Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

**(Mark One)**

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

 

**FOR THE QUARTERLY PERIOD ENDED MARCH 31,2009.**

 

**OR**

 
| ** ****o** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-----------------|----------------------------------------------------------------------------------------------------------|

 

**FOR THE TRANSITION PERIOD FROM           TO          .**

 

**Commission File Number:  001-31569**

 

****

 

**CANTERBURY PARK HOLDING CORPORATION**

(Exact Name of Registrant as Specified in Its Charter)

 

| **Minnesota**                                                      | ** ** | **41-1775532**                        |
|--------------------------------------------------------------------|------------|---------------------------------------|
| (State or Other  Jurisdiction

of Incorporation  or  Organization) |       | (I.R.S. Employer  Identification No.) |

 

**1100Canterbury Road**

**Shakopee, MN  55379**

(Address ofprincipal executive offices and zip code)

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. YES o NO x

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. YES o NO x

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. YES x NO o

 

Indicate by check markwhether the Registrant has submitted electronically and posted on its corporateWebsite, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12months (or for such shorter period that the Registrant was required to submitand post such files). YES o NO o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act.

 

| Large  accelerated filer o                |   | Accelerated  filer o         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company x |
| (Do not check if  a smaller reporting company) |   |                              |

 

Indicate by check mark whether the registrant isa shell company (as defined in Exchange Act Rule 12b-2). YES oNO x

 

TheCompany had 3,990,352 shares of common stock, $.01 par value, outstanding as ofMay 13, 2009.

 

 

 

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Canterbury ParkHolding Corporation

 

#### **INDEX**

#### ** **

| ** **        | ** **                | **Page**                                                                                             |
|-------------------|---------------------------|------------------------------------------------------------------------------------------------------|
| **PART I.**  | **FINANCIAL INFORMATION** | ** **                                                                                           |
| ** **        | ** **                | ** **                                                                                           |
|              | Item 1.                   | Financial Statements                                                                                 |   |
|              |                      |                                                                                                 |   |
|              |                      | Condensed  Consolidated Balance Sheets as of March 31, 2009 and December 31,  2008         | 3 |
|              |                      |                                                                                                 |   |
|              |                      | Condensed  Consolidated Statements of Operations for the periods ended March 31,  2009 and 2008 | 4 |
|              |                      |                                                                                                 |   |
|              |                      | Condensed  Consolidated Statements of Cash Flows for the periods ended March 31,  2009 and 2008 | 5 |
|              |                      |                                                                                                 |   |
|              |                      | Notes  to Condensed Consolidated Financial Statements                                                | 6 |
|              |                      |                                                                                                 |   |
|              | Item 2.                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations          | 13 |
|              |                      |                                                                                                 |   |
|              | Item 3.                   | Quantitative  and Qualitative Disclosures about Market Risk                                          | 18 |
|              |                      |                                                                                                 |   |
|              | Item 4.                   | Controls and  Procedures                                                                             | 18 |
|              |                      |                                                                                                 |
| **PART II.** | **OTHER INFORMATION**     |                                                                                                 |
|              |                      |                                                                                                 |   |
|              | Item 1.                   | Legal Proceedings                                                                                    | 19 |
|              |                      |                                                                                                 |   |
|              | Item 1A.                  | Risk Factors                                                                                         | 19 |
|              |                      |                                                                                                 |   |
|              | Item 2.                   | Unregistered  Sales of Equity Securities and Use of Proceeds                                         | 19 |
|              |                      |                                                                                                 |   |
|              | Item 3.                   | Defaults Upon  Senior Securities                                                                     | 19 |
|              |                      |                                                                                                 |   |
|              | Item 4.                   | Submission of  Matters to a Vote of Security Holders                                                 | 19 |
|              |                      |                                                                                                 |   |
|              | Item 5.                   | Other Information                                                                                    | 19 |
|              |                      |                                                                                                 |   |
|              | Item 6.                   | Exhibits                                                                                             | 19 |
|              |                      |                                                                                                 |   |
|              | Signatures                | 20                                                                                                   |
|              |                      |                                                                                                 |
|              | Certifications            |                                                                                                 |

 

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**PART 1 - FINANCIAL INFORMATION**

 

**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**MARCH 31,2009 AND DECEMBER 31, 2008 (Unaudited)**

 
| ** **                                                                                                                         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                         | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| **ASSETS**                                                                                                                         |       |               |       |                  |       |
| CURRENT ASSETS                                                                                                                     |       |               |       |                  |       |
| Cash                                                                                                                               |       | $                  | 4,667,864  |                  | $          | 3,745,731 |   |
| Restricted cash                                                                                                                    |       | 1,655,659          |       | 1,261,292             |       |
| Short-term  investments                                                                                                            |       | 285,135            |       | 312,995               |       |
| Accounts  receivable, net of allowance of $10,000 and $10,000                                                                      |       | 673,644            |       | 475,576               |       |
| Inventory                                                                                                                          |       | 227,483            |       | 213,682               |       |
| Prepaid expenses                                                                                                                   |       | 506,811            |       | 429,859               |       |
| Income taxes  receivable                                                                                                           |       | 151,127            |       | 566,436               |       |
| Deferred income  taxes                                                                                                             |       | 380,300            |       | 286,200               |       |
| Total current  assets                                                                                                              |       | 8,548,023          |       | 7,291,771             |       |
|                                                                                                                               |       |               |       |                  |       |
| LONG-TERM ASSETS                                                                                                                   |       |               |       |                  |       |
| Deposits                                                                                                                           |       | 20,000             |       | 20,000                |       |
| Land, buildings  and equipment, net of accumulated depreciation of $17,174,813 and  $16,616,600, respectively                      |       | 24,545,679         |       | 24,931,900            |       |
|                                                                                                                               |       |               |       |                  |       |
|                                                                                                                               |       | $                  | 33,113,702 |                  | $          | 32,243,671 |   |
|                                                                                                                               |       |               |       |                  |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                     |       |               |       |                  |       |
|                                                                                                                               |       |               |       |                  |       |
| CURRENT  LIABILITIES                                                                                                               |       |               |       |                  |       |
| Accounts payable                                                                                                                   |       | $                  | 2,233,253  |                  | $          | 1,852,253 |   |
| Card club  accruals                                                                                                                |       | 1,795,734          |       | 1,689,213             |       |
| Accrued wages  and payroll taxes                                                                                                   |       | 789,814            |       | 1,189,088             |       |
| Due to MHBPA                                                                                                                       |       | 126,666            |       | 48,251                |       |
| Accrued property  taxes                                                                                                            |       | 645,114            |       | 513,816               |       |
| Payable to  horsepersons                                                                                                           |       | 156,994            |       | 95,217                |       |
| Total current liabilities                                                                                                          |       | 5,747,575          |       | 5,387,838             |       |
|                                                                                                                               |       |               |       |                  |       |
| DEFERRED INCOME  TAXES                                                                                                             |       | 112,200            |       | 174,400               |       |
|                                                                                                                               |       |               |       |                  |       |
| COMMITMENTS AND  CONTINGENCIES (Note 6)                                                                                            |       |               |       |                  |       |
|                                                                                                                               |       |               |       |                  |       |
| STOCKHOLDERS’  EQUITY                                                                                                         |       |               |       |                  |       |
| Common stock,  $.01 par value, 10,000,000 shares authorized, 3,990,352 and 3,938,021, respectively,  shares issued and outstanding |       | 39,904             |       | 39,380                |       |
| Additional  paid-in capital                                                                                                        |       | 15,344,634         |       | 15,089,438            |       |
| Accumulated  earnings                                                                                                              |       | 11,869,389         |       | 11,552,615            |       |
| Total  stockholders’ equity                                                                                                   |       | 27,253,927         |       | 26,681,433            |       |
|                                                                                                                               |       | $                  | 33,113,702 |                  | $          | 32,243,671 |   |

