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 THEQUARTERLY PERIOD ENDED JUNE 30, 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**

 

****

 

**CANTERBURYPARK 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 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 mark whether the registrant isa large accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company (as defined in Exchange Act Rule 12b-2).

 

| Large  accelerated filer o |   | Accelerated  filer o         |
|----------------------------|--------|------------------------------|
|                       |   |                         |
| Non-accelerated  filer o   |   | Smaller  reporting company x |

 

Indicate by check markwhether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).YES o NO x

 

TheCompany had 3,994,352 shares of common stock, $.01 par value, outstanding as ofAugust 14, 2009.

 

 

 

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Table ofContents

 

Canterbury ParkHolding Corporation

 

#### **INDEX**

#### ** **

| ** **        | ** **                | **Page**                                                                                            |
|-------------------|---------------------------|-----------------------------------------------------------------------------------------------------|
| **PART I.**  | **FINANCIAL INFORMATION** |                                                                                                |
|              |                      |                                                                                                |   |
|              | Item 1.                   | Financial Statements                                                                                |   |
|              |                      |                                                                                                |   |
|              |                      | Condensed  Consolidated Balance Sheets as of June 30, 2009 and December 31,  2008         | 3 |
|              |                      |                                                                                                |   |
|              |                      | Condensed  Consolidated Statements of Operations for the periods Ended June 30,  2009 and 2008 | 4 |
|              |                      |                                                                                                |   |
|              |                      | Condensed  Consolidated Statements of Cash Flows for the periods Ended June 30,  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                                         | 19 |
|              |                      |                                                                                                |   |
|              | Item 4.                   | Controls and  Procedures                                                                            | 19 |
| ** **        |                      | ** **                                                                                          |   |
| **PART II.** | **OTHER INFORMATION**     |                                                                                                |
| ** **        | ** **                |                                                                                                |
|              | Item 1.                   | Legal Proceedings                                                                                   | 20 |
|              |                      |                                                                                                |   |
|              | Item 1A.                  | Risk Factors                                                                                        | 20 |
|              |                      |                                                                                                |   |
|              | Item 2.                   | Unregistered  Sales of Equity Securities and Use of Proceeds                                        | 20 |
|              |                      |                                                                                                |   |
|              | Item 3.                   | Defaults Upon Senior Securities                                                                     | 20 |
|              |                      |                                                                                                |   |
|              | Item 4.                   | Submission of Matters to a Vote of  Security Holders                                                | 20 |
|              |                      |                                                                                                |   |
|              | Item 5.                   | Other Information                                                                                   | 20 |
|              |                      |                                                                                                |   |
|              | Item 6.                   | Exhibits                                                                                            | 20 |
|              |                      |                                                                                                |   |
|              | Signatures                | 21                                                                                                  |
|              |                      |                                                                                                |
|              | Certifications            | 22                                                                                                  |

 

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**PART 1 - FINANCIAL INFORMATION**

 

**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**JUNE 30,2009 AND DECEMBER 31, 2008 (Unaudited)**

 
| ** **                                                                                                                         | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                         | ** ** | **2009**          | ** ** | **2008**              | ** ** |
| **ASSETS**                                                                                                                         |       |              |       |                  |       |
| CURRENT  ASSETS                                                                                                                    |       |              |       |                  |       |
| Cash                                                                                                                               |       | $                 | 5,774,943  |                  | $          | 3,745,731 |   |
| Restricted  cash                                                                                                                   |       | 3,105,709         |       | 1,261,292             |       |
| Short-term  investments                                                                                                            |       | 313,139           |       | 312,995               |       |
| Accounts  receivable, net of allowance of $10,000 and $10,000                                                                      |       | 928,709           |       | 475,576               |       |
| Inventory                                                                                                                          |       | 342,256           |       | 213,682               |       |
| Prepaid  expenses                                                                                                                  |       | 666,796           |       | 429,859               |       |
| Income  taxes receivable                                                                                                           |       | 170,673           |       | 566,436               |       |
| Deferred  income taxes                                                                                                             |       | 411,100           |       | 286,200               |       |
| Total  current assets                                                                                                              |       | 11,713,325        |       | 7,291,771             |       |
|                                                                                                                               |       |              |       |                  |       |
| LONG-TERM  ASSETS                                                                                                                  |       |              |       |                  |       |
| Deposits                                                                                                                           |       | 20,000            |       | 20,000                |       |
| Land, buildings and equipment, net of accumulated depreciation  of $17,631,139 and $16,616,000, respectively                       |       | 24,516,320        |       | 24,931,900            |       |
|                                                                                                                               |       | $                 | 36,249,645 |                  | $          | 32,243,671 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                      |       |              |       |                  |       |
|                                                                                                                               |       |              |       |                  |       |
| CURRENT  LIABILITIES                                                                                                               |       |              |       |                  |       |
| Accounts  payable                                                                                                                  |       | $                 | 5,144,458  |                  | $          | 1,852,253 |   |
| Card  club accruals                                                                                                                |       | 1,758,427         |       | 1,689,213             |       |
| Accrued  wages and payroll taxes                                                                                                   |       | 1,398,334         |       | 1,189,088             |       |
| Due  to MHBPA                                                                                                                      |       | 154,736           |       | 48,251                |       |
| Accrued  property taxes                                                                                                            |       | 522,210           |       | 513,816               |       |
| Payable  to horsepersons                                                                                                           |       | 79,930            |       | 95,217                |       |
| Total  current liabilities                                                                                                         |       | 9,058,095         |       | 5,387,838             |       |
|                                                                                                                               |       |              |       |                  |       |
| DEFERRED  INCOME TAXES                                                                                                             |       | 47,700            |       | 174,400               |       |
|                                                                                                                               |       |              |       |                  |       |
| COMMITMENTS  AND CONTINGENCIES (Note 6)                                                                                            |       |              |       |                  |       |
|                                                                                                                               |       |              |       |                  |       |
| STOCKHOLDERS’  EQUITY                                                                                                         |       |              |       |                  |       |
| Common stock, $.01 par value, 10,000,000 shares  authorized, 3,994,352 and 3,938,021, respectively, shares issued and  outstanding |       | 39,944            |       | 39,380                |       |
| Additional  paid-in capital                                                                                                        |       | 15,407,616        |       | 15,089,438            |       |
| Accumulated  earnings                                                                                                              |       | 11,696,290        |       | 11,552,615            |       |
| Total  stockholders’ equity                                                                                                   |       | 27,143,850        |       | 26,681,433            |       |
|                                                                                                                               |       | $                 | 36,249,645 |                  | $          | 32,243,671 |   |

 

See notes to consolidated financial statements.

