | 56,107            |       | 80,688                |       |
| Accounts  receivable, net of allowance of $3,325 and $46,400                                                                       |       | 1,021,058         |       | 749,782               |       |
| Inventory                                                                                                                          |       | 286,196           |       | 169,801               |       |
| Prepaid expenses                                                                                                                   |       | 593,823           |       | 453,350               |       |
| Income taxes  receivable                                                                                                           |       | 501,020           |       | 215,594               |       |
| Deferred income  taxes                                                                                                             |       | 398,500           |       | 295,900               |       |
| Total current  assets                                                                                                              |       | 14,339,136        |       | 11,048,136            |       |
|                                                                                                                               |       |              |       |                  |       |
| LONG-TERM ASSETS                                                                                                                   |       |              |       |                  |       |
| Deposits                                                                                                                           |       | 20,000            |       | 20,000                |       |
| Land, buildings  and equipment, net of accumulated  depreciation of $15,531,102 and $14,593,197, respectively                      |       | 25,456,136        |       | 25,037,636            |       |
|                                                                                                                               |       | $                 | 39,815,272 |                  | $          | 36,105,772 |   |
|                                                                                                                               |       |              |       |                  |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                     |       |              |       |                  |       |
|                                                                                                                               |       |              |       |                  |       |
| CURRENT  LIABILITIES                                                                                                               |       |              |       |                  |       |
| Accounts payable                                                                                                                   |       | $                 | 6,196,204  |                  | $          | 2,209,639 |   |
| Card club  accruals                                                                                                                |       | 2,409,231         |       | 2,413,796             |       |
| Accrued wages  and payroll taxes                                                                                                   |       | 1,807,535         |       | 1,851,140             |       |
| Cash dividend  payable                                                                                                             |       | 1,007,173         |       |                  |       |
| Accrued interest  payable                                                                                                          |       | 9,429             |       | 5,196                 |       |
| Due to MHBPA                                                                                                                       |       | 95,678            |       | 56,951                |       |
| Accrued property  taxes                                                                                                            |       | 494,364           |       | 491,630               |       |
| Payable to  horsepersons                                                                                                           |       | 237,282           |       | 162,931               |       |
| Total current  liabilities                                                                                                         |       | 12,256,896        |       | 7,191,283             |       |
|                                                                                                                               |       |              |       |                  |       |
| DEFERRED INCOME  TAXES                                                                                                             |       | 265,300           |       | 336,400               |       |
|                                                                                                                               |       |              |       |                  |       |
| COMMITMENTS AND  CONTINGENCIES (Note 6)                                                                                            |       |              |       |                  |       |
|                                                                                                                               |       |              |       |                  |       |
| STOCKHOLDERS’  EQUITY                                                                                                         |       |              |       |                  |       |
| Common stock,  $.01 par value, 10,000,000 shares authorized,  4,016,746 and 4,084,087, respectively, shares issued and outstanding |       | 40,167            |       | 40,841                |       |
| Additional paid-in  capital                                                                                                        |       | 15,262,843        |       | 15,395,778            |       |
| Accumulated  earnings                                                                                                              |       | 11,990,066        |       | 13,141,470            |       |
| Total  stockholders’ equity                                                                                                   |       | 27,293,076        |       | 28,578,089            |       |
|                                                                                                                               |       | $                 | 39,815,272 |                  | $          | 36,105,772 |   |

 

See notes to consolidated financial statements.

 

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**PERIODSENDED JUNE 30, 2008 AND 2007 (Unaudited)**

 
| ** **                                           | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                           | ** ** | **2008**                                            | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| OPERATING  REVENUES:                                 |       |                                                |       |                                              |       |   |   |   |   |
| Pari-mutuel                                          |       | $                                                   | 4,291,946  |                                              | $          | 4,723,673 |   | $ | 6,769,868 |   | $ | 7,437,553 |   |
| Card Club                                            |       | 6,647,122                                           |       | 7,077,195                                         |       | 13,170,178 |   | 14,572,191 |   |
| Concessions                                          |       | 2,059,254                                           |       | 1,942,296                                         |       | 2,935,057 |   | 2,827,065 |   |
| Admissions and  parking                              |       | 281,387                                             |       | 324,635                                           |       | 304,109 |   | 354,331 |   |
| Publications                                         |       | 128,810                                             |       | 141,840                                           |       | 213,868 |   | 238,669 |   |
| Other                                                |       | 469,052                                             |       | 499,009                                           |       | 723,457 |   | 798,108 |   |
| Total Revenues                                       |       | 13,877,571                                          |       | 14,708,648                                        |       | 24,116,537 |   | 26,227,917 |   |
| Less:  Promotional Allowances                        |       | (72,678                                             | )          | (82,625                                           | )          | (111,581 | ) | (133,305 | ) |
| Net Revenues                                         |       | 13,804,893                                          |       | 14,626,023                                        |       | 24,004,956 |   | 26,094,612 |   |
|                                                 |       |                                                |       |                                              |       |   |   |   |   |
| OPERATING  EXPENSES:                                 |       |                                                |       |                                              |       |   |   |   |   |
| Purse expense                                        |       | 2,370,658                                           |       | 2,546,900                                         |       | 3,644,708 |   | 3,912,190 |   |
| Minnesota  Breeders’ Fund                       |       | 310,744                                             |       | 339,202                                           |       | 542,595 |   | 596,600 |   |
| Host track fees                                      |       | 568,815                                             |       | 608,099                                           |       | 1,000,352 |   | 1,066,501 |   |
| Pari-mutuel  taxes                                   |       | 7,364                                               |       | 35,347                                            |       | 14,235 |   | 61,908 |   |
| Salaries and  benefits                               |       | 5,809,601                                           |       | 5,844,205                                         |       | 10,381,624 |   | 10,864,914 |   |
| Cost of  concessions and publication sales           |       | 1,089,176                                           |       | 1,008,898                                         |       | 1,677,119 |   | 1,602,323 |   |
| Depreciation                                         |       | 507,663                                             |       | 454,600                                           |       | 1,012,713 |   | 962,290 |   |
| Utilities                                            |       | 389,186                                             |       | 371,027                                           |       | 696,253 |   | 702,473 |   |
| Repairs, maintenance  and supplies                   |       | 422,838                                             |       | 348,476                                           |       | 636,703 |   | 550,462 |   |
| License fees and  property taxes                     |       | 210,558                                             |       | 213,558                                           |       | 405,921 |   | 411,821 |   |
| Advertising and  marketing                           |       | 631,109                                             |       | 556,105                                           |       | 812,814 |   | 661,769 |   |
| Insurance                                            |       | 214,276                                             |       | 314,321                                           |       | 367,617 |   | 549,903 |   |
| Other                                                |       | 1,348,346                                           |       | 1,182,868                                         |       | 2,077,550 |   | 1,898,040 |   |
|                                                 |       | 13,880,334                                          |       | 13,823,606                                        |       | 23,270,204 |   | 23,841,194 |   |
| NONOPERATING  (EXPENSES) REVENUES:                   |       |                                                |       |                                              |       |   |   |   |   |
| Interest expense                                     |       | (3,331                                              | )          | (4,745                                            | )          | (2,364 | ) | (9,913 | ) |
| Other, net                                           |       | 38,855                                              |       | 86,037                                            |       | 84,675 |   | 163,665 |   |
|                                                 |       | 35,524                                              |       | 81,292                                            |       | 82,311 |   | 153,752 |   |
|                                                 |       |                                                |       |                                              |       |   |   |   |   |
| (LOSS) INCOME  BEFORE INCOME TAX EXPENSE             |       | (39,917                                             | )          | 883,709                                           |       | 817,063 |   | 2,407,170 |   |
|                                                 |       |                                                |       |                                              |       |   |   |   |   |
| INCOME TAX  BENEFIT (EXPENSE) (Note 1)               |       | 4,498                                               |       | (380,716                                          | )          | (353,602 | ) | (1,011,800 | ) |
|                                                 |       |                                                |       |                                              |       |   |   |   |   |
| NET (LOSS)  INCOME                                   |       | $                                                   | (35,419    | )                                                 | $          | 502,993 |   | $ | 463,461 |   | $ | 1,395,370 |   |
|                                                 |       |                                                |       |                                              |       |   |   |   |   |
| BASIC NET (LOSS)  INCOME PER COMMON SHARE (Note 1)   |       | $                                                   | (.01       | )                                                 | $          | .12 |   | $ | .11 |   | $ | .34 |   |
|                                                 |       |                                                |       |                                              |       |   |   |   |   |
| DILUTED NET  (LOSS) INCOME PER COMMON SHARE (Note 1) |       | $                                                   | (.01       | )                                                 | $          | .12 |   | $ | .11 |   | $ | .33 |   |

