**U.S. SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

## **FORM 10-Q**

## ** **

**(MarkOne)**
| **ý** | ** ** | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**                                                                                                              |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                     |
| ** ** | ** ** | **FOR THE  QUARTERLY PERIOD ENDED MARCH 31, 2005.**                                                                                                                                                       |
| ** ** | ** ** | ** **                                                                                                                                                                                                     |
| **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 001-31569**

 

### ****

### ** **

### **CanterburyPark 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 TelephoneNumber)

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such reports, and (2) hasbeen subject to such filing requirements for the past 90 days.  YES  ý  NO  o

 

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

 

The Company had 3,890,169shares of common stock, $.01 par value per share, outstanding as of May 11,2005.

 

 

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## **CANTERBURY PARK HOLDING CORPORATION**

## **INDEX**

## ** **

| **PART 1.**  | **FINANCIAL INFORMATION** | ** **                                                                                  |
|-------------------|---------------------------|---------------------------------------------------------------------------------------------|
| ** **        | ** **                | ** **                                                                                  | ** ** |
|              | Item 1.                   | Financial  Statements                                                                       |   |
|              |                      |                                                                                        |   |
|              |                      | Consolidated Balance Sheets  as of  March 31, 2005 and December 31, 2004          |   |
|              |                      |                                                                                        |   |
|              |                      | Consolidated  Statements of Operations for the periods ended  March 31, 2005 and 2004  |   |
|              |                      |                                                                                        |   |
|              |                      | Consolidated  Statements of Cash Flows for the periods ended  March 31, 2005 and 2004  |   |
|              |                      |                                                                                        |   |
|              |                      | Notes to  Consolidated Financial Statements                                                 |   |
|              |                      |                                                                                        |   |
|              | Item 2.                   | Management’s Discussion and  Analysis of Financial Condition and Results of Operations |   |
|              |                      |                                                                                        |   |
|              | Item 3.                   | Quantitative and  Qualitative Disclosure about Market Risk                                  |   |
|              |                      |                                                                                        |   |
|              | Item 4.                   | Controls and Procedures                                                                     |   |
|              |                      |                                                                                        |   |
| **PART II.** | **OTHER INFORMATION**     |                                                                                        |
|              |                      |                                                                                        |   |
|              | Item  1.                  | Legal  Proceedings                                                                          |   |
|              |                      |                                                                                        |   |
|              | Item  2.                  | Unregistered  Sales of Equity Securities and Use of Proceeds                                |   |
|              |                      |                                                                                        |   |
|              | Item 3.                   | Defaults Upon Senior  Securities                                                            |   |
|              |                      |                                                                                        |   |
|              | Item  4.                  | Submission  of Matters to a Vote of Security Holders                                        |   |
|              |                      |                                                                                        |   |
|              | Item  5.                  | Other  Information                                                                          |   |
|              |                      |                                                                                        |   |
|              | Item 6.                   | Exhibits                                                                                    |   |
|              |                      |                                                                                        |   |
|              | Signatures                |                                                                                        |
|              |                      |                                                                                        |   |
|              | Exhibits                  |                                                                                        |

 

2

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**PART I****– FINANCIAL INFORMATION**

 

**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATED BALANCE SHEETS**

**MARCH 31,2005 AND DECEMBER 31, 2004**

 
| ** **                                                                                                                        | ** ** | **(Unaudited)**

**March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                        |       |                                      |       |                        |       |
|                                                                                                                              |       |                                      |       |                        |       |
| CURRENT ASSETS                                                                                                                    |       |                                      |       |                        |       |
| Cash                                                                                                                              |       | $                                         | 5,750,878  |                        | $          | 4,178,544 |   |
| Restricted Cash                                                                                                                   |       | 1,703,678                                 |       | 1,746,599                   |       |
| Accounts receivable, net of allowance of $82,600 and  $82,600                                                                     |       | 560,771                                   |       | 750,612                     |       |
| Inventory                                                                                                                         |       | 149,553                                   |       | 134,653                     |       |
| Deposits                                                                                                                          |       | 20,000                                    |       | 20,000                      |       |
| Prepaid expenses                                                                                                                  |       | 644,628                                   |       | 850,881                     |       |
| Deferred income taxes                                                                                                             |       | 208,100                                   |       | 103,000                     |       |
| Total current assets                                                                                                              |       | 9,037,608                                 |       | 7,784,289                   |       |
|                                                                                                                              |       |                                      |       |                        |       |
| LAND, BUILDINGS AND EQUIPMENT, net of accumulated depreciation  of $10,200,391 and $9,869,193, respectively                       |       | 21,279,722                                |       | 20,438,532                  |       |
|                                                                                                                              |       |                                      |       |                        |       |
|                                                                                                                              |       | $                                         | 30,317,330 |                        | $          | 28,222,821 |   |
|                                                                                                                              |       |                                      |       |                        |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                     |       |                                      |       |                        |       |
|                                                                                                                              |       |                                      |       |                        |       |
| CURRENT LIABILITIES                                                                                                               |       |                                      |       |                        |       |
| Accounts payable                                                                                                                  |       | $                                         | 2,415,990  |                        | $          | 2,129,405 |   |
| Card club accruals                                                                                                                |       | 1,766,161                                 |       | 1,736,746                   |       |
| Accrued wages and payroll taxes                                                                                                   |       | 1,629,867                                 |       | 1,799,419                   |       |
| Accrued interest payable                                                                                                          |       | 1,657                                     |       | 229                         |       |
| Due to MHBPA                                                                                                                      |       | 192,809                                   |       | 131,146                     |       |
| Accrued property taxes                                                                                                            |       | 357,913                                   |       | 282,119                     |       |
| Income taxes payable                                                                                                              |       | 284,687                                   |       | 17,486                      |       |
| Payable to horsepersons                                                                                                           |       | 547,495                                   |       | 414,621                     |       |
| Total current liabilities                                                                                                         |       | 7,196,579                                 |       | 6,511,171                   |       |
|                                                                                                                              |       |                                      |       |                        |       |
| DEFERRED INCOME TAXES                                                                                                             |       | 693,400                                   |       | 716,000                     |       |
|                                                                                                                              |       |                                      |       |                        |       |
| COMMITMENTS AND CONTINGENCIES (Note 4)                                                                                            |       |                                      |       |                        |       |
|                                                                                                                              |       |                                      |       |                        |       |
| STOCKHOLDERS’ EQUITY                                                                                                         |       |                                      |       |                        |       |
| Common stock, $.01 par value, 10,000,000 shares  authorized, 3,888,169 and 3,835,669, respectively, shares issued and outstanding |       | 38,882                                    |       | 38,357                      |       |
| Additional paid-in capital                                                                                                        |       | 13,114,559                                |       | 12,763,811                  |       |
| Accumulated earnings                                                                                                              |       | 9,273,910                                 |       | 8,193,482                   |       |
| Total stockholders’ equity                                                                                                   |       | 22,427,351                                |       | 20,995,650                  |       |
|                                                                                                                              |       | $                                         | 30,317,330 |                        | $          | 28,222,821 |   |