 

See notes to condensed consolidated financial statements.

 

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**PERIODSENDED MARCH 31, 2009 AND 2008 (Unaudited)**

 
| ** **                                    | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------|------------|
| ** **                                    | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| OPERATING  REVENUES:                          |       |                                  |       |   |   |
| Pari-mutuel                                   |       | $                                     | 1,990,366  |   | $ | 2,477,922 |   |
| Card Club                                     |       | 5,104,228                             |       | 6,523,056 |   |
| Concessions                                   |       | 786,332                               |       | 875,803 |   |
| Other                                         |       | 345,215                               |       | 362,185 |   |
| Total Revenues                                |       | 8,226,141                             |       | 10,238,966 |   |
| Less:  Promotional Allowances                 |       | (30,965                               | )          | (38,903 | ) |
| Net Revenues                                  |       | 8,195,176                             |       | 10,200,063 |   |
|                                          |       |                                  |       |   |   |
| OPERATING  EXPENSES:                          |       |                                  |       |   |   |
| Purse expense                                 |       | 751,526                               |       | 1,274,050 |   |
| Minnesota Breeders’  Fund                |       | 154,889                               |       | 231,851 |   |
| Other  pari-mutuel expenses                   |       | 344,957                               |       | 438,408 |   |
| Salaries and  benefits                        |       | 3,699,390                             |       | 4,572,023 |   |
| Cost of sales                                 |       | 478,039                               |       | 587,943 |   |
| Depreciation                                  |       | 582,150                               |       | 505,050 |   |
| Utilities                                     |       | 255,257                               |       | 307,067 |   |
| Advertising and  marketing                    |       | 115,250                               |       | 181,705 |   |
| Other operating  expenses                     |       | 1,235,231                             |       | 1,291,773 |   |
|                                          |       | 7,616,689                             |       | 9,389,870 |   |
| NONOPERATING  REVENUES (EXPENSES):            |       |                                  |       |   |   |
| Interest  (expense) income                    |       | (1,454                                | )          | 967 |   |
| Other, net                                    |       | 1,741                                 |       | 45,820 |   |
|                                          |       | 287                                   |       | 46,787 |   |
|                                          |       |                                  |       |   |   |
| INCOME BEFORE  INCOME TAX EXPENSE             |       | 578,774                               |       | 856,980 |   |
|                                          |       |                                  |       |   |   |
| INCOME TAX  EXPENSE (Note 1)                  |       | (262,000                              | )          | (358,100 | ) |
|                                          |       |                                  |       |   |   |
| NET INCOME                                    |       | $                                     | 316,774    |   | $ | 498,880 |   |
|                                          |       |                                  |       |   |   |
| BASIC NET INCOME  PER COMMON SHARE (Note 1)   |       | $                                     | .08        |   | $ | .12 |   |
|                                          |       |                                  |       |   |   |
| DILUTED NET  INCOME PER COMMON SHARE (Note 1) |       | $                                     | .08        |   | $ | .12 |   |

 

See notes to condensed consolidated financial statements.

 

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**PERIODSENDED MARCH 31, 2009 AND 2008 (Unaudited)**

