**U.S. SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

| **(Mark One)**                     |
|------------------------------------|
| **ý**                         | **QUARTERLY REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                               |   |
|                               | **FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003.** |
|                               |   |
| **o**                              | **TRANSITION REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                               |   |   |
|                               | **FOR THE TRANSITION PERIOD  FROM               TO                .** |
|                               |   |   |
| **Commission File Number 0-24554** |

 

 

| **Canterbury Park Holding Corporation**                         |
|-----------------------------------------------------------------|
| (Exact name of business issuer as specified in its charter)     |
|                                                            |   |   |   |   |
| **Minnesota**                                                   |   |   |   | **41-1775532** |
| (State or other jurisdiction of  incorporation or organization) |   |   |   | (IRS Employer  Identification No.) |
|                                                            |   |   |   |   |
| **1100 Canterbury Road, Shakopee, Minnesota**                   |   | **55379** |   |   |
| (Address of principal executive offices)                        |   | (Zip Code) |   |   |
|                                                            |   |   |   |   |
| **(952) 445-7223**                                              |
| (Issuer’s Telephone Number)                                |

 

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

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act.  YES o  NO ý

 

The Company had 3,678,473shares of common stock, $.01 par value per share, outstanding as of August 6,2003.

 

 

----

 

Canterbury Park Holding Corporation

 

#### **INDEX**

 
| **PART 1.**   | **FINANCIAL INFORMATION** |
|---------------|---------------------------|
|          |                      |   |
|          | Item 1.                   | Financial  Statements |
|          |                      |   |
|          |                      | Consolidated  Balance Sheets as of  June 30, 2003 and December 31, 2002 |
|          |                      |   |
|          |                      | Consolidated Statements of Operations for the periods ended  June 30, 2003 and 2002 |
|          |                      |   |
|          |                      | Consolidated Statements of Cash Flows for  the periods ended  June 30, 2003 and 2002 |
|          |                      |   |
|          |                      | Notes to Consolidated Financial Statements |
|          |                      |   |
|          | Item 2.                   | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |
|          |                      |   |
|          | Item 3.                   | Quantitative and Qualitative Disclosures  about Market Risk |
|          |                      |   |
|          | Item 4.                   | Controls and Procedures |
|          |                      |   |
| **PART  II.** | **OTHER  INFORMATION**    |
|          |                      |   |
|          | Item 1.                   | Legal Proceedings |
|          |                      |   |
|          | Item 2.                   | Changes in Securities 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 and Report on Form 8-K |
|          |                      |   |
|          | Signatures                |

 

2

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**CANTERBURY PARKHOLDING CORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATED BALANCE SHEETSJUNE 30, 2003 AND DECEMBER 31, 2002**

 
|                                                                                                                               |   | **June 30,  2003** |       | **December  31,  2002** |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|------------|-------------------------|--------|
| **ASSETS**                                                                                                                         |   |               |       |                    |   |
|                                                                                                                               |   |               |       |                    |   |
| CURRENT ASSETS                                                                                                                     |   |               |       |                    |   |
| Cash                                                                                                                               |   | $                  | 6,407,737  |                    | $      | 3,408,869 |   |
| Accounts receivable                                                                                                                |   | 230,549            |       | 305,581                 |   |
| Inventory                                                                                                                          |   | 164,066            |       | 125,585                 |   |
| Deposits                                                                                                                           |   | 20,000             |       | 20,000                  |   |
| Prepaid expenses                                                                                                                   |   | 901,911            |       | 302,192                 |   |
| Income taxes receivable                                                                                                            |   |               |       | 316,671                 |   |
| Total current assets                                                                                                               |   | 7,724,263          |       | 4,478,898               |   |
|                                                                                                                               |   |               |       |                    |   |
| PROPERTY AND EQUIPMENT, net of accumulated  depreciation of $8,151,412 and $7,573,572, respectively                                |   | 15,010,110         |       | 14,551,014              |   |
|                                                                                                                               |   |               |       |                    |   |
|                                                                                                                               |   | $                  | 22,734,373 |                    | $      | 19,029,912 |   |
|                                                                                                                               |   |               |       |                    |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                      |   |               |       |                    |   |
|                                                                                                                               |   |               |       |                    |   |
| CURRENT LIABILITIES                                                                                                                |   |               |       |                    |   |
| Accounts payable                                                                                                                   |   | $                  | 3,705,652  |                    | $      | 1,535,824 |   |
| Card club accruals                                                                                                                 |   | 1,087,939          |       | 1,492,663               |   |
| Accrued wages and payroll taxes                                                                                                    |   | 1,114,513          |       | 984,374                 |   |
| Accrued interest                                                                                                                   |   | 3,748              |       |                    |   |
| Advance from MHBPA                                                                                                                 |   | 132,538            |       | 179,346                 |   |
| Accrued property taxes                                                                                                             |   | 226,167            |       | 228,890                 |   |
| Cash dividend payable                                                                                                              |   | 551,696            |       |                    |   |
| Income taxes payable                                                                                                               |   | 172,448            |       |                    |   |
| Payable to horsepersons                                                                                                            |   | 356,608            |       | 355,576                 |   |
| Deferred tax liability                                                                                                             |   | 276,000            |       | 346,000                 |   |
| Total current liabilities                                                                                                          |   | $                  | 7,627,309  |                    | $      | 5,122,673 |   |
|                                                                                                                               |   |               |       |                    |   |
| COMMITMENTS AND CONTINGENCIES (Note 4)                                                                                             |   |               |       |                    |   |
|                                                                                                                               |   |               |       |                    |   |
| STOCKHOLDERS’ EQUITY                                                                                                          |   |               |       |                    |   |
| Common stock, $.01 par value, 10,000,000  shares authorized, 3,677,973 and 3,638,473, respectively, shares issued and  outstanding |   | 36,780             |       | 36,385                  |   |
| Additional paid-in capital                                                                                                         |   | 11,229,472         |       | 10,910,985              |   |
| Accumulated earnings                                                                                                               |   | 3,840,812          |       | 2,959,869               |   |
| Total stockholders’ equity                                                                                                    |   | 15,107,064         |       | 13,907,239              |   |
|                                                                                                                               |   | $                  | 22,734,373 |                    | $      | 19,029,912 |   |

 

See notes to consolidatedfinancial statements.

