**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

** **

**FORM 10-Q**

| **(Mark One)** | ** ** | ** **                                                                                                                                   |
|----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|
| **x**          | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH  31, 2007.** |

 

**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 Registrantas 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 principalexecutive offices and zip code)

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES  o          NO  x

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES  o          NO  x

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 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          Acceleratedfiler  o          Non-acceleratedfiler  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 had 4,110,782 shares of common stock, $.01par value, outstanding as of May 11, 2007.

Canterbury Park Holding Corporation

 

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**INDEX**
| **PART I.**  | ** ** | **FINANCIAL INFORMATION** |
|--------------|------------|---------------------------|
|         |       |                      |   |   |
|         |       | Item 1.                   |   | Financial Statements |
|         |       |                      |   |   |
|         |       |                      |   | Consolidated  Balance Sheets as of March 31, 2007 and December 31, 2006 |
|         |       |                      |   |   |
|         |       |                      |   | Consolidated  Statements of Operations for the periods ended March 31, 2007 and 2006 |
|         |       |                      |   |   |
|         |       |                      |   | Consolidated  Statements of Cash Flows for the periods ended March 31, 2007 and 2006 |
|         |       |                      |   |   |
|         |       |                      |   | 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 - FINANCIALINFORMATION**

**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES**CONSOLIDATED BALANCE SHEETSMARCH 31, 2007 (UNAUDITED) AND DECEMBER 31, 2006
| ** **                                                                                                                         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                         | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| **ASSETS**                                                                                                                         |       |               |       |                  |       |
| CURRENT ASSETS                                                                                                                     |       |               |       |                  |       |
| Cash                                                                                                                               |       | $                  | 6,219,629  |                  | $          | 5,745,556 |   |
| Restricted cash                                                                                                                    |       | 2,022,205          |       | 1,915,057             |       |
| Short-term  investments                                                                                                            |       | 104,827            |       | 78,231                |       |
| Accounts  receivable, net of allowance of $38,600 and $38,600                                                                      |       | 591,529            |       | 559,146               |       |
| Inventory                                                                                                                          |       | 149,069            |       | 159,918               |       |
| Prepaid expenses                                                                                                                   |       | 620,482            |       | 733,979               |       |
| Deferred income  taxes                                                                                                             |       | 311,500            |       | 235,200               |       |
| Total current  assets                                                                                                              |       | 10,019,241         |       | 9,427,087             |       |
|                                                                                                                               |       |               |       |                  |       |
| LONG-TERM ASSETS                                                                                                                   |       |               |       |                  |       |
| Deposits                                                                                                                           |       | 20,000             |       | 20,000                |       |
| Land, buildings  and equipment, net of accumulated depreciation of $13,179,587 and  $13,082,181, respectively                      |       | 24,943,907         |       | 24,903,946            |       |
|                                                                                                                               |       | $                  | 34,983,148 |                  | $          | 34,351,033 |   |
|                                                                                                                               |       |               |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                     |       |               |       |                  |       |
|                                                                                                                               |       |               |       |                  |       |
| CURRENT LIABILITIES                                                                                                                |       |               |       |                  |       |
| Accounts payable                                                                                                                   |       | $                  | 2,190,243  |                  | $          | 2,032,953 |   |
| Card club  accruals                                                                                                                |       | 1,885,406          |       | 2,073,363             |       |
| Accrued wages  and payroll taxes                                                                                                   |       | 1,136,004          |       | 1,866,633             |       |
| Accrued interest  payable                                                                                                          |       | 10,639             |       | 7,303                 |       |
| Due to MHBPA                                                                                                                       |       | 122,438            |       | 140,281               |       |
| Accrued property  taxes                                                                                                            |       | 584,039            |       | 457,331               |       |
| Income taxes  payable                                                                                                              |       | 113,964            |       | 105,918               |       |
| Payable to  horsepersons                                                                                                           |       | 479,912            |       | 346,779               |       |
| Total current  liabilities                                                                                                         |       | 6,522,645          |       | 7,030,561             |       |
|                                                                                                                               |       |               |       |                  |       |
| DEFERRED INCOME TAXES                                                                                                              |       | 416,000            |       | 460,900               |       |
|                                                                                                                               |       |               |       |                  |       |
| COMMITMENTS AND  CONTINGENCIES (Note 5)                                                                                            |       |               |       |                  |       |
|                                                                                                                               |       |               |       |                  |       |
| STOCKHOLDERS’ EQUITY                                                                                                          |       |               |       |                  |       |
| Common stock,  $.01 par value, 10,000,000 shares authorized, 4,106,282 and 4,050,782,  respectively, shares issued and outstanding |       | 41,063             |       | 40,508                |       |
| Additional  paid-in capital                                                                                                        |       | 15,206,327         |       | 14,914,328            |       |
| Accumulated  earnings                                                                                                              |       | 12,797,113         |       | 11,904,736            |       |
| Total  stockholders’ equity                                                                                                   |       | 28,044,503         |       | 26,859,572            |       |
|                                                                                                                               |       | $                  | 34,983,148 |                  | $          | 34,351,033 |   |

 

See notes toconsolidated financial statements.

