**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C.  20549**

**FORM 10-Q**

**(Mark One)**
| **x** | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE  30, 2006.** |
|-------|------------|---------------------------------------------------------------------------------------------------------------------------------------------|

 

**OR**

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

 

**Commission File Number:  001-31569**

****

**CANTERBURY PARK HOLDING CORPORATION**

(Exact Name of Registrant as Specified in Its Charter)
| **Minnesota**                                          | ** ** | ** **                    | ** ** | **41-1775532**       |
|--------------------------------------------------------|------------|-------------------------------|------------|----------------------|
| (State or Other  Jurisdiction                          |       |                          |       | (I.R.S. Employer     |
| of Incorporation  or Organization)                     |       |                          |       | Identification  No.) |
|                                                   |       |                          |       |                 |
| ** **                                             | ** ** | **1100  Canterbury Road**     | ** ** | ** **           |
| ** **                                             | ** ** | **Shakopee,  MN  55379** | ** ** | ** **           |
| (Address of  principal executive offices and zip code) |

 

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

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Act.
|  | YES | o |   | NO | x |   |
|--|-----|---|--------|----|---|--------|

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.
|  | YES | x |   | NO | o |   |
|--|-----|---|--------|----|---|--------|

 

Indicate by check mark whether the registrant isa large accelerated filer, an accelerated filer, or a non-accelerated filer (asdefined in Exchange Act Rule 12b-2).    
|  | Large  accelerated filer | o | Accelerated  filer | o | Non-accelerated  filer | x |   |
|--|--------------------------|---|--------------------|---|------------------------|---|--------|

 

Indicate by check mark whether the registrant isa shell company (as defined in Exchange Act Rule 12b-2).    
|   | YES | o |   | NO | x |   |
|--------|-----|---|--------|----|---|--------|

 

The Company had4,052,985 shares of common stock, $.01 par value, outstanding as of August 8,2006.

 

 

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Canterbury ParkHolding Corporation

#### **INDEX**

| **PART I.**   | **FINANCIAL INFORMATION**                                                           |                                                                                        |
|---------------|-------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|
| ** **    |                                                                                |                                                                                        |
|          | Item 1.                                                                             | Financial Statements                                                                        |   |
|          |                                                                                |                                                                                        |   |
|          | Consolidated Balance  Sheets as of June 30, 2006 and December 31, 2005              |                                                                                        |
|          |                                                                                |                                                                                        |
|          | Consolidated  Statements of Operations for the periods ended June 30, 2006 and 2005 |                                                                                        |
|          |                                                                                |                                                                                        |
|          | Consolidated  Statements of Cash Flows for the periods ended June 30, 2006 and 2005 |                                                                                        |
|          |                                                                                |                                                                                        |
|          | Notes to  Consolidated Financial Statements                                         |                                                                                        |
|          |                                                                                |                                                                                        |
|          | Item 2.                                                                             | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|          |                                                                                |                                                                                        |   |
|          | Item 3.                                                                             | Quantitative  and Qualitative Disclosures about Market Risk                                 |   |
|          |                                                                                |                                                                                        |   |
|          | Item 4.                                                                             | Controls and  Procedures                                                                    |   |
|          |                                                                                |                                                                                        |   |
| **PART  II.** | **OTHER  INFORMATION**                                                              |                                                                                        |
| ** **    | ** **                                                                          | ** **                                                                                  |   |
|          | Item 1.                                                                             | Legal Proceedings                                                                           |   |
|          |                                                                                |                                                                                        |   |
|          | Item  1A.                                                                           | Risk  Factors                                                                               |   |
|          |                                                                                |                                                                                        |   |
|          | Item 2.                                                                             | Unregistered  Sales of Equity Securities and Use of Proceeds                                |   |
|          |                                                                                |                                                                                        |   |
|          | Item 3.                                                                             | Defaults  Upon Senior Securities                                                            |   |
|          |                                                                                |                                                                                        |   |
|          | Item 4.                                                                             | Submission  of Matters to a Vote of Security Holders                                        |   |
|          |                                                                                |                                                                                        |   |
|          | Item 5.                                                                             | Other Information                                                                           |   |
|          |                                                                                |                                                                                        |   |
|          | Item  6.                                                                            | Exhibits                                                                                    |   |
|          |                                                                                |                                                                                        |   |
|          | Signatures                                                                          |                                                                                        |   |
|          |                                                                                |                                                                                        |   |
|          | Exhibits                                                                            |                                                                                        |   |

 

2

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**PART 1 - FINANCIAL INFORMATION**

**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**JUNE30, 2006 (UNAUDITED) AND DECEMBER 31, 2005**
| ** **                                                                                                                          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                          | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| **ASSETS**                                                                                                                          | ** ** | ** **        | ** ** | ** **            | ** ** |
| CURRENT ASSETS                                                                                                                      |       |              |       |                  |       |
| Cash                                                                                                                                |       | $                 | 6,638,594  |                  | $          | 4,914,366 |   |
| Restricted cash                                                                                                                     |       | 4,802,378         |       | 1,988,982             |       |
| Short-term  investments                                                                                                             |       | 100,447           |       |                  |       |
| Accounts  receivable, net of allowance of $53,600 and $82,600                                                                       |       | 772,905           |       | 696,857               |       |
| Inventory                                                                                                                           |       | 304,886           |       | 158,470               |       |
| Prepaid expenses                                                                                                                    |       | 872,451           |       | 763,976               |       |
| Income taxes  receivable                                                                                                            |       | 20,373            |       |                  |       |
| Deferred income  taxes                                                                                                              |       | 315,800           |       | 203,400               |       |
| Total current  assets                                                                                                               |       | $                 | 13,827,834 |                  | $          | 8,726,051 |   |
|                                                                                                                                |       |              |       |                  |       |
| LONG-TERM ASSETS                                                                                                                    |       |              |       |                  |       |
| Deposits                                                                                                                            |       | 20,000            |       | 20,000                |       |
| Land, buildings  and equipment, net of accumulated depreciation   of $12,124,387and $11,428,154, respectively                       |       | 24,177,433        |       | 22,694,438            |       |
|                                                                                                                                |       |              |       |                  |       |
|                                                                                                                                |       | $                 | 38,025,267 |                  | $          | 31,440,489 |   |
|                                                                                                                                |       |              |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                      | ** ** | ** **        | ** ** | ** **            | ** ** |
|                                                                                                                                |       |              |       |                  |       |
| CURRENT LIABILITIES                                                                                                                 |       |              |       |                  |       |
| Accounts payable                                                                                                                    |       | $                 | 6,058,945  |                  | $          | 1,882,923 |   |
| Card club  accruals                                                                                                                 |       | 2,422,134         |       | 2,122,333             |       |
| Accrued wages  and payroll taxes                                                                                                    |       | 1,715,965         |       | 1,546,155             |       |
| Cash dividend  payable                                                                                                              |       | 1,010,796         |       |                  |       |
| Accrued interest  payable                                                                                                           |       | 14,770            |       | 7,303                 |       |
| Due to MHBPA                                                                                                                        |       | 110,166           |       | 94,853                |       |
| Accrued property  taxes                                                                                                             |       | 425,460           |       | 403,357               |       |
| Income taxes  payable                                                                                                               |       |              |       | 66,108                |       |
| Payable to horsepersons                                                                                                             |       | 431,472           |       | 366,266               |       |
| Total current  liabilities                                                                                                          |       | 12,189,708        |       | 6,489,298             |       |
|                                                                                                                                |       |              |       |                  |       |
| DEFERRED INCOME TAXES                                                                                                               |       | 541,000           |       | 593,100               |       |
|                                                                                                                                |       |              |       |                  |       |
| COMMITMENTS AND  CONTINGENCIES (Note 4)                                                                                             |       |              |       |                  |       |
|                                                                                                                                |       |              |       |                  |       |
| STOCKHOLDERS’ EQUITY                                                                                                           |       |              |       |                  |       |
| Common stock,  $.01 par value, 10,000,000 shares authorized, 4,051,685   and 3,959,885, respectively, shares issued and outstanding |       | 40,517            |       | 39,599                |       |
| Additional  paid-in capital                                                                                                         |       | 14,483,589        |       | 14,045,248            |       |
| Accumulated  earnings                                                                                                               |       | 10,770,453        |       | 10,273,244            |       |
| Total  stockholders’ equity                                                                                                    |       | 25,294,559        |       | 24,358,091            |       |
|                                                                                                                                |       | $                 | 38,025,267 |                  | $          | 31,440,489 |   |

Seenotes to consolidated financial statements.