 

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**PERIODSENDED JUNE 30, 2009 AND 2008 (Unaudited)**

 
| ** **                                          | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                          | ** ** | **2009**                             | ** ** | **2008**                           | ** ** | **2009** | ** ** | **2008** | ** ** |
| OPERATING  REVENUES:                                |       |                                 |       |                               |       |   |   |   |   |
| Pari-mutuel                                         |       | $                                    | 3,493,672  |                               | $          | 4,291,946 |   | $ | 5,484,038 |   | $ | 6,769,868 |   |
| Card  Club                                          |       | 5,110,371                            |       | 6,647,122                          |       | 10,214,599 |   | 13,170,178 |   |
| Concessions                                         |       | 1,688,373                            |       | 2,059,254                          |       | 2,474,705 |   | 2,935,057 |   |
| Other                                               |       | 919,858                              |       | 879,249                            |       | 1,265,073 |   | 1,241,434 |   |
| Total  Revenues                                     |       | 11,212,274                           |       | 13,877,571                         |       | 19,438,415 |   | 24,116,537 |   |
| Less:  Promotional Allowances                       |       | (52,020                              | )          | (72,678                            | )          | (82,985 | ) | (111,581 | ) |
| Net  Revenues                                       |       | 11,160,254                           |       | 13,804,893                         |       | 19,355,430 |   | 24,004,956 |   |
|                                                |       |                                 |       |                               |       |   |   |   |   |
| OPERATING  EXPENSES:                                |       |                                 |       |                               |       |   |   |   |   |
| Purse  expense                                      |       | 1,808,177                            |       | 2,370,658                          |       | 2,559,703 |   | 3,644,708 |   |
| Minnesota  Breeders’ Fund                      |       | 239,993                              |       | 310,744                            |       | 394,882 |   | 542,595 |   |
| Other  pari-mutuel expenses                         |       | 488,896                              |       | 576,179                            |       | 833,853 |   | 1,014,587 |   |
| Salaries  and benefits                              |       | 4,775,900                            |       | 5,809,601                          |       | 8,475,290 |   | 10,381,624 |   |
| Cost  of sales                                      |       | 900,121                              |       | 1,089,176                          |       | 1,378,160 |   | 1,677,119 |   |
| Depreciation                                        |       | 496,140                              |       | 507,663                            |       | 1,078,290 |   | 1,012,713 |   |
| Utilities                                           |       | 262,335                              |       | 389,186                            |       | 517,592 |   | 696,253 |   |
| Advertising  and marketing                          |       | 547,825                              |       | 631,109                            |       | 663,075 |   | 812,814 |   |
| Other                                               |       | 1,935,584                            |       | 2,196,018                          |       | 3,170,815 |   | 3,487,791 |   |
|                                                |       | 11,454,971                           |       | 13,880,334                         |       | 19,071,660 |   | 23,270,204 |   |
| NONOPERATING (EXPENSES) REVENUES:                   |       |                                 |       |                               |       |   |   |   |   |
| Interest  expense                                   |       | (2,981                               | )          | (3,331                             | )          | (4,435 | ) | (2,364 | ) |
| Other,  net                                         |       | 10,499                               |       | 38,855                             |       | 12,240 |   | 84,675 |   |
|                                                |       | 7,518                                |       | 35,524                             |       | 7,805 |   | 82,311 |   |
|                                                |       |                                 |       |                               |       |   |   |   |   |
| (LOSS) INCOME BEFORE INCOME TAX EXPENSE             |       | (287,199                             | )          | (39,917                            | )          | 291,575 |   | 817,063 |   |
|                                                |       |                                 |       |                               |       |   |   |   |   |
| INCOME TAX BENEFIT (EXPENSE) (Note 1)               |       | 114,100                              |       | 4,498                              |       | (147,900 | ) | (353,602 | ) |
|                                                |       |                                 |       |                               |       |   |   |   |   |
| NET  (LOSS) INCOME                                  |       | $                                    | (173,099   | )                                  | $          | (35,419 | ) | $ | 143,675 |   | $ | 463,461 |   |
|                                                |       |                                 |       |                               |       |   |   |   |   |
| BASIC NET (LOSS) INCOME PER COMMON SHARE (Note 1)   |       | $                                    | (.04       | )                                  | $          | (.01 | ) | $ | .04 |   | $ | .11 |   |
|                                                |       |                                 |       |                               |       |   |   |   |   |
| DILUTED NET (LOSS) INCOME PER COMMON SHARE (Note 1) |       | $                                    | (.04       | )                                  | $          | (.01 | ) | $ | .04 |   | $ | .11 |   |

 

See notes to consolidated financial statements.

 

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**PERIODSENDED JUNE 30, 2009 AND 2008 (Unaudited)**