3

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**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES** CONSOLIDATED STATEMENTS OF OPERATIONSPERIODS ENDED MARCH 31, 2007 AND 2006 (Unaudited)
| ** **                                    | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| OPERATING  REVENUES:                          |       |                                                 |       |   |   |
| Pari-mutuel                                   |       | $                                                    | 2,713,880  |   | $ | 3,012,798 |   |
| Card Club                                     |       | 7,494,996                                            |       | 7,771,467 |   |
| Concessions                                   |       | 884,769                                              |       | 877,180 |   |
| Admissions and parking                        |       | 29,696                                               |       | 31,339 |   |
| Publications                                  |       | 96,829                                               |       | 99,103 |   |
| Other                                         |       | 299,099                                              |       | 362,880 |   |
| Total Revenues                                |       | 11,519,269                                           |       | 12,154,767 |   |
| Less: Promotional Allowances                  |       | (50,680                                              | )          | (58,390 | ) |
| Net Revenues                                  |       | 11,468,589                                           |       | 12,096,377 |   |
|                                          |       |                                                 |       |   |   |
| OPERATING  EXPENSES:                          |       |                                                 |       |   |   |
| Purse expense                                 |       | 1,365,290                                            |       | 1,342,546 |   |
| Minnesota Breeders’ Fund                 |       | 257,398                                              |       | 276,843 |   |
| Host track fees                               |       | 458,402                                              |       | 497,787 |   |
| Pari-mutuel taxes                             |       | 26,561                                               |       | 44,804 |   |
| Salaries and benefits                         |       | 5,020,709                                            |       | 5,005,753 |   |
| Cost of concessions and publication sales     |       | 593,425                                              |       | 591,446 |   |
| Depreciation                                  |       | 507,690                                              |       | 430,825 |   |
| Utilities                                     |       | 331,446                                              |       | 307,347 |   |
| Repairs, maintenance and supplies             |       | 201,986                                              |       | 242,544 |   |
| License fees and property taxes               |       | 198,263                                              |       | 184,805 |   |
| Advertising and marketing                     |       | 105,664                                              |       | 166,702 |   |
| Insurance                                     |       | 235,582                                              |       | 229,794 |   |
| Other                                         |       | 715,172                                              |       | 789,118 |   |
|                                          |       | 10,017,588                                           |       | 10,110,314 |   |
| NONOPERATING  (EXPENSES) REVENUES:            |       |                                                 |       |   |   |
| Interest expense                              |       | (5,168                                               | )          | (2,296 | ) |
| Other, net                                    |       | 77,628                                               |       | 55,380 |   |
|                                          |       | 72,460                                               |       | 53,084 |   |
|                                          |       |                                                 |       |   |   |
| INCOME BEFORE  INCOME TAX EXPENSE             |       | 1,523,461                                            |       | 2,039,147 |   |
|                                          |       |                                                 |       |   |   |
| INCOME TAX  EXPENSE (Note 1)                  |       | (631,084                                             | )          | (876,500 | ) |
|                                          |       |                                                 |       |   |   |
| NET INCOME                                    |       | $                                                    | 892,377    |   | $ | 1,162,647 |   |
|                                          |       |                                                 |       |   |   |
| BASIC NET INCOME  PER COMMON SHARE (Note 1)   |       | $                                                    | .22        |   | $ | .29 |   |
|                                          |       |                                                 |       |   |   |
| DILUTED NET INCOME  PER COMMON SHARE (Note 1) |       | $                                                    | .21        |   | $ | .26 |   |

 

See notes toconsolidated financial statements.

4

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**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES** CONSOLIDATED STATEMENTS OF CASH FLOWSPERIODS ENDED MARCH 31, 2007 AND 2006 (Unaudited)
| ** **                                                               | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                               | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| **Operating  Activities:**                                               |       |                                                 |       |   |   |
| Net Income                                                               |       | $                                                    | 892,377    |   | $ | 1,162,647 |   |
| Adjustments to reconcile net income to net cash  provided by operations: |       |                                                 |       |   |   |
| Depreciation                                                             |       | 507,690                                              |       | 430,825 |   |
| Stock-based compensation expense                                         |       | 63,691                                               |       | 43,483 |   |
| Excess tax benefit from exercise of stock options                        |       | (28,782                                              | )          | (18,907 | ) |
| Loss (gain) on sale of property and equipment                            |       | 4,953                                                |       | (30,760 | ) |
| Decrease in deferred income taxes                                        |       | (81,962                                              | )          | (128,400 | ) |
| Increase in restricted cash                                              |       | (107,148                                             | )          | (208,779 | ) |
| (Increase) decrease in accounts receivable                               |       | (32,383                                              | )          | 2,552 |   |
| Decrease in other current assets                                         |       | 124,346                                              |       | 130,955 |   |
| Increase in income taxes payable                                         |       | 8,046                                                |       | 324,245 |   |
| Decrease in accounts payable and accrued wages and  payroll taxes        |       | (521,809                                             | )          | (294,374 | ) |
| Decrease in card club accruals                                           |       | (187,957                                             | )          | (91,909 | ) |
| Increase in accrued interest                                             |       | 3,336                                                |       | 2,462 |   |
| Increase in accrued property taxes                                       |       | 126,708                                              |       | 113,250 |   |
| Increase in payable to horsepersons                                      |       | 133,133                                              |       | 131,461 |   |
| (Decrease) increase in due to MHBPA                                      |       | (17,843                                              | )          | 36,085 |   |
| Net cash provided by operations                                          |       | 886,396                                              |       | 1,604,836 |   |
| ** **                                                               |       |                                                 |       |   |   |
| **Investing  Activities:**                                               |       |                                                 |       |   |   |
| Additions to buildings and equipment                                     |       | (608,609                                             | )          | (791,969 | ) |
| Proceeds from sale of equipment                                          |       | 4,475                                                |       | 30,760 |   |
| Increase in short-term investments                                       |       | (26,596                                              | )          | (100,447 | ) |
| Net cash used in investing activities                                    |       | (630,730                                             | )          | (861,656 | ) |
|                                                                     |       |                                                 |       |   |   |
| **Financing  Activities**                                                |       |                                                 |       |   |   |
| Proceeds from issuance of common stock                                   |       | 189,625                                              |       | 33,223 |   |
| Excess tax benefit from exercise of stock options                        |       | 28,782                                               |       | 18,907 |   |
| Net cash provided by financing activities                                |       | 218,407                                              |       | 52,130 |   |
|                                                                     |       |                                                 |       |   |   |
| Net increase in  cash                                                    |       | 474,073                                              |       | 795,310 |   |
|                                                                     |       |                                                 |       |   |   |
| Cash at  beginning of period                                             |       | 5,745,556                                            |       | 4,914,366 |   |
|                                                                     |       |                                                 |       |   |   |
| Cash at end of  period                                                   |       | $                                                    | 6,219,629  |   | $ | 5,709,676 |   |
|                                                                     |       |                                                 |       |   |   |
| Supplemental  disclosure of noncash investing activities:                |       |                                                 |       |   |   |
| Additions to buildings and equipment funded through  accounts payable    |       | $                                                    | 35,815     |   | $ | 249,195 |   |
|                                                                     |       |                                                 |       |   |   |
| Supplemental  disclosure of cash flow information:                       |       |                                                 |       |   |   |
| Income taxes  paid, net of refunds                                       |       | $                                                    | 705,000    |   | $ | 625,000 |   |