 

See notes to consolidatedfinancial statements.

 

3

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**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**PERIODSENDED MARCH 31, 2005 AND 2004 (Unaudited)**

 
| ** **                                   | ** ** | **Three Months  Ended  March 31, 2005** | ** ** | **Three Months  Ended  March 31, 2004** | ** ** |
|----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
|                                         |       |                                         |       |                                         |       |
| OPERATING REVENUES:                          |       |                                         |       |                                         |       |
| Pari-mutuel                                  |       | $                                            | 2,915,286  |                                         | $          | 3,179,729 |   |
| Card Club                                    |       | 7,437,000                                    |       | 6,888,201                                    |       |
| Concessions                                  |       | 879,566                                      |       | 826,922                                      |       |
| Admissions and parking                       |       | 26,170                                       |       | 38,718                                       |       |
| Publications                                 |       | 113,839                                      |       | 108,041                                      |       |
| Other operating revenue                      |       | 350,694                                      |       | 344,354                                      |       |
|                                         |       | 11,722,555                                   |       | 11,385,965                                   |       |
|                                         |       |                                         |       |                                         |       |
| OPERATING EXPENSES:                          |       |                                         |       |                                         |       |
| Statutory purses                             |       | 1,294,537                                    |       | 1,214,570                                    |       |
| Minnesota breeders’ fund                |       | 265,674                                      |       | 269,437                                      |       |
| Host track fees                              |       | 481,786                                      |       | 519,838                                      |       |
| Pari-mutuel taxes                            |       | 46,191                                       |       | 50,982                                       |       |
| Salaries and benefits                        |       | 4,647,896                                    |       | 4,177,853                                    |       |
| Cost of concessions and publication sales    |       | 611,169                                      |       | 571,228                                      |       |
| Depreciation and amortization                |       | 342,000                                      |       | 285,000                                      |       |
| Utilities                                    |       | 260,647                                      |       | 243,584                                      |       |
| Repairs, maintenance and supplies            |       | 229,082                                      |       | 287,283                                      |       |
| License fees and property taxes              |       | 147,696                                      |       | 140,694                                      |       |
| Advertising and marketing                    |       | 327,280                                      |       | 368,308                                      |       |
| Insurance                                    |       | 304,281                                      |       | 249,309                                      |       |
| Other operating expenses                     |       | 837,136                                      |       | 727,651                                      |       |
|                                         |       | 9,795,375                                    |       | 9,105,737                                    |       |
|                                         |       |                                         |       |                                         |       |
| NONOPERATING (EXPENSES) REVENUES:            |       |                                         |       |                                         |       |
| Interest expense                             |       | (1,589                                       | )          | (1,355                                       | )          |
| Other                                        |       | 18,957                                       |       | 10,605                                       |       |
|                                         |       | 17,368                                       |       | 9,250                                        |       |
|                                         |       |                                         |       |                                         |       |
| INCOME BEFORE INCOME TAX EXPENSE             |       | 1,944,548                                    |       | 2,289,478                                    |       |
|                                         |       |                                         |       |                                         |       |
| INCOME TAX EXPENSE (Note 1)                  |       | (864,120                                     | )          | (1,029,300                                   | )          |
|                                         |       |                                         |       |                                         |       |
| NET INCOME                                   |       | $                                            | 1,080,428  |                                         | $          | 1,260,178 |   |
|                                         |       |                                         |       |                                         |       |
| BASIC NET INCOME PER COMMON SHARE (Note 1)   |       | $                                            | .28        |                                         | $          | .34 |   |
|                                         |       |                                         |       |                                         |       |
| DILUTED NET INCOME PER COMMON SHARE (Note 1) |       | $                                            | .26        |                                         | $          | .30 |   |

 

See notes to consolidatedfinancial statements.