 

3

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**CANTERBURY PARKHOLDING CORPORATION AND SUBSIDIARIES**

 

# **CONSOLIDATEDSTATEMENTS OF OPERATIONSPERIODS ENDED JUNE 30, 2003 AND 2002**

 
|                                                  |   | **Three  Months Ended June 30** |      | **Six Months  Ended June 30** |   |
|-------------------------------------------------------|--------|---------------------------------|-----------|-------------------------------|--------|
|                                                  |   | **2003**                        |      | **2002**                      |   | **2003** |   | **2002** |   |
| OPERATING REVENUES:                                   |   |                            |      |                          |   |   |   |   |   |
| Pari-mutuel                                           |   | $                               | 5,127,669 |                          | $      | 5,065,234 |   | $ | 8,253,296 |   | $ | 8,405,518 |   |
| Card Club                                             |   | 5,730,588                       |      | 4,552,300                     |   | 10,649,050 |   | 9,094,076 |   |
| Concessions                                           |   | 1,459,847                       |      | 1,359,852                     |   | 2,186,898 |   | 2,141,667 |   |
| Admissions and parking                                |   | 217,621                         |      | 231,956                       |   | 242,807 |   | 263,915 |   |
| Programs and racing forms                             |   | 201,496                         |      | 207,423                       |   | 332,005 |   | 341,499 |   |
| Other operating revenue                               |   | 391,162                         |      | 513,984                       |   | 693,577 |   | 631,297 |   |
|                                                  |   | 13,128,383                      |      | 11,930,749                    |   | 22,357,633 |   | 20,877,972 |   |
|                                                  |   |                            |      |                          |   |   |   |   |   |
| OPERATING EXPENSES:                                   |   |                            |      |                          |   |   |   |   |   |
| Pari-mutuel expenses                                  |   |                            |      |                          |   |   |   |   |   |
| Statutory purses                                      |   | 2,294,137                       |      | 2,106,716                     |   | 3,191,124 |   | 2,976,912 |   |
| Host track fees                                       |   | 643,664                         |      | 639,787                       |   | 1,163,975 |   | 1,194,445 |   |
| Pari-mutuel taxes                                     |   | 68,308                          |      | 83,643                        |   | 110,905 |   | 136,163 |   |
| Minnesota breeders’ fund                         |   | 335,367                         |      | 315,958                       |   | 567,531 |   | 555,664 |   |
| Salaries and benefits                                 |   | 4,709,949                       |      | 4,228,736                     |   | 8,276,826 |   | 7,649,285 |   |
| Cost of concession sales                              |   | 574,810                         |      | 544,721                       |   | 902,779 |   | 862,317 |   |
| Cost of publication sales                             |   | 228,235                         |      | 271,075                       |   | 396,302 |   | 419,813 |   |
| Depreciation and amortization                         |   | 291,172                         |      | 276,230                       |   | 579,340 |   | 566,388 |   |
| Utilities                                             |   | 298,027                         |      | 234,925                       |   | 545,783 |   | 423,750 |   |
| Repairs, maintenance and supplies                     |   | 464,983                         |      | 415,658                       |   | 665,692 |   | 716,031 |   |
| Property taxes                                        |   | 55,440                          |      | 54,510                        |   | 110,692 |   | 109,020 |   |
| Advertising and marketing                             |   | 791,082                         |      | 735,985                       |   | 1,156,668 |   | 1,001,429 |   |
| Other operating expenses                              |   | 1,349,935                       |      | 995,601                       |   | 2,209,414 |   | 1,659,445 |   |
|                                                  |   | 12,105,109                      |      | 10,903,545                    |   | 19,877,031 |   | 18,270,662 |   |
| NONOPERATING (EXPENSES) REVENUES:                     |   |                            |      |                          |   |   |   |   |   |
| Interest expense                                      |   | (2,423                          | )         | (4,229                        | )      | (4,585 | ) | (9,889 | ) |
| Other, net                                            |   | 11,437                          |      | 8,558                         |   | 20,358 |   | 15,511 |   |
|                                                  |   | 9,014                           |      | 4,331                         |   | 15,773 |   | 5,622 |   |
|                                                  |   |                            |      |                          |   |   |   |   |   |
| INCOME BEFORE INCOME TAX EXPENSE                      |   | 1,032,288                       |      | 1,031,533                     |   | 2,496,375 |   | 2,612,932 |   |
|                                                  |   |                            |      |                          |   |   |   |   |   |
| INCOME TAX EXPENSE (Note 1)                           |   | (438,736                        | )         | (418,528                      | )      | (1,063,736 | ) | (1,068,889 | ) |
|                                                  |   |                            |      |                          |   |   |   |   |   |
| NET INCOME                                            |   | $                               | 593,552   |                          | $      | 613,005 |   | $ | 1,432,639 |   | $ | 1,544,043 |   |
|                                                  |   |                            |      |                          |   |   |   |   |   |
|                                                  |   |                            |      |                          |   |   |   |   |   |
| BASIC NET INCOME PER COMMON SHARE  (Note 1) |   | $                               | .16       |                          | $      | .17 |   | $ | .39 |   | $ | .43 |   |
|                                                  |   |                            |      |                          |   |   |   |   |   |
|                                                  |   |                            |      |                          |   |   |   |   |   |
| DILUTED NET INCOME PER COMMON SHARE  (Note 1)    |   | $                               | .15       |                          | $      | .16 |   | $ | .36 |   | $ | .40 |   |

 

See notes to consolidatedfinancial statements.