 

See notes to consolidated financial statements.

5

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**CANTERBURY PARKHOLDING CORPORATION AND SUBSIDIARIES**

**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTSPERIODS ENDED MARCH 31, 2007 AND 2006**

1.               SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

The summary ofsignificant accounting policies is included in the notes to consolidatedfinancial statements in the 2006 Annual Report on form 10-K.

*Unaudited Financial Statements* -The consolidated balance sheet as of March 31, 2007 the consolidatedstatements of operations for the three months ended March 31, 2007 and2006, the consolidated statements of cash flows for the three months ended March 31,2007 and 2006, and the related information contained in these notes have beenprepared by management without audit. In the opinion of management, alladjustments (consisting only of normal recurring adjustments) which arenecessary for a fair presentation of financial position and results ofoperations for such periods have been made. Results for an interim periodshould not be considered 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 fromCard Club operations and pari-mutuel commission and fee revenues are recognizedat the time that the wagering process is complete. Revenues related to wageringactivities including concession and publication sales, and parking andadmission fees are recognized as revenue when the service has been performed orthe 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. Actualresults could differ from these estimates.

*Reclassifications* —Certain prior year numbers have been reclassified to be consistent with currentperiod presentation. These reclassifications had no effect on net earnings orstockholders’ equity

The Company has reclassified promotional allowances from advertisingand marketing expense to net revenues as of December 31, 2006. Priorperiods were reclassified to be consistent with current period presentation.

The Company has changed its accounting treatment for presentation ofcash flows related to restricted cash. The Company is now presenting all cashflows related to restricted cash within the operating activities section of theStatements of Cash Flows rather than the investing activities section. TheCompany believes this is a more proper presentation as it more appropriatelyreflects the nature of the restricted cash activities. The Company afterconsidering the nature of this change in classification and having givenappropriate weight to the guidance provided by Staff Accounting Bulletin No.99, believed it is sufficient to incorporate this change in this current andfuture filings, at which time we will reclassify prior periods presented, andnot treat this change in classification as an error requiring restatement.

6

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The followingtable presents the affect of the change in accounting treatment for all interimperiods presented where the cash flows from restricted cash were previouslypresented within the investing activities section of the Statements of CashFlows:
| ** **                        | ** ** | ** **             | ** ** | **As Revised**  | ** ** | **Previously Reported** | ** ** |
|-----------------------------------|------------|------------------------|------------|----------------------|------------|------------------------------|------------|
| ** **                        | ** ** | **Decrease**           | ** ** | ** **           | ** ** | **Net Cash**            | ** ** | ** ** | ** ** | **Net Cash** | ** ** |
| ** **                        | ** ** | **(Increase) in** | ** ** | **Net Cash**    | ** ** | **Used in**             | ** ** | **Net Cash** | ** ** | **Used in** | ** ** |
| ** **                        | ** ** | **Restricted**         | ** ** | **Provided by** | ** ** | **Investing**                | ** ** | **Provided by** | ** ** | **Investing** | ** ** |
| ** **                        | ** ** | **Cash**               | ** ** | **Operations**       | ** ** | **Activities**               | ** ** | **Operations** | ** ** | **Activities** | ** ** |
|                              |       |                   |       |                 |       |                         |       |   |   |   |   |
| Period Ended March 31,  2006 |       | $                      | (208,779   | )                    | $          | 1,604,836                    |       | $ | (861,656 | ) | $ | 1,813,615 |   | $ | (1,070,435 | ) |
|                                   |            |                        |            |                      |            |                              |            |  |  |  |  |  |  |  |  |  |

 

*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 are accounted for under the asset andliability method. Deferred tax assets and liabilities are recognized for theestimated future tax consequences attributable to differences between thefinancial statement carrying amounts of existing assets and liabilities andtheir respective tax bases. Deferred tax assets and liabilities are measuredusing enacted tax rates in effect for the year in which those temporarydifferences are expected to reverse.

In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), *Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109.*FIN 48 prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return. The Company must determine whether it is “more-likely-than-not”that a tax position will be sustained upon examination, including resolution ofany related appeals or litigation processes, based on the technical merits ofthe position. Once it is determined that a position meets themore-likely-than-not recognition threshold, the position is measured todetermine the amount of benefit to recognize in the financial statements. FIN48 applies to all tax positions related to income taxes subject to FASBStatement No. 109, *Accounting forIncome Taxes*. FIN 48 is applicable for fiscal years beginning after December 15,2006. Adoption on January 1, 2007 did not have a material effect on the Company’sconsolidated financial statements.

The Company and itsconsolidated subsidiaries file income tax returns in the United States (“U.S.”)federal jurisdiction. The Company is no longer subject to U.S. federalexaminations by tax authorities for years prior to 2004. The Internal RevenueService (IRS) has audited us through 2003. The Company is no longer subject toexaminations by State of Minnesota tax authorities for years prior to 2003. TheMinnesota Department of Revenue has audited us through 2002.