 
| ** **                                                               | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                               | ** ** | **2009**                           | ** ** | **2008** | ** ** |
| **Operating Activities:**                                                |       |                               |       |   |   |
| Net  Income                                                              |       | $                                  | 143,675    |   | $ | 463,461 |   |
| Adjustments to reconcile net income to net cash  provided by operations: |       |                               |       |   |   |
| Depreciation                                                             |       | 1,078,290                          |       | 1,012,713 |   |
| Stock-based  compensation expense                                        |       | 69,511                             |       | 74,696 |   |
| Excess  tax benefit from exercise of stock options                       |       |                               |       | (17,530 | ) |
| Loss  on sale of property and equipment                                  |       |                               |       | 1,968 |   |
| Decrease  in deferred income taxes                                       |       | (247,864                           | )          | (135,974 | ) |
| Increase  in restricted cash                                             |       | (1,844,417                         | )          | (2,507,927 | ) |
| Increase  in accounts receivable                                         |       | (453,133                           | )          | (271,276 | ) |
| Increase  in other current assets                                        |       | (365,511                           | )          | (252,635 | ) |
| Decrease  (increase) in income taxes receivable                          |       | 395,763                            |       | (285,426 | ) |
| Increase in accounts payable and accrued wages and  payroll taxes        |       | 3,463,967                          |       | 3,819,295 |   |
| Increase  (decrease) in card club accruals                               |       | 69,214                             |       | (4,565 | ) |
| Increase  in accrued property taxes                                      |       | 8,394                              |       | 2,734 |   |
| (Decrease)  increase in payable to horsepersons                          |       | (15,287                            | )          | 74,351 |   |
| Increase  in due to MHBPA                                                |       | 106,485                            |       | 38,727 |   |
| Net  cash provided by operations                                         |       | 2,409,087                          |       | 2,012,612 |   |
| ** **                                                               |       |                               |       |   |   |
| **Investing Activities:**                                                |       |                               |       |   |   |
| Additions  to buildings and equipment                                    |       | (625,226                           | )          | (1,307,296 | ) |
| Proceeds  from sale of equipment                                         |       |                               |       | 3,540 |   |
| (Increase)  Decrease in short-term investments                           |       | (144                               | )          | 24,581 |   |
| Net  cash used in investing activities                                   |       | (625,370                           | )          | (1,279,175 | ) |
|                                                                     |       |                               |       |   |   |
| **Financing Activities**                                                 |       |                               |       |   |   |
| Proceeds  from issuance of common stock                                  |       | 245,495                            |       | 120,125 |   |
| Common  stock repurchases                                                |       |                               |       | (979,608 | ) |
| Excess  tax benefit from exercise of stock options                       |       |                               |       | 17,530 |   |
| Net  cash provided by (used in) financing activities                     |       | 245,495                            |       | (841,953 | ) |
|                                                                     |       |                               |       |   |   |
| Net  increase (decrease) in cash                                         |       | 2,029,212                          |       | (108,516 | ) |
|                                                                     |       |                               |       |   |   |
| Cash  at beginning of period                                             |       | 3,745,731                          |       | 7,050,389 |   |
|                                                                     |       |                               |       |   |   |
| Cash  at end of period                                                   |       | $                                  | 5,774,943  |   | $ | 6,941,873 |   |
|                                                                     |       |                               |       |   |   |
| Supplemental  disclosure of cash flow information:                       |       |                               |       |   |   |
| Income  taxes paid, net of refunds                                       |       |                               |       | $ | 775,000 |   |
| Dividend  declared                                                       |       |                               |       | $ | 1,007,173 |   |
|                                                                     |       |                               |       |   |   |
| Non-cash  investing and financing activities:                            |       |                               |       |   |   |
| Additions  to buildings and equipment funded through accounts payable    |       | $                                  | 69,213     |   | $ | 223,622 |   |
| Common  stock repurchases funded through accounts payable                |       |                               |       | $ | 104,240 |   |
| Proceeds  from issuance of common stock funded through shares swapped    |       | $                                  | 15,880     |   | $ | 20,000 |   |

 

See notes to consolidated financial statements.

 

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###### **CANTERBURY PARK HOLDING CORPORATION ANDSUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

**PERIODSENDED JUNE 30, 2009 AND 2008 (Unaudited)**

 

In the opinion ofmanagement, the accompanying unaudited condensed consolidated financialstatements contain all adjustments necessary to present fairly, in accordancewith accounting principles generally accepted in the United States of America(GAAP), the financial position of Canterbury Park Holding Corporation as of June30, 2009 and December 31, 2008; the results of its operations for the three andsix months ended June 30, 2009 and 2008; and its cash flows for the six monthsended June 30, 2009 and 2008. All adjustments are of a normal, recurringnature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after June 30,2009 up to August 14, 2009, which is the date of issuance of these consolidatedfinancial statements.  These statementscontain all necessary adjustments and disclosures resulting from thatevaluation.  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.

 

1.               SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

 

*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 is locatedin Shakopee, Minnesota, approximately 25 miles southwest of downtownMinneapolis.  In May 1994, we commencedyear-round horse racing simulcast operations and hosted the first annual liverace meet during the summer of 1995.  Ourlive racing operations are a seasonal business as we host live race meets eachyear from May until August.  We earnadditional pari-mutuel revenue by televising our live racing to out-of-stateRacetracks around the country.  We alsoderive revenues from related services and activities, such as advertising,admissions, parking and publication sales and from other entertainment eventsand activities held at the Racetrack.  InApril 2000, we opened Canterbury Park’s Card Club (the “Card Club”).  The Card Club operates 24 hours a day, sevendays a week and is limited by Minnesota State law to a maximum of 50tables.  The Card Club currently offers31 tables of Poker Games and 19 tables of Casino Games.  Our three largest sources of revenues, CardClub operations, pari-mutuel operations and concessions sales, generate cashrevenues.

 

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

 

*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 is complete.  Revenues related to concession andpublication sales and parking and admission fees are recognized as revenue whenthe 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.  The Company is nolonger subject to U.S. federal examinations by tax authorities for years priorto 2007 or by State of Minnesota tax authorities for years prior to 2003.  We do not believe there will be any materialchanges in our unrecognized tax positions over the next twelve months.

 

*Net(Loss) Income Per Share*- Basic net (loss) income per common share is based onthe weighted average number of common shares outstanding during eachperiod.  The weighted average number ofcommon shares outstanding for the three and six-month periods ended June 30,2009 were 3,956,583 and 3,952,280, respectively.  The weighted average number of common sharesoutstanding for the three and six-month periods ended June 30, 2008 were4,019,196 and 4,042,800, respectively. Diluted net income per common share takes into effect the dilutiveeffect of potential common shares outstanding. The Company’s potential common shares outstanding are stock options andshares of unvested (“restricted”) stock. After considering the dilutive effect of stock options outstanding, theweighted average shares used to calculate diluted earnings per share for thethree and six-month periods ended June 30, 2009 were 3,956,583 and 3,962,297,respectively.  74 weighted average shareswere considered anti-dilutive and excluded from the computation of commonequivalent shares for the three months ended June 30, 2009, as the Companyreported a net loss for that period.  Theweighted average shares used to calculate diluted earnings per share for thethree and six-month periods ended June 30, 2008 were 4,019,196 and 4,126,852,respectively.  66,689 weighted averageshares were considered anti-dilutive and excluded from the computation ofcommon equivalent shares for the three months ended June 30, 2008, as theCompany reported a net loss for that period.

 

*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 all business combinations. Under SFAS No.141(R), an entity is required to recognize the assets acquired, liabilitiesassumed, contractual contingencies, and contingent consideration at their fairvalues on the acquisition date.  Theadoption of FASB 141(R) during the first half of 2009 had no impact on ourfinancial position or results of operation.