 

4

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**CANTERBURY PARKHOLDING CORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWSPERIODS ENDED JUNE 30, 2003 AND 2002**

 
|                                                                     |   | **Six Months  Ended  June 30, 2003** |      | **Six Months  Ended  June 30, 2002** |   |
|--------------------------------------------------------------------------|--------|--------------------------------------|-----------|--------------------------------------|--------|
|                                                                     |   |                                 |      |                                 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                    |   |                                 |      |                                 |   |
| Net Income                                                               |   | $                                    | 1,432,639 |                                 | $      | 1,544,043 |   |
| Adjustments to reconcile net income to net  cash provided by operations: |   |                                 |      |                                 |   |
| Depreciation and amortization                                            |   | 579,340                              |      | 566,388                              |   |
| Gain on disposal of real estate                                          |   |                                 |      | (258,074                             | )      |
| Decrease in accounts receivable                                          |   | 75,032                               |      | 7,824                                |   |
| Increase in other current assets                                         |   | (638,200                             | )         | (442,176                             | )      |
| Increase in accounts payable and accrued  expenses                       |   | 1,896,275                            |      | 2,257,678                            |   |
| Deferred income taxes                                                    |   | 76,136                               |      | 174,200                              |   |
| Increase (decrease) in income taxes payable                              |   | 489,119                              |      | (67,661                              | )      |
| Increase (decrease) in accrued interest                                  |   | 3,748                                |      | (9,960                               | )      |
| Decrease in accrued property taxes                                       |   | (2,723                               | )         | (8,160                               | )      |
| Net cash provided by operations                                          |   | 3,911,366                            |      | 3,764,102                            |   |
|                                                                     |   |                                 |      |                                 |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                    |   |                                 |      |                                 |   |
| Real estate property addition                                            |   |                                 |      | (1,022,733                           | )      |
| Property and equipment additions                                         |   | (1,038,436                           | )         | (1,233,673                           | )      |
| Proceeds on disposal of real estate                                      |   |                                 |      | 422,663                              |   |
| Net cash used in investing activities                                    |   | (1,038,436                           | )         | (1,833,743                           | )      |
|                                                                     |   |                                 |      |                                 |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                    |   |                                 |      |                                 |   |
| Proceeds from issuance of common stock                                   |   | 172,746                              |      | 256,401                              |   |
| Payment on advance from MHBPA, net                                       |   | (46,808                              | )         | (210,724                             | )      |
| Net cash provided by financing activities                                |   | 125,938                              |      | 45,677                               |   |
|                                                                     |   |                                 |      |                                 |   |
| NET INCREASE IN CASH                                                     |   | 2,998,868                            |      | 1,976,036                            |   |
|                                                                     |   |                                 |      |                                 |   |
| CASH AT BEGINNING OF PERIOD                                              |   | 3,408,869                            |      | 3,088,844                            |   |
|                                                                     |   |                                 |      |                                 |   |
| CASH AT END OF PERIOD                                                    |   | $                                    | 6,407,737 |                                 | $      | 5,064,880 |   |
|                                                                     |   |                                 |      |                                 |   |
| INTEREST PAID                                                            |   | $                                    | 0         |                                 | $      | 19,849 |   |
|                                                                     |   |                                 |      |                                 |   |
| INCOME TAXES PAID                                                        |   | $                                    | 510,000   |                                 | $      | 965,000 |   |
|                                                                     |   |                                 |      |                                 |   |
| DIVIDEND DECLARED                                                        |   | $                                    | 551,696   |                                 | $      | 896,394 |   |

 

See notes to consolidatedfinancial statements.

 

5

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**CANTERBURY PARKHOLDING CORPORATION AND SUBSIDIARIES**

 

**NOTES****TOCONSOLIDATED FINANCIAL STATEMENTSPERIODS ENDED JUNE 30, 2003 AND 2002**

 

1.               SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

The summary ofsignificant accounting policies is included in the notes to consolidatedfinancial statements in the 2002 Annual Report on form 10-K.

 

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

 

*Unaudited FinancialStatements* - The consolidated balance sheet as of June30, 2003, the consolidated statements of operations for the three and sixmonths ended June 30, 2003 and 2002, the consolidated statements of cash flowsfor the six months ended June 30, 2003 and 2002, and the related informationcontained in these notes have been prepared by management without audit.  In the opinion of management, all accruals(consisting only of normal recurring accruals) which are necessary for a fairpresentation of financial position and results of operations for such periodshave been made.  Results for an interimperiod should not be considered as indicative of results for a full year.

 

*Net Income Per Share–* Basic net income per common share is based on theweighted average number of common shares outstanding during each year.  The weighted average number of common sharesoutstanding for the three and six-month periods ended June 30, 2003 were3,669,973 and 3,654,597, respectively. The weighted average number of common shares outstanding for the threeand six-month periods ended June 30, 2002 were 3,571,507 and 3,554,479,respectively.  Diluted net income percommon share takes into effect the dilutive effect of potential common sharesoutstanding.  The Company’s only potentialcommon shares outstanding are stock options. 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, 2003 were 4,046,696 and 4,034,935,respectively.  The weighted averageshares used to calculate diluted earnings per share for the three and six-monthperiods ended June 30, 2002 were 3,896,706 and 3,858,146, respectively.