 
| ** **                                                               | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                               | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| **Operating  Activities:**                                               |       |                                  |       |   |   |
| Net Income                                                               |       | $                                     | 316,774    |   | $ | 498,880 |   |
| Adjustments to  reconcile net income to net cash provided by operations: |       |                                  |       |   |   |
| Depreciation                                                             |       | 582,150                               |       | 505,050 |   |
| Stock-based  compensation expense                                        |       | 31,234                                |       | 50,203 |   |
| Excess tax  benefit from exercise of stock options                       |       |                                  |       | (4,261 | ) |
| Loss on sale of  property and equipment                                  |       |                                  |       | 2,008 |   |
| Decrease in  deferred income taxes                                       |       | (153,309                              | )          | (114,103 | ) |
| Increase in  restricted cash                                             |       | (394,367                              | )          | (276,367 | ) |
| (Increase)  decrease in accounts receivable                              |       | (191,854                              | )          | 36,343 |   |
| (Increase)  decrease in other current assets                             |       | (96,967                               | )          | 98,869 |   |
| Decrease in  income taxes receivable                                     |       | 415,309                               |       | 177,203 |   |
| Decrease in  accounts payable and accrued wages and payroll taxes        |       | (25,878                               | )          | (298,024 | ) |
| Increase  (decrease) in card club accruals                               |       | 106,521                               |       | (13,195 | ) |
| Increase in  accrued property taxes                                      |       | 131,298                               |       | 123,708 |   |
| Increase in  payable to horsepersons                                     |       | 61,777                                |       | 141,124 |   |
| Increase in due  to MHBPA                                                |       | 78,415                                |       | 52,971 |   |
| Net cash  provided by operations                                         |       | 861,103                               |       | 980,409 |   |
|                                                                     |       |                                  |       |   |   |
| **Investing  Activities:**                                               |       |                                  |       |   |   |
| Additions to  buildings and equipment                                    |       | (188,325                              | )          | (483,355 | ) |
| Proceeds from  sale of equipment                                         |       |                                  |       | 3,500 |   |
| Decrease  (increase) in short-term investments                           |       | 27,860                                |       | (1,472 | ) |
| Net cash used in  investing activities                                   |       | (160,465                              | )          | (481,327 | ) |
|                                                                     |       |                                  |       |   |   |
| **Financing  Activities**                                                |       |                                  |       |   |   |
| Proceeds from  issuance of common stock                                  |       | 221,495                               |       | 56,000 |   |
| Common stock  repurchases                                                |       |                                  |       | (50,783 | ) |
| Excess tax  benefit from exercise of stock options                       |       |                                  |       | 4,261 |   |
| Net cash  provided by financing activities                               |       | 221,495                               |       | 9,478 |   |
|                                                                     |       |                                  |       |   |   |
| Net increase in  cash                                                    |       | 922,133                               |       | 508,560 |   |
|                                                                     |       |                                  |       |   |   |
| Cash at  beginning of period                                             |       | 3,745,731                             |       | 7,050,389 |   |
|                                                                     |       |                                  |       |   |   |
| Cash at end of  period                                                   |       | $                                     | 4,667,864  |   | $ | 7,558,949 |   |
|                                                                     |       |                                  |       |   |   |
| Supplemental  disclosure of noncash investing activities:                |       |                                  |       |   |   |
| Additions to  buildings and equipment funded through accounts payable    |       | $                                     | 39,333     |   | $ | 270,100 |   |
|                                                                     |       |                                  |       |   |   |
| Supplemental  disclosure of noncash financing activities:                |       |                                  |       |   |   |
| Common stock  repurchases funded through accounts payable                |       |                                  |       | $ | 18,227 |   |
|                                                                     |       |                                  |       |   |   |
| Proceeds from  issuance of common stock funded through shares swapped    |       | $                                     | 15,880     |   | $ | 20,000 |   |
|                                                                     |       |                                  |       |   |   |
| Supplemental  disclosure of cash flow information:                       |       |                                  |       |   |   |
| Income taxes  paid, net of refunds                                       |       |                                  |       | $ | 295,000 |   |

 

See notes to condensed consolidated financial statements.

 

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

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

**PERIODSENDED MARCH 31, 2009 AND 2008 (Unaudited)**

 

1.               SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

*Business* — Canterbury Park Holding Corporation(the “Company”) was incorporated under the laws of Minnesota and acquired landand buildings to conduct pari-mutuel horse racing operations (the “Racetrack”)in March 1994.  The Racetrack islocated in Shakopee, Minnesota, approximately 25 miles southwest of downtownMinneapolis.  In May 1994, wecommenced year-round horse racing simulcast operations and hosted the firstannual live race meet during the summer of 1995.  Our live racing operations are a seasonalbusiness as we host live race meets each year from May until August.  We earn additional pari-mutuel revenue bytelevising our live racing to out-of-state Racetracks around the country.  We also derive revenues from related servicesand activities, such as advertising, admissions, parking and publication salesand from other entertainment events and activities held at the Racetrack.  In April 2000, we opened CanterburyPark’s Card Club (the “Card Club”).  TheCard Club operates 24 hours a day, seven days a week and is limited byMinnesota State law to a maximum of 50 tables. The Card Club currently offers 34 tables of Poker Games and 16 tables ofCasino Games.  Our three largest sourcesof revenues, Card Club operations, pari-mutuel operations and concessionssales, generate cash revenues.

 

*Presentation—*The CondensedConsolidated Statement of Operations from the prior-period has been conformedto the 2009 presentation.  This presentation change had no effect on netincome or earnings per share.

 

*UnauditedFinancial Statements*- The condensed consolidated balance sheet as of March 31, 2009, thecondensed consolidated statements of operations for the three months ended March 31,2009 and 2008, the condensed consolidated statements of cash flows for thethree months ended March 31, 2009 and 2008, and the related informationcontained in these notes have been prepared by management without audit.  In the opinion of management, all adjustments(consisting only of normal recurring adjustments) 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.

 

The summary ofsignificant accounting policies is included in the notes to consolidatedfinancial statements in the 2008 Annual Report on Form 10-K.

 

*RevenueRecognition -*Our revenues are derived primarily from the operations ofa Card Club, pari-mutuel wagering on simulcast and live horse races, concessionsales, and related activities. Collection revenue from Card Club operations and pari-mutuel commissionand fee revenues are recognized at the time that the wagering process iscomplete.  Revenues related to concessionand publication sales and parking and admission fees are recognized as revenuewhen the service has been performed or the product has been delivered.

 

*Estimates* - The preparation of the condensedconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe condensed consolidated financial statements and the reported amounts ofrevenues and expenses during the reporting period.  Actual results could differ from theseestimates.

 

*RestrictedCash* - Restrictedcash represents refundable deposits and amounts due to horsemen for purses,stakes and awards, and amounts accumulated in the player pool and jackpot poolsto be used to repay card club players in the form of promotions, giveaways,prizes, or by other means.

 

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* *

*IncomeTaxes*- Incometax expense is computed by applying the estimated annual effective tax rate tothe year-to-date income.  Income taxesare accounted for under the asset and liability method.  Deferred tax assets and liabilities arerecognized for the estimated future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax ratesin effect for the year in which those temporary differences are expected toreverse.

 

The Company andits consolidated subsidiaries file income tax returns in the United States(“U.S.”) federal jurisdiction.  TheCompany is no longer subject to U.S. federal examinations by tax authoritiesfor years prior to 2007 or by State of Minnesota tax authorities for yearsprior to 2003.  We do not believe therewill be any material changes in our unrecognized tax positions over the nexttwelve months.

 

*NetIncome Per Share*- Basic net income per common share is based on the weighted averagenumber of common shares outstanding during each period.  The weighted average number of common sharesoutstanding for the three-month periods ended March 31, 2009 and March 31,2008 were 3,947,930 and 4,066,403, respectively.  Diluted net income per common share takesinto effect the dilutive effect of potential common shares outstanding.  The Company’s potential common sharesoutstanding are stock options and shares of unvested (“restricted”) stock.  After considering the dilutive effect ofstock options and restricted stock outstanding, the weighted average sharesused to calculate diluted earnings per share for the three month periods ended March 31,2009 and March 31, 2008 were 3,952,602 and 4,159,925, respectively.