 

In April 2009, theFASB issued FSP FAS 157-4, which provides additional guidance for estimatingfair value in accordance with SFAS No. 157, *FairValue Measurements*, when the volume and level of market activity foran asset or liability have significantly decreased.  FSP FAS 157-4 emphasizes that even if therehas been a significant decrease in the volume and level of market activity forthe asset or liability, fair value still represents the exit price in anorderly transaction between market participants.  FSP FAS 157-4 is effective for interim andannual periods ending after June 15, 2009.  The adoption of FSP FAS 157-4 during thesecond quarter of 2009 had no impact on our financial position or results ofoperation.

 

In April 2009, theFASB 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.  FSPFAS 115-2 and FAS 124-2 are effective for interim and annual periods endingafter June 15, 2009.  The adoption of FSPFAS 115-2 and FAS 124-2 during the second quarter of 2009 had no impact on ourfinancial position or results of operation.

 

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In May 2009, theFASB issued SFAS No. 165, *Subsequent Events*.  SFAS No. 165 is intended to establish generalstandards of accounting for and disclosure of events that occur after thebalance sheet date but before financial statements are issued or are availableto be issued. Specifically, this standard sets forth the period after thebalance sheet date during which management of a reporting entity shouldevaluate events or transactions that may occur for potential recognition ordisclosure in the financial statements, the circumstances under which an entityshould recognize events or transactions occurring after the balance sheet datein its financial statements, and the disclosures that an entity should makeabout events or transactions that occur after the balance sheet date. Theadoption of SFAS No. 165 during the second quarter of 2009 had no impact on ourfinancial position or results of operation.

 

2.               STOCK BASED COMPENSATION

 

Using the modifiedprospective transition method, we recognized $69,511 and $74,696 in stock-basedcompensation expense in salaries and benefits expense line item on theconsolidated statements of operations during the six-months ended June 30, 2009and 2008, 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 were grantedto the five non-employee board members with an exercise price equal to themarket price on the date of grant of $6.66. The stock options vest over a six-month period and expire in ten years.  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 granted tothe five non-employee board members with an exercise price equal to the marketprice on the date of grant of $11.35.

 

In addition, on April23, 2009, 100,000 options were granted to employees with an exercise priceequal to the market price on the date of grant of $6.00.  The stock options vest over a 42-month periodand expire in ten years.  Thecompensation cost associated with this grant of employee options is $92,555 tobe recognized as expense over the 42-month vesting period.

 

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

 
| ** **              | ** ** | **Six Months Ended** | ** ** |
|-------------------------|------------|----------------------|------------|
| ** **              | ** ** | **June 30, 2009**    | ** ** | **June 30, 2008** | ** ** |
| ** **              | ** ** | ** **           | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **              | ** ** | ** **           | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **              | ** ** | ** **           | ** ** | **Fair Value** | ** ** | ** ** | ** ** | **Fair Value** | ** ** |
| ** **              | ** ** | **Grant**            | ** ** | **Per Share** | ** ** | **Grant** | ** ** | **Per Share** | ** ** |
|                    |       |                 |       |   |   |   |   |   |   |
| Board stock  options    |       | 15,000               |       | $ | 1.26 |   | 15,000 |   | $ | 1.98 |   |
| Employee stock  options |       | 100,000              |       | $ | 1.07 |   |   |   |   |   |
|                    |       |                 |       |   |   |   |   |   |   |
| Total shares            |       | 115,000              |       |   |   | 15,000 |   |   |   |
|                         |            |                      |            |  |  |  |  |  |  |  |  |

 

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The fair value ofstock options granted under the Plan during first six months of 2009 wereestimated on the date of grant using the Black-Scholes option-pricing modelwith the following weighted average assumptions and results:

 
| ** **                                | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Dividend yield                            |       | 4.12     | %          | 2.20     | %          |
| Weighted-average volatility               |       | 26       | %          | 15       | %          |
| Risk-free interest rate                   |       | 2.93     | %          | 3.62     | %          |
| Expected term of stock options in years   |       | 6.3      |       | 7.3      |       |
| Fair value of stock options on grant date |       | $        | 111,455    |     | $          | 29,700 |   |
|                                           |            |          |            |          |            |  |  |

 

A summary of stockoption activity as of June 30, 2009 and changes during the six months thenended 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                         |       | 115,000       |       | $            | 6.09       |            |       |           |       |   |
| Exercised                       |       | (59,000       | )          | $            | 4.43       |            |       |           |       |   |
| Expired/Forfeited               |       | (85,000       | )          | $            | 15.57      |            |       |           |       |   |
|                            |       |          |       |         |       |            |       |           |       |
| Outstanding at  June 30, 2009   |       | 441,000       |       | $            | 9.85       |            | 4.6 Years  |           | $          | 4,342,630 |   |
|                            |       |          |       |         |       |            |       |           |       |
| Exercisable at  June 30, 2009   |       | 322,250       |       | $            | 11.13      |            | 2.7 Years  |           | $          | 3,588,168 |   |

 

A summary of stockoption activity as of June 30, 2008 and changes during the six months thenended 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, 2008 |       | 605,900       |       | $            | 11.00      |            |       |           |       |   |
|                            |       |          |       |         |       |            |       |           |       |
| Granted                         |       | 15,000        |       | $            | 11.35      |            |       |           |       |   |
| Exercised                       |       | (45,000       | )          | $            | 3.11       |            |       |           |       |   |
| Expired                         |       | (77,000       | )          | $            | 15.55      |            |       |           |       |   |
|                            |       |          |       |         |       |            |       |           |       |
| Outstanding at  June 30, 2008   |       | 498,900       |       | $            | 11.03      |            | 2.7 Years  |           | $          | 5,501,493 |   |
|                            |       |          |       |         |       |            |       |           |       |
| Exercisable at  June 30, 2008   |       | 476,400       |       | $            | 10.96      |            | 2.4 Years  |           | $          | 5,222,118 |   |

 

*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.

 

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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 market approach uses prices and otherrelevant information generated by market transactions involving identical orcomparable assets or liabilities.