 

See notes to consolidated financial statements.

 

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**PERIODSENDED JUNE 30, 2008 AND 2007 (Unaudited)**

 
| ** **                                                               | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                               | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
| **Operating  Activities:**                                               |       |                                              |       |   |   |
| Net Income                                                               |       | $                                                 | 463,461    |   | $ | 1,395,370 |   |
| Adjustments to  reconcile net income to net cash provided by operations: |       |                                              |       |   |   |
| Depreciation                                                             |       | 1,012,713                                         |       | 962,290 |   |
| Stock-based  compensation expense                                        |       | 74,696                                            |       | 133,863 |   |
| Excess tax  benefit from exercise of stock options                       |       | (17,530                                           | )          | (44,794 | ) |
| Loss on sale of  property and equipment                                  |       | 1,968                                             |       | 5,949 |   |
| Decrease in  deferred income taxes                                       |       | (135,974                                          | )          | (136,556 | ) |
| Increase in  restricted cash                                             |       | (2,507,927                                        | )          | (2,499,116 | ) |
| Increase in  accounts receivable                                         |       | (271,276                                          | )          | (12,355 | ) |
| Increase in  other current assets                                        |       | (256,868                                          | )          | (56,067 | ) |
| (Increase)  decrease in income taxes receivable                          |       | (285,426                                          | )          | 113,356 |   |
| Increase in  accounts payable and accrued wages and payroll taxes        |       | 3,819,295                                         |       | 3,650,849 |   |
| Decrease in card  club accruals                                          |       | (4,565                                            | )          | (36,183 | ) |
| Increase in  accrued interest                                            |       | 4,233                                             |       | 7,834 |   |
| Increase in  accrued property taxes                                      |       | 2,734                                             |       | 27,242 |   |
| Increase  (decrease) in payable to horsepersons                          |       | 74,351                                            |       | (95,738 | ) |
| Increase  (decrease) in due to MHBPA                                     |       | 38,727                                            |       | (50,460 | ) |
| Net cash  provided by operations                                         |       | 2,012,612                                         |       | 3,365,484 |   |
|                                                                     |       |                                              |       |   |   |
| **Investing  Activities:**                                               |       |                                              |       |   |   |
| Additions to  buildings and equipment                                    |       | (1,307,296                                        | )          | (1,184,310 | ) |
| Proceeds from  sale of equipment                                         |       | 3,540                                             |       | 3,472 |   |
| Decrease in  short-term investments                                      |       | 24,581                                            |       | 25,248 |   |
| Net cash used in  investing activities                                   |       | (1,279,175                                        | )          | (1,155,590 | ) |
|                                                                     |       |                                              |       |   |   |
| **Financing  Activities**                                                |       |                                              |       |   |   |
| Proceeds from  issuance of common stock                                  |       | 120,125                                           |       | 208,305 |   |
| Common stock  repurchases                                                |       | (979,608                                          | )          |   |   |
| Excess tax  benefit from exercise of stock options                       |       | 17,530                                            |       | 44,794 |   |
| Net cash (used)  provided by financing activities                        |       | (841,953                                          | )          | 253,099 |   |
|                                                                     |       |                                              |       |   |   |
| Net (decrease)  increase in cash                                         |       | (108,516                                          | )          | 2,462,993 |   |
|                                                                     |       |                                              |       |   |   |
| Cash at  beginning of period                                             |       | 7,050,389                                         |       | 5,745,556 |   |
|                                                                     |       |                                              |       |   |   |
| Cash at end of  period                                                   |       | $                                                 | 6,941,873  |   | $ | 8,208,549 |   |
|                                                                     |       |                                              |       |   |   |
| Supplemental  disclosure of noncash investing activities:                |       |                                              |       |   |   |
| Additions to  buildings and equipment funded through accounts payable    |       | $                                                 | 223,622    |   | $ | 47,328 |   |
|                                                                     |       |                                              |       |   |   |
| Supplemental  disclosure of noncash financing activities:                |       |                                              |       |   |   |
| Common stock  repurchases funded through accounts payable                |       | $                                                 | 104,240    |   |   |   |
|                                                                     |       |                                              |       |   |   |
| Supplemental  disclosure of cash flow information:                       |       |                                              |       |   |   |
| Income taxes  paid, net of refunds                                       |       | $                                                 | 775,000    |   | $ | 1,035,000 |   |
| Dividend  declared                                                       |       | $                                                 | 1,007,173  |   | $ | 1,027,695 |   |

 

###### **See notes to consolidatedfinancial statements.**

 

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###### **Table ofContents**

 

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

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**PERIODSENDED JUNE 30, 2008 AND 2007**

 

1.               SUMMARY OF SIGNIFICANTACCOUNTING POLICIES

 

*Business*– Canterbury Park Holding Corporation (the “Company”) was incorporated underthe laws of Minnesota and acquired land and buildings to conduct pari-mutuelhorse racing operations (the “Racetrack”) in March 1994.  The Racetrack is located in Shakopee,Minnesota, approximately 25 miles southwest of downtown Minneapolis.  In May 1994, we commenced year-roundhorse racing simulcast operations and hosted the first annual live race meetduring the summer of 1995.  Our live racingoperations are a seasonal business as we host live race meets each year fromearly May until Labor Day.  We earnadditional pari-mutuel revenue by televising our live racing to out-of-stateRacetracks around the country.  We alsoderive revenues from related services and activities, such as advertising,admissions, parking and publication sales and from other entertainment eventsand activities held at the Racetrack.  InApril 2000, we opened Canterbury Park’s Card Club (the “Card Club”).  The Card Club operates 24 hours a day, sevendays a week and is limited by Minnesota State law to a maximum of 50tables.  The Card Club currently offers34 tables of Poker Games and 16 tables of Casino Games.  Our three largest sources of revenues, CardClub operations, pari-mutuel operations and concessions sales, generate cashrevenues.

