**U.S. SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

**FORM 10-QSB**

 

 

**(Mark One)**

 

| **ý** |   | **QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001.**   |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                        |
| **o**      |   | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO________.** |

** **

**CommissionFile Number 0-24554**

 

**Canterbury Park Holding Corporation**(Exact name ofbusiness issuer as specified in its charter)

 

 

| **Minnesota**  (State or other jurisdiction of  incorporation or organization) |   | **41-1775532**(IRS Employer  Identification No.) |
|--------------------------------------------------------------------------------|--------|--------------------------------------------------|

 

| **1100  Canterbury Road, Shakopee, Minnesota**(Address of  principal executive offices) |   | **55379**(Zip Code) |
|-----------------------------------------------------------------------------------------|--------|---------------------|

 

 

**(612)445-7223**(Issuer’sTelephone Number)

 

 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such report), and (2)has been subject to such filing requirements for the past 90 days.   YES ý   NO  o

 

The Company had 3,529,324 shares of common stock, $.01 par value pershare, outstanding as of November 8, 2001.

 

 

 

Canterbury Park HoldingCorporation

 

INDEX

 
|     |                  |                                                                                     |   |
|----------|-----------------------|------------------------------------------------------------------------------------------|--------|
| PART 1.  | FINANCIAL INFORMATION |                                                                                     |
|     |                  |                                                                                     |   |
|     | Item 1.               | Financial Statements                                                                     |   |
|     |                  |                                                                                     |   |
|     |                  | Consolidated  Balance Sheets as of September 30, 2001 and December 31, 2000              |   |
|     |                  |                                                                                     |   |
|     |                  | Consolidated  Statements of Operations for the periods ended September 30, 2001 and 2000 |   |
|     |                  |                                                                                     |   |
|     |                  | Consolidated  Statements of Cash Flows for the periods ended September 30, 2001 and 2000 |   |
|     |                  |                                                                                     |   |
|     |                  | Notes  to Consolidated Financial Statements                                              |   |
|     |                  |                                                                                     |   |
|     | Item 2.               | Management’s  Discussion and Analysis                                               |   |
|     |                  |                                                                                     |   |
|     |                  |                                                                                     |   |
| PART II. | OTHER INFORMATION     |                                                                                     |
|     |                  |                                                                                     |   |
|     | Signatures            |                                                                                     |

 

**CANTERBURY PARK HOLDING CORPORATIONAND SUBSIDIARY**

 

**CONSOLIDATED BALANCE SHEETSSEPTEMBER 30, 2001 AND DECEMBER 31, 2000**

** **
|                                                                                                                               |   | **September 30,  2001** |       | **December 31,  2000** |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|------------------------|--------|
| **ASSETS**                                                                                                                         |   |                    |       |                   |   |
|                                                                                                                               |   |                    |       |                   |   |
| CURRENT ASSETS                                                                                                                     |   |                    |       |                   |   |
| Cash                                                                                                                               |   | $                       | 1,222,078  |                   | $      | 1,198,849 |   |
| Accounts  receivable                                                                                                               |   | 294,364                 |       | 306,852                |   |
| Receivable from  MHBPA                                                                                                             |   | 516,845                 |       |                   |   |
| Inventory                                                                                                                          |   | 119,268                 |       | 106,381                |   |
| Deposits                                                                                                                           |   | 20,000                  |       | 24,500                 |   |
| Prepaid expenses                                                                                                                   |   | 245,086                 |       | 267,425                |   |
| Income tax refund  receivable                                                                                                      |   | 266,770                 |       |                   |   |
| Total current  assets                                                                                                              |   | 2,684,411               |       | 1,904,007              |   |
|                                                                                                                               |   |                    |       |                   |   |
| PROPERTY AND  EQUIPMENT, net of accumulated depreciation of $6,144,624 and $5,361,567,  respectively                               |   | 12,656,809              |       | 11,334,404             |   |
|                                                                                                                               |   |                    |       |                   |   |
| DEFERRED TAX  ASSET                                                                                                                |   |                    |       | 79,100                 |   |
|                                                                                                                               |   | $                       | 15,341,220 |                   | $      | 13,317,511 |   |
|                                                                                                                               |   |                    |       |                   |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                     |   |                    |       |                   |   |
|                                                                                                                               |   |                    |       |                   |   |
| CURRENT  LIABILITIES                                                                                                               |   |                    |       |                   |   |
| Accounts payable                                                                                                                   |   | $                       | 1,354,025  |                   | $      | 930,597 |   |
| Card club  accruals                                                                                                                |   | 985,195                 |       | 817,812                |   |
| Accrued wages  and payroll taxes                                                                                                   |   | 1,200,100               |       | 666,495                |   |
| Accrued interest                                                                                                                   |   | 18,524                  |       | 11,705                 |   |
| Advance from  MHBPA                                                                                                                |   |                    |       | 423,055                |   |
| Accrued property  taxes                                                                                                            |   | 310,921                 |       | 292,546                |   |
| Income taxes  payable                                                                                                              |   |                    |       | 204,840                |   |
| Payable to  horsepersons                                                                                                           |   | 171,211                 |       | 207,818                |   |
| Deferred tax  liability                                                                                                            |   | 156,000                 |       |                   |   |
| Total current  liabilities                                                                                                         |   | $                       | 4,195,976  |                   | $      | 3,554,868 |   |
|                                                                                                                               |   |                    |       |                   |   |
| COMMITMENTS AND  CONTINGENCIES (Note 4)                                                                                            |   |                    |       |                   |   |
|                                                                                                                               |   |                    |       |                   |   |
| STOCKHOLDERS’  EQUITY                                                                                                         |   |                    |       |                   |   |
| Common stock,  $.01 par value, 10,000,000 shares authorized, 3,504,332 and 3,473,832,  respectively, shares issued and outstanding |   | 35,043                  |       | 34,738                 |   |
| Additional  paid-in capital                                                                                                        |   | 10,112,540              |       | 9,965,017              |   |
| Accumulated  earnings (deficit)                                                                                                    |   | 997,661                 |       | (237,112               | )      |
| Total  stockholders’ equity                                                                                                   |   | 11,145,244              |       | 9,762,643              |   |
|                                                                                                                               |   | $                       | 15,341,220 |                   | $      | 13,317,511 |   |