3

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**PERIODSENDED JUNE 30, 2006 AND 2005 (Unaudited)**
| ** **                                    | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| OPERATING  REVENUES:                          |       |                                                |       |                                              |       |   |   |   |   |
| Pari-mutuel                                   |       | $                                                   | 4,843,515  |                                              | $          | 4,861,902 |   | $ | 7,856,313 |   | $ | 7,777,188 |   |
| Card Club                                     |       | 7,203,193                                           |       | 7,273,912                                         |       | 14,974,660 |   | 14,710,912 |   |
| Concessions                                   |       | 1,845,848                                           |       | 1,804,959                                         |       | 2,723,028 |   | 2,684,525 |   |
| Admissions and parking                        |       | 291,299                                             |       | 228,171                                           |       | 322,638 |   | 254,341 |   |
| Publications                                  |       | 144,680                                             |       | 186,746                                           |       | 243,783 |   | 300,585 |   |
| Other                                         |       | 584,110                                             |       | 551,229                                           |       | 946,990 |   | 901,923 |   |
|                                          |       | 14,912,645                                          |       | 14,906,919                                        |       | 27,067,412 |   | 26,629,474 |   |
|                                          |       |                                                |       |                                              |       |   |   |   |   |
| OPERATING  EXPENSES:                          |       |                                                |       |                                              |       |   |   |   |   |
| Purse expense                                 |       | 2,561,006                                           |       | 2,450,693                                         |       | 3,903,552 |   | 3,745,230 |   |
| Minnesota Breeders’ Fund                 |       | 350,268                                             |       | 355,279                                           |       | 627,111 |   | 620,953 |   |
| Host track fees                               |       | 633,159                                             |       | 631,909                                           |       | 1,130,946 |   | 1,113,695 |   |
| Pari-mutuel taxes                             |       | 61,707                                              |       | 58,684                                            |       | 106,511 |   | 104,875 |   |
| Salaries and benefits                         |       | 5,999,079                                           |       | 5,752,024                                         |       | 11,004,832 |   | 10,399,920 |   |
| Cost of concessions and publication sales     |       | 981,997                                             |       | 1,023,337                                         |       | 1,573,443 |   | 1,634,506 |   |
| Depreciation                                  |       | 438,825                                             |       | 398,250                                           |       | 869,650 |   | 740,250 |   |
| Utilities                                     |       | 326,986                                             |       | 286,925                                           |       | 634,333 |   | 547,572 |   |
| Repairs, maintenance and supplies             |       | 488,485                                             |       | 457,639                                           |       | 731,029 |   | 686,721 |   |
| License fees and property taxes               |       | 199,600                                             |       | 161,494                                           |       | 384,405 |   | 309,190 |   |
| Advertising and marketing                     |       | 814,668                                             |       | 830,717                                           |       | 1,039,760 |   | 1,157,997 |   |
| Insurance                                     |       | 314,865                                             |       | 317,520                                           |       | 544,659 |   | 621,801 |   |
| Other                                         |       | 1,204,380                                           |       | 1,275,831                                         |       | 1,993,498 |   | 2,112,967 |   |
|                                          |       | 14,375,025                                          |       | 14,000,302                                        |       | 24,543,729 |   | 23,795,677 |   |
| NONOPERATING  (EXPENSES)                      |       |                                                |       |                                              |       |   |   |   |   |
| REVENUES:                                     |       |                                                |       |                                              |       |   |   |   |   |
| Interest expense                              |       | (5,472                                              | )          | (5,151                                            | )          | (7,768 | ) | (6,740 | ) |
| Other, net                                    |       | 71,719                                              |       | 29,981                                            |       | 127,099 |   | 48,938 |   |
|                                          |       | 66,247                                              |       | 24,830                                            |       | 119,331 |   | 42,198 |   |
|                                          |       |                                                |       |                                              |       |   |   |   |   |
| INCOME BEFORE  INCOME TAX EXPENSE             |       | 603,867                                             |       | 931,447                                           |       | 2,643,014 |   | 2,875,995 |   |
|                                          |       |                                                |       |                                              |       |   |   |   |   |
| INCOME TAX  EXPENSE (Note 1)                  |       | (258,509                                            | )          | (477,298                                          | )          | (1,135,009 | ) | (1,341,418 | ) |
|                                          |       |                                                |       |                                              |       |   |   |   |   |
| NET INCOME                                    |       | $                                                   | 345,358    |                                              | $          | 454,149 |   | $ | 1,508,005 |   | $ | 1,534,577 |   |
|                                          |       |                                                |       |                                              |       |   |   |   |   |
| BASIC NET INCOME  PER COMMON SHARE (Note 1)   |       | $                                                   | .08        |                                              | $          | .12 |   | $ | .38 |   | $ | .40 |   |
|                                          |       |                                                |       |                                              |       |   |   |   |   |
| DILUTED NET INCOME PER COMMON  SHARE (Note 1) |       | $                                                   | .08        |                                              | $          | .11 |   | $ | .33 |   | $ | .37 |   |

Seenotes to consolidated financial statements.