 

2.               BORROWINGSUNDER CREDIT AGREEMENT

 

Borrowingsunder the Company’s credit agreement with Bremer Bank include a commercial revolvingcredit line, which provides for maximum advances of $2,250,000 with interest atthe prime rate until April 20, 2005. The Company had no borrowings under this credit line at June 30, 2003.  The credit agreement contains certaincovenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements as of June 30, 2003. Management believes that funds available under this line of credit,along with funds generated from card club and simulcast operations, will besufficient to satisfy its liquidity and capital resource requirements during2003.

 

3.               OPERATINGSEGMENTS

 

During thefirst six months of 2003 and 2002, the Company had three reportable operatingsegments:  horse racing, card club andconcessions.  The card club segmentincludes operations of the Canterbury Card Club.  The horseracing segment includes simulcast and live horse racingoperations, and the concessions segment provides concessions during simulcastand live racing, in the card club, and during special events.  The Company’s reportable operating segmentsare strategic business units that offer different products and services.  They are managed separately because thesegments differ in the nature of the products and services provided as well asprocesses to produce those

 

6

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products andservices.  The horse racing and cardclub segments are regulated by the State of Minnesota Racing Commission.

 

The accountingpolicies of the operating segments are the same as those described in thesummary of significant accounting policies. Prior years are restated to be consistent with the revised current yearallocation method. In addition, the 2002 horse-racing segment reflects the$258,074 gain on sale of five acres of real estate.

 

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

 

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

 
|                                |   | **Six Months  Ended June 30, 2003** |   |
|-------------------------------------|--------|-------------------------------------|--------|
|                                |   | **Horse  Racing**                   |   | **Card Club** |   | **Concessions** |   | **Total** |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Revenues  from external customers   |   | $                                   | 9,518  |   | $ | 10,649 |   | $ | 2,191 |   | $ | 22,358 |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Intersegment  revenues              |   | 143                                 |   |   |   | 718 |   | 861 |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Net interest  expense               |   | (16                                 | )      |   |   |   |   | (16 | ) |
|                                |   |                                |   |   |   |   |   |   |   |
| Depreciation  and amortization      |   | 329                                 |   | 250 |   |   |   | 579 |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Segment  income before income taxes |   | 528                                 |   | 1,968 |   | 367 |   | 2,863 |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Segment  Assets                     |   | $                                   | 18,938 |   | $ | 3,770 |   | $ | 1,331 |   | $ | 24,039 |   |

 
|                                |   | **Six Months  Ended June 30, 2002**        |   |
|-------------------------------------|--------|--------------------------------------------|--------|
|                                |   | **Horse  Racing**                          |   | **Card Club** |   | **Concessions** |   | **Total** |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Revenues  from external customers   |   | $                                          | 9,641  |   | $ | 9,094 |   | $ | 2,143 |   | $ | 20,878 |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Intersegment  revenues              |   | 173                                        |   |   |   | 577 |   | 750 |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Net interest  expense               |   | 10                                         |   |   |   |   |   | 10 |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Depreciation  and amortization      |   | 280                                        |   | 286 |   |   |   | 566 |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Segment  income before income taxes |   | 1,037                                      |   | 1,576 |   | 323 |   | 2,936 |   |
|                                |   |                                       |   |   |   |   |   |   |   |
|                                |   | **Twelve  Months Ended December 31, 2002** |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Segment  Assets                     |   | $                                          | 14,883 |   | $ | 4,003 |   | $ | 1,116 |   | $ | 20,002 |   |

 

7

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

 
|                                                          |   | **Six Months  Ended  June 30, 2003** |   | **Six Months  Ended  June 30, 2002** |   |
|---------------------------------------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|
| Revenues                                                      |   |                                 |   |                                 |   |
| Total revenue for reportable segments                         |   | $                                    | 23,219 |                                 | $      | 21,628 |   |
| Elimination of intersegment revenues                          |   | (861                                 | )      | (750                                 | )      |
| Total consolidated revenues                                   |   | 22,358                               |   | 20,878                               |   |
|                                                          |   |                                 |   |                                 |   |
| Income before income taxes                                    |   |                                 |   |                                 |   |
| Total segment income before income taxes                      |   | $                                    | 2,863  |                                 | $      | 2,936 |   |
| Elimination of intersegment income  before  income taxes |   | (367                                 | )      | (323                                 | )      |
| Total consolidated income before income  taxes                |   | 2,496                                |   | 2,613                                |   |

 
|                                    |   | **June 30,  2003** |   | **December 31,  2002** |   |
|-----------------------------------------|--------|--------------------|--------|------------------------|--------|
| Assets                                  |   |               |   |                   |   |
| Total assets for reportable segments    |   | $                  | 24,039 |                   | $      | 20,002 |   |
| Elimination of intercompany receivables |   | (1,305             | )      | (972                   | )      |
| Total consolidated assets               |   | 22,734             |   | 19,030                 |   |
|                                         |        |                    |        |                        |        |  |  |

 

4.               CONTINGENCIES

 

In accordancewith an Earn Out Note, given to the prior owner of the racetrack as part of theconsideration paid by the Company to acquire the racetrack in 1994, if (i)off-track betting becomes legally permissible in the State of Minnesota and(ii) the Company begins to conduct off-track betting with respect to or inconnection with its operations, the Company will be required to pay to the IMRFund, L.P. the greater of $700,000 per operating year, as defined, or 20% ofthe net pretax profit, as defined, for each of five operating years.  At the date (if any) that these twoconditions are met, the five minimum payments will be discounted back to theirpresent value and the sum of those discounted payments will be recorded as anincrease to the purchase price.  Thepurchase price will be further increased if payments become due under the 20%of Net Pre-Tax Profit calculation.  Thefirst payment is to be made 90 days after the end of the third operating yearin which off-track betting is conducted by the Company.  Remaining payments would be made within 90days of the end of each of the next four operating years.

