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** **

 

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**FOR THEQUARTERLY PERIOD ENDED MARCH 31, 2010.**

** **

**OR**

** **

**o****         TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**FOR THE TRANSITION PERIOD FROM           TO          .**

 

**Commission File Number:  001-31569**

 

****

 

**CANTERBURY PARK HOLDINGCORPORATION**

(Exact Name of Registrant as Specified in Its Charter)

 

| **Minnesota**                                                     | ** ** | **41-1775532**                        |
|-------------------------------------------------------------------|------------|---------------------------------------|
| (State or Other  Jurisdiction  of Incorporation or  Organization) |       | (I.R.S. Employer  Identification No.) |

 

**1100Canterbury RoadShakopee, MN  55379**

(Address ofprincipal executive offices and zip code)

 

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

 

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

 

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

 

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

 

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

 

TheCompany had 4,033,740 shares of common stock, $.01 par value, outstanding as ofMay 14, 2010.

 

 

 

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Canterbury ParkHolding Corporation

 

#### **INDEX**

#### ** **

| ** **        |       |                      | **Page**   |
|-------------------|------------|---------------------------|------------|
| ** **        |       |                      | ** ** |
| **PART I.**  |       | **FINANCIAL INFORMATION** |       |
|              |       |                      |       |   |   |
|              |       | Item 1.                   |       | Financial Statements |   |
|              |       |                      |       |   |   |
|              |       |                      |       | Condensed  Consolidated Balance Sheets as of March 31, 2010 and December 31,  2009 | 3 |
|              |       |                      |       |   |   |
|              |       |                      |       | Condensed  Consolidated Statements of Operations for the periods ended March 31,  2010 and 2009 | 4 |
|              |       |                      |       |   |   |
|              |       |                      |       | Condensed  Consolidated Statements of Cash Flows for the periods ended March 31,  2010 and 2009 | 5 |
|              |       |                      |       |   |   |
|              |       |                      |       | Notes to Condensed Consolidated Financial Statements | 6 |
|              |       |                      |       |   |   |
|              |       | Item 2.                   |       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 14 |
|              |       |                      |       |   |   |
|              |       | Item 3.                   |       | Quantitative  and Qualitative Disclosures about Market Risk | 20 |
|              |       |                      |       |   |   |
|              |       | Item 4.                   |       | Controls and  Procedures | 20 |
|              |       |                      |       |   |   |
| **PART II.** | ** ** | **OTHER  INFORMATION**    |       |
|              |       |                      |       |   |   |
|              |       | Item 1.                   |       | Legal Proceedings | 21 |
|              |       |                      |       |   |   |
|              |       | Item 1A.                  |       | Risk Factors | 21 |
|              |       |                      |       |   |   |
|              |       | Item 2.                   |       | Unregistered  Sales of Equity Securities and Use of Proceeds | 21 |
|              |       |                      |       |   |   |
|              |       | Item 3.                   |       | Defaults Upon  Senior Securities | 21 |
|              |       |                      |       |   |   |
|              |       | Item 4.                   |       | Submission of  Matters to a Vote of Security Holders | 21 |
|              |       |                      |       |   |   |
|              |       | Item 5.                   |       | Other Information | 21 |
|              |       |                      |       |
|              |       | Item 6.                   |       | Exhibits | 21 |
|              |       |                      |       |
|              |       | Signatures                | 22         |
|              |       |                      |       |
|              |       | Certifications            | 23         |

 

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**PART I - FINANCIAL INFORMATION**

 