4

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**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**PERIODSENDED JUNE 30, 2006 AND 2005 (Unaudited)**
| ** **                                                               | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                               | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| **Operating  Activities:**                                               | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net Income                                                               |       | $                                                 | 1,508,005  |   | $ | 1,534,577 |   |
| Adjustments to reconcile net income to net cash  provided by operations: |       |                                              |       |   |   |
| Depreciation                                                             |       | 869,650                                           |       | 740,250 |   |
| Stock-based compensation expense                                         |       | 136,271                                           |       |   |   |
| Excess tax benefit from exercise of stock options                        |       | (48,749                                           | )          |   |   |
| Gain on sale of property and equipment                                   |       | (50,010                                           | )          |   |   |
| Decrease in deferred income taxes                                        |       | (84,200                                           | )          | (71,100 | ) |
| (Increase) decrease in accounts receivable                               |       | (76,048                                           | )          | 144,736 |   |
| (Increase) decrease in other current assets                              |       | (254,891                                          | )          | 8,885 |   |
| Decrease in income taxes payable                                         |       | (86,481                                           | )          | (171,201 | ) |
| Increase in accounts payable and accrued wages and  payroll taxes        |       | 4,256,737                                         |       | 3,409,479 |   |
| Increase (decrease) in card club accruals                                |       | 299,801                                           |       | (119,649 | ) |
| Increase in accrued interest                                             |       | 7,467                                             |       | 5,982 |   |
| Increase in accrued property taxes                                       |       | 22,103                                            |       | 11,110 |   |
| Increase (decrease) in payable to horsepersons                           |       | 65,206                                            |       | (943 | ) |
| Increase in due to MHBPA                                                 |       | 15,313                                            |       | 207,373 |   |
| Net cash provided by operations                                          |       | 6,580,174                                         |       | 5,699,499 |   |
| ** **                                                               | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| **Investing  Activities:**                                               | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Additions to buildings and equipment                                     |       | (2,263,550                                        | )          | (2,487,839 | ) |
| Proceeds from sale of equipment                                          |       | 50,010                                            |       |   |   |
| Increase in restricted cash                                              |       | (2,813,396                                        | )          | (2,428,494 | ) |
| Increase in short-term investments                                       |       | (100,447                                          | )          |   |   |
| Net cash used in investing activities                                    |       | (5,127,383                                        | )          | (4,916,333 | ) |
|                                                                     |       |                                              |       |   |   |
| **Financing  Activities**                                                | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Proceeds from issuance of common stock                                   |       | 222,688                                           |       | 289,322 |   |
| Excess tax benefit from exercise of stock options                        |       | 48,749                                            |       |   |   |
| Net cash provided by financing activities                                |       | 271,437                                           |       | 289,322 |   |
|                                                                     |       |                                              |       |   |   |
| Net increase in  cash                                                    |       | 1,724,228                                         |       | 1,072,488 |   |
|                                                                     |       |                                              |       |   |   |
| Cash at  beginning of period                                             |       | $                                                 | 4,914,366  |   | $ | 4,178,544 |   |
|                                                                     |       |                                              |       |   |   |
| Cash at end of  period                                                   |       | $                                                 | 6,638,594  |   | $ | 5,251,032 |   |
|                                                                     |       |                                              |       |   |   |
| Supplemental  disclosure of noncash investing activities:                |       |                                              |       |   |   |
| Additions to buildings and equipment funded through  accounts payable    |       | $                                                 | 89,095     |   | $ | 327,123 |   |
|                                                                     |       |                                              |       |   |   |
| Supplemental  disclosure of cash flow information:                       |       |                                              |       |   |   |
| Income taxes paid, net of refunds                                        |       | $                                                 | 1,250,000  |   | $ | 1,585,000 |   |
| Dividend  declared                                                       |       | 1,010,796                                         |       | 973,717 |   |

Seenotes to consolidated financial statements.

5

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**PERIODSENDED JUNE 30, 2006 AND 2005**

1.               SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

The summary ofsignificant accounting policies is included in the notes to consolidatedfinancial statements in the 2005 Annual Report on form 10-K.

*Unaudited Financial Statements* -The consolidated balance sheet as of June 30, 2006 the consolidated statementsof operations for the three and six months ended June 30, 2006 and 2005, theconsolidated statements of cash flows for the six months ended June 30, 2006and 2005, and the related information contained in these notes have beenprepared by management without audit.  Inthe opinion of management, all adjustments (consisting only of normal recurringadjustments) which are necessary for a fair presentation of financial positionand results of operations for such periods have been made.  Results for an interim period should not beconsidered as indicative of results for a full year.

*Revenue Recognition -*Our revenues are derived primarilyfrom the operations of a Card Club, pari-mutuel wagering on simulcast and livehorse races, concession sales and related activities.  Collection revenue from Card Club operationsand pari-mutuel commission and fee revenues are recognized at the time that thewagering process is complete.  Revenuesrelated to wagering activities including concession and publication sales, andparking and admission fees are recognized as revenue when the service has beenperformed or the product has been delivered.

*Estimates* - Thepreparation of the consolidated financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the consolidated financial statements and thereported amounts of revenues and expenses during the reporting period.  Actual results could differ from theseestimates.

*Reclassifications* –Certain prior year numbers have been reclassified to be consistent with currentperiod presentation.  Thesereclassifications had no effect on net earnings or stockholders’ equity.  In our consolidated statement of cash flowswe reclassified acquisitions of building improvements and equipment fundedthrough accounts payable at June 30, 2005 to a noncash investing activity to beconsistent with our 2006 presentation. In the accompanying consolidated statement of cash flows for the periodended June 30, 2005 we reclassified $327,123 to a noncash investingactivity.  These acquisitions werepreviously presented as increases in accounts payable under operatingactivities and additions to land, buildings and equipment under investingactivities and resulted in decreases in these items from amounts previouslyreported.

*Restricted Cash* –Restricted cash represents refundable deposits and amounts due to horsemen forpurses, stakes and awards, and amounts accumulated in the Player Pool andjackpot pools to be used to repay card club players in the form of promotions,giveaways, prizes, or by other means.

*Income Taxes*- Income tax expenseis computed by applying the estimated annual effective tax rate to theyear-to-date income.  Income taxes areaccounted 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.

*Net Income Per Share*- Basic net income per common shareis based on the weighted average number of common shares outstanding duringeach period.  The weighted average numberof common shares outstanding for the three and six-month periods ended June 30,2006 were 3,989,125 and 3,979,460,

6

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respectively.  The weighted average number of common sharesoutstanding for the three and six-month periods ended June 30, 2005 were3,892,153 and 3,884,318, respectively. Diluted net income per common share takes into effect the dilutive effectof 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, 2006 were 4,372,859 and 4,515,220,respectively.  The weighted averageshares used to calculate diluted earnings per share for the three and six-monthperiods ended June 30, 2005 were 4,235,928 and 4,184,009, respectively.

*Fair values of FinancialInstruments*– Due tothe current classification of all financial instruments of the Company, giventhe short-term nature of the related account balances, carrying amountsreported in the consolidated balance sheets approximates fair value.

*StockBased Employee Compensation* - In December 2004, the FinancialAccounting Standards Board (FASB) revised SFAS No.123, Share Based Payment(SFAS No. 123R).  This Statement supercedesAPB Opinion No. 25, which resulted in no stock-based employee compensation costrelated to stock options if the options granted had an exercise price equal tothe market value of the underlying common stock on the date of grant.  SFAS No. 123R requires recognition ofemployee services provided in exchange for a share-based payment based on thegrant date fair market value.  In April2005 the effective date of SFAS No. 123R was deferred to the fiscal yearbeginning after June 15, 2005. Consequently, the Company adopted SFAS No. 123R as of January 1,2006.  As of the effective date, thisStatement applies to all new awards issued as well as awards modified,repurchased, or cancelled.  Additionally,for stock-based awards issued prior to the effective date, compensation costattributable to future services will be recognized as the remaining service isrendered.  The Company elected to applythe modified prospective method of adoption of SFAS No.123R.

The Company has an equitybased compensation plan, the 1994 Stock Plan which provides for the granting ofawards in the form of stock options, restricted stock, stock appreciationrights, and deferred stock to key employees and non-employees, includingdirectors of and consultants to the Company and any subsidiary, to purchase upto a maximum of 1,450,000 shares of common stock.  During the first quarter of 2006 the Companyissued non-qualified stock options to the members of the Board of Directors,granted incentive stock options to two executive officers and issued shares ofcommon stock that were restricted in regard to ownership and disposition rights(herein referred to as “restricted stock”) to key management level employees.

SFAS 123R requires theuse of a fair value based measurement method when granting stock options.  The Company selected the Black-Scholes methodto measure the compensation cost for stock options.  The Black-Scholes method requires the use ofsignificant assumptions to estimate the fair value of the stock optionawards.  The expected term of the boardof director options is equivalent to the historical exercise experience forthese options.  The expected term of thekey employee options was the term of the option as the individuals haveexhibited a pattern of exercising options at or near the expiration date.  The expected volatility was calculatedprimarily with reliance on historical volatility rates.  The Company has no reason to believe thatfuture volatility of the share price over the expected option term is likely todiffer from its past.  The Companyassumed a dividend yield equivalent to historical dividend rates over thevesting period.  The risk-free rateutilized in the Black-Scholes calculations was the U.S. Constant MaturityTreasury Security for the period equivalent to the term of the option.