 

The Company isperiodically involved in various legal actions arising in the normal course ofbusiness.  At June 30, 2003, managementbelieves that the resolution of any legal actions outstanding will not have amaterial impact on the consolidated financial statements.

 

The MinnesotaDepartment of Labor and Industry (DOL&I) is conducting an audit for theperiod April 10, 1999 through April 10, 2001 regarding compliance with the tiplaw sections of the Minnesota Fair Labor Standards Act.  At June 30, 2003, the Company has receivedno communications from the DOL&I regarding the disposition of theiraudit.  Management believes that theCompany’s practices regarding tips are consistent with the requirements ofMinnesota law.

 

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5.               STOCK BASED EMPLOYEE COMPENSATION

 

At June 30,2003, the Company has a stock option plan which provides for the granting ofawards in the form of stock options, restricted stock, stock appreciationrights, and deferred stock to key employees and non-employees, including directorsof and consultants to the Company and any subsidiary, to purchase up to amaximum of 1,150,000 shares of common stock. The Company accounts for that plan under the recognition and measurementprinciples of APB Opinion No. 25, *Accountingfor Stock Issued to Employees,* and related interpretations.  No stock-based employee compensation cost isreflected in net income, as all options granted under the plan had an exerciseprice equal to the market value of the underlying common stock on the date of grant.  The following table illustrates the effecton net income and earnings per share if the Company had applied the fair valuerecognition provisions of FASB Statement No. 123, *Accounting for Stock-Based Compensation,*to stock-basedemployee compensation.

 
|                                                                                                                                                |   | **Three  Months Ended June 30,** |    | **Six Months  Ended June 30,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|--------------------------------|--------|
|                                                                                                                                                |   | **2003**                         |    | **2002**                       |   | **2003** |   | **2002** |   |
| Net Income:                                                                                                                                         |   |                             |    |                           |   |   |   |   |   |
| As reported                                                                                                                                         |   | $                                | 593,552 |                           | $      | 613,005 |   | $ | 1,432,639 |   | $ | 1,544,043 |   |
| Deduct:   Total stock-based employee compensation expense determined under fair value  based method for all awards, net of related tax effects |   | (86,822                          | )       | (32,525                        | )      | (140,662 | ) | (104,744 | ) |
| Pro forma net income                                                                                                                                |   | 506,730                          |    | 580,480                        |   | 1,291,977 |   | 1,439,299 |   |
|                                                                                                                                                |   |                             |    |                           |   |   |   |   |   |
| Earnings Per Share:                                                                                                                                 |   |                             |    |                           |   |   |   |   |   |
| Basic - as reported                                                                                                                                 |   | $                                | .16     |                           | $      | .17 |   | $ | .39 |   | $ | .43 |   |
|                                                                                                                                                |   |                             |    |                           |   |   |   |   |   |
| Basic - pro forma                                                                                                                                   |   | $                                | .14     |                           | $      | .16 |   | $ | .35 |   | $ | .40 |   |
|                                                                                                                                                |   |                             |    |                           |   |   |   |   |   |
| Diluted - as reported                                                                                                                               |   | $                                | .15     |                           | $      | .16 |   | $ | .36 |   | $ | .40 |   |
|                                                                                                                                                |   |                             |    |                           |   |   |   |   |   |
| Diluted - pro forma                                                                                                                                 |   | $                                | .13     |                           | $      | .15 |   | $ | .32 |   | $ | .37 |   |

 

6.               CURRENTACCOUNTING PRONOUNCEMENTS

 

In December2002, the FASB issued SFAS No. 148, *Accountingfor Stock-Based Compensation – Transition and Disclosure*, whichamends SFAS No. 123, Accounting for Stock-Based Compensation.  SFAS No. 148 provides alternative methods oftransition for a voluntary change to the fair value based method of accountingfor stock-based employee compensation. In addition, SFAS No. 148 amends thedisclosure requirement of SFAS No. 123 to require more prominent and morefrequent disclosures in financial statements of the effects of stock-basedcompensation. The transition guidance and annual and interim disclosureprovisions of SFAS No. 148 became effective for the Company on January 1, 2003.The Company has elected to continue to apply Accounting Principles Board (APB) OpinionNo. 25 and related interpretations in accounting for stock option plans, aspermitted under SFAS No. 123 and SFAS No. 148. Accordingly, no compensationcost has been recognized for its stock option plan upon adoption of SFAS No.148.

 

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

 

**General**

 

CanterburyPark Holding Corporation (the “Company”) owns and operates the Canterbury ParkRacetrack and Card Club in Shakopee, Minnesota.  The primary businesses of the Company are simulcast and livepari-mutuel horse racing, hosting unbanked card games, and food and beverageoperations.