*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 number of common shares outstanding for thethree month periods ended March 31, 2007 and March 31, 2006 were 4,052,421and 3,951,922; respectively. Diluted net income per common share takes intoeffect the dilutive effect of potential common shares outstanding. The Company’spotential common shares outstanding are stock options and shares of unvested (“restricted”)stock. After considering the dilutive effect of stock options and restrictedstock outstanding, the weighted average shares used to calculate dilutedearnings per share for the three month periods ended March 31, 2007 and March 31,2006 were 4,210,633 and 4,415,566, 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.

7

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*EmployeeTermination Benefits*— Management of the Company iscontinually re-evaluating the Company’s operating costs against its long-termstrategic goals.

During the first quarterof 2007, the Company created a voluntary retirement incentive program, whichprovided eligible employees the opportunity to voluntarily resign theiremployment in exchange for severance pay and other specified benefits. Eligibleemployees could elect to participate in this voluntary program during theperiod from January 11, 2007 through February 25, 2007. In accordance with SFAS88, *Employers Accounting for Settlements andCurtailments of Defined Benefit Pension Plans and for Termination Benefits,*theCompany has recognized a liability and a charge to income of approximately$182,000 associated with this special termination benefit.

In addition, the Companyincurred $64,000 in severance costs related to the involuntary termination ofsalaried and hourly personnel during the first quarter of 2007.

*New Accounting Pronouncements -*InSeptember 2006, the FASB issued SFAS No. 157, *FairValue Measurements,* which defines fair value, establishes aframework for measuring fair value, and expands disclosures about fair valuemeasurements. The provisions of SFAS No. 157 are effective for fiscal yearsbeginning after November 15, 2007. The Company is evaluating the impact theadoption of SFAS No. 157 will have on its consolidated results of operationsand financial condition.

In March 2007, theFASB ratified the Emerging Issues Task Force (“EITF”) Issue No. 06-11, *Accounting for Income Tax Benefits of Dividends onShare Based Payment Awards (“EITF 06-11”).*EITF 06-11 requirescompanies to recognize the income tax benefit realized from dividends ordividend equivalents that are charged to retained earnings and paid toemployees for nonveseted equity-classified employee share-based awards as anincrease to additional paid-in capital. EITF 06-11 is effective for fiscalyears beginning after September 15, 2007. The Company is evaluating the impactthe adoption of EITF 06-11 will have on its consolidated results of operationsand financial condition.

2.               STOCK-BASEDCOMPENSATION

Effective January 1,2006, we adopted FASB Statement No.123(R), *ShareBased Payment* (“SFAS 123R”), applying the modified prospectivetransition method. Prior to adopting SFAS 123R, we accounted for share-basedcompensation in accordance with Accounting Principles Board Opinion No.25, *Accounting for Stock Issued to Employees*. Werecognized $63,691 and $43,483 in stock-based compensation expense in salariesand benefits expense line item on the consolidated statements of operationsduring the three-months ended March 31, 2007 and 2006, respectively.

Our annual grant ofstock-based compensation generally takes place during the first quarter of eachfiscal year. Each non-employee member of the Board of Directors receives anannual recurring grant of 3,000 non-qualified stock options on the firstbusiness day in February. On February 1, 2007 15,000 options were granted tothe five non-employee board members with an exercise price equal to the marketprice on the date of grant of $13.76. The stock options vest over a six-monthperiod and expire in ten years. The compensation cost associated with thisgrant of Board of Director options is $58,400 to be recognized as expense overthe six-month vesting period. On February 1, 2006, 15,000 options weregranted to the five non-employee board members with an exercise price equal tothe market price on the date of grant of $14.30. In addition, on February 9,2006 we granted 15,000 incentive stock options to two executive officers of theCompany and 41,000 shares of restricted stock to key management-levelemployees. The exercise price of these incentive stock options and the value ofthe restricted shares was the market value on the date of grant of $14.55.Grants of stock options and restricted stock to employees did not occur in2007.

8

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The number of sharesgranted and the weighted average fair value per share during the periodspresented were:

|                  | ** ** | **Three Months Ended** | ** ** |
|------------------|------------|----------------------------------|------------|
| ** **       | ** ** | **March 31, 2007**     | ** ** | **March 31, 2006** | ** ** |
| ** **       | ** ** | ** **                       | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **       | ** ** | ** **                       | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **       | ** ** | ** **                       | ** ** | **Fair Value** | ** ** | ** ** | ** ** | **Fair Value** | ** ** |
| ** **       | ** ** | **Grant**                        | ** ** | **Per Share** | ** ** | **Grant** | ** ** | **Per Share** | ** ** |
|             |       |                             |       |   |   |   |   |   |   |
| Stock options    |       | 15,000                           |       | $ | 3.89 |   | 30,000 |   | $ | 4.51 |   |
| Restricted stock |       | —                           |       |   |   | 41,000 |   | $ | 14.55 |   |
|             |       |                             |       |   |   |   |   |   |   |
| Total shares     |       | 15,000                           |       |   |   | 71,000 |   |   |   |
|                  |            |                                  |            |  |  |  |  |  |  |  |  |

 

The fair value of stockoptions granted under the Plan during first three months of 2007 were estimatedon the date of grant using the Black-Scholes option-pricing model with thefollowing weighted average assumptions and results: 

|                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| Dividend yield                             |       | 1.82     | %          | 1.74     | %          |
| Weighted-average  volatility               |       | 22       | %          | 25       | %          |
| Risk-free  interest rate                   |       | 4.86     | %          | 4.50     | %          |
| Expected term of  stock options in years   |       | 7.2      |       | 8.6      |       |
| Fair value of stock  options on grant date |       | $        | 58,400     |     | $          | 135,300 |   |
|                                            |            |          |            |          |            |  |  |

 

