**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

** **

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** **

**FORM 10-Q**

** **

**(Mark One)**
| **x** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE  30, 2007.** |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------|

 

**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 FileNumber:  001-31569**

** **

****

** **

**CANTERBURY PARK HOLDING CORPORATION**

(Exact Name of Registrantas Specified in Its Charter)

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

 

**1100 Canterbury Road**

**Shakopee, MN  55379**

(Address of principal executive offices and zip code)

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes o   No x

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes o   No x

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.   Yes x   No o

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

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

 

Indicate by check mark whether the registrant is ashell company (as defined in Exchange Act Rule 12b-2).   Yes o   No x

The Company had 4,113,432 shares of common stock, $.01par value, outstanding as of August 10, 2007.

 

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Canterbury ParkHolding Corporation

#### **INDEX**

| ** **   | ** ** | ** **                 | ** ** | ** **                                                                                  | ** ** | ** ** | ** ** |
|--------------|------------|----------------------------|------------|---------------------------------------------------------------------------------------------|------------|------------|------------|
| **PART I.**  | ** ** | **FINANCIAL  INFORMATION** |       |                                                                                        |       |
|         |       | Item  1.                   |       | Financial Statements                                                                        |       |       |       |
|         |       |                       |       | Consolidated  Balance Sheets as of June 30, 2007 and December 31, 2006                      |       |       |       |
|         |       |                       |       | Consolidated  Statements of Operations for the periods ended June 30, 2007 and 2006         |       |       |       |
|         |       |                       |       | Consolidated  Statements of Cash Flows for the periods ended June 30, 2007 and 2006         |       |       |       |
|         |       |                       |       | Notes to Consolidated Financial Statements                                                  |       |       |       |
|         |       | Item 2.                    |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |       |       |       |
|         |       | Item 3.                    |       | Quantitative and Qualitative Disclosures about Market  Risk                                 |       |       |       |
|         |       | Item  4.                   |       | Controls  and Procedures                                                                    |       |       |       |
| **PART II.** | ** ** | **OTHER INFORMATION**      | ** ** | ** **                                                                                  | ** ** |
|         |       | Item  1.                   |       | Legal  Proceedings                                                                          |       |       |       |
|         |       | Item  1A.                  |       | Risk  Factors                                                                               |       |       |       |
|         |       | Item 2.                    |       | Unregistered Sales of Equity Securities and Use of  Proceeds                                |       |       |       |
|         |       | Item 3.                    |       | Defaults Upon Senior Securities                                                             |       |       |       |
|         |       | Item 4.                    |       | Submission of Matters to a Vote of Security Holders                                         |       |       |       |
|         |       | Item  5.                   |       | Other  Information                                                                          |       |       |       |
|         |       | Item 6.                    |       | Exhibits                                                                                    |       |       |       |
|         |       | Signatures                 |       |                                                                                        |       |       |       |
|         |       | Exhibits                   |       |                                                                                        |       |       |       |

 

2

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**PART 1 - FINANCIAL INFORMATION**

** **

**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**JUNE30, 2007 (UNAUDITED) AND DECEMBER 31, 2006**
| ** **                                                                                                                         | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                         | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| **ASSETS**                                                                                                                         | ** ** | ** **        | ** ** | ** **            | ** ** |
| CURRENT ASSETS                                                                                                                     |       |              |       |                  |       |
| Cash                                                                                                                               |       | $                 | 8,208,549  |                  | $          | 5,745,556 |   |
| Restricted cash                                                                                                                    |       | 4,414,173         |       | 1,915,057             |       |
| Short-term investments                                                                                                             |       | 52,983            |       | 78,231                |       |
| Accounts receivable, net of allowance of $43,400 and  $38,600                                                                      |       | 571,501           |       | 559,146               |       |
| Inventory                                                                                                                          |       | 253,564           |       | 159,918               |       |
| Prepaid expenses                                                                                                                   |       | 696,400           |       | 733,979               |       |
| Deferred income taxes                                                                                                              |       | 343,400           |       | 235,200               |       |
| Total current assets                                                                                                               |       | 14,540,570        |       | 9,427,087             |       |
|                                                                                                                               |       |              |       |                  |       |
| LONG-TERM ASSETS                                                                                                                   |       |              |       |                  |       |
| Deposits                                                                                                                           |       | 20,000            |       | 20,000                |       |
| Land, buildings and equipment, net of accumulated depreciation  of $13,628,891 and $13,082,181, respectively                       |       | 25,076,528        |       | 24,903,946            |       |
|                                                                                                                               |       | $                 | 39,637,098 |                  | $          | 34,351,033 |   |
|                                                                                                                               |       |              |       |                  |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                     | ** ** | ** **        | ** ** | ** **            | ** ** |
|                                                                                                                               |       |              |       |                  |       |
| CURRENT  LIABILITIES                                                                                                               |       |              |       |                  |       |
| Accounts payable                                                                                                                   |       | $                 | 5,607,132  |                  | $          | 2,032,953 |   |
| Card club accruals                                                                                                                 |       | 2,037,180         |       | 2,073,363             |       |
| Accrued wages and payroll taxes                                                                                                    |       | 1,903,286         |       | 1,866,633             |       |
| Cash dividend payable                                                                                                              |       | 1,027,695         |       |                  |       |
| Accrued interest payable                                                                                                           |       | 15,137            |       | 7,303                 |       |
| Due to MHBPA                                                                                                                       |       | 89,821            |       | 140,281               |       |
| Accrued property taxes                                                                                                             |       | 484,573           |       | 457,331               |       |
| Income taxes payable                                                                                                               |       | 219,274           |       | 105,918               |       |
| Payable to horsepersons                                                                                                            |       | 251,041           |       | 346,779               |       |
| Total current liabilities                                                                                                          |       | 11,635,139        |       | 7,030,561             |       |
|                                                                                                                               |       |              |       |                  |       |
| DEFERRED INCOME  TAXES                                                                                                             |       | 372,000           |       | 460,900               |       |
|                                                                                                                               |       |              |       |                  |       |
| COMMITMENTS AND  CONTINGENCIES (Note 5)                                                                                            |       |              |       |                  |       |
|                                                                                                                               |       |              |       |                  |       |
| STOCKHOLDERS’  EQUITY                                                                                                         |       |              |       |                  |       |
| Common stock, $.01 par value, 10,000,000 shares  authorized, 4,111,432 and 4,050,782, respectively, shares issued and  outstanding |       | 41,114            |       | 40,508                |       |
| Additional paid-in capital                                                                                                         |       | 15,316,434        |       | 14,914,328            |       |
| Accumulated earnings                                                                                                               |       | 12,272,411        |       | 11,904,736            |       |
| Total stockholders’ equity                                                                                                    |       | 27,629,959        |       | 26,859,572            |       |
|                                                                                                                               |       | $                 | 39,637,098 |                  | $          | 34,351,033 |   |

 

See notes to consolidated financial statements.