7

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The fair value of stockoptions granted under the Plan during first six months of 2006 were estimatedon the date of grant using the Black-Scholes option-pricing model with thefollowing weighted average assumptions and results:

| Dividend yield                             |   | 1.74 | %       |
|--------------------------------------------|--------|------|---------|
| Weighted-average  volatility               |   | 25   | %       |
| Risk-free  interest rate                   |   | 4.50 | %       |
| Expected term of  stock options in years   |   | 8.6  |    |
| Fair value of stock  options on grant date |   | $    | 135,300 |   |
|                                            |        |      |         |  |

A summary of stock optionactivity under the Plan as of June 30, 2006 and changes during the six monthsthen ended is presented below:
|                                 | ** ** | ** **         | ** ** | ** **   | ** ** | **Weighted**    | ** ** | ** **          | ** ** |
|---------------------------------|------------|--------------------|------------|--------------|------------|-----------------|------------|---------------------|------------|
| ** **                      | ** ** | ** **         | ** ** | **Weighted** | ** ** | **Average**     | ** ** | ** **          | ** ** |
| ** **                      | ** ** | ** **         | ** ** | **Average**  | ** ** | **Remaining**   | ** ** | **Aggregate**       | ** ** |
| ** **                      | ** ** | **Number of** | ** ** | **Exercise** | ** ** | **Contractual** | ** ** | **Grant Date** | ** ** |
| **Stock Options**          | ** ** | **Shares**         | ** ** | **Price**    | ** ** | **Term**        | ** ** | **Fair Value** | ** ** |
|                            |       |               |       |         |       |            |       |                |       |
| Outstanding at  January 1, 2006 |       | 721,950            |       | $            | 9.35       |            |       |                |       |   |
|                            |       |               |       |         |       |            |       |                |       |
| Granted                         |       | 30,000             |       | $            | 14.43      |            |       |                |       |   |
| Exercised                       |       | (50,800            | )          | $            | (4.38      | )               |       |                |       |   |
|                            |       |               |       |         |       |            |       |                |       |
| Outstanding at  June 30, 2006   |       | 701,150            |       | $            | 9.93       |            | 3.4 Years  |                | $          | 3,347,700 |   |
|                            |       |               |       |         |       |            |       |                |       |
| Exercisable at June 30,  2006   |       | 671,150            |       | $            | 9.73       |            | 3.1 Years  |                | $          | 3,281,593 |   |

Each member of the Boardof Directors receives an annual recurring grant of 3,000 non-qualified stockoptions.  On February 1, 2006 15,000options were granted to the five board members with an exercise price equal tothe market price on the date of grant of $14.30.  The stock options vest over a six-monthperiod and expire in ten years.  TheCompany granted 15,000 incentive stock options to two executive officers of theCompany on February 9, 2006.  Theexercise price of these incentive stock options was the market value on thedate of grant of $14.55.  The stockoptions vest ratably over a four-year period and expire in ten years.  Shares of restricted stock were granted tokey management-level employees on February 9, 2006.  The Company granted 41,000 shares ofrestricted stock that vest 100% after four years.  Employees who terminate employment prior tothe vesting date forfeit their right to the shares.

The compensation costassociated with the Board of Director options is $61,200 to be recognized asexpense over the six-month vesting period. The compensation cost associated with the employee stock option grant is$74,100 to be recognized ratably over the four-year vesting period.  The compensation cost associated with therestricted stock grant was calculated as the market price on the date of grantof $14.55 for the 41,000 shares (reduced by estimated forfeitures) of $589,275.  This expense will be recognized ratably overthe four-year vesting period.  TheCompany also recognized $7,807 related to a grant of employee stock options in2004 which vested in February of 2006. In accordance with the modified prospective method, the totalcompensation cost related to share based awards included in salaries andbenefits expense for the first six months of 2006 was $136,271.

8

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A summary of the statusof the Company’s restricted stock as of June 30, 2006, and changes during thesix months ended June 30, 2006, is presented below:
| Restricted Stock:                         | ** ** | **Number  of  Shares** | ** ** | **Weighted  Average  Grant Date  Fair Value** | ** ** |
|------------------------------------------------|------------|------------------------|------------|---------------------------------------------------------|------------|
|                                           |       |                   |       |                                                    |       |
| Nonvested  restricted stock at January 1, 2006 |       | 0                      |       | 0                                                       |       |
|                                           |       |                   |       |                                                    |       |
| Granted                                        |       | 41,000                 |       | $                                                       | 14.55      |   |
| Vested                                         |       | 0                      |       | 0                                                       |       |
| Forfeited                                      |       | 0                      |       | 0                                                       |       |
|                                           |       |                   |       |                                                    |       |
| Nonvested restricted  stock at June 30, 2006   |       | 41,000                 |       | $                                                       | 14.55      |   |

As of June 30, 2006,there was $527,892 of total unrecognized compensation cost related torestricted stock compensation arrangements granted under the Plan.  That cost is expected to be recognized over aperiod of 3.5 years.

The following tableillustrates the effect on net income and earnings per share if the Company hadapplied the fair value recognition provisions of SFAS No. 123, *Accounting for Stock-Based Compensation,*tostock-based employee compensation to periods prior to January 1, 2006.
|                                                                                                                                          | ** ** | **Three**                   | ** ** | **Six**                     | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                               | ** ** | **Months**                  | ** ** | **Months**                  | ** ** |
| ** **                                                                                                                               | ** ** | **Ended**                   | ** ** | **Ended**                   | ** ** |
| **Stock Based Employee Compensation**                                                                                     | ** ** | **June 30, 2005** | ** ** | **June 30, 2005** | ** ** |
|                                                                                                                                     |       |                        |       |                        |       |
| Net Income:                                                                                                                              |       |                        |       |                        |       |
|                                                                                                                                     |       |                        |       |                        |       |
| As reported                                                                                                                              |       | $                           | 454,149    |                        | $          | 1,534,577 |   |
|                                                                                                                                     |       |                        |       |                        |       |
| Deduct: Pro forma stock-based compensation expense  determined under fair value based method for all awards, net of related tax  effects |       | (328,010                    | )          | (373,069                    | )          |
|                                                                                                                                     |       |                        |       |                        |       |
| Pro forma net income                                                                                                                     |       | $                           | 126,139    |                        | $          | 1,161,508 |   |
|                                                                                                                                     |       |                        |       |                        |       |
| Earnings Per  Share:                                                                                                                     |       |                        |       |                        |       |
|                                                                                                                                     |       |                        |       |                        |       |
| Basic - as  reported                                                                                                                     |       | $                           | .12        |                        | $          | .40 |   |
|                                                                                                                                     |       |                        |       |                        |       |
| Basic - pro  forma                                                                                                                       |       | $                           | .03        |                        | $          | .30 |   |
|                                                                                                                                     |       |                        |       |                        |       |
| Diluted - as  reported                                                                                                                   |       | $                           | .11        |                        | $          | .37 |   |
|                                                                                                                                     |       |                        |       |                        |       |
| Diluted - pro forma                                                                                                                      |       | $                           | .03        |                        | $          | .28 |   |

 

9

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2.               BORROWINGS UNDERCREDIT AGREEMENT

Borrowings under theCompany’s credit agreement with Bremer Bank include a commercial revolvingcredit line, which provides for maximum advances of $2,250,000 with interest atthe prime rate.  The Company had noborrowings under this credit line at June 30, 2006.  The credit agreement contains certain covenantsrequiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements as of June 30, 2006. 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 during2006.