 

*UnauditedFinancial Statements* - The consolidated balance sheet as of June 30,2008, the consolidated statements of operations for the three and six monthsended June 30, 2008 and 2007, the consolidated statements of cash flowsfor the six months ended June 30, 2008 and 2007, and the relatedinformation contained in these notes have been prepared by management withoutaudit.  In the opinion of management, alladjustments (consisting only of normal recurring adjustments) which arenecessary for a fair presentation of financial position and results ofoperations for such periods have been made. Results for an interim period should not be considered as indicative ofresults for a full year.

 

The summary ofsignificant accounting policies is included in the notes to consolidatedfinancial statements in the 2007 Annual Report on Form 10-K.

 

*RevenueRecognition -*Ourrevenues are derived primarily from the operations of a Card Club, pari-mutuelwagering on simulcast and live horse races, concession sales, and relatedactivities.  Collection revenue from CardClub operations and pari-mutuel commission and fee revenues are recognized atthe time that the wagering process is complete. Revenues related to concession and publication sales and parking andadmission fees are recognized as revenue when the service has been performed orthe product has been delivered.

 

*Estimates*- The preparation 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.

 

*RestrictedCash* – Restricted cash represents refundable deposits andamounts due to horsemen for purses, stakes and awards, and amounts accumulatedin the Player Pool and jackpot pools to be used to repay card club players inthe form of promotions, giveaways, prizes, or by other means.

 

*IncomeTaxes*- Income tax expense is computed by applying theestimated annual effective tax rate to the year-to-date income.  Income taxes are accounted for under theasset and liability method.  Deferred taxassets and liabilities are recognized for the estimated future tax consequencesattributed to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities aremeasured using enacted tax rates in effect for the year in which thosetemporary differences are expected to reverse.

 

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The Companyadopted the provisions of FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes – aninterpretation of FASB No. 109,*(“FIN 48”), on January 1,2007.  FIN 48 clarifies the accountingfor uncertainty in income taxes recognized in an enterprise’s financialstatements in accordance with FASB Statement 109, *Accounting for Income Taxes,*and prescribes a recognitionthreshold and measurement process for financial statement recognition andmeasurement of a tax position taken or expected to be taken in a taxreturn.  FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition. Interest and penalties associated with uncertain income tax positionsare presented in income tax expense. The Company has not recorded anysignificant income tax related interest or penalties during any of the periodspresented.  Upon implementation, wedetermined all recorded benefits and income tax positions weremore-likely-than-not.  Therefore, nocumulative effect relating to the adoption of FIN 48 was recorded.

 

The Company andits consolidated subsidiaries file income tax returns in the United States (“U.S.”)federal jurisdiction.  The Company is nolonger subject to U.S. federal examinations by tax authorities for years priorto 2007 or by State of Minnesota tax authorities for years prior to 2003.  We do not believe there will be any materialchanges in our unrecognized tax positions over the next twelve months.

 

*Net(Loss) Income Per Share*- Basic net (loss) income per common share is based on theweighted average number of common shares outstanding during each period.  The weighted average number of common sharesoutstanding for the three and six-month periods ended June 30, 2008 were4,019,196 and 4,042,800, respectively. The weighted average number of common shares outstanding for the threeand six-month periods ended June 30, 2007 were 4,069,104 and 4,060,809,respectively.  Diluted net income percommon share takes into effect the dilutive effect of potential common sharesoutstanding.  The Company’s potentialcommon shares outstanding are stock options and shares of unvested (“restricted”)stock.  After considering the dilutiveeffect of stock options outstanding, the weighted average shares used tocalculate diluted earnings per share for the three and six-month periods ended June 30,2008 were 4,019,196 and 4,126,852, respectively.  66,689 weighted average shares wereconsidered anti-dilutive and excluded from the computation of common equivalentshares for the three months ended June 30, 2008, as the Company reported anet loss for that period.  The weightedaverage shares used to calculate diluted earnings per share for the three andsix-month periods ended June 30, 2007 were 4,215,833 and 4,228,088,respectively.

 

*FairValues of Financial Instruments*– Due to the current classification of all financial instruments of theCompany, and given the short-term nature of the related account balances,carrying amounts reported in the consolidated balance sheets approximate fairvalue.

 

*NewAccounting Pronouncements –*In September 2006, the FinancialAccounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards (“SFAS”) No. 157 (“SFAS 157”), *FairValue Measurements,* which defines fair value, establishes aframework for measuring fair value, and expands disclosures about fair valuemeasurements.  SFAS 157 for financialassets and liabilities is effective for fiscal years beginning after November 15,2007, and the Company has adopted the standard for those assets and liabilitiesas of January 1, 2008 and the impact of adoption had no impact on ourfinancial position or results of operation. See Note 3 for further discussion.

 

In February 2007,the FASB issued SFAS No. 159 (“SFAS 159”), *The Fair Value Option for Financial Assets and Financial Liabilities*includingan amendment of FASB Statement No. 115.  SFAS 159 provides companies with an option toreport selected financial assets and financial liabilities at fairvalue.  Unrealized gains and losses on items for which the fair valueoption has been elected are reported in earnings at each subsequent reportingdate. SFAS 159 became effective for fiscal years beginningafter November 15, 2007. We have elected not to implement the fair valueoption with respect to any existing assets or liabilities; therefore, theadoption of SFAS 159 had no impact on our financial position or results ofoperations.

 

In December 2007, the FASB issuedSFAS No. 141(revised) (“SFAS 141(R)”), *BusinessCombinations*.  SFAS 141(R) appliesto all business combinations. Under SFAS 141(R), an entity is required torecognize the assets acquired, liabilities assumed, contractual contingencies,and contingent consideration at their 

 

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fair values on the acquisition date. Weare required to adopt this statement starting in 2009 and it is to be appliedto business combinations occurring in 2009 and after. Early adoption of thisstatement is prohibited.  The Companywill evaluate the impact the adoption of SFAS No. 141 (R) will haveon any future business combinations.

 

In December 2007,the FASB issued SFAS No. 160 (“SFAS 160”), *Noncontrolling Interests in Consolidated Financial Statements*.  SFAS 160 applies to the accounting fornoncontrolling interests and transactions with noncontrolling interest holdersin consolidated financial statements. SFAS 160 changes the accounting and reporting for minority interests,which will be recharacterized as noncontrolling interests and classified as acomponent of equity. We are required to adopt this statement beginning in2009.  Early adoption of this statementis prohibited and we are currently in the process of evaluating the effect thatthis statement will have on our consolidated results of operations andfinancial condition.

 

In March of2008, the FASB issued SFAS No. 161 (“SFAS 161”), *Disclosures about Derivative Instruments and HedgingActivities*, an amendment of SFAS 133.”  SFAS 161 requiresentities to provide greater transparency about how and why the entity usesderivative instruments, how the instruments and related hedged items areaccounted for under SFAS 133, and how the instruments and related hedged itemsaffect the financial position, results of operations, and cash flows of theentity.  SFAS 161 is effective for fiscal years beginning after November 15,2008.  The Company is evaluating the impact the adoption of SFAS 161will have on its consolidated results of operations and financial condition.