3

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**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES**

** **

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**PERIODS ENDED JUNE 30, 2007 AND 2006 (Unaudited)**
| ** **                                    | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| OPERATING  REVENUES:                          |       |                                                |       |                                              |       |   |   |   |   |
| Pari-mutuel                                   |       | $                                                   | 4,723,673  |                                              | $          | 4,843,515 |   | $ | 7,437,553 |   | $ | 7,856,313 |   |
| Card Club                                     |       | 7,077,195                                           |       | 7,203,193                                         |       | 14,572,191 |   | 14,974,660 |   |
| Concessions                                   |       | 1,942,296                                           |       | 1,845,848                                         |       | 2,827,065 |   | 2,723,028 |   |
| Admissions and parking                        |       | 324,635                                             |       | 291,299                                           |       | 354,331 |   | 322,638 |   |
| Publications                                  |       | 141,840                                             |       | 144,680                                           |       | 238,669 |   | 243,783 |   |
| Other                                         |       | 499,009                                             |       | 584,110                                           |       | 798,108 |   | 946,990 |   |
| Total Revenues                                |       | 14,708,648                                          |       | 14,912,645                                        |       | 26,227,917 |   | 27,067,412 |   |
| Less: Promotional Allowances                  |       | (82,625                                             | )          | (66,861                                           | )          | (133,305 | ) | (125,251 | ) |
| Net Revenues                                  |       | 14,626,023                                          |       | 14,845,784                                        |       | 26,094,612 |   | 26,942,161 |   |
|                                          |       |                                                |       |                                              |       |   |   |   |   |
| OPERATING  EXPENSES:                          |       |                                                |       |                                              |       |   |   |   |   |
| Purse expense                                 |       | 2,546,900                                           |       | 2,561,006                                         |       | 3,912,190 |   | 3,903,552 |   |
| Minnesota Breeders’ Fund                 |       | 339,202                                             |       | 350,268                                           |       | 596,600 |   | 627,111 |   |
| Host track fees                               |       | 608,099                                             |       | 633,159                                           |       | 1,066,501 |   | 1,130,946 |   |
| Pari-mutuel taxes                             |       | 35,347                                              |       | 61,707                                            |       | 61,908 |   | 106,511 |   |
| Salaries and benefits                         |       | 5,844,205                                           |       | 5,999,079                                         |       | 10,864,914 |   | 11,004,832 |   |
| Cost of concessions and publication sales     |       | 1,008,898                                           |       | 981,997                                           |       | 1,602,323 |   | 1,573,443 |   |
| Depreciation                                  |       | 454,600                                             |       | 438,825                                           |       | 962,290 |   | 869,650 |   |
| Utilities                                     |       | 371,027                                             |       | 326,986                                           |       | 702,473 |   | 634,333 |   |
| Repairs, maintenance and supplies             |       | 348,476                                             |       | 488,485                                           |       | 550,462 |   | 731,029 |   |
| License fees and property taxes               |       | 213,558                                             |       | 199,600                                           |       | 411,821 |   | 384,405 |   |
| Advertising and marketing                     |       | 556,105                                             |       | 747,807                                           |       | 661,769 |   | 914,509 |   |
| Insurance                                     |       | 314,321                                             |       | 314,865                                           |       | 549,903 |   | 544,659 |   |
| Other                                         |       | 1,182,868                                           |       | 1,204,380                                         |       | 1,898,040 |   | 1,993,498 |   |
|                                          |       | 13,823,606                                          |       | 14,308,164                                        |       | 23,841,194 |   | 24,418,478 |   |
|                                          |       |                                                |       |                                              |       |   |   |   |   |
| NONOPERATING  (EXPENSES) REVENUES:            |       |                                                |       |                                              |       |   |   |   |   |
| Interest expense                              |       | (4,745                                              | )          | (5,472                                            | )          | (9,913 | ) | (7,768 | ) |
| Other, net                                    |       | 86,037                                              |       | 71,719                                            |       | 163,665 |   | 127,099 |   |
|                                          |       | 81,292                                              |       | 66,247                                            |       | 153,752 |   | 119,331 |   |
|                                          |       |                                                |       |                                              |       |   |   |   |   |
| INCOME BEFORE  INCOME TAX EXPENSE             |       | 883,709                                             |       | 603,867                                           |       | 2,407,170 |   | 2,643,014 |   |
|                                          |       |                                                |       |                                              |       |   |   |   |   |
| INCOME TAX  EXPENSE (Note 1)                  |       | (380,716                                            | )          | (258,509                                          | )          | (1,011,800 | ) | (1,135,009 | ) |
|                                          |       |                                                |       |                                              |       |   |   |   |   |
| NET INCOME                                    |       | $                                                   | 502,993    |                                              | $          | 345,358 |   | $ | 1,395,370 |   | $ | 1,508,005 |   |
|                                          |       |                                                |       |                                              |       |   |   |   |   |
| BASIC NET INCOME  PER COMMON SHARE (Note 1)   |       | $                                                   | .12        |                                              | $          | .08 |   | $ | .34 |   | $ | .38 |   |
|                                          |       |                                                |       |                                              |       |   |   |   |   |
| DILUTED NET INCOME PER  COMMON SHARE (Note 1) |       | $                                                   | .12        |                                              | $          | .08 |   | $ | .33 |   | $ | .33 |   |

 

See notes to consolidated financial statements.