A summary of stock optionactivity as of March 31, 2007 and changes during the three months thenended is presented below:
| ** **                          | ** ** | ** **         | ** ** | ** **   | ** ** | **Weighted**    | ** ** | ** **          | ** ** |
|-------------------------------------|------------|--------------------|------------|--------------|------------|-----------------|------------|---------------------|------------|
| ** **                          | ** ** | ** **         | ** ** | **Weighted** | ** ** | **Average**     | ** ** | ** **          | ** ** |
| ** **                          | ** ** | ** **         | ** ** | **Average**  | ** ** | **Remaining**   | ** ** | **Aggregate**       | ** ** |
| ** **                          | ** ** | **Number of** | ** ** | **Exercise** | ** ** | **Contractual** | ** ** | **Grant Date** | ** ** |
| **Stock Options**              | ** ** | **Shares**         | ** ** | **Price**    | ** ** | **Term**        | ** ** | **Fair Value** | ** ** |
|                                |       |               |       |         |       |            |       |                |       |
| Outstanding at  January 1, 2007     |       | 666,550            |       | $            | 10.12      |            |       |                |       |   |
|                                |       |               |       |         |       |            |       |                |       |
| Granted                             |       | 15,000             |       | $            | 13.76      |            |       |                |       |   |
| Exercised                           |       | (55,500            | )          | $            | 3.42       |            |       |                |       |   |
|                                |       |               |       |         |       |            |       |                |       |
| Outstanding at March 31,  2007 |       | 626,050            |       | $            | 10.80      |            | 2.9 Years  |                | $          | 3,256,000 |   |
|                                |       |               |       |         |       |            |       |                |       |
| Exercisable at March 31,  2007 |       | 599,800            |       | $            | 10.65      |            | 2.9 Years  |                | $          | 3,140,000 |   |

 

3.               BORROWINGSUNDER CREDIT 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 no borrowings under this credit line at March 31,2007. The credit agreement contains certain covenants requiring the Company tomaintain certain financial ratios. The Company was in compliance with theserequirements as of March 31, 2007. Management believes that fundsavailable under this line of credit, along with funds generated from card cluband simulcast operations, will be sufficient to satisfy its liquidity andcapital resource requirements during 2007.

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4.               OPERATINGSEGMENTS

During the first threemonths of 2007 and 2006, the Company had three reportable operating segments: cardclub, horse racing, and concessions. The card club segment primarily representsoperations of Canterbury Park’s Card Club. The horseracing segment primarilyrepresents simulcast and live horse racing operations, and the concessionssegment primarily represents concessions provided during simulcast and liveracing, in the card club, and during special events. The Company’s reportableoperating segments are strategic business units that offer different productsand services. They are managed separately because the segments differ in thenature of the products and services provided as well as processes to producethose products and services. The horse racing and card club segments areregulated by the Minnesota Racing Commission.

The accounting policiesof the operating segments are the same as those described in the summary ofsignificant accounting policies in the 2006 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 segmentpays approximately 25% of gross revenues earned on live racing and specialevent days to the horse racing segment for use of the facilities.

The following tablesprovide information about the Company’s operating segments (in 000’s):
| ** **                            | ** ** | **Three Months Ended March 31, 2007** | ** ** |
|---------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                                          | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Net revenues  from external customers |       | $                                                              | 3,081      |   | $ | 7,495 |   | $ | 893 |   | $ | 11,469 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 83                                                             |       |   |   | 483 |   | 566 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Net interest  income                  |       | 72                                                             |       |   |   |   |   | 72 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Depreciation                          |       | 298                                                            |       | 179 |   | 30 |   | 507 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Segment income  before income taxes   |       | 341                                                            |       | 1,307 |   | 151 |   | 1,799 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Segment Assets                        |       | $                                                              | 30,789     |   | $ | 3,483 |   | $ | 6,247 |   | $ | 40,519 |   |

 
| ** **                            | ** ** | **Three Months Ended March 31, 2006** | ** ** |
|---------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                                          | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Net revenues  from external customers |       | $                                                              | 3,447      |   | $ | 7,772 |   | $ | 877 |   | $ | 12,096 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 16                                                             |       |   |   | 512 |   | 528 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Net interest  income                  |       | 53                                                             |       |   |   |   |   | 53 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Depreciation                          |       | 262                                                            |       | 141 |   | 28 |   | 431 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Segment income before  income taxes   |       | 592                                                            |       | 1,419 |   | 113 |   | 2,124 |   |
|                                       |            |                                                                |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **     | ** ** | **At December 31, 2006** | ** ** |
|----------------|------------|-----------------------------------------|------------|
|           |       |                                    |       |   |   |   |   |   |   |
| Segment Assets |       | $                                       | 29,867     |   | $ | 3,676 |   | $ | 6,258 |   | $ | 39,801 |   |
|                |            |                                         |            |  |  |  |  |  |  |  |  |  |  |

 

10

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The following arereconciliations of reportable segment revenue, income before income taxes, andassets, to the Company’s consolidated totals (in 000’s):
| ** **                                              | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                              | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Revenues                                                |       |                                             |       |   |   |
| Total net revenue for reportable segments               |       | $                                                | 12,035     |   | $ | 12,624 |   |
| Elimination of intersegment revenues                    |       | (566                                             | )          | (528 | ) |
| Total consolidated net revenues                         |       | $                                                | 11,469     |   | $ | 12,096 |   |
|                                                    |       |                                             |       |   |   |
| Income before  income taxes                             |       |                                             |       |   |   |
| Total segment income before income taxes                |       | $                                                | 1,799      |   | $ | 2,124 |   |
| Elimination of intersegment income before income  taxes |       | (122                                             | )          | (85 | ) |
| Total  consolidated income before income taxes          |       | $                                                | 1,677      |   | $ | 2,039 |   |

 
| ** **                              | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Assets                                  |       |               |       |                  |       |
| Total assets for reportable segments    |       | $                  | 40,519     |                  | $          | 39,801 |   |
| Elimination of intercompany receivables |       | (5,536             | )          | (5,450                | )          |
| Total  consolidated assets              |       | $                  | 34,983     |                  | $          | 34,351 |   |

 

5.     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, theCompany will be required to pay to the IMR Fund, L.P. the greater of $700,000per operating year, as defined, or 20% of the net pretax profit, as defined foreach of five operating years. At this time, management believes that thelikelihood that these two conditions will be met, and that the Company will berequired to pay these amounts is remote. At the date (if any) that these 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 be further increased if payments become dueunder 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 90days of the end of each of the next four operating years.