 

Assets andliabilities measured at fair value on a recurring basis for June 30, 2009 and December31, 2008 are summarized below:

 
| ** **                                       | ** ** | **Fair Value Measurements as of  June 30, 2009** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------------|------------|
| **Description**                                  | ** ** | **Total**                                        | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|                                             |       |                                             |       |   |   |   |   |   |   |
| Short-term investments (Certificates of Deposit) |       | $                                                | 313,139    |   | $ | 313,139 |   | $ | — |   | $ | — |   |
|                                             |       |                                             |       |   |   |   |   |   |   |
| Total                                            |       | $                                                | 313,139    |   | $ | 313,139 |   | $ | — |   | $ | — |   |

 
| ** **                                       | ** ** | **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.               GENERAL 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.  This agreement was set to expire on June 30,2009 with interest at the prime rate but not less than 4.5% per annum.  On June 29, 2009, the Company signed anextension with Bremer Bank extending the expiration date to September 30,2009.  The Company had no borrowingsunder this credit line at June 30, 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 June 30, 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.

 

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5.     OPERATING SEGMENTS

 

During the firstsix 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 food and beverage operations provided during simulcast andlive 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 Minnesota Racing Commission regulates thehorse 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.

 

The following tables provide information about theCompany’s operating segments (in 000’s):

 
| ** **                            | ** ** | **Six Months Ended June 30, 2009** | ** ** |
|---------------------------------------|------------|------------------------------------|------------|
| ** **                            | ** ** | **Horse  Racing**                  | ** ** | **Card  Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                               |       |   |   |   |   |   |   |
| Net  revenues from external customers |       | $                                  | 6,662      |   | $ | 10,215 |   | $ | 2,478 |   | $ | 19,355 |   |
|                                  |       |                               |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 304                                |       |   |   | 686 |   | 990 |   |
|                                  |       |                               |       |   |   |   |   |   |   |
| Net  interest income                  |       | 8                                  |       |   |   |   |   | 8 |   |
|                                  |       |                               |       |   |   |   |   |   |   |
| Depreciation                          |       | 675                                |       | 322 |   | 81 |   | 1,078 |   |
|                                  |       |                               |       |   |   |   |   |   |   |
| Segment  income before income taxes   |       | (810                               | )          | 1,252 |   | 252 |   | 694 |   |
|                                  |       |                               |       |   |   |   |   |   |   |
| Segment  Assets                       |       | $                                  | 32,169     |   | $ | 3,156 |   | $ | 9,378 |   | $ | 44,703 |   |

 
| ** **                            | ** ** | **Six  Months Ended June 30, 2008** | ** ** |
|---------------------------------------|------------|-------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                    | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                |       |   |   |   |   |   |   |
| Net  revenues from external customers |       | $                                   | 7,887      |   | $ | 13,170 |   | $ | 2,948 |   | $ | 24,005 |   |
|                                  |       |                                |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 357                                 |       |   |   | 883 |   | 1,240 |   |
|                                  |       |                                |       |   |   |   |   |   |   |
| Net  interest income                  |       | 82                                  |       |   |   |   |   | 82 |   |
|                                  |       |                                |       |   |   |   |   |   |   |
| Depreciation                          |       | 658                                 |       | 271 |   | 84 |   | 1,013 |   |
|                                  |       |                                |       |   |   |   |   |   |   |
| Segment  income before income taxes   |       | (857                                | )          | 1,629 |   | 487 |   | 1,259 |   |
|                                       |            |                                     |            |  |  |  |  |  |  |  |  |  |  |

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

 

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

 
| ** **                                              | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                              | ** ** | **2009**                      | ** ** | **2008** | ** ** |
| Revenues                                                |       |                          |       |   |   |
| Total net revenue for  reportable segments              |       | $                             | 20,345     |   | $ | 25,245 |   |
| Elimination of  intersegment revenues                   |       | (990                          | )          | (1,240 | ) |
| Total consolidated net  revenues                        |       | $                             | 19,355     |   | $ | 24,005 |   |
|                                                    |       |                          |       |   |   |
| Income before income  taxes                             |       |                          |       |   |   |
| Total segment income  before income taxes               |       | $                             | 694        |   | $ | 1,259 |   |
| Elimination of  intersegment income before income taxes |       | (402                          | )          | (442 | ) |
| Total consolidated  income before income taxes          |       | $                             | 292        |   | $ | 817 |   |

 
|                                     | ** ** | **June 30,** | ** ** | **December  31,** | ** ** |
|------------------------------------------|------------|--------------|------------|-------------------|------------|
|                                     | ** ** | **2009**     | ** ** | **2008**          | ** ** |
| Assets                                   |       |         |       |              |       |
| Total assets for  reportable segments    |       | $            | 44,703     |              | $          | 40,106 |   |
| Elimination of  intercompany receivables |       | (8,453       | )          | (7,862            | )          |
| Total consolidated  assets               |       | $            | 36,250     |              | $          | 32,244 |   |

 

6.     COMMITMENTS AND 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 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. At the date (if any) that these two conditions are met, the five minimumpayments will be discounted back to their present value and the sum of thosediscounted payments will be capitalized as part of the purchase price inaccordance with generally accepted accounting principles.  The purchase price will be further increasedif payments become due under the “20% of Net Pretax Profit” calculation.  The first payment is to be made 90 days afterthe end of the third operating year in which off-track betting is conducted bythe Company.  Remaining payments would bemade within 90 days of the end of each of the next four operating years.

 

The Company isperiodically involved in various legal actions arising in the normal course ofbusiness.  At June 30, 2009, managementbelieves that the resolution of any legal actions outstanding will not have amaterial impact on the consolidated financial statements.

 

On June 5, 2008,Company’s Board of Directors declared a special cash dividend of $.25 per shareof common stock payable on July 11, 2008 to shareholders of record on June 20,2008.  The aggregate amount paid toshareholders on July 11, 2008 pursuant to this dividend declaration was$1,007,173.  No special dividend has beendeclared year-to-date in 2009, and it is not anticipated that any specialdividend will be declared in 2009.

 

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

** **

The following Management’sDiscussion and Analysis of Financial Condition and Results of Operations (“MD&A”)is intended to help the reader understand Canterbury Park Holding Corporation,our operations and our present business environment.  This MD&A is provided as a supplement to —and should be read in conjunction with — our condensed consolidated financialstatements and the accompanying notes to the financial statements (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 the out-of-stateracetracks.

 

Canterbury Park’s CardClub (the “Card Club”) hosts “unbanked” card games in which players competeagainst each other and not against the house. The Card Club is open twenty-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.