**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**MARCH 31,2010 AND DECEMBER 31, 2009 (Unaudited)**

 
| ** **                                                                                                                        | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                        | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| **ASSETS**                                                                                                                        | ** ** | ** **         | ** ** | ** **            | ** ** |
| CURRENT  ASSETS                                                                                                                   |       |               |       |                  |       |
| Cash                                                                                                                              |       | $                  | 5,190,904  |                  | $          | 4,741,197 |   |
| Restricted  cash                                                                                                                  |       | 1,222,306          |       | 949,994               |       |
| Short-term  investments                                                                                                           |       | 339,377            |       | 365,894               |       |
| Accounts  receivable, net of allowance of $6,500                                                                                  |       | 535,185            |       | 405,192               |       |
| Inventory                                                                                                                         |       | 186,096            |       | 178,512               |       |
| Prepaid  expenses                                                                                                                 |       | 547,075            |       | 465,084               |       |
| Income  taxes receivable                                                                                                          |       | —             |       | 168,979               |       |
| Deferred  income taxes                                                                                                            |       | 344,842            |       | 296,500               |       |
| Due  from Minnesota horsemen associations                                                                                         |       | —             |       | 32,353                |       |
| Total  current assets                                                                                                             |       | 8,365,785          |       | 7,603,705             |       |
|                                                                                                                              |       |               |       |                  |       |
| LONG-TERM  ASSETS                                                                                                                 |       |               |       |                  |       |
| Deposits                                                                                                                          |       | 20,000             |       | 20,000                |       |
| Deferred  income taxes                                                                                                            |       | 453,000            |       | 28,850                |       |
| Long-term  investments                                                                                                            |       | 250,000            |       | 250,000               |       |
| Land, buildings and equipment, net of accumulated depreciation  of $17,587,176 and $18,623,780, respectively                      |       | 24,079,415         |       | 23,849,672            |       |
|                                                                                                                              |       |               |       |                  |       |
|                                                                                                                              |       | $                  | 33,168,200 |                  | $          | 31,752,227 |   |
|                                                                                                                              |       |               |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                     |       |               |       |                  |       |
|                                                                                                                              |       |               |       |                  |       |
| CURRENT  LIABILITIES                                                                                                              |       |               |       |                  |       |
| Accounts  payable                                                                                                                 |       | $                  | 3,218,528  |                  | $          | 2,061,658 |   |
| Card  room accruals                                                                                                               |       | 1,452,749          |       | 1,175,383             |       |
| Accrued  wages and payroll taxes                                                                                                  |       | 828,271            |       | 635,182               |       |
| Due  to MHBPA                                                                                                                     |       | 116,227            |       | 35,422                |       |
| Accrued  property taxes                                                                                                           |       | 642,461            |       | 511,136               |       |
| Income  taxes payable                                                                                                             |       | 129,171            |       | —                |       |
| Payable  to horsepersons                                                                                                          |       | 70,658             |       | 31,444                |       |
| Total  current liabilities                                                                                                        |       | 6,458,065          |       | 4,450,225             |       |
|                                                                                                                              |       |               |       |                  |       |
| DEFERRED  INCOME TAXES                                                                                                            |       | —             |       | —                |       |
|                                                                                                                              |       |               |       |                  |       |
| COMMITMENTS  AND CONTINGENCIES (Note 6)                                                                                           |       | —             |       | —                |       |
|                                                                                                                              |       |               |       |                  |       |
| STOCKHOLDERS’  EQUITY                                                                                                        |       |               |       |                  |       |
| Common stock, $.01 par value, 10,000,000 shares  authorized, 4,033,740 and 4,021,702 shares issued and outstanding,  respectively |       | 40,337             |       | 40,217                |       |
| Additional  paid-in capital                                                                                                       |       | 15,695,501         |       | 15,648,200            |       |
| Retained  earnings                                                                                                                |       | 10,974,297         |       | 11,613,585            |       |
| Total  stockholders’ equity                                                                                                  |       | 26,710,135         |       | 27,302,002            |       |
|                                                                                                                              |       | $                  | 33,168,200 |                  | $          | 31,752,227 |   |

 

See notes to condensed consolidated financial statements.