 

See notes to consolidated financial statements.

 

**CANTERBURY PARK HOLDING CORPORATIONAND SUBSIDIARY**

 

**CONSOLIDATED STATEMENTS OF OPERATIONSPERIODS ENDED SEPTEMBER 30, 2001 AND 2000**

 
|                                          |   | **Three Months Ended  September 30** |      | **Nine Months Ended September 30** |   |
|-----------------------------------------------|--------|-------------------------------------------|-----------|-----------------------------------------|--------|
|                                          |   | **2001**                                  |      | **2000**                                |   | **2001** |   | **2000** |   |
| OPERATING  REVENUES:                          |   |                                      |      |                                    |   |   |   |   |   |
| Pari-mutuel                                   |   | $                                         | 5,393,147 |                                    | $      | 5,268,282 |   | $ | 13,267,182 |   | $ | 12,838,993 |   |
| Card Club                                     |   | 4,556,552                                 |      | 4,066,769                               |   | 12,584,877 |   | 7,547,847 |   |
| Concessions                                   |   | 1,562,357                                 |      | 1,605,586                               |   | 3,492,085 |   | 3,140,626 |   |
| Admissions and  parking                       |   | 282,109                                   |      | 293,524                                 |   | 537,677 |   | 484,783 |   |
| Programs and  racing forms                    |   | 203,457                                   |      | 202,090                                 |   | 540,632 |   | 519,325 |   |
| Other operating  revenue                      |   | 199,002                                   |      | 259,459                                 |   | 502,968 |   | 577,726 |   |
|                                          |   | 12,196,624                                |      | 11,695,710                              |   | 30,925,421 |   | 25,109,300 |   |
|                                          |   |                                      |      |                                    |   |   |   |   |   |
| OPERATING  EXPENSES:                          |   |                                      |      |                                    |   |   |   |   |   |
| Pari-mutuel  expenses                         |   |                                      |      |                                    |   |   |   |   |   |
| Statutory purses                              |   | 2,751,702                                 |      | 2,606,739                               |   | 5,392,985 |   | 4,661,561 |   |
| Host track fees                               |   | 490,264                                   |      | 446,854                                 |   | 1,538,011 |   | 1,496,868 |   |
| Pari-mutuel  taxes                            |   | 58,676                                    |      | 55,316                                  |   | 153,973 |   | 129,622 |   |
| Minnesota  breeders’ fund                |   | 316,531                                   |      | 299,489                                 |   | 809,723 |   | 728,519 |   |
| Salaries and  benefits                        |   | 4,424,038                                 |      | 3,948,564                               |   | 11,839,694 |   | 8,765,756 |   |
| Cost of  concession sales                     |   | 597,114                                   |      | 572,038                                 |   | 1,434,466 |   | 1,134,029 |   |
| Cost of  publication sales                    |   | 291,019                                   |      | 297,987                                 |   | 712,878 |   | 689,754 |   |
| Depreciation and  amortization                |   | 294,792                                   |      | 290,711                                 |   | 783,057 |   | 727,095 |   |
| Utilities                                     |   | 347,119                                   |      | 306,109                                 |   | 881,931 |   | 763,522 |   |
| Repairs,  maintenance and supplies            |   | 344,623                                   |      | 299,755                                 |   | 1,041,387 |   | 974,757 |   |
| Property taxes                                |   | 45,755                                    |      | 64,532                                  |   | 137,266 |   | 196,464 |   |
| Advertising and  marketing                    |   | 604,505                                   |      | 598,269                                 |   | 1,506,058 |   | 1,510,578 |   |
| Other operating  expenses                     |   | 1,102,440                                 |      | 1,081,300                               |   | 2,699,209 |   | 2,608,314 |   |
|                                          |   | 11,668,578                                |      | 10,867,663                              |   | 28,930,638 |   | 24,386,839 |   |
| NONOPERATING  (EXPENSES) REVENUES:            |   |                                      |      |                                    |   |   |   |   |   |
| Interest expense                              |   | (2,202                                    | )         | (39,953                                 | )      | (14,652 | ) | (74,336 | ) |
| Other, net                                    |   | 23,859                                    |      | 45,904                                  |   | 63,992 |   | 88,752 |   |
|                                          |   | 21,657                                    |      | 5,951                                   |   | 49,340 |   | 14,416 |   |
|                                          |   |                                      |      |                                    |   |   |   |   |   |
| INCOME BEFORE  INCOME TAX                     |   | 549,703                                   |      | 833,998                                 |   | 2,044,123 |   | 736,877 |   |
| INCOME TAX  (EXPENSE) BENEFIT (Note 1)        |   | (171,600                                  | )         | (353,900                                | )      | (809,350 | ) | (330,900 | ) |
|                                          |   |                                      |      |                                    |   |   |   |   |   |
| NET INCOME                                    |   | $                                         | 378,103   |                                    | $      | 480,098 |   | $ | 1,234,773 |   | $ | 405,977 |   |
|                                          |   |                                      |      |                                    |   |   |   |   |   |
| BASIC NET INCOME  PER COMMON SHARE (Note 1)   |   | $                                         | .11       |                                    | $      | .14 |   | $ | .35 |   | $ | .12 |   |
|                                          |   |                                      |      |                                    |   |   |   |   |   |
| DILUTED NET INCOME  PER COMMON SHARE (Note 1) |   | $                                         | .10       |                                    | $      | .13 |   | $ | .33 |   | $ | .11 |   |