 

*FairValues of Financial Instruments —*Due to the current classification of all financialinstruments of the Company and given the short-term nature of the relatedaccount balances, carrying amounts reported in the condensed consolidatedbalance sheets approximate fair value.

 

*RecentlyAdopted Accounting Pronouncements —*In December 2007,the FASB issued Statement of Financial Accounting Standards No. 141(revised)*Business Combinations*.  Statement No. 141(R) applies to allbusiness combinations. Under SFAS No. 141(R), an entity is required torecognize the assets acquired, liabilities assumed, contractual contingencies,and contingent consideration at their fair values on the acquisition date.  The adoption of FASB 141(R) during thefirst quarter of 2009 had no impact on our financial position or results ofoperation.

 

*NewAccounting Pronouncements —*In April 2009, the FASB issued FSP FAS 157-4,which provides additional guidance for estimating fair value in accordance withSFAS No. 157, *Fair Value Measurements*,when the volume and level of market activity for an asset or liability havesignificantly decreased.  FSP FAS 157-4 emphasizes that even if there hasbeen a significant decrease in the volume and level of market activity for theasset or liability, fair value still represents the exit price in an orderlytransaction between market participants.  FSP FAS 157-4 is effective for interimand annual periods ending after June 15, 2009.  The Company does notexpect the implementation of FSP FAS 157-4 to have a material impact on itsconsolidated financial statements.

 

In April 2009,the FASB issued FSP FAS 115-2 and FAS 124-2, which changes the method fordetermining whether an other-than-temporary impairment exists for debtsecurities, and also requires additional disclosures regardingother-than-temporary impairments.  FSP FAS 115-2 and FAS 124-2 areeffective for interim and annual periods ending after June 15, 2009. The Company does not expect the implementation of FSP FAS 115-2 and FAS 124-2to have a material impact on its consolidated financial statements.

 

2.               STOCK-BASED COMPENSATION

 

Effective January 1,2006, we adopted FASB Statement No.123(R), *ShareBased Payment* (“SFAS 123R”), applying the modified prospectivetransition method.  We recognized $31,234and $50,203 in stock-based compensation expense in salaries and benefitsexpense line item on the condensed 

 

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consolidatedstatements of operations during the three-months ended March 31, 2009 and2008, respectively.

 

Our annual grantof stock-based compensation generally takes place during the first quarter ofeach fiscal year.  Each non-employeemember of the Board of Directors receives an annual recurring grant of 3,000non-qualified stock options on the first business day in February.  On February 2, 2009, 15,000 options weregranted to the five non-employee board members with an exercise price equal tothe market price on the date of grant of $6.66. The stock options vest over a six-month period and expire in tenyears.  Thecompensation cost associated with this grant of Board of Director options is$18,900 to be recognized as expense over the six-month vesting period.  On February 1, 2008, 15,000 options were grantedto the five non-employee board members with an exercise price equal to themarket price on the date of grant of $11.35.

 

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

 
| ** **    | ** ** | **Three Months Ended**  | ** ** |
|---------------|------------|-------------------------|------------|
| ** **    | ** ** | **March 31, 2009** | ** ** | **March 31, 2008** | ** ** |
| ** **    | ** ** | ** **              | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **    | ** ** | ** **              | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **    | ** ** | ** **              | ** ** | **Fair Value** | ** ** | ** ** | ** ** | **Fair Value** | ** ** |
| ** **    | ** ** | **Grant**               | ** ** | **Per Share** | ** ** | **Grant** | ** ** | **Per Share** | ** ** |
|          |       |                    |       |   |   |   |   |   |   |
| Stock options |       | 15,000                  |       | $ | 1.26 |   | 15,000 |   | $ | 1.98 |   |
|          |       |                    |       |   |   |   |   |   |   |
| Total shares  |       | 15,000                  |       |   |   | 15,000 |   |   |   |
|               |            |                         |            |  |  |  |  |  |  |  |  |

 

The fair value ofstock options granted under the Company’s 1994 Stock Plan during the firstthree months of 2009 and 2008 were estimated on the date of grant using theBlack-Scholes option-pricing model with the following weighted averageassumptions and results:

 
| ** **                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| Dividend yield                             |       | 3.75     | %          | 2.20     | %          |
| Weighted-average  volatility               |       | 26       | %          | 15       | %          |
| Risk-free  interest rate                   |       | 2.76     | %          | 3.62     | %          |
| Expected term of  stock options in years   |       | 7.4      |       | 7.3      |       |
| Fair value of  stock options on grant date |       | $        | 18,900     |     | $          | 29,700 |   |
|                                            |            |          |            |          |            |  |  |

 

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A summary of stockoption activity as of March 31, 2009 and changes during the three monthsthen ended is presented below:

 
| ** **                           | ** ** | ** **    | ** ** | ** **   | ** ** | **Weighted**    | ** ** | ** **     | ** ** |
|--------------------------------------|------------|---------------|------------|--------------|------------|-----------------|------------|----------------|------------|
| ** **                           | ** ** | ** **    | ** ** | **Weighted** | ** ** | **Average**     | ** ** | ** **     | ** ** |
| ** **                           | ** ** | ** **    | ** ** | **Average**  | ** ** | **Remaining**   | ** ** | **Aggregate**  | ** ** |
| ** **                           | ** ** | **Number of** | ** ** | **Exercise** | ** ** | **Contractual** | ** ** | **Grant Date** | ** ** |
| **Stock Options**                    | ** ** | **Shares**    | ** ** | **Price**    | ** ** | **Term**        | ** ** | **Fair Value** | ** ** |
|                                 |       |          |       |         |       |            |       |           |       |
| Outstanding at  January 1, 2009 |       | 470,000       |       | $            | 11.12      |            |       |           |       |   |
|                                 |       |          |       |         |       |            |       |           |       |
| Granted                              |       | 15,000        |       | 6.66         |       |            |       |           |       |
| Exercised                            |       | (55,000       | )          | 4.32         |       |            |       |           |       |
| Expired/Forfeited                    |       | (81,000       | )          | 16.04        |       |            |       |           |       |
|                                 |       |          |       |         |       |            |       |           |       |
| Outstanding at  March 31, 2009  |       | 349,000       |       | $            | 10.86      |            | 3.2 Years  |           | $          | 3,790,630 |   |
|                                 |       |          |       |         |       |            |       |           |       |
| Exercisable at  March 31, 2009  |       | 330,250       |       | $            | 11.01      |            | 2.9 Years  |           | $          | 3,636,168 |   |

 

*EmployeeStock Ownership Plan*— During the first quarter of 2008, the Company contributed 10,000 shares ofcommon stock to the Employee Stock Ownership Plan (“ESOP”).  This contribution of $110,000 was a noncashtransaction in which shares were issued and were allocated to the accounts ofeligible employees based upon their 2007 compensation during the first quarterof 2008.  On October 24, 2008, theCompany announced it had suspended its ESOP contribution for fiscal 2008.  As of the date of this filing, the Companyhas taken no further action regarding possible re-introduction of thecontribution.