 

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**PERIODSENDED MARCH 31, 2010 AND 2009 (Unaudited)**

 
| ** **                                              | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                              | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| OPERATING REVENUES:                                     |       |                                  |       |   |   |
| Pari-mutuel                                             |       | $                                     | 1,821,031  |   | $ | 2,006,712 |   |
| Card room                                               |       | 4,937,408                             |       | 5,104,228 |   |
| Concessions                                             |       | 739,898                               |       | 786,332 |   |
| Other                                                   |       | 322,012                               |       | 345,215 |   |
| Total Revenues                                          |       | 7,820,349                             |       | 8,242,487 |   |
| Less: Promotional  Allowances                           |       | (31,736                               | )          | (30,965 | ) |
| Net Revenues                                            |       | 7,788,613                             |       | 8,211,522 |   |
|                                                    |       |                                  |       |   |   |
| OPERATING EXPENSES:                                     |       |                                  |       |   |   |
| Purse expense                                           |       | 772,624                               |       | 751,526 |   |
| Minnesota Breeders’  Fund                          |       | 142,927                               |       | 154,889 |   |
| Other pari-mutuel  expenses                             |       | 319,073                               |       | 344,957 |   |
| Salaries and benefits                                   |       | 3,840,716                             |       | 3,699,390 |   |
| Cost of sales                                           |       | 484,080                               |       | 478,039 |   |
| Depreciation                                            |       | 491,700                               |       | 582,150 |   |
| Loss on disposal of  assets                             |       | 909,540                               |       | — |   |
| Utilities                                               |       | 243,925                               |       | 255,257 |   |
| Advertising and  marketing                              |       | 162,791                               |       | 115,250 |   |
| Other operating  expenses                               |       | 1,210,931                             |       | 1,251,577 |   |
|                                                    |       | 8,578,307                             |       | 7,633,035 |   |
|                                                    |       |                                  |       |   |   |
| (LOSS) INCOME FROM  OPERATIONS                          |       | (789,694                              | )          | 578,487 |   |
|                                                    |       |                                  |       |   |   |
| NONOPERATING REVENUES  (EXPENSES):                      |       |                                  |       |   |   |
| Interest expense                                        |       | (1,282                                | )          | (1,454 | ) |
| Other, net                                              |       | 4,535                                 |       | 1,741 |   |
|                                                    |       | 3,253                                 |       | 287 |   |
|                                                    |       |                                  |       |   |   |
| (LOSS) INCOME BEFORE  INCOME TAX EXPENSE                |       | (786,441                              | )          | 578,774 |   |
|                                                    |       |                                  |       |   |   |
| INCOME TAX BENEFIT  (EXPENSE) (Note 1)                  |       | 146,800                               |       | (262,000 | ) |
|                                                    |       |                                  |       |   |   |
| NET (LOSS) INCOME                                       |       | $                                     | (639,641   | ) | $ | 316,774 |   |
|                                                    |       |                                  |       |   |   |
| WEIGHTED  AVERAGE NUMBER OF COMMON SHARES OUTSTANDING   |       | 4,032,629                             |       | 3,947,930 |   |
|                                                    |       |                                  |       |   |   |
| WEIGHTED  AVERAGE NUMBER OF DILUTIVE SHARES OUTSTANDING |       | 4,032,629                             |       | 3,952,602 |   |
|                                                    |       |                                  |       |   |   |
| BASIC NET (LOSS) INCOME  PER COMMON SHARE (Note 1)      |       | $                                     | (.16       | ) | $ | .08 |   |
|                                                    |       |                                  |       |   |   |
| DILUTED NET (LOSS)  INCOME PER COMMON SHARE (Note 1)    |       | $                                     | (.16       | ) | $ | .08 |   |

 

See notes to condensed consolidated financial statements.