 

2.               STOCK BASEDCOMPENSATION

 

Effective January 1,2006, we adopted FASB Statement No.123(R), *ShareBased Payment* (“SFAS 123R”), applying the modified prospectivetransition method.  We recognized $74,696and $133,863 in stock-based compensation expense in salaries and benefitsexpense line item on the consolidated statements of operations during thesix-months ended June 30, 2008 and 2007, respectively.

 

Our annual grantof stock-based compensation generally takes place during the first quarter ofeach fiscal year.  Each non-employeemember of the Board of Directors receives an annual recurring grant of 3,000non-qualified stock options on the first business day in February.  On February 1, 2008, 15,000 options weregranted to the five non-employee board members with an exercise price equal tothe market price on the date of grant of $11.35.  The stock options vest over a six-monthperiod and expire in ten years.  The compensationcost associated with this grant of Board of Director options is $29,700 to berecognized as expense over the six-month vesting period.  On February 1, 2007, 15,000options were granted to the five non-employee board members with an exerciseprice equal to the market price on the date of grant of $13.76.

 

The number ofshares granted and the weighted average fair value per share during the periodspresented were:

 
| ** **    | ** ** | **Six Months Ended** | ** ** |
|---------------|------------|--------------------------------|------------|
| ** **    | ** ** | **June 30, 2008**    | ** ** | **June 30, 2007** | ** ** |
| ** **    | ** ** | ** **                     | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **    | ** ** | ** **                     | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **    | ** ** | ** **                     | ** ** | **Fair Value** | ** ** | ** ** | ** ** | **Fair Value** | ** ** |
| ** **    | ** ** | **Grant**                      | ** ** | **Per Share** | ** ** | **Grant** | ** ** | **Per Share** | ** ** |
|          |       |                           |       |   |   |   |   |   |   |
| Stock options |       | 15,000                         |       | $ | 1.98 |   | 15,000 |   | $ | 3.89 |   |
|          |       |                           |       |   |   |   |   |   |   |
| Total shares  |       | 15,000                         |       |   |   | 15,000 |   |   |   |
|               |            |                                |            |  |  |  |  |  |  |  |  |

 

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The fair value ofstock options granted under the Plan during first six months of 2008 wereestimated on the date of grant using the Black-Scholes option-pricing modelwith the following weighted average assumptions and results:

 
| ** **                                 | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| Dividend yield                             |       | 2.20     | %          | 1.82     | %          |
| Weighted-average  volatility               |       | 15       | %          | 22       | %          |
| Risk-free  interest rate                   |       | 3.62     | %          | 4.86     | %          |
| Expected term of  stock options in years   |       | 7.3      |       | 7.2      |       |
| Fair value of  stock options on grant date |       | $        | 29,700     |     | $          | 58,400 |   |
|                                            |            |          |            |          |            |  |  |

 

A summary of stockoption activity as of June 30, 2008 and changes during the six months thenended 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, 2008 |       | 605,900            |       | $            | 11.00      |            |       |                |       |   |
|                                 |       |               |       |         |       |            |       |                |       |
| Granted                              |       | 15,000             |       | $            | 11.35      |            |       |                |       |   |
| Exercised                            |       | (45,000            | )          | $            | 3.11       |            |       |                |       |   |
| Expired                              |       | (77,000            | )          | $            | 15.55      |            |       |                |       |   |
|                                 |       |               |       |         |       |            |       |                |       |
| Outstanding at  June 30, 2008   |       | 498,900            |       | $            | 11.03      |            | 2.7 Years  |                | $          | 5,501,493 |   |
|                                 |       |               |       |         |       |            |       |                |       |
| Exercisable at  June 30, 2008   |       | 476,400            |       | $            | 10.96      |            | 2.4 Years  |                | $          | 5,222,118 |   |

 

3.               FAIRVALUE

 

SFAS 157 definesfair value as the exchange price that would be received for an asset or paid totransfer a liability (an exit price) in the principal or most advantageousmarket for the asset or liability in an orderly transaction between marketparticipants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires anentity to maximize the use of observable inputs and minimize the use ofunobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used tomeasure fair value:

 

*Level1* – Quoted prices in active markets for identical assets orliabilities.

 

*Level2* – Observable inputs other than Level 1 prices such asquoted prices for similar assets or liabilities; quoted prices in markets thatare not active; or other inputs that are observable or can be corroborated byobservable market data for substantially the full term of the assets orliabilities.

 

*Level3* – Unobservable inputs that are supported by little or nomarket activity and that are significant to the fair value of the assets orliabilities.

 

The Company utilizes the market approach to measurefair value for its financial assets and liabilities.  The marketapproach uses prices and other relevant information generated by markettransactions involving identical or comparable assets or liabilities.

 

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Assets and liabilitiesmeasured at fair value on a recurring basis are summarized below:

 
| ** **              | ** ** | **Fair Value Measurements as of  June 30, 2008** | ** ** |
|-------------------------|------------|--------------------------------------------------------------------------------|------------|
| **Description**         | ** ** | **Total**                                                                      | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|                    |       |                                                                           |       |   |   |   |   |   |   |
| Short-term  investments |       | $                                                                              | 56,107     |   | $ | 56,107 |   | $ | — |   | $ | — |   |
|                    |       |                                                                           |       |   |   |   |   |   |   |
| Total                   |       | $                                                                              | 56,107     |   | $ | 56,107 |   | $ | — |   | $ | — |   |

 

4.               BORROWINGSUNDER CREDIT AGREEMENT

 

Borrowings underthe Company’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 until April 20, 2009. The Company had no borrowings under this credit line at June 30,2008 and December 31, 2008.  Thecredit agreement contains certain covenants requiring the Company to maintaincertain financial ratios.  The Companywas in compliance with these requirements as of June 30, 2008.  Management believes that funds availableunder this line of credit, along with funds generated from card club andsimulcast operations, will be sufficient to satisfy its liquidity and capitalresource requirements during 2008.

 

5.               OPERATINGSEGMENTS

 

During the firstsix months of 2008 and 2007, the Company had three reportable operatingsegments:  horse racing, card club, andconcessions.  The horseracing segmentprimarily represents simulcast and live horse racing operations.  The card club segment primarily representsoperations of Canterbury Park’s Card Club, and the concessions segmentprimarily represents concessions provided during simulcast and live racing, inthe Card Club, and during special events. The Company’s reportable operating segments are strategic business unitsthat offer different products and services. They are managed separately because the segments differ in the nature ofthe products and services provided as well as processes to produce thoseproducts and services.  The MinnesotaRacing Commission regulates the horse racing and card club segments.

 

The accountingpolicies of the operating segments are the same as those described in thesummary of significant accounting policies in the 2007 Annual Report on Form 10-K.

 

Depreciation,interest expense and income taxes are allocated to the segments but noallocation is made to concessions for shared facilities.  However, the concessions segment paysapproximately 25% of gross revenues earned on live racing and special event daysto the horse racing segment for use of the facilities.