3.               OPERATING SEGMENTS

During the first sixmonths of 2006 and 2005, the Company had three reportable operatingsegments:  horse racing, card club andconcessions.  The card club segmentprimarily represents operations of the Canterbury Card Club.  The horseracing segment primarily representssimulcast and live horse racing operations, and the concessions segmentprimarily represents concessions provided during simulcast and live racing, inthe card club, and during special events. The Company’s reportable operating segments are strategic business unitsthat offer different products and services. They are managed separately because the segments differ in the nature ofthe products and services provided as well as processes to produce thoseproducts and services.  The horse racingand card club segments are regulated by the State of Minnesota Racing Commission.

The accounting policiesof the operating segments are the same as those described in the summary ofsignificant accounting policies in the 2005 Annual Report on Form 10-K.

Depreciation, interestexpense and income taxes are allocated to the segments but no allocation ismade to concessions for shared facilities. However, the concessions segment pays approximately 25% of grossrevenues earned on live racing and special event days to the horse racingsegment for use of the facilities.

10

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The following tablesprovide information about the Company’s operating segments (in 000’s):
|                                     | ** ** | **Six Months Ended June 30, 2006** | ** ** |
|-------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                          | ** ** | **Card Club**                                          | ** ** | **Horse Racing** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                |       |                                                        |       |   |   |   |   |   |   |
| Revenues from  external customers   |       | $                                                           | 14,975     |   | $ | 9,330 |   | $ | 2,762 |   | $ | 27,067 |   |
|                                |       |                                                        |       |   |   |   |   |   |   |
| Intersegment  revenues              |       |                                                        |       | 164 |   | 1,036 |   | 1,200 |   |
|                                |       |                                                        |       |   |   |   |   |   |   |
| Net interest  income                |       |                                                        |       | 119 |   |   |   | 119 |   |
|                                |       |                                                        |       |   |   |   |   |   |   |
| Depreciation                        |       | 141                                                         |       | 670 |   | 58 |   | 869 |   |
|                                |       |                                                        |       |   |   |   |   |   |   |
| Segment income  before income taxes |       | 2,634                                                       |       | (45 | ) | 531 |   | 3,120 |   |
|                                |       |                                                        |       |   |   |   |   |   |   |
| Segment Assets                      |       | $                                                           | 3,795      |   | $ | 33,284 |   | $ | 5,486 |   | $ | 42,565 |   |

 
|                                     | ** ** | **Six Months Ended June 30, 2005** | ** ** |
|-------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                          | ** ** | **Card Club**                                          | ** ** | **Horse Racing** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                |       |                                                        |       |   |   |   |   |   |   |
| Revenues from  external customers   |       | $                                                           | 14,711     |   | $ | 9,233 |   | $ | 2,685 |   | $ | 26,629 |   |
|                                |       |                                                        |       |   |   |   |   |   |   |
| Intersegment  revenues              |       |                                                        |       | 152 |   | 958 |   | 1,110 |   |
|                                |       |                                                        |       |   |   |   |   |   |   |
| Net interest  income                |       |                                                        |       | 42 |   |   |   | 42 |   |
|                                |       |                                                        |       |   |   |   |   |   |   |
| Depreciation                        |       | 270                                                         |       | 419 |   | 51 |   | 740 |   |
|                                |       |                                                        |       |   |   |   |   |   |   |
| Segment income before  income taxes |       | 2,765                                                       |       | 139 |   | 435 |   | 3,339 |   |
|                                     |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |

 
|                | ** ** | **At December 31, 2005** | ** ** |
|----------------|------------|-----------------------------------------|------------|
|           |       |                                    |       |   |   |   |   |   |   |
| Segment Assets |       | $                                       | 3,493      |   | $ | 27,191 |   | $ | 4,821 |   | $ | 35,505 |   |
|                |            |                                         |            |  |  |  |  |  |  |  |  |  |  |

 

11

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The following are reconciliations of reportable segment revenue, incomebefore income taxes, and assets, to the Company’s consolidated totals (in 000’s):
|                                                         | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                              | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| Revenues                                                |       |                                              |       |   |   |
| Total revenue for reportable segments                   |       | $                                                 | 28,267     |   | $ | 27,739 |   |
| Elimination of intersegment revenues                    |       | (1,200                                            | )          | (1,110 | ) |
| Total consolidated revenues                             |       | $                                                 | 27,067     |   | $ | 26,629 |   |
|                                                    |       |                                              |       |   |   |
| Income before  income taxes                             |       |                                              |       |   |   |
| Total segment income before income taxes                |       | $                                                 | 3,120      |   | $ | 3,339 |   |
| Elimination of intersegment income before income  taxes |       | (477                                              | )          | (463 | ) |
| Total  consolidated income before income taxes          |       | $                                                 | 2,643      |   | $ | 2,876 |   |

 
|                                         | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Assets                                  |       |              |       |                  |       |
| Total assets for reportable segments    |       | $                 | 42,565     |                  | $          | 35,505 |   |
| Elimination of intercompany receivables |       | (4,540            | )          | (4,065                | )          |
| Total  consolidated assets              |       | $                 | 38,025     |                  | $          | 31,440 |   |

4.     CONTINGENCIES

In accordance with an Earn Out Note, given to theprior owner of the Racetrack as part of the consideration paid by the Companyto acquire the Racetrack in 1994, if (i) off-track betting becomes legallypermissible in the State of Minnesota and (ii) the Company begins to conductoff-track betting with respect to or in connection with its operations, the Companywill be required to pay to the IMR Fund, L.P. the greater of $700,000 peroperating year, as defined, or 20% of the net pretax profit, as defined foreach of five operating years.  At thistime, management believes that the likelihood that these two conditions will bemet, and that the Company will be required to pay these amounts is remote.  At the date (if any) that these twoconditions are met, the five minimum payments will be discounted back to theirpresent value and the sum of those discounted payments will be capitalized aspart of the purchase price in accordance with generally accepted accountingprinciples.  The purchase price will befurther increased if payments become due under the “20% of Net Pretax Profit”calculation.  The first payment is to bemade 90 days after the end of the third operating year in which off-trackbetting is conducted by the Company. Remaining payments would be made within 90 days of the end of each ofthe next four operating years.

The Company is periodically involved in various legalactions arising in the normal course of business.  At June 30, 2006, management believes thatthe resolution of any legal actions outstanding will not have a material impacton the consolidated financial statements.

12

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**ITEM2:                           MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL                  CONDITIONAND RESULTS OF OPERATIONS**

The followingManagement’s Discussion and Analysis of Financial Condition and Results ofOperations (“MD&A”) is intended to help the reader understand CanterburyPark Holding Corporation, our operations and our present businessenvironment.  MD&A is provided as asupplement to – and should be read in conjunction with – our consolidatedfinancial statements and the accompanying notes to the financial statements(the “Notes”).  This MD&A is dividedinto the following sections:

·                  *Overview*

·                  *Operations Review* – an analysis of ourCompany’s consolidated results of operations for the three months and sixmonths presented in our consolidated financial statements.

·                  *Contingencies*

·                  *Liquidity and Capital Resources* – ananalysis of the sources and uses of cash.

·                  *Critical Accounting Policies and Estimates*

·                  *Commitments and Contractual Obligations*

·                  *Legislation*

·                  *Forward-Looking Statements*– cautionaryinformation about forward-looking statements and a description of certain risksand uncertainties that could cause our actual results to differ materially fromthe Company’s historical results or our current expectations of projections.