4

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**PERIODSENDED JUNE 30, 2007 AND 2006 (Unaudited)**
| ** **                                                               | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                               | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| **Operating  Activities:**                                               | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net Income                                                               |       | $                                                 | 1,395,370  |   | $ | 1,508,005 |   |
| Adjustments to reconcile net income to net cash  provided by operations: |       |                                              |       |   |   |
| Depreciation                                                             |       | 962,290                                           |       | 869,650 |   |
| Stock-based compensation expense                                         |       | 133,863                                           |       | 136,271 |   |
| Excess tax benefit from exercise of stock options                        |       | (44,794                                           | )          | (48,749 | ) |
| Loss (gain) on sale of property and equipment                            |       | 5,949                                             |       | (50,010 | ) |
| Decrease in deferred income taxes                                        |       | (136,556                                          | )          | (84,200 | ) |
| Increase in restricted cash                                              |       | (2,499,116                                        | )          | (2,813,396 | ) |
| Increase in accounts receivable                                          |       | (12,355                                           | )          | (76,048 | ) |
| Increase in other current assets                                         |       | (56,067                                           | )          | (254,891 | ) |
| Increase (decrease) in income taxes payable                              |       | 113,356                                           |       | (86,481 | ) |
| Increase in accounts payable and accrued wages and  payroll taxes        |       | 3,650,849                                         |       | 4,256,737 |   |
| (Decrease) increase in card club accruals                                |       | (36,183                                           | )          | 299,801 |   |
| Increase in accrued interest                                             |       | 7,834                                             |       | 7,467 |   |
| Increase in accrued property taxes                                       |       | 27,242                                            |       | 22,103 |   |
| (Decrease) increase in payable to horsepersons                           |       | (95,738                                           | )          | 65,206 |   |
| (Decrease) increase in due to MHBPA                                      |       | (50,460                                           | )          | 15,313 |   |
| Net cash provided by operations                                          |       | 3,365,484                                         |       | 3,766,778 |   |
| ** **                                                               | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| **Investing  Activities:**                                               | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Additions to buildings and equipment                                     |       | (1,184,310                                        | )          | (2,263,550 | ) |
| Proceeds from sale of equipment                                          |       | 3,472                                             |       | 50,010 |   |
| Decrease (increase) in short-term investments                            |       | 25,248                                            |       | (100,447 | ) |
| Net cash used in investing activities                                    |       | (1,155,590                                        | )          | (2,313,987 | ) |
|                                                                     |       |                                              |       |   |   |
| **Financing  Activities**                                                | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Proceeds from issuance of common stock                                   |       | 208,305                                           |       | 222,688 |   |
| Excess tax benefit from exercise of stock options                        |       | 44,794                                            |       | 48,749 |   |
| Net cash provided by financing activities                                |       | 253,099                                           |       | 271,437 |   |
|                                                                     |       |                                              |       |   |   |
| Net increase in  cash                                                    |       | 2,462,993                                         |       | 1,724,228 |   |
|                                                                     |       |                                              |       |   |   |
| Cash at  beginning of period                                             |       | 5,745,556                                         |       | 4,914,366 |   |
|                                                                     |       |                                              |       |   |   |
| Cash at end of  period                                                   |       | $                                                 | 8,208,549  |   | $ | 6,638,594 |   |
|                                                                     |       |                                              |       |   |   |
| Supplemental  disclosure of noncash investing activities:                |       |                                              |       |   |   |
| Additions to buildings and equipment funded through  accounts payable    |       | $                                                 | 47,328     |   | $ | 89,095 |   |
|                                                                     |       |                                              |       |   |   |
| Supplemental  disclosure of cash flow information:                       |       |                                              |       |   |   |
| Income taxes paid, net of refunds                                        |       | $                                                 | 1,035,000  |   | $ | 1,250,000 |   |
| Dividend declared                                                        |       | 1,027,695                                         |       | 1,010,796 |   |

 

See notes to consolidated financial statements.

5

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

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****PERIODS ENDED JUNE 30, 2007 AND 2006**

1.               SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

The summary ofsignificant accounting policies is included in the notes to consolidatedfinancial statements in the 2006 Annual Report on form 10-K.

*Unaudited Financial Statements* -The consolidated balance sheet as of June 30, 2007 the consolidated statementsof operations for the three and six months ended June 30, 2007 and 2006, theconsolidated statements of cash flows for the six months ended June 30, 2007and 2006, and the related information contained in these notes have beenprepared by management without audit.  Inthe opinion of management, all adjustments (consisting only of normal recurringadjustments) which are necessary for a fair presentation of financial positionand results of operations for such periods have been made.  Results for an interim period should not beconsidered as indicative of results for a full year.

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

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

*Reclassifications* —Certain prior year numbers have been reclassified to be consistent with currentperiod presentation.  Thesereclassifications had no effect on net earnings or stockholders’ equity.

The Company has reclassified promotional allowances from advertisingand marketing expense to net revenues as of December 31, 2006.  Prior periods were reclassified to beconsistent with current period presentation.

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

6

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The following table presents the affect of the change in accountingtreatment for all interim periods presented where the cash flows fromrestricted cash were previously presented within the investing activitiessection of the Statements of Cash Flows:
|                        | ** ** | ** **           | ** ** | **As Revised**  | ** ** | **Previously Reported** | ** ** |
|------------------------|------------|----------------------|------------|----------------------|------------|------------------------------|------------|
| ** **             | ** ** | ** **           | ** ** | ** **           | ** ** | **Net Cash**            | ** ** | ** ** | ** ** | **Net Cash** | ** ** |
| ** **             | ** ** | **Increase in** | ** ** | **Net Cash**    | ** ** | **Used in**             | ** ** | **Net Cash** | ** ** | **Used in** | ** ** |
| ** **             | ** ** | **Restricted**       | ** ** | **Provided by** | ** ** | **Investing**                | ** ** | **Provided by** | ** ** | **Investing** | ** ** |
| ** **             | ** ** | **Cash**             | ** ** | **Operations**       | ** ** | **Activities**               | ** ** | **Operations** | ** ** | **Activities** | ** ** |
|                   |       |                 |       |                 |       |                         |       |   |   |   |   |
| Period Ended 6/30/2006 |       | $                    | (2,813,396 | )                    | $          | 3,766,778                    |       | $ | (2,313,987 | ) | $ | 6,580,174 |   | $ | (5,127,383 | ) |
|                        |            |                      |            |                      |            |                              |            |  |  |  |  |  |  |  |  |  |

 

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

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

The Company adopted 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 accounting foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with FASB Statement 109, *Accountingfor Income Taxes,*and prescribes a recognition threshold andmeasurement process for financial statement recognition and measurement of atax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition. Based on our evaluation, we have concluded that there are no significantunrecognized tax benefits.

The Company and itsconsolidated 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 2004.  The Internal Revenue Service(IRS) has audited us through 2003. The Company is no longer subject toexaminations by State of Minnesota tax authorities for years prior to2003.  The Minnesota Department ofRevenue has audited the Company through 2002. We do not believe there will be any material changes in our unrecognizedtax positions over the next twelve months.

*Net Income Per Share*- Basic net income per common shareis based on the weighted average number of common shares outstanding duringeach period.  The weighted average numberof common shares outstanding for the three and six-month periods ended June 30,2007 were 4,069,104 and 4,060,809, respectively.  The weighted average number of common sharesoutstanding for the three and six-month periods ended June 30, 2006 were3,899,125 and 3,979,460, respectively. Diluted net income per common share takes into effect the dilutiveeffect of potential common shares outstanding. The Company’s potential common shares outstanding are stock options andshares of unvested (“restricted”) stock. After considering the dilutive effect of stock options outstanding, theweighted average shares used to calculate diluted earnings per share for thethree and six-month periods ended June 30, 2007 were 4,215,833 and 4,228,088,respectively.  The weighted averageshares used to calculate diluted earnings per share for the three and six-monthperiods ended June 30, 2006 were 4,372,859 and 4,515,220, respectively.