 

4

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**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

**PERIODSENDED MARCH 31, 2005 AND 2004 (Unaudited)**

 
| ** **                                                               | ** ** | **Three Months  Ended  March 31, 2005** | ** ** | **Three Months  Ended  March 31, 2004** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
|                                                                     |       |                                         |       |                                         |       |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                    |       |                                         |       |                                         |       |
| Net income                                                               |       | $                                            | 1,080,428  |                                         | $          | 1,260,178 |   |
| Adjustments to reconcile net income to net cash  provided by operations: |       |                                         |       |                                         |       |
| Depreciation and amortization                                            |       | 342,000                                      |       | 285,000                                      |       |
| Tax benefit from exercise of stock options                               |       | 100,900                                      |       | 140,000                                      |       |
| Decrease in deferred income taxes                                        |       | (127,700                                     | )          | (105,000                                     | )          |
| Decrease (increase) in restricted cash                                   |       | 42,921                                       |       | (327,131                                     | )          |
| Decrease (increase) in accounts receivable                               |       | 189,841                                      |       | (243,714                                     | )          |
| Decrease in other current assets                                         |       | 191,353                                      |       | 156,125                                      |       |
| Increase in income taxes payable                                         |       | 267,201                                      |       | 319,300                                      |       |
| Increase in accounts payable and accrued wages &  payroll taxes |       | 117,033                                      |       | 897,286                                      |       |
| Increase in card club accruals                                           |       | 29,415                                       |       | 448,121                                      |       |
| Increase in accrued interest                                             |       | 1,428                                        |       | 1,180                                        |       |
| Increase in accrued property taxes                                       |       | 75,794                                       |       | 68,793                                       |       |
| Increase in payable to horsepersons                                      |       | 132,874                                      |       | 115,462                                      |       |
| Increase in due to MHBPA                                                 |       | 61,663                                       |       | —                                       |       |
| Net cash provided by operations                                          |       | 2,505,151                                    |       | 3,015,600                                    |       |
|                                                                     |       |                                         |       |                                         |       |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                    |       |                                         |       |                                         |       |
| Additions to land, buildings and equipment                               |       | (1,183,190                                   | )          | (1,556,258                                   | )          |
| Net cash used in investing activities                                    |       | (1,183,190                                   | )          | (1,556,258                                   | )          |
|                                                                     |       |                                         |       |                                         |       |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                    |       |                                         |       |                                         |       |
| Proceeds from issuance of common stock                                   |       | 250,373                                      |       | 56,400                                       |       |
| Net proceeds on advance from MHBPA                                       |       | —                                       |       | 24,107                                       |       |
| Net cash provided by financing activities                                |       | 250,373                                      |       | 80,507                                       |       |
|                                                                     |       |                                         |       |                                         |       |
| NET INCREASE IN CASH                                                     |       | 1,572,334                                    |       | 1,539,849                                    |       |
|                                                                     |       |                                         |       |                                         |       |
| CASH AT BEGINNING OF PERIOD                                              |       | 4,178,544                                    |       | 2,523,560                                    |       |
|                                                                     |       |                                         |       |                                         |       |
| CASH AT END OF PERIOD                                                    |       | $                                            | 5,750,878  |                                         | $          | 4,063,409 |   |
|                                                                     |       |                                         |       |                                         |       |
| INTEREST PAID                                                            |       | $                                            | 0          |                                         | $          | 0 |   |
|                                                                     |       |                                         |       |                                         |       |
| INCOME TAXES PAID                                                        |       | $                                            | 625,000    |                                         | $          | 675,000 |   |

 

See notes to consolidatedfinancial statements.

 

5

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# **CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES**

# ** **

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**PERIODSENDED MARCH 31, 2005 AND 2004**

 

1.               SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

Thesummary of significant accounting policies is included in the notes toconsolidated financial statements in the 2004 Annual Report on Form 10-K.

 

*UnauditedFinancial Statements* - The consolidated balance sheet as of March 31,2005, the consolidated statements of operations for the three months ended March 31,2005 and 2004, the consolidated statements of cash flows for the three monthsended March 31, 2005 and 2004, and the related information contained inthese notes have been prepared by management without audit.  In the opinion of management, all accruals(consisting 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.

 

*Reclassifications* – Certain prior periodnumbers have been reclassified to be consistent with current period presentation.  These reclassifications had no effect on netearnings or stockholders’ equity.

 

*Restricted Cash* – Restricted cashrepresents refundable deposits and amounts due to horsepersons for purses,stakes and awards, and amounts accumulated in the Player Pool to be used torepay players in the form of promotions, giveaways, prizes, or by other means.

 

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

 

*Net Income Per Share –*Basic net incomeper common share is based on the weighted average number of common sharesoutstanding during each period. The weighted average number of common sharesoutstanding for the three months ended March 31, 2005 and March 31,2004 were 3,876,397 and 3,727,993, respectively.  Diluted net income per common share takesinto effect the dilutive effect of potential common shares outstanding.  The Company’s only potential common sharesoutstanding are stock options.  Afterconsidering the dilutive effect of stock options outstanding, the weightedaverage shares used to calculate diluted earnings per share for the threemonths ended March 31, 2005 and 2004 were 4,216,094 and 4,158,204,respectively.

 

*Fair Values of Financial Instruments* – Dueto the current classification of all financial instruments of the Company,given the short-term nature of the related account balances, carrying amountsreported in the consolidated balance sheets approximate fair value.