 

See notes toconsolidated financial statements.

 

 

**CANTERBURY PARK HOLDING CORPORATIONAND SUBSIDIARY**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWSPERIODS ENDED SEPTEMBER 30, 2001 AND 2000**

** **
|                                                                     |   | **Nine Months Ended  September 30, 2001** |      | **Nine Months Ended  September 30, 2000** |   |
|--------------------------------------------------------------------------|--------|-------------------------------------------|-----------|-------------------------------------------|--------|
|                                                                     |   |                                      |      |                                      |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                   |   |                                      |      |                                      |   |
| Net Income                                                               |   | $                                         | 1,234,773 |                                      | $      | 405,977 |   |
| Adjustments to  reconcile net income to net cash provided by operations: |   |                                      |      |                                      |   |
| Depreciation and  amortization                                           |   | 783,057                                   |      | 727,095                                   |   |
| Decrease  (increase) in accounts receivable                              |   | 12,488                                    |      | (243,356                                  | )      |
| Decrease  (increase) in other current assets                             |   | 13,952                                    |      | (137,583                                  | )      |
| (Decrease)  increase in income taxes payable                             |   | (471,610                                  | )         | 97,019                                    |   |
| Increase in  accounts payable and accrued expenses                       |   | 1,124,417                                 |      | 1,755,693                                 |   |
| (Decrease)  increase in payable to horsepersons                          |   | (36,607                                   | )         | 68,086                                    |   |
| Increase in  accrued interest                                            |   | 6,819                                     |      | 12,922                                    |   |
| Decrease in  deferred tax asset                                          |   | 272,960                                   |      | 83,900                                    |   |
| Increase in  accrued property taxes                                      |   | 18,375                                    |      | 65,966                                    |   |
| Net cash  provided by operations                                         |   | 2,958,624                                 |      | 2,835,719                                 |   |
|                                                                     |   |                                      |      |                                      |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                   |   |                                      |      |                                      |   |
| Additions to  property and equipment                                     |   | (2,105,462                                | )         | (3,722,844                                | )      |
|                                                                     |   |                                      |      |                                      |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                   |   |                                      |      |                                      |   |
| Proceeds from  issuance of common stock                                  |   | 109,967                                   |      | 389,294                                   |   |
| Payment on  advance from MHBPA, net                                      |   | (939,900                                  | )         | (487,596                                  | )      |
| Proceeds from  construction loan                                         |   |                                      |      | 1,452,078                                 |   |
| Net cash  provided by financing activities                               |   | (829,933                                  | )         | 1,353,776                                 |   |
|                                                                     |   |                                      |      |                                      |   |
| NET INCREASE IN  CASH                                                    |   | 23,229                                    |      | 466,651                                   |   |
|                                                                     |   |                                      |      |                                      |   |
| CASH AT  BEGINNING OF PERIOD                                             |   | 1,198,849                                 |      | 1,350,052                                 |   |
|                                                                     |   |                                      |      |                                      |   |
| CASH AT END OF  PERIOD                                                   |   | $                                         | 1,222,078 |                                      | $      | 1,816,703 |   |

 

See notes to consolidatedfinancial statements.