 

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

 

The CanterburyCard Club (the “Card Club”) is the only facility in the State of Minnesotagiven the legislative authority to host unbanked card games in which playerscompete against each other and not against the house.  The Company receives a percentage of the wagers from the playersas compensation for providing the Card Club facility and services.  The Card Club is a separate area ofapproximately 16,000 square feet, constructed within the Racetrack grandstandfacility, in which the Company operates 50 tables, the maximum allowed byMinnesota law.  The Card Club is opentwenty-four hours a day, seven days a week. TheMinnesota Racing Commission is authorized by Minnesota law to regulate CardClub operations.  The law requires thatup to 14% of the gross revenue generated by the Card Club be paid to theRacetrack’s purse fund and the State of Minnesota Breeders’ Fund.

 

In December2002, the Company acquired a recreational vehicle (RV) park, located onapproximately 29 acres, adjacent to the Minnesota River, approximately twomiles from the Racetrack.  The RV Parkhas 68 independent sites and 40 dependent sites, an indoor swimming pool,laundry facilities, game room and mini store. The sites are rented to horsemen participating in Canterbury’s racingoperations, seasonal employees, and the general public.

 

The Companyalso generates revenues from concessions, admissions, parking, publicationsales, facilities rental for special events, vehicle storage, advertising andother sources.

 

**Results of Operations for the****Three and****Six Months Ended June 30, 2003 and June30, 2002**

 

Totaloperating revenues increased approximately $1.5 million or 7.1% during the sixmonths ended June 30, 2003 compared to the six months ended June 30, 2002, andincreased approximately $1.2 million or 10% for the three months ended June 30,2003 compared to the three months ended June 30, 2002.

 

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Pari-mutuelrevenues decreased $152,222 or 1.8% in the six month period ended June 30, 2003compared to the same period in 2002. Total handle for the six months ended June30, 2003 was down $1.1 million or 2.5% compared to total handle during thesix-month period in 2002. Total handle wagered on simulcast races year-to-datein 2003 is down $1.3 million or 3.9% compared to year-to-date June 30, 2002primarily due to the cancellation of nearly 100 racing programs in the firstquarter caused by severe winter weather at other racetracks.  However, on-track live handle increased by$446,000 or 6.9% compared to the same period in 2002 due to favorable weatherand increased popularity of our promotions. Finally, out-of-state live handle decreased $233,000 or 5.4% compared tothe same period last year due to the reduction of in the number of simulcastoutlets.  See the “Summary of OperatingData” below.

** **
| **Summary of Operating Data:**    |   | **Six Months  Ended  June 30, 2003** |       | **Six Months  Ended  June 30, 2002** |       |
|-----------------------------------|--------|--------------------------------------|------------|--------------------------------------|------------|
|                              |   |                                 |       |                                 |       |
| **Racing Days**                   |   |                                 | ** ** |                                 | ** ** |
| Simulcast only days               |   | 155                                  |       | 155                                  | ** ** |
| Live and simulcast days           |   | 26                                   |       | 26                                   | ** ** |
| Total Racing Days                 |   | 181                                  |       | 181                                  | ** ** |
|                              |   |                                 | ** ** |                                 | ** ** |
| **On-Track Handle**               |   |                                 | ** ** |                                 | ** ** |
| Simulcast only days               |   | $                                    | 25,476,000 |                                 | $          | 26,720,000 | ** ** |
| Live and simulcast days           |   |                                 | ** ** |                                 | ** ** |
| Live racing                       |   | 6,900,000                            |       | 6,454,000                            | ** ** |
| Simulcast racing                  |   | 6,850,000                            |       | 6,933,000                            | ** ** |
| **Out-of-state Live Handle**      |   | 4,078,000                            |       | 4,311,000                            | ** ** |
| Total Handle                      |   | $                                    | 43,304,000 |                                 | $          | 44,418,000 | ** ** |
|                              |   |                                 | ** ** |                                 | ** ** |
| **On-Track Average Daily Handle** |   |                                 | ** ** |                                 | ** ** |
| Simulcast only days               |   | $                                    | 164,361    |                                 | $          | 172,387 | ** ** |
| Live and simulcast days           |   | 528,846                              |       | 514,885                              | ** ** |

 

Card Clubrevenues were $10.6 and $5.7 million for the six-month and three-month periodsended June 30, 2003, representing increases of 17.1% and 25.9%, respectively,compared to the same periods in 2002. Management believes the year-to-date increase is primarily due to theincreased awareness of the Casino Games room and the renewed popularity of thePoker games.  Card Club revenuesrepresented 47.6% and 43.7% of total revenues for the six-month and three-monthperiods ended June 30, 2003, respectively. The Shakopee Valley News reported that Mystic Lake Casino Hotel, PriorLake, MN will expand it’s gaming options beginning in August, to offer some ofthe same “unbanked” card games that are currently offered at Canterbury Park’sCard Club.  The June 25thmedia report indicated that 12 of the 88 table games at Mystic Lake, which is located4 miles south of the Racetrack, will be converted from blackjack to variousversions of poker based card games including Pal Gow Poker, Three Card Poker,Caribbean Stud, and Let it Ride.  Thesenew games at Mystic Lake will directly compete with the card room games thathave been operating at Canterbury Park since the opening of the Card Club inApril 2000.  At this point, managementis unable to predict whether the addition of these unbanked card games to MysticLake’s existing gaming will have a material adverse affect on Card Cluboperations.

 

Concessionsales for the six-month and three-month periods ended June 30, 2002 increased2.1% and 7.4%, respectively, compared to the same periods in 2002.  The increase is primarily due to theincreased traffic in the Card Club and increased live racing attendance in2003.