 

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****Threeand****Six Months Ended June 30, 2009 and June 30,2008:**

 

The following table setsforth a reconciliation of net income, a GAAP financial measure, to EBITDA, anon-GAAP measure, for the periods ended June 30, 2009 and 2008:

 
| ** **                                | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
|-------------------------------------------|------------|--------------|------------|--------------|------------|
| ** **                                | ** ** | **2009**     | ** ** | **2008**     | ** ** |
| Net  income                               |       | $            | 143,675    |         | $          | 463,461 |   |
| Interest  income, net of interest expense |       | (7,805       | )          | (82,311      | )          |
| Income  tax expense                       |       | 147,900      |       | 353,602      |       |
| Depreciation                              |       | 1,078,290    |       | 1,012,173    |       |
| EBITDA                                    |       | $            | 1,362,060  |         | $          | 1,746,925 |   |

 

EBITDA representsearnings before 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 declined slightlyas a percentage of net revenues to 7.0% for the first six months ended June 30,2009 compared to 7.3% for the first six months ended June 30, 2008.

 

Total net revenuesdecreased $4,649,526, or 19.4%, during the six months ended June 30, 2009compared to the six months ended June 30, 2008, and decreased $2,644,639, or19.2%, for the three months ended June 30, 2009 compared to the three monthsended June 30, 2008. The decrease was due primarily to reductions of 19.0% and22.4% in pari-mutuel and Card Club revenues, respectively, for the six monthsended June 30, 2009.

 

Pari-mutuel revenuesdecreased $1,285,830, or 19.0%, in the six-month period ended June 30, 2009compared to the same period in 2008, and decreased $798,274, or 18.6%, for thethree-month period ended June 30, 2009 compared to the same period in2008.  Total handle wagered on simulcastraces for the first half of 2009 was down $9.7 million, or 24.7%, compared tothe same period last year.  The decreaseis attributable to an economic recession that has adversely impacteddiscretionary spending on entertainment. This economic recession that began in 2008 has continued to eroderevenues throughout the first half 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.  The Companyalso believes that an increasing number of Minnesota residents are unlawfullywagering on horse races by means of the Internet.  See the “Summary of Pari-mutuel Data” below:

 
| ** **                                      | ** ** | **Six Months Ended June 30,** | ** **     |
|-------------------------------------------------|------------|-------------------------------|----------------|
| **Summary  of Pari-mutuel Data:**               | ** ** | **2009**                      | ** **     | **2008** | ** ** |
| ** **                                      | ** ** | ** **                    | ** **     | ** ** | ** ** |
| Racing Days                                     |       |                          |           |   |   |
| Simulcast only                                  |       | 155                           |           | 152 |   |
| Live and Simulcast                              |       | 26                            |           | 30 |   |
| **Total  Number of Racing Days**                | ** ** | **181**                       | ** **     | **182** | ** ** |
|                                            | ** ** | ** **                    | ** **     | ** ** | ** ** |
| On-Track Handle                                 |       |                          |           |   |   |
| Simulcast racing handle  on simulcast only days |       | $                             | 15,365,000     |   | $ | 18,356,000 |   |
| Live and Simulcast  days:                       |       |                          |           |   |   |
| Live racing handle                              |       | 4,871,000                     |           | 5,863,000 |   |
| Simulcast racing handle                         |       | 4,970,000                     |           | 7,230,000 |   |
| Total On-Track Handle                           |       | 25,206,000                    |           | 31,449,000 |   |
|                                            |       |                          |           |   |   |
| Out-of-State Live  Handle                       |       | 4,392,000                     |           | 7,883,000 |   |
|                                            |       |                          |           |   |   |
| **Total  Handle**                               | ** ** | **$**                         | **29,598,000** | ** ** | **$** | **39,332,000** | ** ** |
|                                            |       |                          |           |   |   |
| On-Track Average Daily  Handle                  |       |                          |           |   |   |
| Simulcast only racing  days                     |       | $                             | 99,129         |   | $ | 120,763 |   |
| Live and simulcast  racing days                 |       | $                             | 378,500        |   | $ | 436,433 |   |

 

Total Card Club revenuedecreased $2,955,579, or 22.4%, for the first six months of 2009 and$1,536,751, or 23.1%, for the second quarter of 2009 compared to the sameperiods in 2008.  The primary source ofCard Club revenue is a percentage of the wagers received from the players ascompensation for providing the Card Club facility and services, referred to asthe “collection revenue”.  Other revenueincludes fees collected for the administration of tournaments, and amountsearned as reimbursement of the administrative costs of maintaining jackpotfunds.  Poker collection revenue fell$2,654,787 or 30.7% compared to the first six months of 2008.  In addition, Casino Games collection revenuedropped $659,278 or 16.0% compared to the first half of 2008.  The decrease is attributable to an economicrecession that has adversely impacted discretionary spending on entertainment.  This economic recession that began in 2008has continued to erode revenues throughout the first half of 2009.  In addition, the Company now faces direct cardroom 

 

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competition from RunningAces, who began their card room operations on June 30, 2008.  The Company believes patronage at RunningAces card room has had a material adverse effect on the Company’s card roomrevenue.  Total Card Club revenuesrepresented 52.8% and 45.8% of net revenues for the six-month and three-monthperiods ended June 30, 2009, respectively. The three-month percentage is usually lower in the second quarter of anycalendar year due to increased revenue from live racing.  See the “Summary of Card Club Data” below:

 
| ** **                     | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------|------------|-------------------------------|------------|
| **Summary of Card Club Data:** | ** ** | **2009**                      | ** ** | **2008** | ** ** |
|                           |       |                          |       |   |   |
| Poker Games                    |       | $                             | 5,998,000  |   | $ | 8,652,000 |   |
| Casino Games                   |       | 3,466,000                     |       | 4,125,000 |   |
| Total Collection  Revenue      |       | 9,464,000                     |       | 12,777,000 |   |
|                           |       |                          |       |   |   |
| Other Revenue                  |       | 751,000                       |       | 393,000 |   |
| Total Card Club Revenue        |       | $                             | 10,215,000 |   | $ | 13,170,000 |   |
|                           |       |                          |       |   |   |
| Number of Days Offered         |       | 181                           |       | 182 |   |
| Average Revenue per Day        |       | $                             | 56,436     |   | $ | 72,363 |   |

 

Concessions revenuesdecreased $460,352, or 15.7%, and $370,881, or 18.0%, for the six-month andthree-month periods ended June 30, 2009, respectively, compared to the sameperiod in the prior year.  The decreaseis primarily attributable to the decrease in card room patronage and relatedconcession sales.  Additionally, therewere four less race days in 2009, resulting in decreased concessions revenues.