 

*Stock Based Employee Compensation* - At March 31,2005, 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, includingdirectors of and consultants to the Company and any subsidiary, to purchase upto a maximum of 1,450,000 shares of common stock.  As permitted by Statement of FinancialAccounting Standards (SFAS) 123, the Company has elected to continue followingthe guidance of Accounting Principles Board (APB) Opinion No. 25, *Accounting for Stock Issued to Employees,*and related interpretations for measurement and recognition of stock-basedtransactions with employees.  Nocompensation cost has been recognized for stock options granted under the planbecause the exercise price of all options granted was at least equal to themarket value of the underlying common stock on the date of grant.  The following table illustrates the effect onnet income and earnings per share if the Company had applied the fair valuerecognition provisions of SFAS No. 123, *Accountingfor Stock-Based Compensation,*to stock-based employee compensation.

 

6

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**Stock Based Employee Compensation Table:**

 
| ** **                                                                                                                                          | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                                                          | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| Net Income:                                                                                                                                         |       |                                  |       |   |   |
| As reported                                                                                                                                         |       | $                                     | 1,080,428  |   | $ | 1,260,178 |   |
| Deduct:  Total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |       | (45,059                               | )          | (115,783 | ) |
| Pro forma net income                                                                                                                                |       | $                                     | 1,035,369  |   | $ | 1,144,395 |   |
|                                                                                                                                                |       |                                  |       |   |   |
| Earnings Per Share:                                                                                                                                 |       |                                  |       |   |   |
| Basic - as reported                                                                                                                                 |       | $                                     | .28        |   | $ | .34 |   |
|                                                                                                                                                |       |                                  |       |   |   |
| Basic - pro forma                                                                                                                                   |       | $                                     | .27        |   | $ | .31 |   |
|                                                                                                                                                |       |                                  |       |   |   |
| Diluted - as reported                                                                                                                               |       | $                                     | .26        |   | $ | .30 |   |
|                                                                                                                                                |       |                                  |       |   |   |
| Diluted – pro forma                                                                                                                            |       | $                                     | .25        |   | $ | .28 |   |
|                                                                                                                                                     |            |                                       |            |  |  |  |  |  |  |

 

*Accounting Pronouncement -*In December 2004,the Financial Accounting Standards Board (FASB) revised SFAS No.123, ShareBased Payment (SFAS No. 123R).  ThisStatement supercedes APB Opinion No. 25, which resulted in no stock-basedemployee compensation cost related to stock options if the options granted hadan exercise price equal to the market value of the underlying common stock onthe date of grant.  SFAS No. 123Rrequires recognition of employee services provided in exchange for ashare-based payment based on the grant date fair market value.  In April 2005 the effective date of SFASNo. 123R was deferred to the fiscal year beginning after June 15,2005.  Consequently, the Company isrequired to adopt SFAS No. 123R as of January 1, 2006.  As of the effective date, this Statementapplies to all new awards issued as well as awards modified, repurchased, orcancelled.  Additionally, for stock-basedawards issued prior to the effective date, compensation cost attributable tofuture services will be recognized as the remaining service is rendered.  The Company may also elect to restate priorperiods by applying a modified retrospective method to periods prior to theeffective date.  The Company is in theprocess of determining which method of adoption it will elect as well as thepotential impact on its consolidated financial statements upon adoption.

 

2.               BORROWINGSUNDER CREDIT AGREEMENT

 

TheCompany has a credit agreement with Bremer Bank N.A. that provides for arevolving credit line permitting advances of up to $2,250,000 with interest atthe prime rate.  The Company had noborrowings under this credit line at March 31, 2005 or December 31,2004.  The credit agreement containscertain covenants requiring the Company to maintain certain financialratios.  The Company was in compliancewith these requirements at all times throughout the quarter ended March 31,2005.  Management believes that fundsavailable under this line of credit, along with funds generated from card cluband simulcast operations, will be sufficient to satisfy its liquidity andcapital resource requirements during 2005.

 

7

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3.               OPERATINGSEGMENTS

 

Duringthe first three months of 2005 and 2004, the Company had three reportableoperating segments:  card club, horseracing and concessions.  The card clubsegment primarily represents operations of the Canterbury Card Club. Thehorseracing segment primarily represents simulcast and live racing operations,and the concessions segment primarily represents concessions provided duringsimulcast and 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 areregulated by the State of Minnesota Racing Commission.

 

Theaccounting policies of the operating segments are the same as those describedin the summary of significant accounting policies in the 2004 Annual Report on Form 10-K.

 

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

 