**Overview:**

Canterbury ParkHolding Corporation (the “Company”) owns and operates the Canterbury ParkRacetrack and Card Club in Shakopee, Minnesota. The primary businesses of the Company are simulcast and live pari-mutuelhorse racing, hosting unbanked card games, and food and beverage operations.

The Racetrack isthe only pari-mutuel horse racing facility in the State of Minnesota.  The Racetrack earns revenues from pari-mutueltake-out on races simulcast year-round to Canterbury Park from racetracksthroughout the country and from live race meets featuring thoroughbred andquarter horse racing.  Live race meetscommence in the month of May and conclude in September.  During live race meets, the Company televisesits races to out-of-state racetracks around the country, and earns additionalpari-mutuel revenue on wagers placed at the out-of-state racetracks.

 Canterbury Park’s Card Club (the “Card Club”)hosts “unbanked” card games in which players compete against each other and notagainst the house.  The Card Club is opentwenty-four hours a day, seven days a week. Under Minnesota law, the Company is required to pay up to 14% of thegross Card Club revenues to the Racetrack’s purse fund and the State ofMinnesota Breeders’ Fund.  However, theCompany has agreed with the Minnesota Horsemen’s Benevolent and ProtectiveAssociation (“MHBPA”) to pay 15% of Card Club revenues into the purse fund for2006 and 2005.

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.

13

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**Operations Review for the****Three and****Six MonthsEnded June 30, 2006 and June 30, 2005:**

Total operatingrevenues increased approximately $438,000 or 1.6% during the six months endedJune 30, 2006 compared to the six months ended June 30, 2005, and increasedapproximately $6,000 or .04% for the three months ended June 30, 2006 comparedto the three months ended June 30, 2005. The increase is due to primarily to a1.8% growth in Card Club revenues, along with a 1.0% increase in pari-mutuelrevenues and a 26.9% increase in admission revenues.

Pari-mutuelrevenues are up $79,000 or 1.0% in the six-month period ended June 30, 2006compared to the same period in 2005, and decreased approximately $18,000 or .4%for the three-month period ended June 30, 2006 compared to the same period in2005. Total on-track handle for the six months ended June 30, 2006 was up onlyslightly at $36,944,000 compared to $36,810,000 for the six-month period in2005. Simulcast handle is up compared to the same period in 2005, while liveracing handle is slightly lower.

Total handlewagered on simulcast races year-to-date in 2006 is up $612,000 or 2.0% comparedto last year, primarily due to higher handle during the first quarter.  Inclement weather at east coast tracks duringthe first quarter of 2005 resulted in a reduction of simulcast handle duringthat period.  Simulcast handle wasessentially flat for the second quarter of 2006 compared to the second quarterof 2005.  The Company believes itcontinues to experience growing competition from internet wagering on simulcastraces.

On-track livehandle decreased by $478,000 or 6.8% compared to the same period in 2005 duethe fact that the Company was forced to cancel, shorten or delay live racing onfour days during the second quarter of 2006 due to inclement weatherconditions.

Finally,out-of-state handle on live races increased $1,847,000 or 44.2% compared to thesame period last year primarily due to increases at selected out-of-statewagering entities simulcasting live races from the Racetrack.  For further information, see the “Summary ofPari-mutuel Data” below.
|                                                 | ** ** | **Six Months Ended June 30,** | ** **     |
|-------------------------------------------------|------------|---------------------------------------------------|----------------|
| **Summary of Pari-mutuel Data:** | ** ** | **2006**                                          | ** **     | **2005** | ** ** |
|                                            |       |                                              |           |   |   |
| Racing Days                                     |       |                                              |           |   |   |
| Simulcast only                                  |       | 152                                               |           | 153 |   |
| Live and Simulcast                              |       | 29                                                |           | 28 |   |
| **Total  Number of Racing Days**                | ** ** | **181**                                           | ** **     | **181** | ** ** |
|                                            |       |                                              |           |   |   |
| On-Track Handle                                 |       |                                              |           |   |   |
| Simulcast racing handle on simulcast only days  |       | $                                                 | 22,178,000     |   | $ | 21,884,000 |   |
| Live and Simulcast days:                        |       |                                              |           |   |   |
| Live racing handle                              |       | 6,594,000                                         |           | 7,072,000 |   |
| Simulcast racing handle                         |       | 8,172,000                                         |           | 7,854,000 |   |
| Total On-Track Handle                           |       | 36,944,000                                        |           | 36,810,000 |   |
|                                            |       |                                              |           |   |   |
| Out-of-State  Live Handle                       |       | 6,022,000                                         |           | 4,175,000 |   |
|                                            |       |                                              |           |   |   |
| **Total  Handle**                               | ** ** | **$**                                             | **42,966,000** | ** ** | **$** | **40,985,000** | ** ** |
|                                            |       |                                              |           |   |   |
| On-Track Average  Daily Handle                  |       |                                              |           |   |   |
| Simulcast only racing days                      |       | $                                                 | 145,908        |   | $ | 143,033 |   |
| Live and  simulcast racing days                 |       | $                                                 | 509,172        |   | $ | 533,071 |   |

 

14

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Total Card Clubrevenue increased 1.8% or $264,000 for the first six months of 2006 compared tothe same period in 2005. The primary source of Card Club revenue is apercentage of the wagers from the players as compensation for providing theCard Club facility and services, referred to as the “collection revenue”. TheCompany also receives a specified percentage of the jackpot fund collection asreimbursement for administrative costs of maintaining the jackpot funds, andcollects fees for administering tournaments, which represents “other revenue”.The increase in revenue is due primarily to the transfer of three tables inlate 2005 from the Casino Games room to the Poker room.  This has resulted in increased utilization ofthese tables, allowing for growth in the Card Club’s poker revenue, withoutresulting in a detriment to Casino Games revenues.  Refer to the table below for specific changesin revenue numbers.  Beginning in 2005,the Card Club began experiencing new competition from Native American casinos,which have expanded their gaming options to include many of the same unbankedcard games as those offered at the Card Club. Card Club revenues represented 55.3% and 48.3% of total revenues for thesix-month and three-month periods ended June 30, 2006, respectively.  The percentage is predictably lower duringthe second quarter of any calendar year due to increases in live racing relatedrevenues during that period.  For furtherinformation, see the “Summary of Card Club Data” below.
|                                                    | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------------|------------|
| **Summary of Card Club Data:** | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
|                                               |       |                                              |       |   |   |
| Poker Games                                        |       | $                                                 | 9,250,000  |   | $ | 9,006,000 |   |
| Casino Games                                       |       | 5,390,000                                         |       | 5,381,000 |   |
| Total Collection Revenue                           |       | 14,640,000                                        |       | 14,387,000 |   |
|                                               |       |                                              |       |   |   |
| Other Revenue                                      |       | 335,000                                           |       | 324,000 |   |
| Total Card Club Revenue                            |       | $                                                 | 14,975,000 |   | $ | 14,711,000 |   |
|                                               |       |                                              |       |   |   |
| Number of Days Offered                             |       | 181                                               |       | 181 |   |
| Average Revenue  per Day                           |       | $                                                 | 82,735     |   | $ | 81,276 |   |

Concessions revenues increased $38,000 or 1.4%, and$41,000 or 2.2% for the six-month and three-month periods ended June 30, 2006,respectively, compared to the prior year. The increase is primarily attributable to higher concession sales duringone additional day of live racing during the second quarter of 2006 compared tothe same period in 2005, as well as to a modest price increase effectiveJanuary 2006.