 

Total operating expensesdecreased $4,198,544, or 18.0%, and $2,425,363, or 17.5%, for the six-month andthree-month periods ended June 30, 2009, respectively, compared to the sameperiod in the prior year.  Factorscontributing to these decreases are discussed in greater detail below.

 

Total expense forstatutory purses and the Minnesota Breeders’ Fund decreased 29.4% to $2,954,585for the first six months ended June 30, 2009 compared to the first six monthsended June 30, 2008.  The decrease wasdue primarily to a reduction in Card Club purse and breeders’ fund expenses dueto lower Card Club collection revenues in the first half of 2009 compared tothe first half of 2008.  Additionally,beginning in July of 2008, the Company reverted to the statutory purse rate of10% on the first $6 million of gross Card Club revenues and 14% thereafter asbeing set aside as purse monies.

 

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

 
| ** **             | ** ** | ** **                    | ** ** | ** **                      | ** ** | **Minnesota** | ** ** |
|------------------------|------------|-------------------------------|------------|---------------------------------|------------|---------------|------------|
| ** **             | ** ** | **Purse Expense**             | ** ** | **Breeders’ Fund Expense** | ** ** |
| ** **             | ** ** | **Six Months Ended June 30,** | ** ** | **Six Months Ended June 30,**   | ** ** |
| ** **             | ** ** | **2009**                      | ** ** | **2008**                        | ** ** | **2009**      | ** ** | **2008** | ** ** |
|                   |       |                          |       |                            |       |          |       |   |   |
| Card Club              |       | $                             | 1,071,000  |                            | $          | 1,778,000     |       | $ | 119,000 |   | $ | 198,000 |   |
|                   |       |                          |       |                            |       |          |       |   |   |
| Simulcast Horse Racing |       | 1,032,000                     |       | 1,271,000                       |       | 227,000       |       | 284,000 |   |
|                   |       |                          |       |                            |       |          |       |   |   |
| Live Horse Racing      |       | 457,000                       |       | 596,000                         |       | 49,000        |       | 61,000 |   |
|                   |       |                          |       |                            |       |          |       |   |   |
|                   |       | $                             | 2,560,000  |                            | $          | 3,645,000     |       | $ | 395,000 |   | $ | 543,000 |   |

 

Salaries and benefitsdecreased $1,906,334, or 18.4%, in the 2009 six-month period ended June 30 and$1,033,701, or 17.8%, in the three-month period ended June 30, 2009 compared tothe same periods last year primarily as a result of the savings related to thereduction-in-force that occurred in October of 2008.  

 

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Additionally, thesuspension of the bonus program, contributions to the Company’s Employee StockOwnership Plan (ESOP), and 401(k) match contributions, as reported in priorfilings, have continued to provide cost savings.  Advertising and marketing costs decreased$149,739, or 18.4%, in the 2009 six-month period ended June 30 and $83,284, or13.2%, in the three-month period ended June 30 compared to the same periodslast year primarily as a result of lower advertising agency and related feescompared to the prior year.  In addition,utility expenses decreased $178,661, or 25.7%, and $126,851, or 32.6%, for thesix-month and three-month periods ended June 30, 2009, respectively, comparedto the prior year.  The decrease isprimarily attributable to the added efficiencies provided by the buildingmanagement system that was installed during the second half of 2008.

 

Income before income taxeswas $291,575 for the six months ended June 30, 2009 compared to $817,063 forthe six months ended June 30, 2008. After income tax expense of $147,900 for the six months ended June 30,2009, net income was $143,675 in 2009 compared to $463,461 in 2008, a decreaseof $319,786 or 69.0%.  For the quarterended June 30, 2009, the Company recorded a $287,199 loss before income taxbenefit compared to a loss before income tax benefit of $39,917 for the quarterended June 30, 2008, a decrease of $247,282 or 619.5%.  After an income tax benefit of $114,100 inthe second quarter of 2009, net loss was $173,099 compared to a net loss of$35,419 for the second quarter of 2008, a decrease of $137,680 or 388.7%.

 

#### **Contingencies:**

#### ** **

There have been nomaterial changes in our contingencies from the information provided in ourReport on Form 10-K for our year ended December 31, 2008.

 

**Liquidity and Capital Resources:**

 

Cash provided byoperating activities during the period January 1, 2009 through June 30, 2009was $2,409,087, resulting primarily from net income of $143,675, depreciationof $1,078,290, and an increase in accounts payable and accrued wages andpayroll taxes of $3,463,967, caused primarily by a seasonal increase of $1.66million in horsemen payables, a $617,000 increase in trade accounts payable,and a $240,000 increase in deferred revenues for corporate sponsorships.  These items are partially offset by anincrease in restricted cash of $1,844,417, resulting primarily from theincrease in horsemen payables of $1.66 million. Cash provided by operating activities during the period January 1, 2008through June 30, 2008 was $2,012,612, resulting primarily from net income of$463,461, depreciation of $1,012,713, and an increase in accounts payable andaccrued wages and payroll taxes of $3,819,295, caused primarily by a seasonalincrease of $2.5 million in horsemen payables, a $418,000 increase in tradeaccounts payable, a $232,000 increase in host fees payable, and a $238,000increase in deferred revenues for corporate sponsorships.  These items are partially offset by anincrease in restricted cash of $2,507,927, resulting primarily from theincrease in horsemen payables of $2.5 million. Pursuant to an agreement with the MHBPA, during the six months ended June30, 2009 and 2008, the Company transferred into a trust account or paiddirectly to the MHBPA approximately $2,200,000 and $3,175,000, respectively.

 

Net cash used ininvesting activities for the first six months of 2009 of $625,370 resultedprimarily from upgrades to our grandstand for approximately $243,000 and thepurchase of equipment for our backside operations for approximately$161,000.  Net cash used in investingactivities for the first six months of 2008 of $1,279,175 resulted primarilyfrom the purchase of a building management system for approximately $378,000,upgrades to the grandstand building of approximately $306,000, and upgrades tothe Card Club of approximately $109,000.

 

During the period January1, 2009 through June 30, 2009, cash provided by financing activities consistedsolely of proceeds received upon the exercise of stock options of$245,495.  During the period January 1,2008 through June 30, 2008, cash used in financing activities was $841,953,resulting from repurchases of company stock of $979,608 offset by proceeds andtax benefits regarding the exercise of stock options of $137,655.