Thefollowing table provides information about the Company’s operating segments (in000’s):

 
| ** **                         | ** ** | **Three Months Ended  March 31, 2005** | ** ** |
|------------------------------------|------------|---------------------------------------------|------------|
| ** **                         | ** ** | **Card Club**                               | ** ** | **Horse  Racing** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                               |       |                                        |       |   |   |   |   |   |   |
| Revenues from external customers   |       | $                                           | 7,437      |   | $ | 3,406 |   | $ | 880 |   | $ | 11,723 |   |
|                               |       |                                        |       |   |   |   |   |   |   |
| Intersegment revenues              |       |                                        |       | 13 |   | 481 |   | 494 |   |
|                               |       |                                        |       |   |   |   |   |   |   |
| Net Interest income                |       |                                        |       | 17 |   |   |   | 17 |   |
|                               |       |                                        |       |   |   |   |   |   |   |
| Depreciation and amortization      |       | 132                                         |       | 210 |   |   |   | 342 |   |
|                               |       |                                        |       |   |   |   |   |   |   |
| Segment income before income taxes |       | 1,375                                       |       | 547 |   | 129 |   | 2,051 |   |
|                               |       |                                        |       |   |   |   |   |   |   |
| Segment Assets                     |       | $                                           | 3,718      |   | $ | 26,429 |   | $ | 3,282 |   | $ | 33,429 |   |

 
| ** **                         | ** ** | **Three Months Ended  March 31, 2004** | ** ** |
|------------------------------------|------------|---------------------------------------------|------------|
| ** **                         | ** ** | **Card Club**                               | ** ** | **Horse  Racing** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                               |       |                                        |       |   |   |   |   |   |   |
| Revenues from external customers   |       | $                                           | 6,888      |   | $ | 3,671 |   | $ | 827 |   | $ | 11,386 |   |
|                               |       |                                        |       |   |   |   |   |   |   |
| Intersegment revenues              |       |                                        |       | 22 |   | 455 |   | 477 |   |
|                               |       |                                        |       |   |   |   |   |   |   |
| Net Interest income                |       |                                        |       | 9 |   |   |   | 9 |   |
|                               |       |                                        |       |   |   |   |   |   |   |
| Depreciation and amortization      |       | 117                                         |       | 168 |   |   |   | 285 |   |
|                               |       |                                        |       |   |   |   |   |   |   |
| Segment income before income taxes |       | 1,459                                       |       | 807 |   | 165 |   | 2,431 |   |
|                                    |            |                                             |            |  |  |  |  |  |  |  |  |  |  |

 
|           |   | **At December 31, 2004** |   |
|----------------|--------|-------------------------------|--------|
|           |   |                          |   |   |   |   |   |   |   |
| Segment Assets |   | $                             | 3,688  |   | $ | 24,397 |   | $ | 3,164 |   | $ | 31,249 |   |
|                |        |                               |        |  |  |  |  |  |  |  |  |  |  |

 

8

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Thefollowing are reconciliations of reportable segment revenue, income beforeincome taxes, and assets, to the Company’s consolidated totals (in 000’s):

 
| ** **                                              | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                              | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Revenues:                                               | ** ** | ** **                             | ** ** | ** ** | ** ** |
| Total revenue for reportable segments                   |       | $                                      | 12,217     |   | $ | 11,863 |   |
| Elimination of intersegment revenues                    |       | (494                                   | )          | (477 | ) |
| Total consolidated revenues                             |       | $                                      | 11,723     |   | $ | 11,386 |   |
|                                                    |       |                                   |       |   |   |
| Income before income taxes:                             |       |                                   |       |   |   |
| Total segment income before income taxes                |       | $                                      | 2,051      |   | $ | 2,431 |   |
| Elimination of intersegment income before income  taxes |       | (106                                   | )          | (142 | ) |
| Total consolidated income before income taxes           |       | $                                      | 1,945      |   | $ | 2,289 |   |

 
| ** **                              | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Assets:                                 |       |                     |       |                        |       |
| Total assets for reportable segments    |       | $                        | 33,429     |                        | $          | 31,249 |   |
| Elimination of intercompany receivables |       | (3,112                   | )          | (3,026                      | )          |
| Total consolidated assets               |       | $                        | 30,317     |                        | $          | 28,223 |   |

 

4.               CONTINGENCIES

 

Inaccordance with an Earn Out Note, given to the prior owner of the racetrack aspart of the consideration paid by the Company to acquire the racetrack, if (i) off-trackbetting becomes legally permissible in the State of Minnesota and (ii) theCompany begins to conduct off-track betting with respect to or in connectionwith its operations, the Company will be required to pay to the IMR Fund, L.P.the greater of $700,000 per operating year, as defined, or 20% of the netpretax profit, as defined, for each of five operating years.  At this time, management believes that thelikelihood that these two conditions will be met, and that the company will berequired to pay these amounts, is remote. In the event these conditions are met and the subsequent payments made,they will be capitalized as part of the purchase price in accordance withgenerally accepted accounting principles.

 

TheCompany is periodically involved in various legal actions arising in the normalcourse of business.  At March 31,2005, management believes that the resolution of any legal actions outstandingwill not have a material impact on the consolidated financial statements.

 

9

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**ITEM 2****:****             ****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF 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 live pari-mutuelhorse racing, hosting unbanked card games, and food and beverage operations.

 

TheRacetrack is the only pari-mutuel horse racing facility in the State ofMinnesota.  The Racetrack earns revenuesfrom pari-mutuel take-out on races simulcast year-round to Canterbury Park fromracetracks throughout the country and from live race meets featuring thoroughbredand quarter horse racing.  Live racemeets commence in the month of May and conclude in September.  During live race meets, the Company televisesits races to out-of-state racetracks around the country, and earns additionalpari-mutuel revenue on wagers placed at the out-of-state racetracks.

 

 Canterbury Park’s Card Club (the “Card Club”)hosts “unbanked” card games in which players compete against each other and notagainst the house.  The Card Club is opentwenty-four hours a day, seven days a week.  Under Minnesota law, the Company is requiredto pay up to 14% of the gross Card Club revenues to the Racetrack’s purse fundand the State of Minnesota Breeders’ Fund. However, the Company has agreed with the Minnesota Horsemen’s Benevolentand Protective Association (“MHBPA”) to pay 15% of Card Club revenues into thepurse fund for 2005 and 2004.