7

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

*EmployeeTermination Benefits*— Management of the Company iscontinually re-evaluating the Company’s operating costs against its long-termstrategic goals.

During the first quarterof 2007, the Company created a voluntary retirement incentive program, whichprovided eligible employees the opportunity to voluntarily resign theiremployment in exchange for severance pay and other specified benefits. Eligibleemployees could elect to participate in this voluntary program during theperiod from January 11, 2007 through February 25, 2007. In accordance with SFAS88, *Employers Accounting for Settlements andCurtailments of Defined Benefit Pension Plans and for Termination Benefits,*theCompany has recognized a liability and a charge to income of approximately$182,000 associated with this special termination benefit.  In addition, the Company incurred $64,000 inseverance costs related to the involuntary termination of salaried and hourlypersonnel during the first quarter of 2007. No changes to the liability and no additional expense was incurredduring the second quarter of 2007.

*New Accounting Pronouncements -*InSeptember 2006, the FASB issued SFAS No. 157, *FairValue Measurements,* which defines fair value, establishes aframework for measuring fair value, and expands disclosures about fair valuemeasurements. The provisions of SFAS No. 157 are effective for fiscal yearsbeginning after November 15, 2007.  TheCompany is evaluating the impact the adoption of SFAS No. 157 will have on itsconsolidated results of operations and financial condition.

In March 2007, the FASBratified the Emerging Issues Task Force (“EITF”) Issue No. 06-11, *Accounting for Income Tax Benefits of Dividends onShare Based Payment Awards (“EITF 06-11”). *EITF 06-11 requires companies to recognize the income taxbenefit realized from dividends or dividend equivalents that are charged toretained earnings and paid to employees for nonvested equity-classifiedemployee share-based awards as an increase to additional paid-in capital.  EITF 06-11 is effective for fiscal yearsbeginning after September 15, 2007.  TheCompany is evaluating the impact the adoption of EITF 06-11 will have on itsconsolidated 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.  Prior to adoptingSFAS 123R, we accounted for stock-based compensation in accordance withAccounting Principles Board Opinion No.25, *Accountingfor Stock Issued to Employees*. We recognized $133,863 and $136,271 in stock-based compensation expensein salaries and benefits expense line item on the consolidated statements ofoperations during the six-months ended June 30, 2007 and 2006, respectively.

Our annual grant ofstock-based compensation generally takes place during the first quarter of eachfiscal year.  Each non-employee member ofthe Board of Directors receives an annual recurring grant of 3,000non-qualified stock options on the first business day in February.  On February 1, 2007 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 $13.76.  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 $58,400 to berecognized as expense over the six-month vesting period.  On February 1, 2006, 15,000 optionswere granted to the five non-employee board members with an exercise priceequal to the market price on the date of grant of $14.30.  In addition, on February 9, 2006 we granted15,000 incentive stock options to two executive officers of the Company and41,000 shares of restricted stock to key management-level employees. Theexercise price of these incentive stock options and the value of the restrictedshares was the market value on the date of grant of $14.55. Grants of stockoptions and restricted stock to employees did not occur in 2007.

8

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The number ofshares granted and the weighted average fair value per share during the periodspresented were:
|                  | ** ** | **Six Months Ended** | ** ** |
|------------------|------------|--------------------------------|------------|
| ** **       | ** ** | **June 30, 2007**    | ** ** | **June 30, 2006** | ** ** |
| ** **       | ** ** | ** **                     | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **       | ** ** | ** **                     | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **       | ** ** | ** **                     | ** ** | **Fair Value** | ** ** | ** ** | ** ** | **Fair Value** | ** ** |
| ** **       | ** ** | **Grant**                      | ** ** | **Per Share** | ** ** | **Grant** | ** ** | **Per Share** | ** ** |
|             |       |                           |       |   |   |   |   |   |   |
| Stock options    |       | 15,000                         |       | $ | 3.89 |   | 30,000 |   | $ | 4.51 |   |
| Restricted stock |       | —                         |       |   |   | 41,000 |   | $ | 14.55 |   |
|             |       |                           |       |   |   |   |   |   |   |
| Total shares     |       | 15,000                         |       |   |   | 71,000 |   |   |   |
|                  |            |                                |            |  |  |  |  |  |  |  |  |

 

The fair value of stockoptions granted under the Plan during first six months of 2007 were estimatedon the date of grant using the Black-Scholes option-pricing model with thefollowing weighted average assumptions and results: 
|                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| Dividend yield                             |       | 1.82     | %          | 1.74     | %          |
| Weighted-average  volatility               |       | 22       | %          | 25       | %          |
| Risk-free  interest rate                   |       | 4.86     | %          | 4.50     | %          |
| Expected term of  stock options in years   |       | 7.2      |       | 8.6      |       |
| Fair value of stock  options on grant date |       | $        | 58,400     |     | $          | 135,300 |   |
|                                            |            |          |            |          |            |  |  |

 

A summary of stock optionactivity as of June 30, 2007 and changes during the six months then ended ispresented below:
|                                 | ** ** | ** **         | ** ** | ** **   | ** ** | **Weighted**    | ** ** | ** **          | ** ** |
|---------------------------------|------------|--------------------|------------|--------------|------------|-----------------|------------|---------------------|------------|
| ** **                      | ** ** | ** **         | ** ** | **Weighted** | ** ** | **Average**     | ** ** | ** **          | ** ** |
| ** **                      | ** ** | ** **         | ** ** | **Average**  | ** ** | **Remaining**   | ** ** | **Aggregate**       | ** ** |
| ** **                      | ** ** | **Number of** | ** ** | **Exercise** | ** ** | **Contractual** | ** ** | **Grant Date** | ** ** |
| **Stock Options**          | ** ** | **Shares**         | ** ** | **Price**    | ** ** | **Term**        | ** ** | **Fair Value** | ** ** |
|                            |       |               |       |         |       |            |       |                |       |
| Outstanding at  January 1, 2007 |       | 666,550            |       | $            | 10.12      |            |       |                |       |   |
|                            |       |               |       |         |       |            |       |                |       |
| Granted                         |       | 15,000             |       | $            | 13.67      |            |       |                |       |   |
| Exercised                       |       | (60,650            | )          | $            | 3.43       |            |       |                |       |   |
|                            |       |               |       |         |       |            |       |                |       |
| Outstanding at  June 30, 2007   |       | 620,900            |       | $            | 10.85      |            | 2.7 Years  |                | $          | 3,243,000 |   |
|                            |       |               |       |         |       |            |       |                |       |
| Exercisable at June 30,  2007   |       | 594,550            |       | $            | 10.71      |            | 2.7 Years  |                | $          | 3,127,000 |   |

 

3.               BORROWINGS UNDERCREDIT AGREEMENT

Borrowings under theCompany’s credit agreement with Bremer Bank include a commercial revolvingcredit line, which provides for maximum advances of $2,250,000 with interest atthe prime rate.  The Company had noborrowings under this credit line at June 30, 2007.  The credit agreement contains certaincovenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements as of June 30, 2007. Management believes that funds available under this line of 

9

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credit, along with fundsgenerated from card club and simulcast operations, will be sufficient tosatisfy its liquidity and capital resource requirements during 2007.