Daily admissionrevenues increased $55,000 during the second quarter of 2006 compared to2005.  Revenues are up due to an increaseof $1 in the price of general admission in 2006 and to an 11.9% increase in thenumber of paid admissions compared to the same period in 2005.  Attendance for live racing during the secondquarter has decreased just slightly to 141,000 compared to 142,000 for the sameperiod in 2005.

Total operatingexpenses increased approximately $748,000 or 3.1% during the six-month periodended June 30, 2006 compared to the six-month period ended June 30, 2005, and$375,000 or 2.7% during the three months ended June 30, 2006 compared to thethree-month period ended June 30, 2005.

Total purse andMinnesota Breeders’ Fund expenses increased approximately $164,000 or 5.2% and$105,000 or 3.1%, respectively, during the six and three month periods of 2006compared to 2005 as illustrated in the table below.  The increases are due primarily to increasedpayments to the purse fund from Card Club revenues and simulcast wagering.  Increases in these revenue items arediscussed above.

15

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|                         | ** ** | ** **                                        | ** ** | ** **                                        | ** ** | **Minnesota** | ** ** |
|-------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|---------------|------------|
| ** **              | ** ** | **Purse Expense**                            | ** ** | **Breeders’ Fund Expense**         | ** ** |
| ** **              | ** ** | **Six Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **              | ** ** | **2006**                                          | ** ** | **2005**                                          | ** ** | **2006**      | ** ** | **2005** | ** ** |
|                    |       |                                              |       |                                              |       |          |       |   |   |
| Card Club               |       | $                                                 | 2,021,000  |                                              | $          | 1,986,000     |       | $ | 224,000 |   | $ | 221,000 |   |
|                    |       |                                              |       |                                              |       |          |       |   |   |
| Simulcast Horse  Racing |       | 1,263,000                                         |       | 1,136,000                                         |       | 337,000       |       | 329,000 |   |
|                    |       |                                              |       |                                              |       |          |       |   |   |
| Live Horse  Racing      |       | 620,000                                           |       | 623,000                                           |       | 66,000        |       | 71,000 |   |
|                    |       |                                              |       |                                              |       |          |       |   |   |
|                    |       | $                                                 | 3,904,000  |                                              | $          | 3,745,000     |       | $ | 627,000 |   | $ | 621,000 |   |

Salaries and benefits increased approximately $605,000or 5.8% in the six-month period and approximately $247,000 or 4.3% in thethree-month period compared to the same periods last year. The increase is dueto several factors including an estimated 3% increase in general wages of$266,000 for the first six months; the impact of the minimum wage increase of$1 effective August 2005 which resulted in an estimated increase of $169,000 inhourly labor costs for the first six months; and a $136,000 expense related tothe adoption of SFAS 123R.  Depreciationexpense increased $129,000 or 17.5% during the first half of 2006, compared to2005, due to significant investments in the stable area and training facilitiesduring 2005 and into 2006.  Utilitiesexpense is up $87,000 or 15.8% due to continuous increases in energy costs forelectricity and natural gas in 2006 compared to the same period in 2005.  In addition, real estate taxes have increasedby $75,000 for the first six months of 2006 compared to 2005 due primarily tohigher assessments related to improvements to the grandstand and stableareas.  Advertising and marketingexpenses have decreased by $118,000 compared to 2005 due primarily to areduction of $138,000 in marketing expenses associated with our legislativeefforts during the 2006 session. Insurance costs have decreased compared to 2005 primarily due toreductions in property and liability premiums attributable to changes in policyfeatures.  Other operating expensesdecreased $119,000 due primarily to a decrease in professional servicesyear-to-date in 2006 compared to 2005 pertaining to issues related toSarbanes-Oxley of $119,000 in the first half of 2005 that did not recur in 2006and to a reduction of $80,000 in professional fees associated with ourlegislative efforts.  These decreaseswere partially offset by an increase of $68,000 in contracted services,primarily related to administrative costs of live racing and increased costs ofCard Club regulation by the Minnesota Racing Commission. Total operatingexpenses as a percentage of total operating revenues were 90.7% for thesix-month period ended June 30, 2006 compared to 89.4% for 2005 as the volumeincrease in revenues was insufficient to cover the additional expenses, inparticular the increases to salaries and benefits mentioned above.

Income beforeincome taxes was $2,643,014 for the six months ended June 30, 2006 compared to$2,875,995 for the six months ended June 30, 2005.  After income tax expense of $1,135,009 forthe six months ended June 30, 2006, net income was $1,508,005 in 2006 comparedto $1,534,577 in 2005.  Income beforeincome taxes for the quarter ended June 30, 2006 was $603,867 compared to$931,447 for the quarter ended June 30, 2005. After income tax expense of $258,509 in the second quarter of 2006, netincome was $345,358 compared to $454,149 for the second quarter of 2005.  The effective income tax rate year-to-date in2006 is 42.9% compared to 46.6% for the year-to-date period in 2005.  The reduction in the rate is due to adecrease in the anticipated annual effective tax rate for 2006 resulting from areduction in permanent differences including a significant decrease innon-deductible lobbying expenses.

#### **Contingencies:**

There have been nomaterial changes in our contingencies since those reported at December 31,2005.

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**Liquidity and Capital Resources:**

Cash provided byoperating activities during the period January 1, 2006 through June 30, 2006was $6,580,174, resulting primarily from net income of $1,508,005; depreciationand amortization of $869,650; an increase in accounts payable and accrued wagesand payroll taxes of $4,256,737, caused by a seasonal increase of $2.5 millionin horsemen payables, a $987,000 increase in trade accounts payable, a $258,000increase in deferred revenues for corporate sponsorships, a $175,000 increasein amounts payable to out-of-state tracks for settlements and an increase of$299,801 in the card club’s jackpot pools and the player pool caused by timingdifferences due to jackpots, prizes and giveaways paid to the players. Pursuantto an agreement with the MHBPA, during the six months ended June 30, 2006 and2005, the Company transferred into a trust account or paid directly to theMHBPA approximately $3,500,000 and $3,150,000, respectively.  At June 30, 2006, the Company had anadditional liability to the MHBPA of $110,166. This liability will be paid in 2006, including interest earned.

Net cash used ininvesting activities for the first six months of 2006 of $5,127,383 resultedprimarily from improvements to the backside barns and facilities related tolive racing and an increase in restricted cash of $2,813,396 due primarily to a$2.5 million seasonal increase in purses payable for horsemen.  During the six-month period ended June 30,2005, net cash used for investing activities was $5,243,456 related primarilyto improvements to the backside barns and facilities related to live racing andan increase in restricted cash of $2,428,494 due primarily to a $2.3 millionseasonal increase in purses payable for horsemen.

During the periodJanuary 1, 2006 through June 30, 2006, cash provided by financing activitieswas $271,437 resulting from the exercise of stock options.  During the period January 1, 2005 throughJune 30, 2005, cash provided by financing activities was $289,322 representingthe exercise of stock options.  

The Company hasrenewed a general credit agreement with Bremer Bank, which provides a revolvingcredit line of up to $2,250,000 with interest at the prime rate until April 20,2007.  The Company had no borrowings underthe line of credit at June 30, 2006 or December 31, 2005.  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, 2006. 

Unrestricted cashbalances at June 30, 2006 were $6,638,594 compared to $4,914,366 at December31, 2005. The Company believes that the funds available in its cash accounts,amounts available under the general credit and security agreement, along withfunds generated from operations, will be sufficient to satisfy its liquidityand capital resource requirements during 2006 for regular operations.