 

TheCompany also generates revenues from other activities such as admission andparking fees and from the sale of food and beverage, programs and other racingpublications, and corporate sponsorships. Additional revenues are derived from an RV park and the use of theRacetrack facilities for special events such as concerts, craft shows andsnowmobile racing.

 

**Resultsof Operations for the Three Months Ended March 31, 2005 and March 31,2004:**

 

Totaloperating revenues increased $ 336,590, or 3.0%, during three months ended March 31,2005 compared to the three months ended March 31, 2004.  The increase is due primarily to increases inCard Club revenue and concessions revenue, offset by a decrease in pari-mutuelrevenue.

 

Pari-mutuelrevenue decreased $ 264,443, or 8.3 % in the three-month period ended March 31,2005 compared to the same period in 2004. This was due to a reduction in total wagering (“the handle”) for thethree-month period ended March 31, 2005. Total handle was approximately $13.7 million or 9.4%, lower than totalhandle of $15.1 million during the same quarter a year ago.  The decrease is primarily attributable topersistent poor weather conditions in the east, which resulted in thecancellation of a significant number of races during the first quarter of 2005and growing competition from internet wagering on simulcast racing.  See the “Summary of Pari-Mutuel Data” below.

 
| ** **                       | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------|------------|---------------------------------------|------------|
| **Summary of Pari-Mutuel Data:** | ** ** | **2005**                              | ** ** | **2004** | ** ** |
|                             |       |                                  |       |   |   |
| Simulcast racing days            |       | 90                                    |       | 91 |   |
| ** **                       | ** ** | ** **                            | ** ** | ** ** | ** ** |
| On-track simulcast handle        |       | $                                     | 13,703,000 |   | $ | 15,132,000 |   |
| ** **                       | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Average daily handle             |       | $                                     | 152,256    |   | $ | 166,286 |   |

 

10

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TotalCard Club revenue increased 8.0% to $7,437,000 for the first three months of2005 compared to $6,888,000 for the same period in 2004.  The primary source of Card Club revenue is apercentage of the wagers received from the players as compensation forproviding the Card Club facility and services, referred to as the “collectionrevenue”.  The Company also receives aspecified percentage of the jackpot fund collection as reimbursement foradministrative costs of maintaining the jackpot funds, and collects fees foradministering tournaments, which represents “other revenue”.  The increase in revenue is due primarily togrowth in the Card Club’s poker games. Poker collection revenue grew $727,000 or 19.2% compared to the first quarter of 2004 and continues tobe fueled by the popularity of televised poker tournaments.  This increase was partly offset by a $161,000or 5.5% decrease in Casino Games collection revenue compared to the first threemonths of 2004.  This decrease ispartially due to new competition from Native American casinos, which haveexpanded their gaming options to include some of the same “unbanked” card gamesas those offered at Canterbury Park. Card Club revenues represented 63.4% and 60.5% of total revenues for thethree-month periods ended March 31, 2005 and 2004, respectively.  See the “Summary of Card Club Data” below.

 
| ** **                     | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------|------------|---------------------------------------|------------|
| **Summary of Card Club Data:** | ** ** | **2005**                              | ** ** | **2004** | ** ** |
|                           |       |                                  |       |   |   |
| Poker Games                    |       | $                                     | 4,516,000  |   | $ | 3,789,000 |   |
| Casino Games                   |       | 2,754,000                             |       | 2,915,000 |   |
| Total Collection Revenue       |       | 7,270,000                             |       | 6,704,000 |   |
|                           |       |                                  |       |   |   |
| Other Revenue                  |       | 167,000                               |       | 184,000 |   |
| Total Card Club Revenue        |       | $                                     | 7,437,000  |   | $ | 6,888,000 |   |
|                           |       |                                  |       |   |   |
| Number of Days Offered         |       | 90                                    |       | 91 |   |
| Average Revenue per Day        |       | $                                     | 82,633     |   | $ | 75,692 |   |

 

Concessionrevenues increased 6.4% to $879,566 for the quarter ended March 31, 2005compared to $826,922 for the first quarter of 2004 due primarily to highersales volumes in the Poker room.  Inaddition, the Company was remodeling its simulcast area during the firstquarter of 2004 and offered many food and beverage incentives which did notrecur in 2005.

 

Totaloperating expenses in the first quarter of 2005 increased by approximately$690,000, or 7.6%, compared to 2004 primarily due to increases in salary andbenefit costs, and costs related to compliance with the Sarbanes-Oxley Act of2002.  Salary and benefit costs increased$470,000, or 11.3%, compared to the first quarter of 2004, primarily due to anincrease of approximately 7% in total hours worked caused by higher levels ofoperations in the Card Club and concessions, an overall increase in salary andwages rates, and a 20.0% increase in group medical costs caused by increasedpremium rates and increased participation. Other operating expenses increased $109,484, or 15.0% compared to thesame period last year primarily due to the cost of consultants hired to assistwith implementation of Section 404 of the Sarbanes-Oxley Act of 2002.