4.               OPERATING SEGMENTS

During the first sixmonths of 2007 and 2006, the Company had three reportable operatingsegments:  horse racing, card club andconcessions.  The horseracing segmentprimarily represents simulcast and live horse racing operations, the card clubsegment primarily represents operations of the Card Club and the concessionssegment primarily represents concessions provided during simulcast and liveracing, in the Card Club, and during special events.  The Company’s reportable operating segmentsare strategic business units that offer different products and services.  They are managed separately because thesegments differ in the nature of the products and services provided as well asprocesses to produce those products and services.  The horse racing and card club segments areregulated by the State of Minnesota Racing Commission.

The accounting policiesof the operating segments are the same as those described in the summary ofsignificant accounting policies in the 2006 Annual Report on Form 10-K.

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

The followingtables provide information about the Company’s operating segments (in 000’s):
|                                       | ** ** | **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 |   |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Segment Assets                        |       | $                                                           | 33,284     |   | $ | 3,795 |   | $ | 5,486 |   | $ | 42,565 |   |

 
|                                       | ** ** | **Six Months Ended June 30, 2006** | ** ** |
|---------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                                       | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Net revenues  from external customers |       | $                                                           | 9,205      |   | $ | 14,975 |   | $ | 2,762 |   | $ | 26,942 |   |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 262                                                         |       |   |   | 1,036 |   | 1,298 |   |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Net interest  income                  |       | 119                                                         |       |   |   |   |   | 119 |   |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Depreciation                          |       | 670                                                         |       | 141 |   | 58 |   | 869 |   |
|                                  |       |                                                        |       |   |   |   |   |   |   |
| Segment income before  income taxes   |       | (45                                                         | )          | 2,634 |   | 531 |   | 3,120 |   |
|                                       |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |

 
|                | ** ** | **At December 31, 2006** | ** ** |
|----------------|------------|-----------------------------------------|------------|
|           |       |                                    |       |   |   |   |   |   |   |
| Segment Assets |       | $                                       | 29,867     |   | $ | 3,676 |   | $ | 6,258 |   | $ | 39,801 |   |
|                |            |                                         |            |  |  |  |  |  |  |  |  |  |  |

 

10

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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,** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                              | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| Revenues                                                |       |                                              |       |   |   |
| Total revenue for reportable segments                   |       | $                                                 | 27,423     |   | $ | 28,240 |   |
| Elimination of intersegment revenues                    |       | (1,328                                            | )          | (1,298 | ) |
| Total consolidated net revenues                         |       | $                                                 | 26,095     |   | $ | 26,942 |   |
|                                                    |       |                                              |       |   |   |
| Income before  income taxes                             |       |                                              |       |   |   |
| Total segment income before income taxes                |       | $                                                 | 2,994      |   | $ | 3,120 |   |
| Elimination of intersegment income before income  taxes |       | (587                                              | )          | (477 | ) |
| Total  consolidated income before income taxes          |       | $                                                 | 2,407      |   | $ | 2,643 |   |

 
|                                         | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Assets                                  |       |              |       |                  |       |
| Total assets for reportable segments    |       | $                 | 45,607     |                  | $          | 39,801 |   |
| Elimination of intercompany receivables |       | (5,970            | )          | (5,450                | )          |
| Total  consolidated assets              |       | $                 | 39,637     |                  | $          | 34,351 |   |

 

5.     CONTINGENCIES

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

The Company is periodically involved in various legalactions arising in the normal course of business.  At June 30, 2007, management believes thatthe resolution of any legal actions outstanding will not have a material impacton the consolidated financial statements.

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

 

The followingManagement’s Discussion and Analysis of Financial Condition and Results ofOperations (“MD&A”) is intended to help the reader understand CanterburyPark Holding Corporation, our operations and our present businessenvironment.  This MD&A is providedas a supplement to — and should be read in conjunction with — our consolidatedfinancial statements and the accompanying notes to the financial statements(the “Notes”).  This MD&A is dividedinto the following sections:

·                  *Overview*

·                  *Operations Review*

·                  *Contingencies*

·                  *Liquidity and Capital Resources*

·                  *Critical Accounting Policies and Estimates*

·                  *Commitments and Contractual Obligations*

·                  *Legislation*

·                  *Forward-Looking Statements*

**Overview:**

Canterbury ParkHolding Corporation (the “Company”) owns and operates the Canterbury ParkRacetrack and Card Club in Shakopee, Minnesota. The primary businesses of the Company are simulcast and live pari-mutuelhorse racing, hosting unbanked card games, and food and beverage operations.

The Racetrack isthe only pari-mutuel horse racing facility in the State of Minnesota.  The Racetrack earns revenues from pari-mutueltake-out on races simulcast year-round to Canterbury Park from racetracksthroughout the country and from live race meets featuring thoroughbred andquarter horse racing.  Live race meetscommence in the month of May and conclude in September.  During live race meets, the Company televisesits races to out-of-state racetracks around the country, and earns additionalpari-mutuel revenue on wagers placed at the out-of-state racetracks.

 Canterbury Park’s Card Club (the “Card Club”)hosts “unbanked” card games in which players compete against each other and notagainst the house.  The Card Club is opentwenty-four hours a day, seven days a week. Under Minnesota law, the Company is required to pay up to 14% of thegross Card Club revenues to the Racetrack’s purse fund and the State of MinnesotaBreeders’ Fund.  However, the Company hasagreed with the Minnesota Horsemen’s Benevolent and Protective Association (“MHBPA”)to pay 15% of Card Club revenues into the purse fund for 2007 and 2006.

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 craft shows and snowmobile racing.

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**Operations Review for the****Three and****Six MonthsEnded June 30, 2007 and June 30, 2006:**

Total net revenuesdecreased approximately $848,000, or 3.2%, during the six months ended June 30,2007 compared to the six months ended June 30, 2006, and decreasedapproximately $220,000, or 1.5%, for the three months ended June 30, 2007compared to the three months ended June 30, 2006. The decrease is due primarilyto reductions of 5.3% and 2.7% in pari-mutuel and Card Club revenues,respectively, along with a decrease of 15.7% in other revenues.  These decreases are partially offset by anincrease of 3.8% in concession revenues and a 9.8% increase in admissionrevenues.