 

Otheroperating revenues for the six-month and three-month periods ended June 30,2003 increased $31,678 and decreased $143,084, respectively, compared to thesame periods in 2002.  The decrease forthe three month period reflects a $258,074 gain on sale of five acres of realestate realized in the second quarter of 2002.

 

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Operatingexpenses (excluding pari-mutuel expenses) increased 10.7% during the six monthperiod ended June 30, 2003 compared to the six month period ended June 30,2002, and 13% during the three months ended June 30, 2003 compared to the threemonth period ended June 30, 2002.  Salariesand benefits increased approximately $628,000 or 8.2% in the six-month periodand $481,000 or 11.4% in the three-month period compared to the same periodslast year primarily associated with the increase level of operations.  Other operating expenses increasedapproximately $550,000 or 33.1% in the six-month period and $354,000 or 35.6%in the three-month period compared to 2002 primarily due to rising insurancecosts and professional fees related to the Company’s legislative efforts foradditional gaming authorizations. Advertising and marketing increased approximately $155,000 or 15.5% inthe six month period and $55,000 or 7.5% in the three-month period compared tothe same periods last year due primarily to increased participation in thepatron loyalty program.  Utilitiesexpense increased approximately $122,000 or 28.8% and approximately $63,000 or26.9% for the same periods in 2002 due to rate increases experienced during thepast twelve months.

 

Pari-mutuelexpenses have increased 3.5% and 6.2%, respectively, during the six and threemonth periods of 2003 compared to 2002, due primarily to increased payments tothe purse fund from Card Club revenues. Effective January 1, 2002, the Company agreed with the MinnesotaHorseman’s Benevolent and Protective Association (the “MHBPA”) to pay 14% ofall Card Club gross revenues as purse monies. Therefore, the effective rates are the same from 2003 compared to 2002,however the increased volume of Card Club revenues has resulted in the increaseto the related purse expense.

 

Income beforeincome taxes was $2,496,375 for the six months ended June 30, 2003 compared to$2,612,932 for the six months ended June 30, 2002.  After income tax expense of $1,063,736 for the six months endedJune 30, 2003, net income was $1,432,639 in 2003 compared to $1,544,043 in2002.  Income before income taxes forthe quarter ended June 30, 2003 was $1,032,288 compared to $1,031,533 for thequarter ended June 30, 2002.  Afterincome tax expense of $438,736 in the second quarter of 2003, net income was$593,552 compared to $613,005 for the second quarter of 2002.

 

**Commitmentsand Contingencies**

 

On June 5,2003 at the Annual Meeting, the Company’s Board of Directors declared a specialcash dividend of $.15 per share of common stock payable on July 11, 2003 toshareholders of record on June 27, 2003. The Company has not adopted any policies regarding dividend payments andthere can be no assurance that any dividend will be paid in the future.

 

There havebeen no additional material changes in our outstanding commitments andcontingencies since those reported at December 31, 2002.

 

**Liquidity and Capital Resources**

 

During theperiod January 1, 2003 through June 30, 2003, cash provided by operatingactivities was $3,911,366, which resulted principally from an increase inaccounts payable and accrued expenses of $1,896,275, net income of $1,432,639and depreciation and amortization of $579,340. These items were partiallyoffset by an increase in other current assets of $638,200.  The significant increase in accounts payableand accrued expenses is due primarily to increases in amounts payable relatedto the live race meet.

 

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Net cash usedin investing activities for the first six months of 2003 was approximately $1million, primarily for building improvements. During the six-month period ended June 30, 2002, net cash used forinvestment purposes was approximately $1.8 million resulting primarily from thepurchase of 12 acres of land just south of the main parking lot for approximately$1 million, and acquisitions of equipment for $1.2 million, offset by theproceeds on disposal of real estate of $422,663.

 

During theperiod January 1, 2003 through June 30, 2003, cash provided by financingactivities was $125,938, representing $172,746 from the exercise of stockoptions, which was partially offset by net payments to the MHBPA of$46,808.  During the period January 1,2002 through June 30, 2002, cash provided by financing activities was $45,677representing $256,401 from the exercise of stock options, which were partiallyoffset by net payments to the MHBPA of $210,724.

 

The Company isrequired by statute to segregate a portion of funds received from revenues inthe Card Club and wagering on simulcast and live horse races for future paymentas purses for live horse races at the Racetrack or other uses of Minnesota’sthoroughbred and quarter horse associations. Pursuant to an agreement with the MHBPA, during the six months endedJune 30, 2003 and 2002, the Company transferred into a trust account for thesepurposes or paid directly to the MHBPA approximately $2,875,000 and $2,850,000,respectively.  At June 30, 2003, theCompany had an additional liability to the MHBPA of $132,538.  This liability will be paid in 2003,including interest earned at the prime-lending rate, in accordance with theagreement with the MHBPA.

 

The Companyhas renewed a general credit agreement with Bremer Bank, which provides arevolving credit line of up to $2,250,000 with interest at the prime rate untilApril 20, 2005.  The Company had noborrowings under the line of credit at June 30, 2003 or December 31, 2002.  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, 2003.

 

Cash balancesat June 30, 2003 were $6,407,737 compared to $3,408,869 at December 31, 2002.The Company believes that the funds available in its cash accounts, amountsavailable under the general credit and security agreement, along with fundsgenerated from operations, will be sufficient to satisfy its liquidity andcapital resource requirements during 2003 for regular operations.