 

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The followingtables provide information about the Company’s operating segments (in 000’s):

 
| ** **                            | ** ** | **Six Months Ended June 30, 2008** | ** ** |
|---------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                                       | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Net revenues  from external customers |       | $                                                           | 7,887      |   | $ | 13,170 |   | $ | 2,948 |   | $ | 24,005 |   |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 357                                                         |       |   |   | 883 |   | 1,240 |   |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Net interest  income                  |       | 82                                                          |       |   |   |   |   | 82 |   |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Depreciation                          |       | 658                                                         |       | 271 |   | 84 |   | 1,013 |   |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Segment income  before income taxes   |       | (857                                                        | )          | 1,629 |   | 487 |   | 1,259 |   |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Segment Assets                        |       | $                                                           | 35,204     |   | $ | 3,638 |   | $ | 8,368 |   | $ | 47,210 |   |

 
| ** **                            | ** ** | **Six Months Ended June 30, 2007** | ** ** |
|---------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                                       | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Net revenues  from external customers |       | $                                                           | 8,673      |   | $ | 14,572 |   | $ | 2,850 |   | $ | 26,095 |   |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 355                                                         |       |   |   | 973 |   | 1,328 |   |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Net interest  income                  |       | 154                                                         |       |   |   |   |   | 154 |   |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Depreciation                          |       | 593                                                         |       | 308 |   | 61 |   | 962 |   |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Segment income  before income taxes   |       | (69                                                         | )          | 2,437 |   | 626 |   | 2,994 |   |
|                                       |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **     | ** ** | **At December 31, 2007** | ** ** |
|----------------|------------|-----------------------------------------|------------|
|           |       |                                    |       |   |   |   |   |   |   |
| Segment Assets |       | $                                       | 31,431     |   | $ | 3,857 |   | $ | 7,723 |   | $ | 43,011 |   |
|                |            |                                         |            |  |  |  |  |  |  |  |  |  |  |

 

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

 
| ** **                                              | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                              | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
| Revenues                                                |       |                                              |       |   |   |
| Total net  revenue for reportable segments              |       | $                                                 | 25,245     |   | $ | 27,423 |   |
| Elimination of  intersegment revenues                   |       | (1,240                                            | )          | (1,328 | ) |
| Total  consolidated net revenues                        |       | $                                                 | 24,005     |   | $ | 26,095 |   |
|                                                    |       |                                              |       |   |   |
| Income before  income taxes                             |       |                                              |       |   |   |
| Total segment  income before income taxes               |       | $                                                 | 1,259      |   | $ | 2,994 |   |
| Elimination of  intersegment income before income taxes |       | (442                                              | )          | (587 | ) |
| Total  consolidated income before income taxes          |       | $                                                 | 817        |   | $ | 2,407 |   |

 
| ** **                               | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------|------------|-------------------|------------|-----------------------|------------|
|                                     | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| Assets                                   | ** ** | ** **        | ** ** | ** **            | ** ** |
| Total assets for  reportable segments    |       | $                 | 47,210     |                  | $          | 43,011 |   |
| Elimination of  intercompany receivables |       | (7,395            | )          | (6,905                | )          |
| Total  consolidated assets               |       | $                 | 39,815     |                  | $          | 36,106 |   |

 

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6.               COMMITMENTSAND CONTINGENCIES

 

In accordance withan Earn Out Note, given to the prior owner of the Racetrack as part of theconsideration paid by the Company to acquire the Racetrack in 1994, if (i) off-trackbetting becomes legally permissible in the State of Minnesota and (ii) theCompany begins to conduct off-track betting with respect to or in connectionwith its operations, the Company will be required to pay to the IMR Fund, L.P.the greater of $700,000 per operating year, as defined, or 20% of the netpretax profit, as defined for each of five operating years.  At 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 two conditions are met, the five minimumpayments will be discounted back to their present value and the sum of thosediscounted payments will be capitalized as part of the purchase price inaccordance with generally accepted accounting principles.  The purchase price will be further increasedif payments become due under the “20% of Net Pretax Profit” calculation.  The first payment is to be made 90 days afterthe end of the third operating year in which off-track betting is conducted bythe Company.  Remaining payments would bemade within 90 days of the end of each of the next four operating years.

 

The Company isperiodically involved in various legal actions arising in the normal course ofbusiness.  At June 30, 2008,management believes that the resolution of any legal actions outstanding willnot have a material impact on the consolidated financial statements.

 

On June 5,2008, the Company’s Board of Directors declared a special cash dividend of $.25per share of common stock payable on July 11, 2008 to shareholders ofrecord on June 20, 2008.  Theaggregate amount paid to shareholders on July 11, 2008 pursuant to thisdividend declaration was $1,007,173.

 

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

** **

The following Management’sDiscussion and Analysis of Financial Condition and Results of Operations (“MD&A”)is intended to help the reader understand Canterbury Park Holding Corporation,our operations and our present business environment.  This MD&A is provided as a supplement to –and should be read in conjunction with – our consolidated financial statementsand the accompanying notes to the financial statements (the “Notes”).

 

**Overview:**

 

Canterbury Park HoldingCorporation (the “Company”) owns and operates the Canterbury Park Racetrack andCard 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 onlypari-mutuel thoroughbred and quarter horse racing facility in the State ofMinnesota.  The Racetrack earns revenuesfrom pari-mutuel take-out on races simulcast year-round to Canterbury Park fromracetracks throughout the country and from live race meets featuring thoroughbredand quarter horse racing.  In 2008, thelive race meet began in May and will conclude in September.  During the live meet, the Company televisesits races to out-of-state racetracks around the country and earns additionalpari-mutuel revenue on wagers placed on our races at the out-of-stateracetracks.

 

Canterbury Park’s CardClub (the “Card Club”) hosts “unbanked” card games in which players competeagainst each other and not against the house. The Card Club is open twenty-four hours a day, seven days a week.  Under Minnesota law, the Company is requiredto pay up to 14% of the gross Card Club revenues to the Racetrack’s purse fundand 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 the first half of 2008 and all of 2007.

 

The Company alsogenerates revenues from other activities such as admission and parking fees andfrom the sale of food and beverage, programs and other racing publications, andcorporate 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.

 

**Operations Review for the****Three and****Six MonthsEnded June 30, 2008 and June 30, 2007:**

 

Total net revenuesdecreased $2,089,656, or 8.0%, during the six months ended June 30, 2008compared to the six months ended June 30, 2007, and decreased $821,130, or5.6%, for the three months ended June 30, 2008 compared to the threemonths ended June 30, 2007. The decrease was due primarily to reductionsof 9.0% and 9.6% in pari-mutuel and Card Club revenues for the six months endedJune 30, 2008.  These decreases werepartially offset by an increase of 3.8% in concession revenue for the sixmonths ended June 30, 2008.

 

Pari-mutuel revenuesdecreased $667,685, or 9.0%, in the six-month period ended June 30, 2008compared to the same period in 2007, and decreased $431,727, or 9.1%, for thethree-month period ended June 30, 2008 compared to the same period in2007.  Total handle wagered on simulcastraces for the first half of 2008 was down $2.3 million, or 5.5%, compared tothe same period last year.  The decreasein pari-mutuel revenues is partially due to a smoking ban that became effectiveOctober 1, 2007.  The Companybelieves that those simulcast customers who smoke and no longer visit ourfacilities are unlawfully wagering on the Internet.  The smoking ban is discussed later in thisfiling under the *Legislation*heading.  In addition, economic downturnand higher fuel costs have adversely impacted discretionary spending onentertainment throughout the first half of 2008.  Inclement weather during the first quarter of2008 at racetracks that simulcast their signal to our racetrack also resultedin decreased pari-mutuel revenues. Finally, on April 11, 2008, Running Aces Harness Park, located inColumbus Township, Anoka County, Minnesota, began their race meet.  The Company 

 

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believes that this addedan alternative simulcast betting location for our simulcast customers,resulting in decreased simulcast wagering at the Racetrack.