Pari-mutuelrevenues were $419,000 lower in the six-month period ended June 30, 2007compared to the same period in 2006, and decreased approximately $120,000, or2.5%, for the three-month period ended June 30, 2007 compared to the sameperiod in 2006. Total on-track handle for the six months and three months endedJune 30, 2007 was down $2.4 million and $831,000, respectively, compared to thesame six-month and three-month periods in 2006, primarily due to lower wageringon simulcast races, but also due to slightly lower on-track live racing handle.

Total handlewagered on simulcast races for the first half of 2007 is down $2.3 million, or7.6%, compared to the same period last year, Inclement weather at East Coasttracks during the first quarter of 2007 resulted in the cancellation of asignificant number of simulcast races during that period.  Simulcast handle was down $831,000, or 5.1%,in the second quarter of 2007 compared to the second quarter of 2006.  The Company believes this decline representsgrowing competition from internet wagering on simulcast races and iscontinuously looking for ways to make Canterbury Park the most attractivealternative when our customers want to wager on horseracing.

On-track livehandle decreased by $104,000 or 1.6% compared to the same period in 2006despite the same number of live race days. In 2007 the Company pushed back the start time of live racing onSaturdays which has resulted in slightly lower average daily handle onSaturdays but increased out-of-state live handle by over $1.1 million, or18.5%, compared to the same period last year. For further information, see “Summary of Pari-mutuel Data” below.
| ** **                                      | ** ** | **Six Months Ended June 30,** | ** **     |
|-------------------------------------------------|------------|---------------------------------------------------|----------------|
| **Summary of Pari-mutuel Data:** | ** ** | **2007**                                          | ** **     | **2006** | ** ** |
|                                            |       |                                              |           |   |   |
| Racing Days                                     |       |                                              |           |   |   |
| Simulcast only                                  |       | 152                                               |           | 152 |   |
| Live and  Simulcast                             |       | 29                                                |           | 29 |   |
| **Total Number of Racing Days**                 | ** ** | **181**                                           | ** **     | **181** | ** ** |
|                                            |       |                                              |           |   |   |
| On-Track Handle                                 |       |                                              |           |   |   |
| Simulcast racing  handle on simulcast only days |       | $                                                 | 20,444,000     |   | $ | 22,178,000 |   |
| Live and  Simulcast days:                       |       |                                              |           |   |   |
| Live racing  handle                             |       | 6,490,000                                         |           | 6,594,000 |   |
| Simulcast racing  handle                        |       | 7,597,000                                         |           | 8,172,000 |   |
| Total On-Track  Handle                          |       | 34,531,000                                        |           | 36,944,000 |   |
|                                            |       |                                              |           |   |   |
| Out-of-State Live  Handle                       |       | 7,134,000                                         |           | 6,022,000 |   |
|                                            |       |                                              |           |   |   |
| **Total Handle**                                | ** ** | **$**                                             | **41,665,000** | ** ** | **$** | **42,966,000** | ** ** |
|                                            |       |                                              |           |   |   |
| On-Track Average Daily  Handle                  |       |                                              |           |   |   |
| Simulcast only  racing days                     |       | $                                                 | 134,500        |   | $ | 145,908 |   |
| Live and simulcast  racing days                 |       | $                                                 | 485,759        |   | $ | 509,172 |   |

 

13

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Total Card Clubrevenue decreased $402,000 for the first six months of 2007 and $126,000 forthe second quarter of 2007compared to the same periods in 2006. The primarysource of Card Club revenue is a percentage of the wagers received from theplayers as compensation for providing the Card Club facility and services,referred to as “collection revenue”.  TheCompany also receives a specified percentage of the jackpot funds collection asreimbursement for administrative costs of maintaining the jackpot funds, andcollects fees for administering tournaments, which represents “other revenue”.The decrease in revenue is due primarily to lower patronage in the poker room,but the Company also experienced a reduction in Casino Games revenue during thesix-month period ended June 30, 2007 compared to the same period lastyear.  The Card Club is experiencinggrowing competition from online poker websites and Native American owned casinos,which have expanded their gaming options to include many of the same unbankedcard games as those offered at the Card Club. Card Club revenues represented 55.8% and 48.4% of net revenues for thesix-month and three-month periods ended June 30, 2007, respectively.  The three-month percentage is usually lowerin the second quarter of any calendar year due to increased revenue from liveracing.  For further information, see the“Summary of Card Club Data” below.
| ** **                                         | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------------|------------|
| **Summary of Card Club Data:** | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
|                                               |       |                                              |       |   |   |
| Poker Games                                        |       | $                                                 | 8,840,000  |   | $ | 9,250,000 |   |
| Casino Games                                       |       | 5,213,000                                         |       | 5,390,000 |   |
| Total Collection  Revenue                          |       | 14,053,000                                        |       | 14,640,000 |   |
|                                               |       |                                              |       |   |   |
| Other Revenue                                      |       | 519,000                                           |       | 335,000 |   |
| Total Card Club  Revenue                           |       | $                                                 | 14,572,000 |   | $ | 14,975,000 |   |
|                                               |       |                                              |       |   |   |
| Number of Days  Offered                            |       | 181                                               |       | 181 |   |
| Average Revenue per Day                            |       | $                                                 | 80,508     |   | $ | 82,735 |   |

 

Concessionsrevenues increased $104,000, or 3.8%, and $96,000, or 5.2%, for the six-monthand three-month periods ended June 30, 2007, respectively, compared to theprior year.  The increase is primarilyattributable to higher concession sales on Thursday and Friday evenings of liveracing and larger group sales during the second quarter of 2007 compared to thesame period in 2006.

Daily admissionrevenues increased $30,000, or 11.7%, during the second quarter of 2007compared to 2006.  This is due partly tohigher attendance for live racing during the second quarter of 2007 compared to2006 and to a reduction in free admission offers in 2007.

Total operatingexpenses decreased approximately $577,000, or 2.4%, during the six-month periodended June 30, 2007 compared to the six-month period ended June 30, 2006, and$485,000, or 3.4%, during the three months ended June 30, 2007 compared to thethree-month period ended June 30, 2006.