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

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

Oursignificant accounting policies are included in Note 1 to our consolidatedfinancial statements in our 2005 Annual Report on Form 10-K. We believe thefollowing critical accounting policies affect our more significant judgmentsand estimates used in the preparation of our consolidated financial statements.

*Land, Buildings and Equipment* - We havesignificant capital invested in our property and equipment, which representsapproximately 63.5% of our total assets. We utilize our judgment in variousways including: determining whether an expenditure is considered a maintenanceexpense or a capital asset; determining the estimated useful lives of assets;and determining if or when an asset has been impaired. Our property and

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equipmentis evaluated for impairment whenever circumstances indicate that the carryingvalue of an asset may not be recoverable from the estimated future cash flowsexpected to result from its use. If the sum of the expected future cash flows(undiscounted and without interest charges) is less than the carrying amount,we recognize an impairment loss. The impairment loss recognized is the amountby which the carrying amount exceeds the fair value and is charged tooperations in the period in which such impairment is determined by management.We do not believe that any impairment has occurred or is likely to occur in thenear future.

*Regulation-*Our business can be materially impacted both positively andnegatively by legislative and regulatory changes, such as those describedbelow.  Significant negative changesresulting from these activities could result in an impairment of our propertyand equipment in accordance with generally accepted accounting standards.Additional information regarding how our business can be impacted bylegislative and regulatory changes are included in Item 1 (vi), and Item 1(vii), respectively, in our 2005 Annual Report on Form 10-K.

*Stock Based Employee Compensation*- In December 2004, the Financial Accounting Standards Board (FASB) revisedSFAS No.123, Share Based Payment (SFAS No. 123R).  This Statement supercedes APB Opinion No. 25,which resulted in no stock-based employee compensation cost related to stockoptions if the options granted had an exercise price equal to the market valueof the underlying common stock on the date of grant.  SFAS No. 123R requires recognition ofemployee services provided in exchange for a share-based payment based on thegrant date fair market value.  In April2005 the effective date of SFAS No. 123R was deferred to the fiscal yearbeginning after June 15, 2005. Consequently, the Company adopted SFAS No. 123R as of January 1,2006.  As of the effective date, thisStatement applies to all new awards issued as well as awards modified,repurchased, or cancelled.  Additionally,for stock-based awards issued prior to the effective date, compensation costattributable to future services will be recognized as the remaining service isrendered.  The Company elected to applythe modified prospective method of adoption of SFAS No.123R.

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

OnJune 1, 2006 the Company’s Board of Directors declared a special cash dividendof $.25 per share of common stock payable on July 14, 2006 to shareholders ofrecord on June 23, 2006.  The Company hasnot adopted any policies regarding dividend payments and there can be noassurance that any dividend will be paid in the future.

Therehave been no additional material changes in our outstanding commitments andcontingencies since those reported at December 31, 2005.

**Legislation:**

On March 10, 2006, a bill was introduced in the Minnesota Legislature,that, if passed, would have placed a proposed amendment of the MinnesotaConstitution on the November 2006 ballot to establish a framework forauthorizing electronic gaming devices at the Racetrack. This concept, oftenreferred to as a “Racino”, as proposed for Canterbury Park would includeapproximately 3,000 gaming devices, 40 table games, a 250-room hotel, anOlympic scale horse park and additional restaurant venues. Legislation has alsobeen introduced to remove the 50-table limit currently imposed by Minnesota lawand allow Canterbury Park to offer “banked” games in the Card Club.  However, the Minnesota Legislature adjournedwithout taking action on any of these bills. 

The Minnesota Legislature will begin a new biannual session in January2007.  The Company expects the Racinolegislation will be reintroduced at that time. Based on the success of several Racinos in other states, the Companybelieves that if a Racino was authorized at the Racetrack, it would enhancehorse racing with increased purses, provide growth and developmentopportunities for the Company, and produce significant new tax revenues forstate and local governments.  The effortto obtain legislative authority for initiatives favorable to the Company hasrequired, and will continue to require, substantial expenditures.  Due to the inherent uncertainty of theoutcome of legislative activities, there can be no assurance that any billsfavorable to the Company’s interests will be enacted into law, and it ispossible bills adverse to the Company could be enacted.

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**Forward-Looking Statements:**

Fromtime to time, in reports filed with the Securities and Exchange Commission, inpress releases, and in other communications to shareholders or the investingpublic, the Company may make forward-looking statements concerning possible oranticipated future financial performance, business activities or plans whichare typically preceded by the words “believes,” “expects,” “anticipates,” “intends”or similar expressions.  For suchforward-looking statements, the Company claims the protection of the safeharbor for forward-looking statements contained in federal securitieslaws.  Shareholders and the investingpublic should understand that such forward-looking statements are subject torisks and uncertainties which could cause actual performance, activities orplans to differ significantly from those indicated in the forward-lookingstatements.  Such risks and uncertaintiesinclude, but are not limited to: fluctuations in attendance at the Racetrack,material changes in the level of wagering by patrons, decline 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 from time to time in theCompany’s filings with the Securities and Exchange Commission.

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

Weare exposed to market risk from changes in interest rates on borrowings underour commercial revolving credit line that bears interest at the primerate.  At June 30, 2006 we have no debtborrowings under our credit facility.

Wehave no derivative financial instruments or derivative commodity instruments inour cash and cash equivalents and marketable securities.  We invest cash and cash equivalents ininvestment grade, highly liquid investments, consisting of money marketinstruments, bank certificates of deposit, and short-term government andcorporate bonds.

**ITEM4:     CONTROLS AND PROCEDURES**

(a)           Evaluation of Disclosure Controls and Procedures:  

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

(b)           Changes in Internal Control Over Financial Reporting:

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

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** **

**PART II**

**OTHER INFORMATION**

Item 1.                                                             **Legal Proceedings**

Not Applicable

Item 1A.                                                   **Risk Factors**

There have been nomaterial changes to the Risk Factors since those reported in the Form 10-K forthe year ended December 31, 2005.

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

Not Applicable

Item 3.                    **Defaults Upon Senior Securities**

Not Applicable

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

The Company heldits Annual Meeting of Shareholders on June 1, 2006.  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.  Not lessthan 3,719,323 shares were voted in favor of each of the reelected directors(approximately 98.2% of all shares present and voting).  In addition, shareholders approved anamendment to the Company’s Employee Stock Purchase Plan increasing the numberof shares authorized to be issued under the Plan by 100,000 shares to a totalof 350,000 shares by a vote of 2,542,900 in favor and 142,587 against, with56,693 shares abstaining and 1,045,458 shares not voted because no instructionswere received from the beneficial owners of such shares.

Item 5.                    **Other Information**

Not Applicable

Item 6.                    **Exhibits**

(a)                                  Thefollowing exhibits are included herein:

11                                    Statementre computation of per share earnings – See Net Income Per Share under Note 1 ofNotes to Consolidated Financial Statements under Part 1, Item 1, which isincorporated herein by reference.

31.1                           Certificationof Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002 (rules 13a-14 and 15d-14 of the Exchange Act).

31.2                           Certificationof Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002 (rules 13a-14 and 15d-14 of the Exchange Act).

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

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** **

**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|                               | **Canterbury Park Holding Corporation**     |
|-------------------------------|---------------------------------------------|
| ** **                    |                                        |
| Dated:  August  14, 2006 |   /s/ Randall  D. Sampson              |   |
|                          | Randall D. Sampson,                         |
|                          | President, and Chief Executive Officer      |
|                          |                                        |
| Dated:  August  14, 2006 |   /s/ David C.  Hansen                 |   |
|                          | David C. Hansen,                            |
|                          | Vice President, and Chief Financial Officer |

 

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