 

Totalexpense for statutory purses and Minnesota breeders’ fund increased $76,204, or5.1%, for the quarter ended March 31, 2005 compared to the quarter ended March 31,2004.  Card club related statutory pursesand contributions to the Minnesota breeders’ fund increased 10.9% to $1,116,000compared to $1,006,000 for the first quarter of 2004 due to higher totalcollection revenues in the first quarter of 2005.  This increase was partly offset by a decreaseof $33,725 in purse and breeders’ fund expenses related to simulcast racingbecause of a decrease in handle during the first quarter of 2005 compared tothe first quarter of 2004.  Depreciationincreased $57,000 or 20.0% compared to the same period in 2004 due tosignificant improvements to the facility during 2004.  Insurance expense increased $54,972, or 22.0%compared to the first quarter of 2004 primarily due to increased workerscompensation and property and liability insurance rates.  Total operating expenses as a percentage ofrevenues increased to 83.6% for the first three months of 2005, compared to80.0% for the first three months of 2004. This increase was expected due to the above mentioned compliance costsand is also partly due to lower pari-mutuel revenues for the first quartercompared to last year.

 

11

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Incomebefore income taxes decreased $344,930, or 15.1%, to $1,944,548 for the threemonths ended March 31, 2005, from $2,289,478 for the three months ended March 31,2004.  Income tax expense was $864,120and $1,029,300 for the first quarters of 2005 and 2004, respectively, resultingin net income of $1,080,428 and $1,260,178, respectively.

 

#### **Commitmentsand Contingencies:**

 

Therehave been no material changes in our outstanding commitments and contingenciessince those reported at December 31, 2004.

 

**Liquidityand Capital Resources:**

 

Cashprovided by operating activities for the three months ended March 31, 2005was $2,505,151 and resulted principally from net income of $1,080,428,depreciation and amortization of $342,000, an increase in income taxes payableof $267,201, a decrease in accounts receivable of $189,841 due to the timing ofpayments and receipts on wagering imbalances with out-of-state racetracks, anda decrease in other current assets of $191,353 resulting from a reduction inprepaid expenses. During the period January 1, 2004 through March 31,2004, Cash provided by operating activities for the three months ended March 31,2004 was $3,015,600 and resulted principally from net income of $1,260,178,depreciation and amortization of $285,000, an increase in income taxes payableof $319,300, an increase in accounts payable and accrued wages &payroll taxes of $897,286, an increase in card club accruals of $448,121,offset by an increase in accounts receivable of $243,714 and an increase inrestricted cash of $327,131.  Pursuant toan agreement with the Minnesota Horsemen’s Benevolent and ProtectiveAssociation (MHBPA), during the three months ended March 31, 2005 and2004, the Company transferred into a trust account for these purposes or paiddirectly to the MHBPA approximately $1,100,000 and $1,075,000,respectively.  At March 31, 2005 thecompany had an additional liability to the MHBPA of $192,809.  This liability will be paid in 2005 togetherwith interest at the prime-lending rate.

 

Netcash used in investing activities for the first quarter of 2005 of $1,183,190was used for improvements to the backside barns and facilities related to liveracing.  The Company is in the process ofinstalling a new equine swimming pool, upgrading the summer barns and making asignificant upgrade to the training track. Net cash used in investing activities was $1,556,258 in the firstquarter of 2004 and related primarily to the remodeling of the club-levelsimulcast area of $1.1 million and acquisitions of equipment.

 

Cashprovided by financing activities during the first three months of 2005consisted of proceeds received upon the exercise of stock options of $250,373.Cash provided by financing activities during the first three months of 2004consisted of proceeds received upon the exercise of stock options of $56,400and net proceeds from the advance from the MHBPA of $24,107.

 

The Company has a creditagreement with Bremer Bank N. A. that provides a revolving credit linepermitting advances of up to $2,250,000 with interest at the prime rate.  The Company had no borrowings under the lineof credit at March 31, 2005 or December 31, 2004.  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 March 31, 2005.

 

Unrestrictedcash balances at March 31, 2005 were $5,750,878 compared to $4,178,544 at December 31,2004.  The Company believes that fundsavailable in its cash accounts, amounts available under the general credit andsecurity agreement, along with funds generated from operations, will besufficient to satisfy its liquidity and capital resource requirements during2005 for regular operations.  If theRacino discussed below under “Legislation” receives necessary legislativeapproval, the Company will require substantial additional debt and/or equityfinancing.  The Company believes thatsuch financing with reasonable terms can be obtained.

 

12

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**CriticalAccounting Policies:**

 

Thepreparation of consolidated financial statements in conformity with generallyaccepted accounting principles requires management to make estimates thateffect the amounts reported and disclosed in the consolidated financialstatements. By their nature, these estimates are subject to an inherent degreeof uncertainty. Theses estimates are based on our experience and various otherassumptions that are believed to be reasonable in the circumstances, theresults of which form the basis for making judgments about the carrying valuesof assets and liabilities. On an ongoing basis, we evaluate our estimates.However, actual results could differ from those estimates.

 

Oursignificant accounting policies are included in Note 1 to our consolidatedfinancial statements in our 2004 Annual Report on Form 10-K. We believethe following critical accounting policies represent our more significantjudgments and estimates used in the preparation of our consolidated financialstatements.