The Company is periodically involved in various legalactions arising in the normal course of business. At March 31, 2007,management believes that the resolution of any legal actions outstanding willnot have a material impact on the consolidated financial statements.

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**ITEM 2:**   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (“MD&A”) is intended to helpthe reader understand Canterbury Park Holding Corporation, our operations andour present business environment.  ThisMD&A is provided as a supplement to — and should be read in conjunctionwith — our consolidated financial statements and the accompanying notes to thefinancial statements (the “Notes”).  ThisMD&A is divided into the following sections:

·                  *Overview*

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

·                  *Contingencies*

·                  *Liquidity and Capital Resources* — an analysis 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 or projections.

**Overview:**

Canterbury Park Holding Corporation (the “Company”)owns and operates the Canterbury Park Racetrack and Card Club in Shakopee,Minnesota (the “Racetrack”).  The primarybusinesses of the Company are simulcast and live pari-mutuel horse racing,hosting unbanked card games, and food and beverage operations.

The Racetrack is the only pari-mutuel horse racingfacility in the State of Minnesota.  TheRacetrack earns revenues from pari-mutuel take-out on races simulcastyear-round to Canterbury Park from racetracks throughout the country and fromlive race meets featuring thoroughbred and quarter horse racing.  Live race meets commence in the month of Mayand conclude in September.  During liverace meets, the Company televises its races to out-of-state racetracks aroundthe country, and earns additional pari-mutuel revenue on wagers placed at theout-of-state racetracks.

Canterbury Park’s Card Club (the “Card Club”) hosts “unbanked”card games in which players compete against each other and not against thehouse.  The Card Club is open twenty-fourhours a day, seven days a week.  UnderMinnesota law, the Company is required to pay up to 14% of the gross Card Clubrevenues to the Racetrack’s purse fund and the State of Minnesota Breeders’Fund.  However, the Company has agreedwith the Minnesota Horsemen’s Benevolent and Protective Association (“MHBPA”)to pay 15% of Card Club revenues into the purse fund for 2007 and 2006.

The Company also generates revenues from otheractivities such as admission and parking fees and from the sale of food andbeverage, programs and other racing publications, and corporatesponsorships.  Additional revenues arederived from an RV park and the use of the Racetrack facilities for specialevents such as concerts, craft shows and snowmobile racing.

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**Operations Reviewfor the**Three MonthsEnded March 31, 2007 and March 31, 2006:

Total operating revenues decreased $627,787, or 5.2%,during three months ended March 31, 2007 compared to the three months endedMarch 31, 2006.  The decrease is dueprimarily to decreases in pari-mutuel, card club and other operating revenues.

Pari-mutuel revenue decreased $298,918, or 9.9% in thethree-month period ended March 31, 2007 compared to the same period in2006.  Total handle was approximately$12.7 million or 10.4%, lower than total handle of $14.2 million during thesame quarter a year ago.  The decrease isprimarily attributable to inclement weather during the first quarter of 2007 atracetracks simulcasting their signal to our Racetrack, which resulted in thecancellation of a significant number of races; and to more typical winterweather in Minnesota in the first quarter compared to mild weather in the 2006first quarter. This decrease was also due to growing competition from Internetwagering on simulcast racing.  The Companycontinuously looks for ways to make Canterbury Park the most attractivealternative when our customers want to wager on horseracing.

See the “Summary of Pari-Mutuel Data” below.

|                                                 | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------|------------|
| **Summary of Pari-Mutuel Data:** | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Simulcast racing days                           |       | 90                                                   |       | 90 |   |
| On-track simulcast handle                       |       | $                                                    | 12,744,000 |   | $ | 14,222,000 |   |
| Average daily  handle                           |       | $                                                    | 142,000    |   | $ | 158,000 |   |

 

Total Card Clubrevenue decreased 3.4% or $276,471 for the first three months of 2007 comparedto the same period in 2006.  The primarysource of Card Club revenue is a percentage of the wagers received from theplayers as compensation for providing the Card Club facility and services,referred to as the “collection revenue”. Other revenue includes fees collected for the administration oftournaments, and amounts earned as reimbursement of the administrative costs ofmaintaining jackpot funds.  The decreasein revenue is due to more typical winter weather in the quarter compared tomild conditions in the 2006 first quarter, as well as reduced interest in pokerwhich is evident nationwide.  Pokercollection revenue fell  $302,000 or 6.2%compared to the first quarter of 2006. In addition, Casino Games collection revenue dropped $50,000 or 1.8%compared to the first three months of 2006. Total Card Club revenues represented 65.3% and 64.2% of total revenuesfor the three-month periods ended March 31, 2007 and 2006, respectively.  See the “Summary of Card Club Data” below.

|                                                    | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------------|------------|
| **Summary of Card Club Data:** | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Poker Games                                        |       | $                                                    | 4,570,000  |   | $ | 4,872,000 |   |
| Casino Games                                       |       | 2,675,000                                            |       | 2,725,000 |   |
| Total Collection Revenue                           |       | 7,245,000                                            |       | 7,597,000 |   |
| Other Revenue                                      |       | 250,000                                              |       | 175,000 |   |
| Total Card Club Revenue                            |       | $                                                    | 7,495,000  |   | $ | 7,772,000 |   |
| Number of Days Offered                             |       | 90                                                   |       | 90 |   |
| Average Revenue  per Day                           |       | $                                                    | 83,000     |   | $ | 86,000 |   |

 

Concessionrevenues remained relatively unchanged for the quarter ended March 31, 2007compared to the first quarter of 2006. Reductions in sales volumes at stands, bars and the restaurant were morethan offset by additional sales in the Card Club.