Total purseexpense increased slightly to $3,912,000 for the six months ended June 30, 2007compared to the same period in the prior year. An increase in simulcast purse expense of $59,000, or 4.7%, during thesix month period of 2007 compared to the 2006 period was partially offset by a$54,000 reduction in Card Club purse expense due to lower Card Club revenues in2007 as illustrated in the table below. This increase in simulcast purse expense results from the phase in of arenegotiation of the purse expense rate for out-of-season simulcastracing.  Total purse expense was down$14,000, or .6%, for the second quarter of 2007 compared to the second quarterof 2006.  This decrease was due entirelyto lower purse expense for the Card Club resulting from lower revenues in thefirst half of 2007 period compared to the same period in 2006.  Pari-mutuel purse expense was unchanged inthe second quarter of 2007compared to 2006, despite lower handle, due to therenegotiated increase in the purse rate. Minnesota Breeders Fund expense decreased $30,000 in the six monthsended June 30, 2007 compared to 2006 due to lower revenues in the Card Club andlower wagering on pari-mutuel racing in 2007. Fluctuations in the related revenue categories are discussed above.

14

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| ** **              | ** ** | ** **                                        | ** ** | **Minnesota**                                     | ** ** |
|-------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **              | ** ** | **Purse Expense**                            | ** ** | **Breeders’ Fund Expense**         | ** ** |
| ** **              | ** ** | **Six Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **              | ** ** | **2007**                                          | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
|                    |       |                                              |       |                                              |       |   |   |   |   |
| Card Club               |       | $                                                 | 1,967,000  |                                              | $          | 2,021,000 |   | $ | 219,000 |   | $ | 224,000 |   |
|                    |       |                                              |       |                                              |       |   |   |   |   |
| Simulcast Horse  Racing |       | 1,322,000                                         |       | 1,263,000                                         |       | 313,000 |   | 337,000 |   |
|                    |       |                                              |       |                                              |       |   |   |   |   |
| Live Horse  Racing      |       | 623,000                                           |       | 620,000                                           |       | 65,000 |   | 66,000 |   |
|                    |       |                                              |       |                                              |       |   |   |   |   |
|                    |       | $                                                 | 3,912,000  |                                              | $          | 3,904,000 |   | $ | 597,000 |   | $ | 627,000 |   |

 

Salaries andbenefits decreased approximately $140,000, or 1.3%, in the 2007 six-monthperiod and approximately $155,000, or 2.6%, in the three-month period endedJune 30, 2007 compared to the same periods last year. The decreases are dueprimarily to the Company’s proactive efforts to reduce labor costs includinginvoluntary terminations and voluntary retirements occurring in the firstquarter of 2007.  The decrease is alsoattributable to reductions of direct labor costs in the pari-mutuel and CardClub operations because of lower patronage in 2007 compared to 2006.

Depreciationexpense increased $93,000, or 10.7%, during the first half of 2007 compared to2006, and $16,000, or 3.6%, for the second quarter compared to the secondquarter last year due to continued investments in the stable area andgrandstand during 2006 and into 2007.  Theincrease for the second quarter is relatively lower compared to the increaseyear to date as assets put into service seven years ago upon opening of theCard Club became fully depreciated in April 2007.  Utilities expense increased $68,000, or10.7%, and $44,000, or 13.5%, for the six-month and three-month periods endedJune 30, 2007, respectively, due to continuous increases in energy costs forelectricity and natural gas in 2007 compared to the same period in 2006.  Repairs, maintenance and supplies expensedecreased $181,000, or 24.7%, and $140,000, or 28.7%, in the six-month andthree-month periods ended June 30, 2007 compared to the same periods in2006.  These reductions are the result ofproactive efforts to minimize spending as opportunities arise.  Advertising and marketing expenses havedecreased by $253,000 during the first six months of 2007 compared to 2006 and$192,000, or 25.6%, for the three months ended June 30, 2007 compared to thesame period in 2006 due primarily to the benefits achieved by maximizingutilization of in-house production capabilities in 2007.  Other operating expenses declined $95,000, or4.8%, and $22,000, or 1.8%, in the six-month and three-month periods ended June30 2007 and 2006, respectively, primarily due to reduced use of professionalservices in 2007 for lobbying efforts.

Total operatingexpenses as a percentage of total net revenues increased to 91.4% for thesix-month period ended June 30, 2007 compared to 90.6% for 2006, as the 3.1%decrease in net revenues outpaced the 2.4% reduction in fixed and variableexpenses.

Income beforeincome taxes was $2,407,170 for the six months ended June 30, 2007 compared to$2,643,014 for the six months ended June 30, 2006.  After income tax expense of $1,011,800 forthe six months ended June 30, 2007, net income was $1,395,370 in 2007 comparedto $1,508,005 in 2006, a decrease of $112,635 or 7.5%.  Income before income taxes for the quarterended June 30, 2007 was $883,709 compared to $603,867 for the quarter endedJune 30, 2006, an increase of $279,842 or 46.3%.  After income tax expense of $380,716 in thesecond quarter of 2007, net income was $502,993 compared to $345,358 for thesecond quarter of 2006, an increase of $157,635 or 45.6%.  The effective income tax rate year-to-date in2007 is 42.0% compared to 42.9% for the year-to-date period in 2006.

#### **Contingencies:**

There have been nomaterial changes in our contingencies since those reported at December 31,2006.

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**Liquidity and Capital Resources:**

Cash provided byoperating activities during the period January 1, 2007 through June 30, 2007was $3,365,484, resulting primarily from net income of $1,395,370, depreciationof $962,290, and  an increase in accountspayable and accrued wages and payroll taxes of $3,650,849, caused by a seasonalincrease of $2.7 million in horsemen payables, a $630,000 increase in tradeaccounts payable and a $231,000 increase in deferred revenues for corporatesponsorships,  These items are partiallyoffset by an increase in restricted cash of $2,499,116 resulting primarily fromthe increase in horsemen payables of $2.7 million.

Cash provided byoperating activities during the period January 1, 2006 through June 30, 2006was $3,766,778, resulting primarily from net income of $1,508,005; depreciationof $869,650; and an increase in accounts payable and accrued wages and payrolltaxes of $4,256,737, caused by a seasonal increase of $2.5 million in horsemenpayables, a $987,000 increase in trade accounts payable, a $258,000 increase indeferred revenues for corporate sponsorships, a $175,000 increase in amountspayable to out-of-state tracks for settlements and an increase of $299,801 inthe card club’s jackpot and player pools caused by timing differences due tojackpots, prizes and giveaways paid to the players. These items are partiallyoffset by an increase in restricted cash of $2,813,396 resulting primarily froma $2.5 million seasonal increase in payables to horsemen.

Pursuant to anagreement with the MHBPA, during the six months ended June 30, 2007 and 2006,the Company transferred into a trust account or paid directly to the MHBPAapproximately $3,575,000 and $3,500,000, respectively.  At June 30, 2007, the Company had anadditional liability to the MHBPA of $89,821. This liability will be paid in 2007, including interest earned.

Net cash used ininvesting activities for the first six months of 2007 of $1,155,590 resultedprimarily from the acquisition of equipment for food and beverage operations of$221,000, a poker room management system of $295,000, upgrades to thegrandstand building of $402,000, and improvements to backside barns of$149,000.  During the six-month periodended June 30, 2006, net cash used for investing activities was $2,313,987related primarily to improvements to the backside barns and facilities relatedto live racing.