 

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**PERIODSENDED MARCH 31, 2010 AND 2009 (Unaudited)**

 
| ** **                                                                      | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                      | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| **Operating Activities:**                                                       |       |                                  |       |   |   |
| Net  (loss) income                                                              |       | $                                     | (639,641   | ) | $ | 316,774 |   |
| Adjustments to reconcile net (loss) income to net  cash provided by operations: |       |                                  |       |   |   |
| Depreciation                                                                    |       | 491,700                               |       | 582,150 |   |
| Loss  on disposal of assets                                                     |       | 909,540                               |       | — |   |
| Stock-based  compensation expense                                               |       | 37,422                                |       | 31,234 |   |
| Decrease  in deferred income taxes                                              |       | (472,492                              | )          | (153,309 | ) |
| Changes  in operating assets and liabilities:                                   |       |                                  |       |   |   |
| Increase  in restricted cash                                                    |       | (272,312                              | )          | (394,367 | ) |
| Increase  in accounts receivable                                                |       | (129,993                              | )          | (191,854 | ) |
| Increase  in other current assets                                               |       | (89,575                               | )          | (96,967 | ) |
| Decrease  in income taxes receivable                                            |       | 298,150                               |       | 415,309 |   |
| Increase (decrease) in accounts payable and accrued  wages and payroll taxes    |       | 540,777                               |       | (25,878 | ) |
| Increase  in card club accruals                                                 |       | 277,366                               |       | 106,521 |   |
| Increase  in accrued property taxes                                             |       | 131,325                               |       | 131,298 |   |
| Increase  in payable to horsepersons                                            |       | 39,214                                |       | 61,777 |   |
| Increase  in due to MHBPA                                                       |       | 113,158                               |       | 78,415 |   |
| Net  cash provided by operations                                                |       | 1,234,639                             |       | 861,103 |   |
| ** **                                                                      |       |                                  |       |   |   |
| **Investing Activities:**                                                       |       |                                  |       |   |   |
| Additions  to buildings and equipment                                           |       | (821,448                              | )          | (188,325 | ) |
| Proceeds  from sale of investments                                              |       | 26,517                                |       | 27,860 |   |
| Net  cash used in investing activities                                          |       | (794,931                              | )          | (160,465 | ) |
|                                                                            |       |                                  |       |   |   |
| **Financing Activities**                                                        |       |                                  |       |   |   |
| Proceeds  from issuance of common stock                                         |       | 9,999                                 |       | 221,495 |   |
| Net  cash provided by financing activities                                      |       | 9,999                                 |       | 221,495 |   |
|                                                                            |       |                                  |       |   |   |
| Net  increase in cash                                                           |       | 449,707                               |       | 922,133 |   |
|                                                                            |       |                                  |       |   |   |
| Cash  at beginning of period                                                    |       | 4,741,197                             |       | 3,745,731 |   |
|                                                                            |       |                                  |       |   |   |
| Cash  at end of period                                                          |       | $                                     | 5,190,904  |   | $ | 4,667,864 |   |
|                                                                            |       |                                  |       |   |   |
| Supplemental  disclosure of noncash investing activities:                       |       |                                  |       |   |   |
| Additions to buildings and equipment funded through  accounts payable           |       | $                                     | 820,669    |   | $ | 39,333 |   |
|                                                                            |       |                                  |       |   |   |
| Proceeds from issuance of common stock funded  through shares swapped           |       | $                                     | 251,530    |   | $ | 15,880 |   |
|                                                                            |       |                                  |       |   |   |
| Supplemental disclosure of cash flow information:                               |       |                                  |       |   |   |   |
| Income taxes paid, net of refunds                                               |       | $                                     | 33,000     |   | — |   |

 

See notes to condensed consolidated financial statements.

 

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

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

**PERIODSENDED MARCH 31, 2010 AND 2009 (Unaudited)**

 

The accompanyingunaudited condensed consolidated financial statements have been preparedpursuant to the rules and regulations of the Securities and ExchangeCommission and in the opinion of management, contain all adjustments necessaryto present fairly, in accordance with accounting principles generally acceptedin the United States of America (GAAP), the financial position of CanterburyPark Holding Corporation as of March 31, 2010 and December 31, 2009;the results of its operations and its cash flows for the three months ended March 31,2010 and 2009.  The condensedconsolidated balance sheet as of December 31, 2009 was derived from theaudited financial statements.  Alladjustments are of a normal, recurring nature, except as otherwisedisclosed.  Results for an interim periodare not necessarily considered as indicative of results for a full year.