 

*Land, Buildings and Equipment* - We havesignificant capital invested in our property and equipment, which representsapproximately 70% of our total assets. We utilize our judgment in various waysincluding: determining whether an expenditure is considered a maintenanceexpense or a capital asset; determining the estimated useful lives of assets;and determining if or when an asset has been impaired. Our property andequipment is evaluated for impairment whenever circumstances indicate that thecarrying value of an asset may not be recoverable from the estimated futurecash flows expected to result from its use. If the sum of the expected futurecash flows (undiscounted and without interest charges) is less than thecarrying amount, we recognize an impairment loss. The impairment lossrecognized is the amount by which the carrying amount exceeds the fair valueand is charged to operations in the period in which such impairment isdetermined by management. We do not believe that any impairment has occurred oris likely to occur in the near future.

 

*Regulation -*Our business can be materially impactedboth positively and negatively by legislative and regulatory changes, such asthose described below. Significant negative changes resulting from theseactivities could result in an impairment of our property and equipment inaccordance with generally accepted accounting standards. Additional informationregarding how our business can be impacted by legislative and regulatorychanges are included in Item 1 (vi), and Item 1 (vii), respectively, in our2004 Annual Report on Form 10-K, which information is incorporated hereinby reference..

 

**Legislation:**

 

Legislationhas been introduced in the Minnesota Legislature to allow electronic gamingdevices to be operated by the Minnesota State Lottery and authorize banked cardgames at the Racetrack.  This concept,often referred to as a “Racino”, as proposed for Canterbury Park would includeapproximately 3,000 gaming devices, 40 table games, a 250-room hotel, anOlympic scale horse park and additional restaurant venues.  Based on the success of several Racinos inother states, the Company believes that if this legislation becomes law, itwill enhance horse racing with increased purses, provide growth and developmentopportunities for the Company, and produce significant new tax revenues forstate and local governments.  Legislationhas also been introduced to remove the 50-table limit in the card room, and toimpose a gaming tax on card room revenues. All of the bills mentioned above are, as of the date of this Report,pending further action in the Minnesota Legislature.

 

Inaddition, legislation has been enacted in Minnesota to raise the minimum wagefrom $5.15 to $6.15 an hour.  Minnesotawill join 15 other states with higher minimums than those set by the Federalgovernment.  This legislation becomeseffective in August 2005 and management believes it will have an adverseaffect on results of operations.

 

13

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Theeffort to obtain legislative authority for the initiatives mentioned above hasrequired, and will continue to require, substantial expenditures and there canbe no assurance that any bill favorable to the Company’s interests will beenacted into law this year.

 

**FactorsAffecting Future Performance:**

 

From time to time, in reports filed with theSecurities and Exchange Commission, in press releases, and in othercommunications to shareholders or the investing public, the Company may makeforward-looking statements concerning possible or anticipated future financialperformance, business activities or plans which are typically preceded by thewords “believes,” “expects,” “anticipates,” “intends” or similarexpressions.  For such forward-lookingstatements, the Company claims the protection of the safe harbor forforward-looking statements contained in federal securities laws.  Shareholders and the investing public shouldunderstand that such forward-looking statements are subject to risks anduncertainties which could cause actual performance, activities or plans todiffer significantly from those indicated in the forward-lookingstatements.  Such risks and uncertaintiesinclude, but are not limited to: material fluctuations in attendance at theRacetrack, material changes in the level of wagering by patrons, decline ininterest in the unbanked card games offered at the Card Club, competition fromother venues offering unbanked card games, legislative and regulatory changes,the impact of wagering products and technologies introduced by competitors;increases in the percentage of revenues allocated for purse fund payments;increases in compensation and employee benefit costs; the general health of thegaming sector; higher than expected expense related to new marketinginitiatives; and other factors discussed from time to time in the Company’sfilings with the Securities and Exchange Commission.

 

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

 

We are exposed to market risk from changes ininterest rates on borrowings under our commercial revolving credit line thatbears interest at the prime rate.  At March 31,2005 we have no debt borrowings under our credit facility.

 

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

 

**ITEM 4****:****                  ****CONTROLS AND PROCEDURES**

 

(a)                                  Evaluationof Disclosure Controls and Procedures:

 

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

 

14

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(b)                                 Changesin Internal Control Over Financial Reporting:

 

There have been no changes in internalcontrol over financial reporting that occurred during the fiscal quartercovered by this report that have materially affected, or are reasonably likelyto materially affect, the registrant’s internal control over financialreporting.

 

**PART II**

**OTHER INFORMATION**

 

**Item 1.**                                 Legal Proceedings

** **

Notapplicable

 

**Item 2.**                                 Unregistered Sales of Equity Securitiesand Use of Proceeds

** **

Notapplicable

 

**Item 3.**                                 Defaults Upon Senior Securities

** **

Notapplicable

 

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

** **

Notapplicable

 

**Item 5.**                                 Other Information

** **

Notapplicable

 

**Item 6.**                                 Exhibits

** **

(a)                                 Thefollowing exhibits are included herein:

 

11                           Statementre computation of per share earnings - See *NetIncome Per Share* under Note 1 of Notes to Consolidated FinancialStatements under Part 1, Item 1, which is incorporated herein byreference.

 

31.1                  Certificationof Chief Executive Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act).

 

31.2                  Certificationof Chief Financial Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 (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. Section 1350).

 

15

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**SIGNATURES**

** **

Pursuantto the 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: May 16,  2005 |   /s/  Randall D. Sampson         |
|                      | Randall D.  Sampson,                        |
|                      | President and  Chief Executive Officer      |
|                      |                                        |
| Dated: May 16,  2005 |   /s/  David C. Hansen            |
|                      | David C. Hansen,                            |
|                      | Vice President  and Chief Financial Officer |

 

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