 

3.               FAIR VALUE

 

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

 

*Level1* — Quoted pricesin active markets for identical assets or liabilities.

 

*Level2* — Observableinputs other than Level 1 prices such as quoted prices for similar assets orliabilities; quoted prices in markets that are not active; or other inputs thatare observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities.

 

*Level3* — Unobservableinputs that are supported by little or no market activity and that aresignificant to the fair value of the assets or liabilities.

 

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

 

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Assets and liabilitiesmeasured at fair value on a recurring basis for March 31, 2009 and December 31,2008 are summarized below:

 
| ** **                                        | ** ** | **Fair Value Measurements as of  March 31, 2009** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------|------------|
| **Description**                                   | ** ** | **Total**                                              | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|                                              |       |                                                   |       |   |   |   |   |   |   |
| Short-term  investments (Certificates of Deposit) |       | $                                                      | 285,135    |   | $ | 285,135 |   | $ | — |   | $ | — |   |
|                                              |       |                                                   |       |   |   |   |   |   |   |
| Total                                             |       | $                                                      | 285,135    |   | $ | 285,135 |   | $ | — |   | $ | — |   |

 
| ** **                                        | ** ** | **Fair Value Measurements as of  December 31, 2008** | ** ** |
|---------------------------------------------------|------------|-----------------------------------------------------------|------------|
| **Description**                                   | ** ** | **Total**                                                 | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|                                              |       |                                                      |       |   |   |   |   |   |   |
| Short-term  investments (Certificates of Deposit) |       | $                                                         | 312,995    |   | $ | 312,995 |   | $ | — |   | $ | — |   |
|                                              |       |                                                      |       |   |   |   |   |   |   |
| Total                                             |       | $                                                         | 312,995    |   | $ | 312,995 |   | $ | — |   | $ | — |   |

 

4.               BORROWINGS UNDER CREDIT AGREEMENT

 

Borrowings underthe Company’s credit agreement with Bremer Bank include a commercial revolvingcredit line, which provides for maximum advances of $5,000,000 until June 30,2009 with interest at the prime rate but not less than 4.5% per annum.  The Company had no borrowings under thiscredit line at March 31, 2009 and December 31, 2008.  The credit agreement contains certaincovenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements as of March 31, 2009. Management believes that funds available under this line of credit,along with funds generated from card club and simulcast operations, will besufficient to satisfy its liquidity and capital resource requirements during2009.

 

5.               OPERATING SEGMENTS

 

During the firstthree months of 2009 and 2008, the Company had three reportable operatingsegments:  horse racing, card club, andconcessions.  The horse racing segmentprimarily represents simulcast and live horse racing operations.  The card club segment primarily representsoperations of Canterbury Park’s Card Club, and the concessions segmentprimarily represents concessions provided during simulcast and live racing, inthe card club, and during special events. The Company’s reportable operating segments are strategic business unitsthat offer different products and services. They are managed separately because the segments differ in the nature ofthe products and services provided as well as processes to produce thoseproducts and services.  The MinnesotaRacing Commission regulates the horse racing and card club segments.

 

The accountingpolicies of the operating segments are the same as those described in thesummary of significant accounting policies in the 2008 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.

 

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

 
| ** **                            | ** ** | **Three Months Ended March 31, 2009** | ** ** |
|---------------------------------------|------------|--------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                           | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Net revenues  from external customers |       | $                                          | 2,303      |   | $ | 5,104 |   | $ | 788 |   | $ | 8,195 |   |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 90                                         |       |   |   | 335 |   | 425 |   |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Net interest  income                  |       |                                       |       |   |   |   |   |   |   |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Depreciation                          |       | 377                                        |       | 162 |   | 43 |   | 582 |   |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Segment income  before income taxes   |       | 88                                         |       | 552 |   | 24 |   | 664 |   |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Segment Assets                        |       | $                                          | 29,047     |   | $ | 3,270 |   | $ | 8,777 |   | $ | 41,094 |   |

 
| ** **                            | ** ** | **Three Months Ended March 31, 2008** | ** ** |
|---------------------------------------|------------|--------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                           | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Net revenues  from external customers |       | $                                          | 3,066      |   | $ | 6,253 |   | $ | 881 |   | $ | 10,200 |   |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 91                                         |       |   |   | 433 |   | 524 |   |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Net interest  income                  |       | 47                                         |       |   |   |   |   | 47 |   |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Depreciation                          |       | 323                                        |       | 140 |   | 42 |   | 505 |   |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Segment income  before income taxes   |       | 215                                        |       | 608 |   | 90 |   | 913 |   |
|                                       |            |                                            |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **     | ** ** | **At December 31, 2008** | ** ** |
|----------------|------------|-------------------------------|------------|
|           |       |                          |       |   |   |   |   |   |   |
| Segment Assets |       | $                             | 28,050     |   | $ | 3,346 |   | $ | 8,710 |   | $ | 40,106 |   |
|                |            |                               |            |  |  |  |  |  |  |  |  |  |  |

 

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

 
| ** **                                              | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                              | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| Revenues                                                |       |                                  |       |   |   |
| Total net  revenue for reportable segments              |       | $                                     | 8,620      |   | $ | 10,724 |   |
| Elimination of  intersegment revenues                   |       | (425                                  | )          | (524 | ) |
| Total  consolidated net revenues                        |       | $                                     | 8,195      |   | $ | 10,200 |   |
|                                                    |       |                                  |       |   |   |
| Income before  income taxes                             |       |                                  |       |   |   |
| Total segment  income before income taxes               |       | $                                     | 664        |   | $ | 913 |   |
| Elimination of  intersegment income before income taxes |       | (85                                   | )          | (56 | ) |
| Total  consolidated income before income taxes          |       | $                                     | 579        |   | $ | 857 |   |

 
| ** **                               | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                               | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| Assets                                   |       |               |       |                  |       |
| Total assets for  reportable segments    |       | $                  | 41,094     |                  | $          | 40,106 |   |
| Elimination of  intercompany receivables |       | (7,980             | )          | (7,862                | )          |
| Total  consolidated assets               |       | $                  | 33,114     |                  | $          | 32,244 |   |