 

The complete summary ofsignificant accounting policies is included in the notes to consolidatedfinancial statements in the 2009 Annual Report on Form 10-K.

 

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

*Business* — Canterbury Park Holding Corporation(the “Company”) was incorporated under the laws of Minnesota and acquired landand buildings to conduct pari-mutuel horse racing operations (the “Racetrack”)in March 1994.  The Racetrack islocated in Shakopee, Minnesota, approximately 25 miles southwest of downtownMinneapolis.  In May 1994, wecommenced year-round horse racing simulcast operations and hosted the firstannual live race meet during the summer of 1995.  Our live racing operations are a seasonalbusiness as we host live race meets each year from May until August.  We earn additional pari-mutuel revenue bytelevising our live racing to out-of-state racetracks around the country.  Canterbury Park’s card room operates 24 hoursa day, seven days a week and is limited by Minnesota State law to a maximum of50 tables.  The card room currentlyoffers a variety of poker and table games. Our three largest sources of revenues, card room operations, pari-mutueloperations and concessions sales, generate cash revenues.  We also derive revenues from related servicesand activities, such as advertising, admissions, parking and publication salesand from other entertainment events and activities held at the Racetrack.

 

*Presentation—*The CondensedConsolidated Statement of Operations from the prior-period has been conformedto the 2010 presentation.  This presentation change had no effect on netincome, earnings per share, or stockholders’ equity.

 

*RevenueRecognition —*Our revenues are derived primarily from the operations ofa card room, pari-mutuel wagering on simulcast and live horse races, concessionsales, and related activities. Collection revenue from card room operations is recognized at the timethat the wagering process is complete. Pari-mutuel revenues are recognized upon occurrence of the live racethat is presented for wagering and after that live race is made official by therespective state’s racing regulatory body. Revenues related to concession and publication sales and parking andadmission fees are recognized as revenue when the service has been performed orthe product has been delivered.

 

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

 

*Short-termInvestments* —Short-term investments consist of certificates of deposit held by theCompany.  The maturity dates of theseinvestments vary but are less than one year in length.

 

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

 

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

 

The Company andits consolidated subsidiaries file income tax returns in the United States (“U.S.”)federal jurisdiction.  The Company is nolonger subject to U.S. federal examinations by tax authorities for years priorto 2007 or by State of Minnesota tax authorities for years prior to 2003.  We do not believe there will be any materialchanges in our unrecognized tax positions over the next twelve months.

 

*NetIncome (Loss) Per Share*— Basic net income (loss) per common share is based onthe weighted average number of common shares outstanding during eachperiod.  The weighted average number ofcommon shares outstanding for the three month period ended March 31, 2010was 4,032,629.  The weighted averagenumber of common shares outstanding for the three month period ended March 31,2009 was 3,947,930.  Diluted net incomeper common share takes into effect the dilutive effect of potential commonshares outstanding.  The Company’spotential common shares outstanding are stock options.  After considering the dilutive effect ofstock options outstanding, the weighted average shares used to calculatediluted earnings per share for the three month period ended March 31, 2010was 4,032,629.  The weighted averageshares used to calculate diluted earnings per share for the three month periodended March 31, 2009 was 3,952,602. Weighted average shares of 2,871 were considered anti-dilutive andexcluded from the computation of common equivalent shares for the three monthsended March 31, 2010, as the Company reported a net loss for that period.