 

For further information,see the “Summary of Pari-mutuel Data” below:

 
| ** **                                      | ** ** | **Six Months Ended June 30,** | ** **     |
|-------------------------------------------------|------------|---------------------------------------------------|----------------|
| **Summary of Pari-mutuel Data:** | ** ** | **2008**                                          | ** **     | **2007** | ** ** |
|                                            |       |                                              |           |   |   |
| Racing Days                                     |       |                                              |           |   |   |
| Simulcast only                                  |       | 153                                               |           | 152 |   |
| Live and  Simulcast                             |       | 29                                                |           | 29 |   |
| **Total  Number of Racing Days**                | ** ** | **182**                                           | ** **     | **181** | ** ** |
| ** **                                      | ** ** | ** **                                        | ** **     | ** ** | ** ** |
| On-Track Handle                                 |       |                                              |           |   |   |
| Simulcast racing  handle on simulcast only days |       | $                                                 | 18,356,000     |   | $ | 20,444,000 |   |
| Live and  Simulcast days:                       |       |                                              |           |   |   |
| Live racing  handle                             |       | 5,863,000                                         |           | 6,490,000 |   |
| Simulcast racing  handle                        |       | 7,230,000                                         |           | 7,597,000 |   |
| Total On-Track  Handle                          |       | 31,449,000                                        |           | 34,531,000 |   |
|                                            |       |                                              |           |   |   |
| Out-of-State  Live Handle                       |       | 7,883,000                                         |           | 7,134,000 |   |
|                                            |       |                                              |           |   |   |
| **Total  Handle**                               | ** ** | **$**                                             | **39,332,000** | ** ** | **$** | **41,665,000** | ** ** |
|                                            |       |                                              |           |   |   |
| On-Track Average  Daily Handle                  |       |                                              |           |   |   |
| Simulcast only  racing days                     |       | $                                                 | 119,974        |   | $ | 134,500 |   |
| Live and  simulcast racing days                 |       | $                                                 | 451,483        |   | $ | 485,759 |   |

 

Total Card Club revenuedecreased $1,402,013, or 9.6%, for the first six months of 2008 and $430,073,or 6.1%, for the second quarter of 2008 compared to the same periods in 2007.The primary source of Card Club revenue, referred to as “collection revenue,”is a percentage of the wagers received from the players as compensation forproviding the Card Club facility and services. Other revenue includes fees collected for the administration oftournaments and amounts earned as reimbursement of the administrative costs ofmaintaining jackpot funds.  Pokercollection revenue fell $188,169 or 2.1% compared to the first six months of2007.  In addition, Casino Gamescollection revenue dropped $1,087,700 or 20.9% compared to the first half of2007.  The decrease in revenue isprimarily due to the smoking ban that became effective on October 1,2007.  The Company believes that thoseCard Club customers who smoke and no longer visit the Card Club are nowpatronizing tribal casinos where smoking is permitted.  The smoking ban is discussed later in thisfiling under the *Legislation*heading.  Additionally, economic downturnhas adversely impacted discretionary spending on entertainment throughout thefirst half of 2008.  Total Card Clubrevenues represented 54.8% and 48.1% of net revenues for the six-month andthree-month periods ended June 30, 2008, respectively.  The three-month percentage is usually lowerin the second quarter of any calendar year due to increased revenue from liveracing.

 

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For further information,see the “Summary of Card Club Data” below:

 
| ** **                                         | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------------|------------|
| **Summary of Card Club Data:** | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
|                                               |       |                                              |       |   |   |
| Poker Games                                        |       | $                                                 | 8,652,000  |   | $ | 8,840,000 |   |
| Casino Games                                       |       | 4,125,000                                         |       | 5,213,000 |   |
| Total Collection  Revenue                          |       | 12,777,000                                        |       | 14,053,000 |   |
|                                               |       |                                              |       |   |   |
| Other Revenue                                      |       | 393,000                                           |       | 519,000 |   |
| Total Card Club  Revenue                           |       | $                                                 | 13,170,000 |   | $ | 14,572,000 |   |
|                                               |       |                                              |       |   |   |
| Number of Days  Offered                            |       | 182                                               |       | 181 |   |
| Average Revenue  per Day                           |       | $                                                 | 72,363     |   | $ | 80,508 |   |

 

Concessions revenuesincreased $107,992, or 3.8%, and $116,958, or 6.0%, for the six-month andthree-month periods ended June 30, 2008, respectively, compared to theprior year.  The increase was primarilyattributed to additional concession sales as a result of special events in thefirst half of 2008 that did not occur in 2007. The increase can also be attributed to price increases in concessionproducts to offset the rising price of food commodities.

 

Total operating expensesdecreased $570,990, or 2.4%, during the six-month period ended June 30,2008 compared to the six-month period ended June 30, 2007, but increased$56,728, or .4%, during the three months ended June 30, 2008 compared tothe three-month period ended June 30, 2007.

 

Total expense forstatutory purses and the Minnesota Breeders’ Fund decreased 7.1% to $4,187,303for the first six months ended June 30, 2008 compared to the first sixmonths ended June 30, 2007.  Thedecrease was due primarily to a reduction in Card Club purse and breeders’ fundexpenses due to lower Card Club collection revenues in the first half of 2008compared to the first half of 2007.

 

The following tableprovides additional information regarding purse and Breeders’ Fund Expense:

 
| ** **              | ** ** | ** **                                        | ** ** | ** **                                        | ** ** | **Minnesota** | ** ** |
|-------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|---------------|------------|
| ** **              | ** ** | **Purse Expense**                            | ** ** | **Breeders’ Fund Expense**         | ** ** |
| ** **              | ** ** | **Six Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **              | ** ** | **2008**                                          | ** ** | **2007**                                          | ** ** | **2008**      | ** ** | **2007** | ** ** |
|                    |       |                                              |       |                                              |       |          |       |   |   |
| Card Club               |       | $                                                 | 1,778,000  |                                              | $          | 1,967,000     |       | $ | 198,000 |   | $ | 219,000 |   |
|                    |       |                                              |       |                                              |       |          |       |   |   |
| Simulcast Horse  Racing |       | 1,271,000                                         |       | 1,322,000                                         |       | 284,000       |       | 313,000 |   |
|                    |       |                                              |       |                                              |       |          |       |   |   |
| Live Horse  Racing      |       | 596,000                                           |       | 623,000                                           |       | 61,000        |       | 65,000 |   |
|                    |       |                                              |       |                                              |       |          |       |   |   |
|                    |       | $                                                 | 3,645,000  |                                              | $          | 3,912,000     |       | $ | 543,000 |   | $ | 597,000 |   |

 