 

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The Company has a generalcredit agreement with Bremer Bank, which provides a revolving credit line of upto $5,000,000 with interest at the prime rate until September 30,2009.  The Company had no borrowingsunder the line of credit at June 30, 2009 or December 31, 2008.  The credit agreement contains certaincovenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements at all times throughout the quarter ended June 30, 2009.

 

Unrestricted cashbalances at June 30, 2009 were $5,774,943 compared to $3,745,731 atDecember 31, 2008. The Company believes that funds available in its cashaccounts, amounts available under the general credit and security agreement,along with funds generated from operations, will be sufficient to satisfy itsliquidity and capital resource requirements during 2009 for regular operations.

 

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

 

The preparation of consolidated financial statementsin conformity with generally accepted accounting principles requires managementto make estimates that effect the amounts reported and disclosed in theconsolidated financial statements. By their nature, these estimates are subjectto an inherent degree of uncertainty. These estimates are based on ourexperience and various other assumptions that are believed to be reasonable inthe circumstances, the results of which form the basis for making judgmentsabout the carrying values of assets and liabilities. On an ongoing basis, weevaluate our estimates. However, actual results could differ from thoseestimates.

 

Our significantaccounting policies are included in Note 1 to our consolidated financial statementsin our 2008 Annual Report on Form 10-K. We believe the following criticalaccounting policies affect our more significant judgments and estimates used inthe preparation of our consolidated financial statements.

 

*Land,Buildings and Equipment* - We have significant capital invested in our property and equipment,which represents approximately 67.6% 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 theestimated future cash flows expected to result from its use. If the sum of theexpected future cash flows (undiscounted and without interest charges) is lessthan the carrying 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.

 

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

##### *** ***

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

 

**Legislation:**

 

The Company did not proposeor support any legislation during the 2009 biannual session of the MinnesotaLegislature that would authorize the Racino we have discussed in our previousflings with the SEC, mainly because a majority of those serving in theMinnesota Legislature 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,

 

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provide growth anddevelopment opportunities for the Company, and provide significant new taxrevenues for state and local governments.

 

In April 2008, theMinnesota Legislature passed a bill allowing pari-mutuel simulcast wagering onall breeds at Running Aces.  Inanticipation of the passing of this legislation, the Company entered into arevenue sharing agreement with Running Aces. This agreement has benefited the respective horsemen’s associations byrequiring the Company and Running Aces to make purse set aside contributionsand Breeders Fund contributions as required by law.  Additionally, under the terms of the agreement,the Company pays Running Aces a portion of net revenues for simulcast wagerstaken on harness racing, and Running Aces pays the Company a portion of netrevenues for simulcast wagers taken on thoroughbred racing.

 

**Forward-Looking Statements:**

 

From time to time,in reports filed with the Securities and Exchange Commission, in pressreleases, and in other communications to shareholders or the investing public,the Company may make forward-looking statements concerning possible oranticipated future financial performance, business activities or plans whichare typically preceded by the words “believes,” “expects,” “anticipates,”“intends” or similar expressions.  Forsuch forward-looking statements, the Company claims the protection of the safeharbor for forward-looking statements contained in federal securitieslaws.  Shareholders and the investingpublic should understand that such forward-looking statements are subject torisks and uncertainties which could cause actual performance, activities or plansto differ significantly from those indicated in the forward-lookingstatements.  Such risks and uncertaintiesinclude, but are not limited to: fluctuations in attendance at the Racetrack,material changes in the level of wagering by patrons, decline in interest inthe unbanked card games offered at the Card Club, legislative and regulatorychanges, the impact of wagering products and technologies introduced bycompetitors; increases in the percentage of revenues allocated for purse fundpayments; 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.

 

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**ITEM3:****        ****QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Canterbury Park isnot required to provide the information requested by this Item as it qualifiesas a smaller reporting company.

 

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

 

(a)           Evaluation ofDisclosure 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 therules and forms of the SEC and that the disclosure controls are alsoeffective to ensure that information required to be disclosed in the Company’sExchange Act reports is accumulated and communicated to management, includingthe chief executive officer and chief financial officer, to allow timelydecisions regarding required disclosure.

 

(b)           Changes in Internal ControlOver Financial Reporting:

 

There has been no changein our internal control over financial reporting (as defined inRules 13a-15(f) under the Securities Exchange Act of 1934) thatoccurred during our fiscal quarter ended June 30, 2009 that havematerially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

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**PART II**

**OTHER INFORMATION**

 

Item 1.                    **Legal Proceedings**

 

Not Applicable.

 

Item 1A.                 **Risk Factors**

 

There have been nomaterial changes to the Risk Factors since those reported in the Form 10-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 anadditional 250,000 shares of the Company’s common stock.  During the first half of 2009, the Companydid not repurchase any shares of common stock. As of June 30, 2009, there are 33,457 shares at maximum that theCompany may buy back as a result of this repurchase program.

 

Item 3.                    **Defaults Upon Senior Securities**

 

Not Applicable.

 

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

 

The Company heldits Annual Meeting of Shareholders on June 4, 2009.  Shareholders reelected the followingdirectors for a one year term:  PatrickR. Cruzen, Burton F. Dahlberg, Carin J. Offerman, Curtis A. Sampson, Randall D.Sampson, and Dale H. Schenian.  Of the3,765,281 shares present and authorized to vote in person or by proxy at themeeting, not less than 3,495,138 shares were voted in favor of each of thereelected directors (approximately 92.8%).

 

Item 5.                    **Other Information**

 

Not Applicable.

 

Item 6.                    **Exhibits**

 

(a)           The following exhibits are includedherein:

 

11            Statement re computation of per shareearnings — See Net Income Per Share under Note 1 of Notes to ConsolidatedFinancial Statements under Part 1, Item 1, which is incorporated herein byreference.

 

31.1         Certification of Chief Executive Officer pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 (rules 13a-14 and15d-14 of the Exchange Act).

 

31.2         Certification of Chief Financial Officer pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 (rules 13a-14 and15d-14 of the Exchange Act).

 

32            Certfications pursuant to Section 906 of theSarbanes-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: August 14,  2009 | /s/ Randall D. Sampson                       |
|                         | Randall D. Sampson,                          |
|                         | President, and Chief  Executive Officer      |
|                         |                                         |
| Dated: August 14,  2009 | /s/ David C. Hansen                          |
|                         | David C. Hansen,                             |
|                         | Vice President, and  Chief Financial Officer |

 

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