 

6.               CONTINGENCIES

 

In accordance withan Earn Out Note, given to the prior owner of the Racetrack as part of theconsideration paid by the Company to acquire the Racetrack in 1994, if (i) off-trackbetting becomes 

 

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legallypermissible 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 this time, management believes that the likelihood that these twoconditions will be met, and that the Company will be required to pay theseamounts is remote.  At the date (if any)that these two conditions are met, the five minimum payments will be discountedback to their present value and the sum of those discounted payments will becapitalized as part of the purchase price in accordance with generally acceptedaccounting principles.  The purchaseprice will be further increased if payments become due under the “20% of NetPretax Profit” calculation.  The firstpayment is to be made 90 days after the end of the third operating year inwhich off-track betting is conducted by the Company.  Remaining payments would be made within 90days of the end of each of the next four operating years.

 

The Company isperiodically involved in various legal actions arising in the normal course ofbusiness.  At March 31, 2009,management believes that the resolution of any legal actions outstanding willnot have a material impact on the consolidated financial statements.

 

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** **

**ITEM2:          MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

** **

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

 

**Overview:**

 

Canterbury Park HoldingCorporation (the “Company”) owns and operates the Canterbury Park Racetrack andCard Club in Shakopee, Minnesota (the “Racetrack”).  The primary businesses of the Company aresimulcast and live pari-mutuel horse racing, hosting unbanked card games, andfood and beverage operations.

 

The Racetrack is the onlypari-mutuel thoroughbred and quarter horse racing facility in the State ofMinnesota.  The Racetrack earns revenuesfrom pari-mutuel take-out on races simulcast year-round to Canterbury Park fromracetracks throughout the country and from live race meets featuringthoroughbred and quarter horse racing. Live race meets commence in the month of May and conclude inAugust.  During live race meets, theCompany televises its races to out-of-state racetracks around the country, andearns additional pari-mutuel revenue on wagers placed on races at theout-of-state racetracks.

 

 Canterbury Park’s Card Club (the “Card Club”)hosts “unbanked” card games in which players compete against each other and notagainst the house.  The Card Club is opentwenty-four hours a day, seven days a week. Under Minnesota law, the Company is required to pay up to 14% of thegross Card Club revenues to the Racetrack’s purse fund and the State ofMinnesota Breeders’ Fund.

 

The Company alsogenerates revenues from other activities such as admission and parking fees andfrom the sale of food and beverage, programs and other racing publications, andcorporate sponsorships.  Additionalrevenues are derived from an RV park and the use of the Racetrack facilitiesfor special events such as concerts, craft shows and snowmobile racing.

 

**Operations Review for the****Three****Months Ended March 31, 2009 and March 31, 2008:**

 

The following table setsforth a reconciliation of net income, a GAAP financial measure, to EBITDA, anon-GAAP measure, for the periods ended March 31, 2009 and 2008:

 
| ** **                                | ** ** | **March 31,  2009** | ** ** | **March 31,  2008** | ** ** |
|-------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Net income                                |       | $                        | 316,774    |                     | $          | 498,880 |   |
| Interest income,  net of interest expense |       | (287                     | )          | (46,787                  | )          |
| Income tax  expense                       |       | 262,000                  |       | 358,100                  |       |
| Depreciation                              |       | 582,150                  |       | 505,050                  |       |
| EBITDA                                    |       | $                        | 1,160,637  |                     | $          | 1,315,243 |   |

 

EBITDA represents earningsbefore interest income, income tax expense, and depreciation andamortization.  EBITDA is not a measure ofperformance or liquidity calculated in accordance with generally acceptedaccounting principles (“GAAP”), and should not be considered an alternative to,or more meaningful than, net income as an indicator of our operatingperformance, or cash flows from operating activities as a measure ofliquidity.  EBITDA has been presented asa supplemental disclosure because it is a widely used measure of performanceand basis for valuation of companies in our industry.  Moreover, other companies that provide EBITDAinformation may calculate EBITDA differently than we do.

 

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EBITDA as a percentage ofnet revenues was 14.2% for the first quarter ended March 31, 2009 comparedto 12.9% for the first quarter ended March 31, 2008.  The increase is attributable to cost controlinitiatives that the Company put in place during fiscal 2008.  The Company believes that these cost savinginitiatives will continue to have a positive effect on future EBITDA inaddition to the initial savings that were obtained.

 

Total net revenuesdecreased $2,004,887, or 19.7%, during the three months ended March 31,2009 compared to the three months ended March 31, 2008.  The decrease is due primarily to decreases inpari-mutuel and card club revenues.

 

Pari-mutuel revenue decreased $487,556, or 19.7%, inthe three-month period ended March 31, 2009 compared to the same period in2008.  Total handle was approximately$9.1 million, or 23.2%, lower than total handle of $11.9 million during thesame quarter a year ago.  The decrease isprimarily attributable to an economic downturn that has adversely impacteddiscretionary spending on entertainment. This economic downturn that began in 2008 has continued to eroderevenues throughout the first quarter of 2009. In addition, the Company now faces direct pari-mutuel competition fromRunning Aces Harness Park (“Running Aces”), a harness track that opened inAnoka County in April 2008.  See the“Summary of Pari-Mutuel Data” below.

 
| ** **                       | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------|------------|---------------------------------------|------------|
| **Summary of Pari-Mutuel Data:** | ** ** | **2009**                              | ** ** | **2008** | ** ** |
|                             |       |                                  |       |   |   |
| Simulcast racing  days           |       | 90                                    |       | 91 |   |
| ** **                       | ** ** | ** **                            | ** ** | ** ** | ** ** |
| On-track  simulcast handle       |       | $                                     | 9,123,000  |   | $ | 11,881,000 |   |
| ** **                       | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Average daily  handle            |       | $                                     | 101,000    |   | $ | 131,000 |   |

 

Total Card Club revenuedecreased 21.8%, or $1,418,828, for the first three months of 2009 compared tothe same period in 2008.  The primarysource of Card Club revenue is a percentage of the wagers received from theplayers as compensation for providing the Card Club facility and services,referred to as the “collection revenue”. Other revenue includes fees collected for the administration oftournaments, and amounts earned as reimbursement of the administrative costs ofmaintaining jackpot funds.  Pokercollection revenue fell $1,277,964, or 28.7%, compared to the first quarter of2008.  In addition, Casino Gamescollection revenue dropped $282,581, or 15.1%, compared to the first threemonths of 2008.  The decrease isprimarily attributable to an economic downturn that has adversely impacteddiscretionary spending on entertainment. This economic downturn that began in 2008 has continued to eroderevenues throughout the first quarter of 2009. In addition, the Company now faces direct card room competition fromRunning Aces.  The Company believespatronage at Running Aces card room has had a material adverse effect on theCompany’s card room revenue.  Total CardClub revenues represented 62.3% and 64.0% of net revenues for the three-monthperiods ended March 31, 2009 and 2008, respectively.