Salaries and benefitsdecreased $483,290, or 4.4%, in the 2008 six-month period ended June 30and $34,604, or .6%, in the three-month period ended June 30, 2008compared to the same periods last year. Salaries and benefits expense decreased in the first half of 2008primarily as a result of the expense related to the voluntary retirementincentive program that occurred in the first quarter of 2007.  Advertising and marketing costs increased$151,045, or 22.8%, in the 2008 six-month period ended June 30 and$75,004, or 13.5%, in the three-month period ended June 30, 2008 comparedto the same periods last year primarily as a result of the use of anadvertising agency and related fees in the current year.  Insurance expense decreased $182,286, or33.1%, in the 2008 six-month period ended June 30 and $100,045, or 31.8%,in the three-month period 

 

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ended June 30, 2008compared to the same periods last year. The decrease was due to a change in insurance provider that has allowedfor significant decreases in premiums paid. Repairs, maintenance and supplies expense increased $86,241, or 15.7%,in the 2008 six-month period ended June 30 and $74,362, or 21.3%, in thethree-month period ended June 30, 2008 compared to same periods lastyear.  The increase was primarily due tonecessary upgrades to the Company’s escalator system in order to be incompliance with new Minnesota statutes.

 

Income before incometaxes was $817,063 for the six months ended June 30, 2008 compared to$2,407,170 for the six months ended June 30, 2007.  After income tax expense of $353,602 for thesix months ended June 30, 2008, net income was $463,461 in 2008 comparedto $1,395,370 in 2007, a decrease of $931,909 or 66.8%.  For the quarter ended June 30, 2008, theCompany recorded a $39,917 loss before income tax benefit compared to incomebefore income tax expense of $883,709 for the quarter ended June 30, 2007,a decrease of $923,626 or 104.5%.  Afteran income tax benefit of $4,498 in the second quarter of 2008, net loss was$35,419 compared to net income of $502,993 for the second quarter of 2007, a decreaseof $538,412 or 107.0%.

 

#### **Contingencies:**

#### ** **

There have been nomaterial changes in our contingencies from the information provided in ourReport on Form 10-K for our year ended December 31, 2007.

 

**Liquidity and Capital Resources:**

 

Cash provided by operatingactivities during the period January 1, 2008 through June 30, 2008was $2,012,612, resulting primarily from net income of $463,461, non-cashdepreciation expense of $1,012,713, and an increase in accounts payable andaccrued wages and payroll taxes of $3,819,295, caused primarily by a seasonalincrease of $2.5 million in horsemen payables, a $418,000 increase in tradeaccounts payable, a $232,000 increase in host fees payable, and a $238,000increase in deferred revenues for corporate sponsorships.  These items are partially offset by anincrease in restricted cash of $2,507,927, resulting primarily from theincrease in horsemen payables of $2.5 million. Cash provided by operating activities during the period January 1,2007 through June 30, 2007 was $3,365,484, resulting primarily from netincome of $1,395,370, non-cash depreciation expense of $962,290, and anincrease in accounts payable and accrued wages and payroll taxes of $3,650,849,caused by a seasonal increase of $2.7 million in horsemen payables, a $630,000increase in trade accounts payable and a $231,000 increase in deferred revenuesfor corporate sponsorships.  These itemsare partially offset by an increase in restricted cash of $2,499,116 resulting primarilyfrom the increase in horsemen payables of $2.7 million.  Pursuant to an agreement with the MHBPA,during the six months ended June 30, 2008 and 2007, the Companytransferred into a trust account or paid directly to the MHBPA approximately$3,175,000 and $3,575,000, respectively.

 

Net cash used ininvesting activities for the first six months of 2008 of $1,279,175 resultedprimarily from the purchase of a building management system for approximately$378,000, upgrades to the grandstand building of approximately $306,000, andupgrades to the Card Club of approximately $109,000.  During the six-month period ended June 30,2007, net cash used in investing activities for the first six months of 2007 of$1,155,590 resulted primarily from the acquisition of equipment for food andbeverage operations of $221,000, a poker room management system of $295,000,upgrades to the grandstand building of $402,000, and improvements to backsidebarns of $149,000.

 

During the period January 1,2008 through June 30, 2008, cash used in financing activities was $841,953,resulting from repurchases of company stock of $979,608 offset by proceeds andtax benefits regarding the exercise of stock options of $137,655.  For additional information on the stockrepurchase plan, see Part II, Item 2 (c) on page 20.  During the period January 1, 2007through June 30, 2007, cash provided by financing activities was $253,099representing the exercise of stock options.

 

The Company has a generalcredit agreement with Bremer Bank, which provides a revolving credit line of upto $2,250,000 with interest at the prime rate until April 20, 2009.  The Company had no borrowings under the lineof credit at June 30, 2008 or December 31, 2007.  The credit agreement contains certaincovenants 

 

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requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements at all times throughout the quarter ended June 30, 2008.

 

Unrestricted cashbalances at June 30, 2008 were $6,941,873 compared to $7,050,389 at December 31,2007. The Company believes that the funds available in its cash accounts,amounts available under the general credit and security agreement, along withfunds generated from operations, will be sufficient to satisfy its liquidityand capital resource requirements for the balance of 2008 for regularoperations including the special cash dividend paid in July 2008.

 

##### **Critical AccountingPolicies 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.

 

Our significantaccounting policies are included in Note 1 to our consolidated financialstatements in our 2007 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 have significant capitalinvested in our property and equipment, which represents approximately 63.9% ofour total assets. We utilize our judgment in various ways including:determining whether an expenditure is considered a maintenance expense or acapital asset; determining the estimated useful lives of assets; anddetermining if or when an asset has been impaired. Our property and equipmentis evaluated for impairment whenever circumstances indicate that the carryingvalue of an asset may not be recoverable from the estimated future cash flowsexpected to result from its use. If the sum of the expected future cash flows(undiscounted and without interest charges) is less than the carrying amount,we recognize an impairment loss. The impairment loss recognized is the amountby which the carrying amount exceeds the fair value and is charged tooperations in the period in which such impairment is determined by management.We do not believe that any impairment has occurred or is likely to occur in thenear 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 2007 Annual Report on Form 10-K.

 

##### **Commitments andContractual Obligations:**

##### ** **

OnJune 5, 2008, the Company’s Board of Directors declared a special cashdividend of $.25 per share of common stock payable on July 11, 2008 toshareholders of record on June 20, 2008. The aggregate amount paid to shareholders on July 11, 2008 pursuantto this dividend declaration was $1,007,173. The Company has not adopted any policies regarding dividend payments andthere can be no assurance that any dividend will be paid in the future.

 

Therehave been no additional material changes in our outstanding commitments andcontractual obligations since those reported at December 31, 2007.

 

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**Legislation:**

 

The Company did notpropose or support any legislation during the 2008 biannual session of theMinnesota Legislature to obtain authorization for our Racino proposal that hasbeen discussed in our previous flings with the SEC, mainly because a majorityof those serving in the Minnesota Legislature following the November 2006elections are considered unlikely to favorably entertain our Racinoproposal.  Based on the success of severalRacinos in other states, we continue to believe that if a Racino was authorizedat the Racetrack, it would enhance horseracing with increased purses, providegrowth and development opportunities for the Company, and provide significantnew tax revenues for state and local governments.