 

**CANTERBURY PARK HOLDING CORPORATIONAND SUBSIDIARY**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTSPERIODS ENDED SEPTEMBER 30, 2001 AND 2000**

** **

1.     SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

 

The summary ofsignificant accounting policies is included in the notes to consolidatedfinancial statements in the 2000 Annual Report on form 10-KSB.

 

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

 

*Unaudited Financial Statements* - The consolidated balance sheet as ofSeptember 30, 2001, the consolidated statements of operations for the three andnine months ended September 30, 2001 and 2000, the consolidated statements ofcash flows for the nine months ended September 30, 2001 and 2000, and therelated information contained in these notes have been prepared by managementwithout audit.  In the opinion ofmanagement, all accruals (consisting of normal recurring accruals) which arenecessary for a fair presentation of financial position and results of operationsfor such periods have been made.  Resultsfor an interim period should not be considered as indicative of results for afull year.

 

*Net Income Per Share*– Basic net income per common share isbased on the weighted average number of common shares outstanding during eachyear.  The weighted average number ofcommon shares outstanding for the three and nine month periods ended September30, 2001 were 3,494,060 and 3,485,815, respectively.  The weighted average number of common shares outstanding for the threeand nine month periods ended September 30, 2000 were 3,454,898 and 3,441,586,respectively.  Diluted net income percommon share takes into effect the dilutive effect of potential common sharesoutstanding.  The Company’s onlypotential common shares outstanding are stock options.  After considering the dilutive effect ofstock options outstanding, the weighted average shares used to calculatediluted earnings per share for the three and nine month periods ended September30, 2001 were 3,733,497 and 3,745,432, respectively.  The weighted average shares used to calculate diluted earningsper share for the three and nine month periods ended September 30, 2000 were3,726,153 and 3,668,334, respectively.

 

2.     BANK BORROWINGS

 

        The Company has a general credit andsecurity agreement with Bremer Bank, including a commercial revolving creditline which provides for maximum advances of $2,250,000 with interest at theprime rate.  The Company had noborrowings under this credit line at September 30, 2001.  The Company also entered into a constructionloan agreement with Bremer Bank on April 20, 2000.  The construction loan was converted into a five-year installmentloan in August 2000 at the maximum principal amount of the loan of $1,587,000.  The loan was paid off in December 2000.  Advances on this construction loan totaled$1,452,000 at September 30, 2000.  Thecredit agreement contains certain covenants requiring the Company to maintaincertain financial ratios.  The Companywas in compliance with these requirements as of September 30, 2001.  Management believes that funds availableunder this credit and security agreement, along with funds generated fromsimulcast and card club operations, will be sufficient to satisfy its liquidityand capital resource requirements during 2001.

3.     OPERATING SEGMENTS

 

During the firstnine months of 2001 and 2000, the Company had three reportable operatingsegments:  horse racing, card club andconcessions.  The card club segmentincludes operations of the Canterbury Card Club.  The horse racing 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 products and services.  The horse racing and card club segments are regulated by theState of Minnesota Racing Commission.

 

The accountingpolicies of the operating segments are the same as those described in thesummary of significant accounting policies.

 

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 to the horse racing segment for use of thefacilities.

 

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

 
|                                       |   | **Nine Months Ended September 30,  2001** |   |
|--------------------------------------------|--------|-------------------------------------------|--------|
|                                       |   | **Horse Racing**                          |   | **Card Club** |   | **Concessions** |   | **Total** |   |
|                                       |   |                                      |   |   |   |   |   |   |   |
| Revenues from  external customers          |   | 14,815                                    |   | 12,585 |   | 3,525 |   | 30,925 |   |
|                                       |   |                                      |   |   |   |   |   |   |   |
| Intersegment  revenues                     |   | 556                                       |   |   |   | 950 |   | 1,506 |   |
|                                       |   |                                      |   |   |   |   |   |   |   |
| Net interest  expense                      |   | (49                                       | )      |   |   |   |   | (49 | ) |
|                                       |   |                                      |   |   |   |   |   |   |   |
| Depreciation and  amortization             |   | 427                                       |   | 356 |   |   |   | 783 |   |
|                                       |   |                                      |   |   |   |   |   |   |   |
| Segment income  (loss) before income taxes |   | (507                                      | )      | 2,553 |   | 179 |   | 2,225 |   |
|                                       |   |                                      |   |   |   |   |   |   |   |
| Segment Assets                             |   | 10,626                                    |   | 4,684 |   | 752 |   | 16,062 |   |