 

**CriticalAccounting Policies**

 

In preparingthe financial statements, we follow accounting principles generally accepted inthe United States of America, which in many cases require us to makeassumptions, estimates and judgments that affect the amounts reported.  Many of these policies are relatively straightforward.  There are, however, a few policies that arecritical because they are important in determining the financial condition andresults of operations and they can be difficult to apply.  We believe that the most critical accountingpolicies applied in the preparation of our financial statements relate to: a)accounting for contingencies, under which we accrue a loss when it is probablethat a liability has been incurred and the amount can be reasonably measured;and b) measuring long-term assets for impairment.  An impairment loss would be measured by the

 

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amount by which the carryingvalue of the asset exceeds the fair value of the asset.  To date, management has determined that noimpairment of these assets exists.

 

The difficultyin applying these policies arises from the assumptions, estimates and judgmentsthat have to be made currently about matters that are inherently uncertain,such as future economic conditions, operating results and valuations as well asmanagement intentions.  As thedifficulty increases, the level of precision decreases, meaning that actualresults can and probably will be different from those currently estimated.  We base our assumptions, estimates andjudgments on a combination of historical experience and other reasonablefactors.

 

**Legislation:**

 

On February18, 2003, a bill was introduced in the Minnesota Legislature, which seeksauthority for the Minnesota State Lottery to operate electronic gaming devicesat the  Racetrack.  Often referred to as “Racinos”, this conceptat Canterbury Park would include 2,000 gaming devices, a 250-room hotel, anOlympic scale horse park and additional restaurant venues.  The bill was approved by a 71 to 60 marginby the Minnesota House of Representatives and still requires a number offurther approvals in the Minnesota Legislature.  On May 29, 2003 the Minnesota Legislature adjourned withouttaking further action on this proposed legislation.  However, the Minnesota Legislature is set to reconvene for thesecond year of its regular session in February 2004.  The Racino legislation will begin next session awaiting action inthe Minnesota Senate having already passed the Minnesota House of Representatives.  Based on the success of several Racinos inother states, the Company feels that if this legislation becomes law, it willenhance horse racing with increased purses, provide growth and developmentopportunities for the Company, and produce significant new tax revenues forstate and local governments.  The effortto obtain legislative authority for these electronic gaming devices hasrequired and will continue to require substantial expenditures and there can beno assurance that this bill or any similar bill will be enacted into law.

 

**Factors Affecting Future Performance:**

 

From time totime, in reports filed with the Securities and Exchange Commission, in pressreleases, and in other communications to shareholders or the investing public,the Company may make forward-looking statements concerning possible oranticipated future financial performance, business activities or plans whichare typically preceded by the words “believes,” “expects,” “anticipates,”“intends” or similar expressions.  Forsuch forward-looking statements, the Company claims the protection of the safeharbor for forward-looking statements contained in federal securitieslaws.  Shareholders and the investingpublic should understand that such forward-looking statements are subject to risksand uncertainties which could cause actual performance, activities or plans todiffer significantly from those indicated in the forward-lookingstatements.  Such risks anduncertainties include, but are not limited to: fluctuations in attendance at theRacetrack, changes in the level of wagering by patrons, continued interest inthe unbanked card games offered at the Card Club, legislative and regulatorychanges, the impact of wagering products and technologies introduced bycompetitors; fluctuations in purse fund payments; upward pressure on salary andbenefit expense; the general health of the gaming sector; higher than expectedexpense related to new marketing initiatives; and other factors discussed fromtime to time in the Company’s filings with the Securities and ExchangeCommission.

 

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**ITEM 3****:****                                    QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

We are exposed to market riskfrom changes in interest rates on borrowings under our commercial revolvingcredit line that bears interest at the prime rate.  At June 30, 2003 we have no debt borrowings under our creditfacility.

 

We have no derivative financialinstruments or derivative commodity instruments in our cash and cashequivalents and marketable securities. We invest cash and cash equivalents in investment grade, highly liquidinvestments, consisting of money market instruments, bank certificates ofdeposit, and short-term government and corporate bonds.

 

**ITEM 4****:****                                    CONTROLS ANDPROCEDURES**

 

(a)                                  Evaluationof Disclosure Controls and Procedures:

 

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

 

(b)                                 Changes in Internal Control Over FinancialReporting:

 

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

 

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**PART II**

**OTHER INFORMATION**

 

Item 1.            **Legal****Proceedings**

 

Not Applicable

 

Item 2.            **Changes****in 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 Companyheld its Annual Meeting of Shareholders on June 5, 2003.  Shareholders reelected the followingdirectors for a one year term:  Brian C.Barenscheer, Patrick R. Cruzen, Carin J. Offerman, Curtis A. Sampson, RandallD. Sampson, and Dale H. Schenian.  Notless than 3,350,582 shares were voted in favor of each of the directors(approximately 92% of all outstanding shares) and holders of no more than 2,275shares withheld authority to vote for such directors.

 

Item 5.            **Other****Information**

 

Not Applicable

 

Item 6.            **Exhibits****and Reports on Form 8-K**

 

(a)                                  Thefollowing exhibits are included herein:

 

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

 

(b)                                 Reportson Form 8-K

 

On August 14,2003 the Company filed a current report on Form 8-K with the Securities andExchange Commission, reporting under Item 12 the results for the second quarterended June 30, 2003.

 

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**SIGNATURES**

 

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

 
|   | **Canterbury Park Holding Corporation**      |
|--------|----------------------------------------------|
|   |                                         |
| Dated: | August 14,  2003                             | /s/ Randall D. Sampson |   |
|   | Randall D.  Sampson,                         |
|   | President,  and Chief Executive Officer      |
|   |                                         |
| Dated: | August 14,  2003                             | /s/ David C. Hansen |   |
|   | David C.  Hansen,                            |
|   | Vice  President, and Chief Financial Officer |

 

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