 

On October 1, 2007,legislation became effective that severely restricted smoking in all publicplaces in Minnesota, including at the Racetrack.  Tribal casinos located in Minnesota are notcovered by this legislation and will continue to offer various gamingalternatives, including card games, in an environment that allows smoking.  Since October 1, 2007, this legislationhas had, and will likely continue to have, a significant adverse effect on theCompany’s revenues and profits.  TheCompany believes that those simulcast customers who smoke and no longer visitour facilities are now wagering on the Internet.  The Company also believes those Card Clubcustomers who smoke and no longer visit the Card Club are now patronizingtribal casinos where smoking is permitted.

 

In April 2008, theMinnesota Legislature passed a bill allowing pari-mutuel simulcast wagering onall breeds at Running Aces Harness Park (“Running Aces”), a harness track thatopened in Anoka County in April 2008. In anticipation of the passing of this legislation, the Company enteredinto a revenue sharing agreement with Running Aces.  This agreement will benefit the respectivehorsemen’s associations by requiring the Company and Running Aces to make purseset aside contributions and Breeders Fund contributions as required bylaw.  Additionally, under the terms ofthe agreement, the Company will pay Running Aces a portion of net revenues forsimulcast wagers taken on harness racing, and Running Aces will pay the Companya portion of net revenues for simulcast wagers taken on thoroughbredracing.  The Company believes that thisagreement will help offset any revenue decreases that would have occurred as aresult of the passage of this bill.

 

**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 under Item 1A in our Reporton Form 10-K for the year ended December 31, 2007 and in the Company’sother filings with the Securities and Exchange Commission.

 

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**ITEM3:     QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

CanterburyPark is not required to provide the information requested by this Item as itqualifies as a smaller reporting company.

 

**ITEM4:     CONTROLS AND PROCEDURES**

 

(a)           Evaluation of Disclosure Controls and Procedures:

 

The Company’s ChiefExecutive Officer, Randall D. Sampson, and Chief Financial Officer, David C.Hansen, have reviewed the Company’s disclosure controls and procedures pursuantto Exchange Act Rule 13a-15(b) as of the end of the period covered bythis report.  Based upon this review,these officers have concluded that the Company’s disclosure controls andprocedures are effective to ensure that information required to be disclosed inthe reports that the Company files under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in the rules andforms of the SEC and that the disclosure controls are also effective to ensurethat information required to be disclosed in the Company’s Exchange Act reportsis accumulated and communicated to management, including the chief executiveofficer and chief financial officer, to allow timely decisions regardingrequired disclosure.

 

(b)           Changes in Internal Control Over Financial Reporting:

 

Therehas been no change in our internal control over financial reporting (as definedin Rules 13a-15(f) under the Securities Exchange Act of 1934) thatoccurred during our fiscal quarter ended June 30, 2008 that havematerially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

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**PART II**

**OTHER INFORMATION**

 
| Item 1.  | ** ** | **Legal Proceedings**                                                                                                                           |
|----------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|     |       |                                                                                                                                            |
|     |       | Not Applicable                                                                                                                                  |
|     |       |                                                                                                                                            |
| Item 1A. | ** ** | **Risk  Factors**                                                                                                                               |
|     | ** ** | ** **                                                                                                                                      |
|     |       | There have been no  material changes to the Risk Factors since those reported in the Form 10-K  for the year ended December 31, 2007. |
|     |       |                                                                                                                                            |
| Item 2.  | ** ** | **Unregistered  Sales of Equity****Securities and Use of  Proceeds**                                                                            |
|     |       |                                                                                                                                            |
|     |       | (a)                                                                                                                                             | Not Applicable. |
|     |       | (b)                                                                                                                                             | Not Applicable. |
|     |       | (c)                                                                                                                                             | On January 16,  2008, the Company announced that its Board of Directors had authorized a  program to repurchase up to an additional 250,000 shares of the Company’s  common stock. During the second quarter of 2008, the Company repurchased  112,057 shares of common stock at an average price of $9.06 for an aggregate  purchase price of $1,014,838. A month-by-month breakdown of purchases is  included in the following table: |

 
| **Period**                           | ** ** | **Total Number of  Shares  Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plan** | ** ** | **Maximum Number  of Shares that May  Yet Be Purchased  Under the Plan** | ** ** |
|--------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|
| April 1 to  April 30, 2008 |       | 25,453                                           |       | $                                                | 9.40       |                                                                                                          | 25,453     |                                                                                                             | 217,565    |   |
| May 1 to  May 31, 2008     |       | 66,026                                           |       | 8.68                                             |       | 66,026                                                                                                        |       | 151,539                                                                                                          |       |
| June 1 to  June 30, 2008   |       | 20,578                                           |       | 9.84                                             |       | 20,578                                                                                                        |       | 130,961                                                                                                          |       |
| Total                                |       | 112,057                                          |       |                                             |       | 112,057                                                                                                       |       | 130,961                                                                                                          |       |
|                                      |            |                                                  |            |                                                  |            |                                                                                                               |            |                                                                                                                  |            |  |

 
| Item 3. |   | **Defaults Upon Senior Securities**                                                                                                                                                                                                                                                                                                                                                                                      |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    |   | Not Applicable                                                                                                                                                                                                                                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Item 4. |   | **Submission of Matters to a Vote  of Security Holders**                                                                                                                                                                                                                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    |   | The Company held its  Annual Meeting of Shareholders on June 5, 2008. Shareholders reelected  the following directors for a one year term: Patrick R. Cruzen, Burton F.  Dahlberg, Carin J. Offerman, Curtis A. Sampson, Randall D. Sampson, and Dale  H. Schenian. Not less than 3,544,380 shares were voted in favor of each of  the reelected directors (approximately 92.6% of all shares present and  voting). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Item 5. |   | **Other Information**                                                                                                                                                                                                                                                                                                                                                                                                    |
|    |   | ** **                                                                                                                                                                                                                                                                                                                                                                                                               |
|    |   | Not Applicable                                                                                                                                                                                                                                                                                                                                                                                                           |

 

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| Item 6. |   | **Exhibits** |
|---------|--------|--------------|
|    |   |         |
|    |   | (a)          | The following exhibits  are included herein: |
|    |   |         |   |
|    |   |         | 11 | Statement re  computation of per share earnings – See Net Income Per Share under Note 1 of  Notes to Consolidated Financial Statements under Part 1, Item 1, which  is incorporated herein by reference. |
|    |   |         |   |   |
|    |   |         | 31.1 | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 (rules 13a-14 and 15d-14 of the Exchange Act). |
|    |   |         |   |   |
|    |   |         | 31.2 | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 (rules 13a-14 and 15d-14 of the Exchange Act). |
|    |   |         |   |   |
|    |   |         | 32 | Certfications pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
| ** **                   | **Canterbury  Park Holding Corporation**     |
|------------------------------|----------------------------------------------|
| ** **                   | ** **                                   |
| Dated: August 14,  2008 |   /s/ Randall  D. Sampson          |
|                         | Randall D. Sampson,                          |
|                         | President, and Chief  Executive Officer      |
|                         |                                         |
| Dated: August 14,  2008 |   /s/ David  C. Hansen             |
|                         | David C. Hansen,                             |
|                         | Vice President, and  Chief Financial Officer |

 

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