 

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See the “Summary of CardClub Data” below.

 
| ** **                     | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------|------------|---------------------------------------|------------|
| **Summary of Card Club Data:** | ** ** | **2009**                              | ** ** | **2008** | ** ** |
|                           |       |                                  |       |   |   |
| Poker Games                    |       | $                                     | 3,177,000  |   | $ | 4,455,000 |   |
| Casino Games                   |       | 1,594,000                             |       | 1,877,000 |   |
| Total Collection  Revenue      |       | 4,771,000                             |       | 6,332,000 |   |
|                           |       |                                  |       |   |   |
| Other Revenue                  |       | 333,000                               |       | 191,000 |   |
| Total Card Club  Revenue       |       | $                                     | 5,104,000  |   | $ | 6,523,000 |   |
|                           |       |                                  |       |   |   |
| Number of Days  Offered        |       | 90                                    |       | 91 |   |
| Average Revenue  per Day       |       | $                                     | 57,000     |   | $ | 72,000 |   |

 

Concession revenues decreased 10.2%, or $89,471, forthe quarter ended March 31, 2009 compared to the first quarter of2008.  The decrease is primarilyattributable to the decrease in card room patronage and related concessionsales.

 

Total operating expensesin the first quarter of 2009 decreased by $1,773,181, or 18.9%, compared to thethree-month period ended March 31, 2008. However, total operating expenses as a percentage of net revenuesremained relatively unchanged at 92.9% for the first three months of 2009,compared to 92.1% for the same period in 2008. While variable expenses did decrease with the reductions in revenues,fixed expenses increase as a percentage of revenues as revenues decrease.

 

Total expense forstatutory purses and the Minnesota Breeders’ Fund decreased 39.8% toapproximately $906,000 for the quarter ended March 31, 2009 compared tothe quarter ended March 31, 2008. The decrease was due primarily to a reduction in Card Club purse andbreeders’ fund expenses due to lower Card Club collection revenues in the firstquarter of 2009 compared to the first quarter of 2008.  Additionally, beginning in July of 2008,the Company reverted to the statutory purse rate of 10% on the first $6 millionof gross Card Club revenues and 14% thereafter as being set aside as pursemonies.

 

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

 
| ** **       | ** ** | **Purse Expense**                     | ** ** | **Minnesota Breeders’ Fund  Expense** | ** ** |
|------------------|------------|---------------------------------------|------------|--------------------------------------------|------------|
| ** **       | ** ** | **Three Months Ended March 31,** | ** ** | **Three Months Ended March 31,**      | ** ** |
| ** **       | ** ** | **2009**                              | ** ** | **2008**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
|             |       |                                  |       |                                       |       |   |   |   |   |
| Card Club        |       | $                                     | 459,381    |                                       | $          | 880,612 |   | $ | 51,042 |   | $ | 97,846 |   |
|             |       |                                  |       |                                       |       |   |   |   |   |
| Simulcast Racing |       | 292,145                               |       | 393,438                                    |       | 103,847 |   | 134,005 |   |
|             |       |                                  |       |                                       |       |   |   |   |   |
| Total            |       | $                                     | 751,526    |                                       | $          | 1,274,050 |   | $ | 154,889 |   | $ | 231,851 |   |

 

Salary and benefit costsdecreased by $872,633, or 19.1%, compared to the first quarter of 2008primarily as a result of the savings related to the reduction-in-force thatoccurred in October of 2008. Advertising and marketing costs decreased by $66,455, or 36.6%, comparedto the first quarter of 2008 primarily as a result of lower advertising agencyand related fees compared to the prior year.

 

Income before incometaxes decreased $278,206, or 32.5%, to $578,774 for the three months ended March 31,2009, from $856,980 for the three months ended March 31, 2008.  Income tax expense was $262,000 and $358,100for the first quarters of 2009 and 2008, respectively, resulting in net incomeof $316,774 and $498,880, respectively.

 

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#### **Contingencies:**

#### ** **

There have been no material changes in ourcontingencies since those reported at December 31, 2008.

 

**Liquidityand Capital Resources:**

 

Cash provided by operating activities for the threemonths ended March 31, 2009 was $861,103 and resulted principally from netincome of $316,774, depreciation of $582,150, and a decrease in income taxesreceivable of $415,309.  These items werepartially offset by an increase in restricted cash of $394,367 due primarily toan increase in the player pool of $248,176. Cash provided by operating activities for the three months ended March 31,2008 was $980,409 and resulted principally from net income of $498,880 anddepreciation of $505,050.  These itemswere partially offset by a decrease in accounts payable and accrued wages andpayroll taxes of $298,024 due primarily to an additional $270,100 of fixedasset additions being funded through accounts payable.  Pursuant to an agreement with the MinnesotaHorsemen’s Benevolent and Protective Association (MHBPA), during the threemonths ended March 31, 2009 and 2008, the Company transferred into a trustaccount for these purposes or paid directly to the MHBPA approximately $600,000and $1,025,000, respectively.

 

Net cash used ininvesting activities for the first quarter of 2009 of $160,465 was usedprimarily on equipment for backside operations. Net cash used in investing activities for the first quarter of 2008 of$481,327 was used primarily for upgrades to the grandstand building.

 

Net cash provided by financing activities during thefirst three months of 2009 consisted solely of proceeds received upon theexercise of stock options of $221,495. Net cash provided by financing activities during the first three monthsof 2008 consisted primarily of proceeds received upon the exercise of stockoptions of $56,000 offset by stock repurchases of $50,783.