 

 
|                                |   | **Nine Months Ended September 30,  2000** |   |
|-------------------------------------|--------|-------------------------------------------|--------|
|                                |   | **Horse Racing**                          |   | **Card Club** |   | **Concessions** |   | **Total** |   |
|                                |   |                                      |   |   |   |   |   |   |   |
| Revenues from  external customers   |   | $                                         | 14,384 |   | $ | 7,548 |   | $ | 3,177 |   | $ | 25,109 |   |
|                                |   |                                      |   |   |   |   |   |   |   |
| Intersegment  revenues              |   | 552                                       |   |   |   | 577 |   | 1,129 |   |
|                                |   |                                      |   |   |   |   |   |   |   |
| Net interest  expense               |   | (66                                       | )      | 52 |   |   |   | (14 | ) |
|                                |   |                                      |   |   |   |   |   |   |   |
| Depreciation and  amortization      |   | 540                                       |   | 187 |   |   |   | 727 |   |
|                                |   |                                      |   |   |   |   |   |   |   |
| Segment income  before income taxes |   | 101                                       |   | 636 |   | 163 |   | 900 |   |
|                                |   |                                      |   |   |   |   |   |   |   |
| Segment Assets                      |   | $                                         | 10,927 |   | $ | 3,028 |   | $ | 652 |   | $ | 14,607 |   |

 

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

 
| Revenues                                                |   | **Nine Months Ended  September 30, 2001** |   | **Nine Months Ended  September 30, 2000** |   |
|---------------------------------------------------------|--------|-------------------------------------------|--------|-------------------------------------------|--------|
| Total revenue  for reportable segments                  |   | $                                         | 32,431 |                                      | $      | 26,238 |   |
| Elimination of  intersegment revenues                   |   | (1,506                                    | )      | (1,129                                    | )      |
| Total  consolidated revenues                            |   | 30,925                                    |   | 25,109                                    |   |
|                                                    |   |                                      |   |                                      |   |
| Income (loss)  before income taxes                      |   |                                      |   |                                      |   |
| Total segment income  before income taxes               |   | $                                         | 2,225  |                                      | $      | 900 |   |
| Elimination of  intersegment income before income taxes |   | (181                                      | )      | (163                                      | )      |
| Total  consolidated income before Income taxes          |   | 2,044                                     |   | 737                                       |   |

 
| Assets                                    |   | **September  30, 2001** |   | **December  31, 2000** |   |
|-------------------------------------------|--------|-------------------------|--------|-----------------------------|--------|
| Total assets for  reportable segments     |   | $                       | 16,062 |                        | $      | 13,811 |   |
| Elimination of  inter-company receivables |   | (721                    | )      | (493                        | )      |
| Total  consolidated assets                |   | 15,341                  |   | 13,318                      |   |
|                                           |        |                         |        |                             |        |  |  |

 

 

4.     CONTINGENCIES

 

In accordance withan Earn Out Note, given to the prior owner of the racetrack as part of the considerationpaid by the Company to acquire the racetrack, if (i) off-track betting becomeslegally permissible in the State of Minnesota and (ii) the Company begins toconduct off-track betting with respect to or in connection with its operations,the Company will be required to pay to the IMR Fund, L.P. the greater of$700,000 per operating year, as defined, or 20% of the net pretax profit, asdefined, for each of five operating years. At the date (if any) that these two conditions are met, the five minimumpayments will be discounted back to their present value and the sum of thosediscounted payments will be recorded as an increase to the purchase price.  The purchase price will be further increasedif payments become due under the 20% of Net Pre-Tax Profit calculation.  The first payment is to be made 90 daysafter the end of the third operating year in which off-track betting isconducted by the Company.  Remainingpayments would be made within 90 days of the end of each of the next fouroperating years.

 

The Company isperiodically involved in various legal actions arising in the normal course ofbusiness.  At September 30, 2001,management believes that the resolution of any legal actions outstanding willnot have a material 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 September 30, 2001, the Company hasreceived no communications from the DOL&I regarding the disposition oftheir audit.  Management believes thatthe Company’s practices regarding tips are consistent with the requirements ofMinnesota law.

 

 

5.     CURRENT ACCOUNTING PRONOUNCEMENTS

 

        InJuly 2001, the Financial Accounting Standards Board (FASB) issued Statement ofFinancial Accounting Standards (SFAS) 141, *BusinessCombinations*, and SFAS 142, *Goodwilland Other Intangible Assets*. Major provisions of these Statements are as follows:  all business combinations initiated afterJune 30, 2001 must use the purchase method of accounting; the pooling ofinterest method of accounting is prohibited except for transactions initiatedbefore July 1, 2001; intangible assets acquired in a business combination mustbe recorded separately from goodwill if they arise from contractual or otherlegal rights or are separable from the acquired entity and can be sold,transferred, licensed, rented or exchanged, either individually or as part of arelated contract, asset or liability; goodwill and intangible assets withindefinite lives are not amortized but are tested for impairment at leastannually, except in certain circumstances, and whenever there is an impairmentindictor; all acquired goodwill must be assigned to reporting units forpurposes of impairment testing and segment reporting; effective for fiscalyears beginning after December 15, 2001, goodwill will no longer be subject toamortization.

 

        Although the Company is still reviewingthe provisions of these Statements, management’s preliminary assessment is thatthese statements will not have a material impact on the Company’s financialposition or results of operations.