During the periodJanuary 1, 2007 through June 30, 2007, cash provided by financing activitieswas $253,099 representing the exercise of stock options.  During the period January 1, 2006 throughJune 30, 2006, cash provided by financing activities was $271,437 also a resultof the exercise of stock options.

The Company hasrenewed a general credit agreement with Bremer Bank, which provides a revolvingcredit line of up to $2,250,000 with interest at the prime rate until April 20,2009.  The Company had no borrowingsunder the line of credit at June 30, 2007 or December 31, 2006.  The credit agreement contains certaincovenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements at all times throughout the quarter ended June 30, 2007.

Unrestricted cashbalances at June 30, 2007 were $8,208,549 compared to $5,745,556 at December31, 2006. 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 2007 for regularoperations including the special cash dividend paid in July 2007.

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

Thepreparation of consolidated financial statements in conformity with generallyaccepted accounting principles requires management to make estimates thateffect the amounts reported and disclosed in the consolidated financialstatements. By their nature, these estimates are subject to an inherent degreeof uncertainty. These estimates are based on our experience and various otherassumptions that are believed to be reasonable in the circumstances, theresults of which form the basis for making judgments about the 

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carryingvalues of assets and liabilities. On an ongoing basis, we evaluate ourestimates. However, actual results could differ from those estimates.

Oursignificant accounting policies are included in Note 1 to our consolidatedfinancial statements in our 2006 Annual Report on Form 10-K. We believe thefollowing critical accounting policies affect our more significant judgmentsand estimates used in the preparation of our consolidated financial statements.

*Land, Buildings and Equipment* - We havesignificant capital invested in our property and equipment, which representsapproximately 63.2% of our total assets. We utilize our judgment in variousways including: determining whether an expenditure is considered a maintenanceexpense or a capital asset; determining the estimated useful lives of assets;and determining if or when an asset has been impaired. Our property andequipment is evaluated for impairment whenever circumstances indicate that thecarrying value of an asset may not be recoverable from the estimated futurecash flows expected to result from its use. If the sum of the expected futurecash flows (undiscounted and without interest charges) is less than thecarrying amount, we recognize an impairment loss. The impairment lossrecognized is the amount by which the carrying amount exceeds the fair valueand is charged to operations in the period in which such impairment isdetermined by management. We do not believe that any impairment has occurred oris likely to occur in the near future.

*Regulation-*Our business can be materially impacted both positively andnegatively by legislative and regulatory changes, such as those describedbelow.  Significant negative changesresulting from these activities could result in an impairment of our propertyand equipment in accordance with generally accepted accounting standards.Additional information regarding how our business can be impacted bylegislative and regulatory changes are included in Item 1 (vi), and Item 1(vii), respectively, in our 2006 Annual Report on Form 10-K.

##### **Commitmentsand Contractual Obligations:**

OnJune 7, 2007 the Company’s Board of Directors declared a special cash dividendof $.25 per share of common stock payable on July 13, 2007 to shareholders ofrecord on June 22, 2007.  The Company hasnot adopted any policies regarding dividend payments and there can be noassurance that any dividend will be paid in the future.

Therehave been no additional material changes in our outstanding commitments andcontingencies since those reported at December 31, 2006.

**Legislation:**

The Company didnot propose or support any legislation during the 2007 biannual session of theMinnesota Legislature to pursue our Racino proposal that has been discussed inour previous flings with the SEC, mainly because the composition of theMinnesota Legislature following the November 2006 elections was viewed asunlikely to favorably entertain our Racino proposal.  Based on the success of several Racinos inother states, we continue to believe that if a Racino was authorized at theRacetrack, it would enhance horseracing with increased purses, provide growthand development opportunities for the Company, and provide significant new taxrevenues for state and local governments.

In May 2007 a billpassed in the Minnesota Legislature severely restrict smoking in all publicplaces in Minnesota, including at the Racetrack, effective October 1,2007.  Minnesota’s tribal casinos are notcovered by this legislation and will continue to offer various gamingalternatives, including card games, in an environment that allows smoking.  Therefore, the Company anticipates revenuesand profits will be adversely affected to the extent that current and potentialRacetrack customers who smoke decide to patronize tribal casinos, where smokingis permitted.

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**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 by competitors;increases in the percentage of revenues allocated for purse fund payments;increase in compensation and employee benefit costs; the general health of thegaming sector; higher than expected expense related to new marketinginitiatives; and other factors discussed from time to time in the Company’sfilings with the Securities and Exchange Commission, including risk factorsdescribed in the Company’s Report on Form 10-K for the 2006 fiscal year.

**ITEM 3:**                   QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interestrates on borrowings under our commercial revolving credit line that bearsinterest at the prime rate.  At June 30,2007 we have no debt borrowings under our credit facility.

We have no derivative financial instruments orderivative commodity instruments in our cash and cash equivalents andmarketable securities.  We invest cashand cash equivalents in investment grade, highly liquid investments, consistingof money market instruments, bank certificates of deposit, and short-termgovernment and corporate bonds.

**ITEM 4:**                   CONTROLS ANDPROCEDURES

(a)           Evaluationof Disclosure Controls and Procedures:

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

(b)           Changes in InternalControl Over Financial Reporting:

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

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

Item 1.                    **Legal Proceedings**

Not Applicable

Item 1A.                 **Risk Factors**

There have been nomaterial changes to the Risk Factors since those reported in the Form 10-K forthe year ended December 31, 2006.

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

Not Applicable

Item 3.                    **Defaults Upon Senior Securities**

Not Applicable

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

The Company heldits Annual Meeting of Shareholders on June 7, 2007.  Shareholders reelected the following directorsfor 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 than3,734,380 shares were voted in favor of each of the reelected directors(approximately 94.7% of all shares present and voting).

Item 5.                    **Other Information**

Not Applicable

Item 6.                    **Exhibits**

(a)                  The following exhibits are included herein:

11                    Statement re computation of per shareearnings — See Net Income Per Share under Note 1 of Notes to Consolidated FinancialStatements under Part 1, Item 1, which is incorporated herein by reference.

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

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

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

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|                        | **Canterbury Park Holding Corporation**     |
|------------------------|---------------------------------------------|
|                   |                                        |
| Dated: August 14, 2007 | /s/ Randall D. Sampson                      |
|                   | Randall D. Sampson,                         |
|                   | President, and Chief Executive Officer      |
|                   |                                        |
| Dated: August 14, 2007 | /s/ David C. Hansen                         |
|                   | David C. Hansen,                            |
|                   | Vice President, and Chief Financial Officer |

 

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