 

The Company has a generalcredit agreement with Bremer Bank, which provides a revolving credit line of upto $5,000,000 until June 30, 2009 with interest at the prime rate but notless than 4.5% per annum.  The Companyhad no borrowings under the line of credit at March 31, 2009 or December 31,2008.  The credit agreement containscovenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements at all times throughout the quarter ended March 31, 2009.

 

Unrestricted cash balances at March 31, 2009 were$4,394,829 compared to $3,745,731 at December 31, 2008.  The Company believes that funds available inits cash accounts, amounts available under the general credit and securityagreement, along with funds generated from operations, will be sufficient tosatisfy its liquidity and capital resource requirements during 2009 for regularoperations.

 

##### **Critical AccountingPolicies and Estimates:**

##### ** **

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

 

Our significantaccounting policies are included in Note 1 to our consolidated financialstatements in our 2008 Annual Report on Form 10-K. We believe thefollowing critical accounting policies affect our more significant judgmentsand estimates used in the preparation of our consolidated financial statements.

 

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*Land,Buildings and Equipment* - We have significant capital invested in our property and equipment,which represents approximately 74.1% of our total assets. We utilize ourjudgment in various ways including: determining whether an expenditure isconsidered a maintenance expense or a capital asset; determining the estimateduseful lives of assets; and determining if or when an asset has been impaired.Our property and equipment is evaluated for impairment whenever circumstancesindicate that the carrying value of an asset may not be recoverable from the estimatedfuture cash flows expected to result from its use. If the sum of the expectedfuture cash 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 businesscan be materially impacted both positively and negatively by legislative andregulatory changes, such as those described below.  Significant negative changes resulting fromthese activities 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 our2008 Annual Report on Form 10-K.

 

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

##### ** **

There have been no material changes in our outstandingcommitments and contractual obligations since those reported at December 31,2008.

 

**Legislation:**

 

The Company has not proposed or supported anylegislation during the 2009 biannual session of the Minnesota Legislature topursue our Racino proposal that has been discussed in our previous flings withthe SEC, mainly because a majority of those serving in the MinnesotaLegislature are considered unlikely to favorably entertain our Racinoproposal.  Based on the success ofseveral Racinos in other states, we continue to believe that if a Racino wasauthorized at the Racetrack, it would enhance horseracing with increasedpurses, provide growth and development opportunities for the Company, andprovide significant new tax revenues for state and local governments.

 

In April 2008, theMinnesota Legislature passed a bill allowing pari-mutuel simulcast wagering onall breeds at Running Aces.  In anticipationof the passing of this legislation, the Company entered into a revenue sharingagreement with Running Aces.  Thisagreement will benefit the respective horsemen’s associations by requiring theCompany and Running Aces to make purse set aside contributions and BreedersFund contributions as required by law. Additionally, under the terms of the agreement, the Company will payRunning Aces a portion of net revenues for simulcast wagers taken on harnessracing, and Running Aces will pay the Company a portion of net revenues forsimulcast wagers taken on thoroughbred racing.

 

**Forward-Looking Statements:**

 

Fromtime to time, in reports filed with the Securities and Exchange Commission, inpress releases, and in other communications to shareholders or the investingpublic, the Company may make forward-looking statements concerning possible oranticipated future financial performance, business activities or plans whichare typically preceded by the words “believes,” “expects,” “anticipates,”“intends” or similar expressions.  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 and uncertaintiesinclude, but are not limited to: fluctuations in attendance at the Racetrack,material changes in the level of wagering by patrons, decline 

 

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ininterest in the unbanked card games offered at the Card Club, legislative andregulatory changes, the impact of wagering products and technologies introducedby competitors; increases in the percentage of revenues allocated for pursefund payments; increase in compensation and employee benefit costs; the generalhealth of the gaming sector; higher than expected expense related to newmarketing initiatives; and other factors discussed under Item 1A in our Reporton Form 10-K for the year ended December 31, 2008 and in theCompany’s other filings with the Securities and Exchange Commission.

 

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

 

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

 

**ITEM4:     CONTROLS AND PROCEDURES**

 

(a)                                 Evaluation of Disclosure Controls and Procedures:

 

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

 

(b)                                Changes in Internal Control Over FinancialReporting:

 

Therehas been no change in our internal control over financial reporting (as definedin Rules 13a-15(f) under the Securities Exchange Act of 1934) thatoccurred during our fiscal quarter ended March 31, 2009 that havematerially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

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**PART II**

**OTHERINFORMATION**

 

Item1.                                                           **Legal Proceedings**

 

Not Applicable.

 

Item1A.                                                 **Risk Factors**

 

Therehave been no material changes to the Risk Factors since those reported in the Form 10-Kfor the year ended December 31, 2008.

 

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

 

(a)          Not Applicable.

(b)         Not Applicable.

(c)          On January 16, 2008, the Company announced thatits Board of Directors had authorized a program to repurchase up to an additional250,000 shares of the Company’s common stock. During the first quarter of 2009, the Company did not repurchase anyshares of common stock.  As of March 31,2009, there are 33,457 shares at maximum that the Company may buy back as aresult of this repurchase program.

 

Item3.                                                           **Defaults Upon Senior Securities**

 

Not Applicable.

 

Item4.                                                           **Submission of Matters to a Voteof Security Holders**

 

Not Applicable.

 

Item5.                                                           **Other Information**

 

Not Applicable.

 

Item6.                                                           **Exhibits**

 

(a)          The following exhibits are included herein:

 

11                                    Statement re computation of per shareearnings — See Net Income Per Share under Note 1 of Notes to CondensedConsolidated Financial Statements under Part 1, Item 1, which isincorporated herein by reference.

 

31.1                           Certification of Chief Executive Officerpursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (rules 13a-14and 15d-14 of the Exchange Act).

 

31.2                           Certification of Chief Financial Officerpursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (rules 13a-14and 15d-14 of the Exchange Act).

 

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

 

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**SIGNATURES**

 

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

 
|                           | ** ** | **Canterbury  Park Holding Corporation** |
|--------------------------------|------------|------------------------------------------|
|                           | ** ** | ** **                               |
| Dated:  May 15, 2009 | ** ** | /s/ Randall D. Sampson                   |
|                           | ** ** | Randall D. Sampson,                      |
|                           | ** ** | President, and Chief  Executive Officer  |

 
| Dated:  May 15, 2009 | ** ** | /s/ David C. Hansen                          |
|--------------------------------|------------|----------------------------------------------|
|                           | ** ** | David C. Hansen,                             |
|                           | ** ** | Vice President, and  Chief Financial Officer |

 

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