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS**

 

**General**

 

                Canterbury ParkHolding Corporation (the “Company”) owns and operates Canterbury Park Racetrackand Card Club in Shakopee, Minnesota. The primary businesses of the Company are pari-mutuel horse 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 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 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 wagers from the players ascompensation for providing the Card Club facility and services.  Card Club operations commenced on April 19,2000.  The Card Club is open twenty-fourhours a day, seven days a week.

 

                The Company alsogenerates revenues from admissions, parking, publication sales, facility rentalfor special events, vehicle storage, advertising and other sources.

 

The Minnesota RacingCommission is authorized by Minnesota law to regulate Card Cluboperations.  The law requires that up to14% of the gross revenue generated by the Card Club be paid to the Racetrack’spurse fund and the State of Minnesota Breeders’ Fund.  The original 15,828 square foot Card Club, constructed within theRacetrack grandstand facility, was completed on schedule in mid-April 2000 andprovided room for approximately 40 tables. In May 2001, the Company completed construction of an expansion of theCard Club to create space for 50 tables, the maximum allowed by Minnesotalaw.  The total cost of approximately$1.3 million for the expansion and related furniture, fixtures and equipmentwas funded with cash flows from operations.

 

 

**Resultsof Operations for the****Nine Months Ended September 30, 2001 and September 30,2000**

 

                Total operatingrevenues increased approximately $5.8 million or 23.2% during the nine monthsended September 30, 2001 compared to the nine months ended September 30, 2000,and increased $500,914 or 4.3% for the three months ended September 30, 2001compared to the three months ended September 30, 2000.

                Total pari-mutuelrevenues increased 3.3% in the nine month period ended September 30, 2001compared to the same period in 2000, attributable to higher handle dueprimarily to three additional live race days in the 2001 nine month period.Total handle for the nine months ended September 30, 2001 is up $4.9 million or7.0% compared to total handle during the nine month period in 2000. On-tracklive handle increased $341,000 compared to the same period in 2000 due to theone additional live thoroughbred race day, two days of live Harness racing anda slight increase in the average daily on-track live handle.  Out-of-state handle on live races increased$3.5 million or 35.8% compared to the same period last year. Total handlewagered on simulcast races year-to-date in 2001 is up $1.1 million or 2.4%compared to year-to-date September 30, 2000. See the “Summary of Operating Data” below

 

      **Summary of Operating Data:**

** **
|                              |   | **Nine Months Ended  September 30, 2001** |       | **Nine Months Ended  September 30, 2000** |       |
|-----------------------------------|--------|-------------------------------------------|------------|-------------------------------------------|------------|
|                              |   |                                      | ** ** |                                      | ** ** |
| **Racing Days**                   |   |                                      | ** ** |                                      | ** ** |
| Simulcast only  days              |   | 210                                       |       | 214                                       |       |
| Live and  simulcast days          |   | 61                                        |       | 60                                        |       |
| Harness days                      |   | 2                                         | ** ** |                                      | ** ** |
| Total Racing  Days                |   | 273                                       |       | 274                                       |       |
|                              |   |                                      | ** ** |                                      | ** ** |
| **On-Track Handle**               |   |                                      | ** ** |                                      | ** ** |
| Simulcast only  days              |   | $                                         | 30,805,000 |                                      | $          | 31,107,000 |   |
| Live and  simulcast days          |   |                                      | ** ** |                                      | ** ** |
| Live racing                       |   | 16,014,000                                |       | 15,673,000                                |       |
| Simulcast racing                  |   | 14,510,000                                |       | 13,151,000                                |       |
| **Out-of-state Live Handle**      |   | 13,105,000                                |       | 9,647,000                                 |       |
| Total Handle                      |   | $                                         | 74,434,000 |                                      | $          | 69,578,000 |   |
|                              |   |                                      | ** ** |                                      | ** ** |
| **On-Track Average Daily Handle** |   |                                      | ** ** |                                      | ** ** |
| Simulcast only  days              |   | $                                         | 146,690    |                                      | $          | 145,360 |   |
| Live and  simulcast days          |   | 484,508                                   |       | 480,400                                   |       |

 

 

                Card Club revenueswere $12.6 and $4.6 million for the nine-month and three-month periods endedSeptember 30, 2001, representing increases of 66.7% and 12%, respectively.  This represented 40.7% and 37.4% of totalrevenues for the nine-month and three-month periods ended September 30, 2001,respectively.  The year-to-date increaseis primarily due to an increased number of days of operation in 2001, comparedto 2000.  The Card Club commencedoperations on April 19, 2000, operating 165 days in the first nine months of2000, compared to 273 days in the first nine months of 2001.

 

                Concession salesfor the nine-month period ended September 30, 2001 increased 11.2% compared tothe same period in 2000 due to the additional days of Card Club operations.Concession sales for the three month period ended September 30, 2001 decreased2.8% compared to the same period in 2000 primarily due to less on-trackattendance during the unusual heat wave experienced in late July and August,2001.