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Total operating expenses in the first quarter of 2007decreased by approximately $92,726, or .9%, compared to the three-month periodended March 31, 2006. However, total operating expenses as a percentage ofrevenues increased to 87.3% for the first three months of 2007, compared to83.6% for the same period in 2006.  Whilevariable expenses did decrease with the reductions in revenues, fixed expensesincrease as a percentage of revenues as revenues decrease.

Total expense forstatutory purses and the Minnesota Breeders’ Fund increased slightly toapproximately $1,623,000 for the quarter ended March 31, 2007 compared to thequarter ended March 31, 2006.  The increasewas due primarily to an increase of $61,061 in simulcast purse expense due tothe phase-in of a renegotiation of the purse expense rate for out-of-seasonsimulcast racing that began in 2006. This increase was almost entirely offset by a reduction in pari-mutuelbreeders’ fund expense and Card Club purse and breeders’ fund expenses due tolower Card Club collection revenues and simulcast handle in the first quarterof 2007 compared to the first quarter of 2006. Refer to the table below.
| ** **       | ** ** | **Purse Expense**                               | ** ** | **Minnesota Breeders’ Fund Expense** | ** ** |
|------------------|------------|------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **       | ** ** | **Three Months Ended March 31,** | ** ** | **Three Months Ended March 31,**     | ** ** |
| ** **       | ** ** | **2007**                                             | ** ** | **2006**                                                 | ** ** | **2007** | ** ** | **2006** | ** ** |
| Card Club        |       | $                                                    | 1,010,831  |                                                     | $          | 1,049,148 |   | $ | 112,315 |   | $ | 116,572 |   |
| Simulcast Racing |       | 354,459                                              |       | 293,398                                                  |       | 145,083 |   | 160,271 |   |
| Total            |       | $                                                    | 1,365,290  |                                                     | $          | 1,342,546 |   | $ | 257,398 |   | $ | 276,843 |   |

 

Salary and benefit costs increased slightly by$14,956, or .3%, compared to the first quarter of 2006. The increase isprimarily due to the cost of a one-time voluntary retirement benefit offered toeligible employees of $182,000, and severance costs of $64,000 resulting frominvoluntary terminations of salaried and hourly personnel during the firstquarter of 2007.  This increase waspartially offset by the effect of the reduction in hourly labor due to declinesin pari-mutuel and card club revenues. Depreciation increased $77,000, or 17.7% compared to the same period in2006 due to improvements to the backside facilities during 2006.  Decreases in advertising and marketingexpense of $61,000, or 36.6%, repairs maintenance and supplies expense of$41,000, or 16.7%, and other operating expenses of $73,000, or 9.4% in thequarter compared to the same period in 2006, are generally attributable to costreduction efforts initially implemented in mid 2006.

Income before income taxes decreased $515,686, or25.3%, to $1,523,461 for the three months ended March 31, 2007, from $2,039,147for the three months ended March 31, 2006. Income tax expense was $631,084 and $876,500 for the first quarters of2007 and 2006, respectively, resulting in net income of $892,377 and$1,162,647, respectively.

**Contingencies:**

There have been no material changes in ourcontingencies since those reported at December 31, 2006.

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**Liquidity andCapital Resources:**

Cash provided by operating activities for the threemonths ended March 31, 2007 was $886,396 and resulted principally from netincome of $892,377 and depreciation of $507,690.  These items were partially offset by anincrease in accounts payable and accrued wages and payroll taxes of $521,809due primarily to the timing of payroll. Cash provided by operating activitiesfor the three months ended March 31, 2006 was $1,604,836 and resultedprincipally from net income of $1,162,647, depreciation of $430,825, anincrease in income taxes payable of $324,245, and a decrease in accountspayable and accrued wages of $294,374. Pursuant to an agreement with the Minnesota Horsemen’s Benevolent andProtective Association (MHBPA), during the three months ended March 31, 2007and 2006, the Company transferred into a trust account for these purposes orpaid directly to the MHBPA approximately $1,250,000 and $1,175,000,respectively.  At March 31, 2007 theCompany had an additional liability to the MHBPA of $122,438.  This liability will be paid in 2007 togetherwith interest at the prime-lending rate.

Net cash used in investing activities for the firstquarter of 2007 of $630,730 was used primarily for additions to equipment inthe Card Club, continued improvements to the backside barns and general remodelingof the grandstand in preparation for the 2007 live race meet.  Net cash used in investing activities was$861,656 in the first quarter of 2006 and related primarily to improvements tothe backside barns and expansion of the Card Club lounge.  In addition, short-term investments increasedby $100,447 as maturing certificates of deposit were reinvested.

Net cash provided by financing activities during thefirst three months of 2007 consisted of proceeds received upon the exercise ofstock options of $189,625, and excess tax benefits from the exercise of stockoptions during the quarter of $28,782. Cash provided by financing activitiesduring the first three months of 2006 consisted of proceeds received upon theexercise of stock options of $33,223 and excess tax benefits from the exerciseof stock optins of $18,907.  Theincreased proceeds from stock option exercises in 2007 is due to the exerciseof a number of stock options expiring during the first quarter of 2007.

The Company has a credit agreement with Bremer Bank N.A. that provides a revolving credit line permitting advances of up to$2,250,000 with interest at the prime rate. The Company had no borrowings under the line of credit at March 31, 2007or December 31, 2006.  The creditagreement contains certain covenants requiring the Company to maintain certainfinancial ratios.  The Company was incompliance with these requirements at all times throughout the quarter endedMarch 31, 2007.