                Total operatingexpenses increased 18.6% during the nine month period ended September 30, 2001compared to the nine month period ended September 30, 2000, and increased 7.4%during the three months ended September 30, 2001 compared to the three monthperiod ended September 30, 2000.  Theincreases in the nine-month and three-month periods are due primarily tosalaries and benefits and operating costs of the Card Club, which opened April19, 2000, and to higher pari-mutuel expenses attributable to higher handle andCard Club revenues.

 

                Pari-mutuelexpenses have increased 12.5% and 6.1%, respectively, during the nine and threemonth periods of 2001 compared to 2000, primarily due to purse expenses payableto the horsemen and the Minnesota Breeders’ Fund caused by higher Card Clubrevenues.  Under Minnesota law, theCompany is required to pay 10% of the first $6 million of gross Card Clubrevenues as purse monies.  After meetingthe $6,000,000 threshold, the Company must pay 14% of gross Card Club revenuesas purse monies.  Each year the Companyestimates an annual effective rate for purse money payments which is applied togross Card Club revenues throughout the year. Estimated revenues for 2001 are higher than 2000 due to a full year ofoperation of the Card Club.  Thereforethe overall effective rate in 2001 is higher than during the year 2000.  Of funds allocated for purses, the Companypays 10% of the purse monies to the State of Minnesota Breeders’ Fund.  The remaining 90% of the purse monies isdivided between thoroughbred (90%), quarterhorse (9%) and standardbred (1%)purse funds. The remainder of the increases are due to higher on-track live andsimulcast handle in 2001 compared to 2000.

 

                Salaries andbenefit expenses increased by approximately $3.1 million or 35.1% for thenine-month period ended September 30, 2001 compared to the same period in2000.  Salaries and benefit expensesincreased by approximately $475,474 or 12% for the three month period comparedto 2000.  The commencement of Card Cluboperations on April 19, 2000 is the primary reason for the increase in thenine-month period.  While significantlabor was required prior to the opening of the Card Club to hire and train over300 employees of the Card Club, the 2001 period includes 273 days of 24/7operation of the Card Club, while the 2000 period includes only 165 days ofoperation.  New employees hired in the secondquarter of 2000 were generally not eligible for participation in benefit plansuntil the middle of the third quarter of 2000. Employees who qualify for benefit plans were fully participating duringthe nine-month period ended September 30, 2001.  One additional live race day and the Harness weekend in 2001 alsoincreased salary expense.  The increasein salary and benefit expenses for the third quarter is attributable to theCard Club expansion which included 10 additional tables, and overall increasesin pay rates and benefit expenses.

 

Non-operating revenues increased during the nine-monthand three-month periods ended September 30, 2001 compared to the same periodsin 2000.  Interest expense decreased dueto the pay off of a short-term construction loan in December 2000.  The Company paid interest on a short-termconstruction loan totaling approximately $52,400 during the nine-month periodended September 30, 2000.

 

                Income beforeincome taxes was $2,044,123 for the nine months ended September 30, 2001compared to $736,877 for the nine months ended September 30, 2000.  After income tax expense of $809,350 for thenine months ended September 30, 2001, net income was $1,234,773 in 2001compared to net income of $405,977 in 2000. The income before income taxes for the quarter ended September 30, 2001was $549,703 compared to $833,998 for the quarter ended September 30,2000.  After income tax expense of$171,600 in the third quarter of 2001, net income was $378,103 compared to netincome of $480,098 for the third quarter of 2000.

 

**Liquidityand Capital Resources**

 

                During the periodJanuary 1, 2001 through September 30, 2001, cash provided by operations was$2,958,624, which resulted principally from an increase in accounts payable andaccrued expenses of $1,124,417, net income of $1,234,773 and depreciation andamortization of $783,057. These items were partially offset by a decrease inincome taxes payable of $471,610.

 

                The increase inaccounts payable and accrued expenses is due primarily to increases in amountspayable related to the live race meet and to an increase in accrued salariesand benefits of $533,605 attributable to a timing difference created by thequarter-end cutoff.

 

                Net cash used ininvesting activities for the first nine months of 2001 was approximately $2.1million resulting primarily from the expansion of the Card Club, theacquisition of related furniture and equipment and improvements to thegrandstand building.  During thenine-month period ended September 30, 2000, investments in buildingimprovements and equipment, primarily related to the original construction ofthe Card Club facility, were approximately $3.7 million.

 

                During the periodJanuary 1, 2001 through September 30, 2001, cash used by financing activitieswas $829,933 representing net payments to the MHBPA of $939,900 which wereoffset by $109,967 provided from the exercise of stock options.  During the period January 1, 2000 throughSeptember 30, 2000, cash provided by financing activities was $1,353,776,resulting primarily from proceeds from a construction loan from Bremer Bank of$1,452,078.  In addition, exercises ofstock options during the first nine months of 2000 provided cash flows fromfinancing activities of $389,294, which were offset by net payments on advancesfrom the MHBPA of $487,596.