Unrestricted cash balances at March 31, 2007 were$6,219,629 compared to $5,745,556 at December 31, 2006.  The Company believes that funds available inits cash accounts, amounts available under the general credit and securityagreement, along with funds generated from operations, will be sufficient tosatisfy its liquidity and capital resource requirements during 2007 for regularoperations.

**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.

Our significant accounting policies are included inNote 1 to our consolidated financial statements in our 2006 Annual Report onForm 10-K. We believe the following critical accounting policies affect ourmore significant judgments and estimates used in the preparation of ourconsolidated financial statements.

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*Land, Buildings andEquipment* — We havesignificant capital invested in our property and equipment, which representsapproximately 71.4% 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 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 bothpositively and negatively by legislative and regulatory changes, such as thosedescribed below.  Significant negativechanges resulting from these activities could result in an impairment of ourproperty and equipment in accordance with generally accepted accountingstandards. 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 2006 Annual Report on Form 10-K.

**Commitments andContractual Obligations:**

There have been no material changes in our outstandingcommitments and contingencies since those reported at December 31, 2006.

**Legislation:**

The Company did not propose or support any legislationduring the 2007 biannual session of the Minnesota Legislature to pursue ourRacino proposal that has been discussed in our previous flings with the SEC,mainly because the composition of the Minnesota Legislature following theNovember 2006 elections was viewed as unlikely to favorably entertain ourRacino proposal.  Based on the success ofseveral Racinos in other states, we continue to believe that if a Racino wasauthorized at the Racetrack, it would enhance horseracing with increasedpurses, provide growth and development opportunities for the Company, andprovide significant new tax revenues for state and local governments.

As of May 11, 2007 bills have passed in both the Houseand Senate, that if enacted into law would severely restrict smoking in allpublic places in Minnesota, including bars and restaurants generally and theRacetrack in particular.  Minnesota’stribal casinos would not, however, be covered by this legislation as currentlyproposed and these casinos would continue to offer various gaming alternatives,including card games, in an environment that allows smoking.  Therefore, if the proposed legislation to restrictsmoking is enacted into law in Minnesota in substantially its current form, theCompany’s revenues and profits may be materially adversely affected to theextent current and potential Racetrack customers who smoke decide to patronizetribal casinos, where smoking is permitted.

**Forward-LookingStatements:**

From time to time, in reports filed with theSecurities and Exchange Commission, in press releases, and in othercommunications to shareholders or the investing public, the Company may makeforward-looking statements concerning possible or anticipated future financialperformance, business activities or plans which are typically preceded by thewords “believes,” “expects,” “anticipates,” “intends” or similarexpressions.  For such forward-lookingstatements, the Company claims the protection of the safe harbor forforward-looking statements contained in federal securities laws.  Shareholders and the investing public shouldunderstand that such forward-looking statements are subject to risks anduncertainties which could cause actual performance, activities or plans todiffer significantly from those indicated in the forward-lookingstatements.  Such risks and uncertaintiesinclude, but are not limited to: 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, 

16

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legislative andregulatory changes, the impact of wagering products and technologies introducedby competitors; increases in the percentage of revenues allocated for pursefund payments; increase in compensation and employee benefit costs; the generalhealth of the gaming sector; higher than expected expense related to newmarketing initiatives; and other factors discussed under Item 1A in our Reporton Form 10-K for the year ended December 31, 2006 and in the Company’s otherfilings with the Securities and Exchange Commission.

**ITEM 3:**   QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interestrates on borrowings under our commercial revolving credit line that bearsinterest at the prime rate.  At March 31,2007 we have no debt borrowings under our credit facility.

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

**ITEM 4:**   CONTROLSAND PROCEDURES

**(a)**                                  Evaluation of Disclosure Controls and Procedures:

Management, with the participation of the Company’sprincipal executive officer, Randall D. Sampson, and principal financialofficer, David C. Hansen, has evaluated the effectiveness of the design andoperation of the disclosure controls and procedures, as defined in Rules13a-15(e) under the Securities Exchange Act of 1934, as of the end of theperiod covered by this report. Management has concluded that the Company’s disclosure controls andprocedures are effective to ensure that information required to be disclosed inthe reports that the Company files under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in therules and forms of the SEC and that the disclosure controls are also effectiveto ensure that information required to be disclosed in the Company’s ExchangeAct reports is accumulated and communicated to management, including theprincipal executive officer and principal financial officer, to allow timelydecisions regarding required disclosure.

**(b)**                                 Changes in Internal Control Over FinancialReporting:

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**

**Item1.**                                                             LegalProceedings

Not Applicable.

**Item1A.**                                                   RiskFactors

There have been no material changes to the RiskFactors since those reported in the Form 10-K for the year ended December 31,2006.

**Item2.**                                                             Unregistered Sales of EquitySecurities and Use of Proceeds

Not Applicable.

**Item3.**                                                             DefaultsUpon Senior Securities

Not Applicable.

**Item4.**                                                             Submissionof Matters to a Vote of Security Holders

Not Applicable.

**Item5.**                                                             OtherInformation

Not Applicable.

**Item6.**                                                             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).

**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                           |   | **Canterbury Park Holding Corporation** |
|---------------------------|--------|-----------------------------------------|
| Dated:  May 14, 2007 |   | /s/ Randall D. Sampson                  |   |
|                      |   | Randall D. Sampson,                     |
|                      |   | President, and Chief Executive Officer  |

 
| Dated:  May 14, 2007 |   | /s/ David C. Hansen                         |   |
|---------------------------|--------|---------------------------------------------|--------|
|                      |   | David C. Hansen,                            |
|                      |   | Vice President, and Chief Financial Officer |

 

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