 

                The Company isrequired by statute to segregate purse funds received from wagering onsimulcast races, live horse races and card playing for future payment as pursesfor live horse races at the Racetrack or other uses of Minnesota’shorsepersons’ associations.  Pursuant toan agreement with the Minnesota Horseman’s Benevolent and ProtectiveAssociation, Inc. (“MHBPA”), during the nine months ended September 30, 2001and 2000, the Company transferred into a trust account or paid directly to theMHBPA approximately $5,596,000 and $4,467,000, respectively.  At September 30, 2001, the MHBPA owed theCompany $516,845 which will be paid during the fourth quarter.

 

                The Companyrenewed its general credit and security agreement with Bremer Bank, a financialinstitution located in South Saint Paul, Minnesota on April 30, 2001.  The agreement continues to provide theCompany with a commercial revolving credit line with maximum advances of$2,250,000 and interest at the prime rate until April 20, 2003.  The Company had no borrowings under the lineof credit at September 30, 2001 or December 31, 2000.

                On April 20, 2000,Bremer Bank provided the Company with commitments for two installment loans tofund construction of the Card Club.  Thefirst loan commitment was to provide funding for approximately 75% of theconstruction costs of the Card Club at a floating rate of prime plus .25%.  The Company made draws on the constructionloan of $1,452,000 through September 30, 2000. The final draws on the construction loan occurred in August 2000, atwhich point the construction loan converted to a conventional five-yearinstallment loan with a principal amount of $1,586,750.  The variable interest rate on this loanduring the period of construction was prime plus .25% or 9.75% at June 30,2000.   The second installment loancommitment was for $290,700 to fund approximately 50% of the acquisition costsof furniture, fixtures, and equipment related to the Card Club.  The Company used current cash flow to fundthe acquisition costs of these assets and elected to allow the commitment toexpire in August 2000.  The creditagreement contains certain covenants requiring the Company to maintain certainfinancial ratios.  The Company was incompliance with these requirements as of September 30, 2001.

 

                Cash at September30, 2001 was $1,222,078 compared to $1,198,849 at December 31, 2000. TheCompany believes that the funds from operations together with funds availableunder its $2,250,000 line of credit with Bremer Bank will be sufficient to satisfyits liquidity and capital resource requirements for the next twelve months.

** **

**Operating Plan:**

** **

                At September 30,2001, the Company had completed its 61-day 2001 live race meet featuring boththoroughbred and quarter horse racing. The Company also completed two days of live harness racing on September22nd and 23rd.

 

                The Company’soperating plan for the Card Club is to continue to operate on a 24/7basis.  The Company introduced“Caribbean Stud”, and “Let It Ride” during the fourth quarter of 2000.  In addition, it introduced “Three CardPoker” in the second quarter of 2001. The Company also began an advertisingcampaign in the third quarter of 2001 to promote its table games business.

 

                During the fourthquarter of 2000, the Company purchased a 17,400 square foot temporary structurereferred to as the “Paddock Pavilion”. This fully heated facility was constructed to accommodate trade shows,large corporate outings and small to mid-sized conventions which may, or maynot be, associated with horse racing or the Card Club.  The Paddock Pavilion will allow the Companyto maintain its special event business despite the reduction of square footagefor these events due to expansion of the Card Club.

**FactorsAffecting Future Performance:**

 

Fromtime to time, in reports filed with the Securities and Exchange Commission, inpress releases, and in other communications to shareholders or the investingpublic, the Company may make forward-looking statements concerning possible oranticipated future financial performance, business activities or plans whichare typically preceded by the words “believes,” “expects,” “anticipates,”“intends” or similar expressions.  Forsuch forward-looking statements, the Company claims the protection of the safeharbor for forward-looking statements contained in federal securitieslaws.  Shareholders and the 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 anduncertainties include, but are not limited to: fluctuations in attendance atthe Racetrack, changes in the level of wagering by patrons, continued interestin the unbanked card games offered at the Card Club, legislative and regulatorychanges, the impact of wagering products and technologies introduced bycompetitors; upward pressure on salary and benefit expense due to the tightlabor market; 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.

 

**PARTIIOTHER INFORMATION**

 

Item 1.                    **Legal Proceedings**

 

                                Not Applicable

 

Item 2.                    **Changes in Securities**

 

                                Not Applicable

 

Item 3.                    **Defaults Upon Senior Securities**

 

                                Not Applicable

 

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

 

                                Not Applicable.

 

Item 5.                    **Other Information**

 

                                Not Applicable

 

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

 

                                Not Applicable

 

 

**SIGNATURES**

 

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

 

 
|                            | Canterbury Park Holding Corporation                                   |
|---------------------------------|-----------------------------------------------------------------------|
|                            |                                                                  |
| Dated:   November 13, 2001 | /s/ Randall D. Sampson                                                |
|                            | Randall D. Sampson,  President, Chief Executive Officer and Treasurer |