 

*RecentAccounting Pronouncements —*In June 2009, the FinancialAccounting Standards Board, (“FASB”) issued Accounting Standards Codification (“ASC”)105, *Generally Accepted AccountingPrinciples*(“ASC 105”).  ASC 105 establishes the FASBAccounting Standards Codification (“Codification”) as the source ofauthoritative accounting principles recognized by the FASB to be applied bynongovernment entities in the preparation of financial statements in conformitywith GAAP.  Rules and interpretive releases of the SEC underauthority of federal securities law are also sources of authoritative GAAP forSEC registrants.  The Company adopted ASC 105 in three monthsended September 30, 2009.  References to FASB guidancethroughout this document have been updated for the Codification.

 

The Companyadopted an update to ASC 820 — “Fair Value Measurement and Disclosures” (“ASC820”) January 1, 2009.  ASC 820 defines fair value, establishesa framework for measuring fair value, and expands disclosures about fair valuemeasurement.  ASC 820 also emphasizes that fair value is amarket-based measurement, not an entity-specific measurement, and sets out afair value hierarchy with the highest priority being quoted prices in activemarkets.  Under ASC 820, fair value measurements are disclosed bylevel within that hierarchy.  The Company adopted ASC 820 for thefiscal year beginning January 1, 2008.  The adoption of ASC 820 and the updatehad no material impact on the Company’s financial position, results ofoperations, or cash flows.

 

In January 2010,the FASB issued Accounting Standards Update No. 2010-06 (“ASU 2010-06”) — “FairValue Measurements and Disclosures.”  ASU2010-06 amends ASC 820-10, “Fair Value Measurements and Disclosures”, andrequires new disclosures surrounding certain fair value measurements.  ASU 2010-06 was effective for the firstinterim or annual reporting period beginning on or after December 15,2009, except for certain disclosures about purchases, sales, issuances andsettlements in the rollforward of activity in Level 3 fair value measurements,which are effective for the 

 

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first interim andannual reporting periods beginning on or after December 15, 2010. Theadoption of ASU 2010-06 did not have a material effect on the Company’s consolidatedfinancial statements.

 

In April 2010,the FASB issued Accounting Standards Update No. 2010-16 (“ASU 2010-16”) “Entertainment—Casinos (Topic 924): Accrualsfor Casino Jackpot Liabilities.” ASU 2010-16 codifies the consensus reached in Emerging Issues Task ForceIssue No. 09-F, “Casino Base Jackpot Liabilities.”  ASU 2010-16 amends the ASC to clarify that anentity should not accrue jackpot liabilities, or portions thereof, before ajackpot is won if the entity can avoid paying the jackpot. Jackpots should beaccrued and charged to revenue when an entity has the obligation to pay thejackpot. The guidance in this ASU applies to both base and progressivejackpots. The amendments in this ASU are effective for fiscal years, andinterim periods within those fiscal years, beginning on or after December 15,2010. The amendments should be applied by recording a cumulative-effectadjustment to opening retained earnings in the period of adoption. We arecurrently evaluating the requirements of ASU 2010-16 and have not yetdetermined the impact on our consolidated financial statements.

 

2.   STOCK-BASED COMPENSATION

 

Stock basedcompensation is recorded at fair value as of the date of grant and included inthe salaries and benefits expense line item on the consolidated statements ofoperations and amounted to $37,422 and $31,234 during the three months ended March 31,2010 and 2009, respectively.

 

Each non-employeemember of the Board of Directors receives an annual recurring grant of 3,000non-qualified stock options on the first business day in February.  On February 1, 2010, 15,000 options weregranted to the five non-employee board members with an exercise price per shareequal to the market price on the date of grant of $7.05.  The stock options vested over a six-monthperiod and expire in ten years.  The compensation cost associated with this grant of Board of Directoroptions is $45,450 and will be recognized as expense over the six-month vestingperiod.  On February 2, 2009, 15,000 options were grantedto the five non-employee board members with an exercise price per share equalto the market price on the date of grant of $6.66.

 

In addition, on February 25,2010, 86,500 options were granted to employees with an exercise price per shareequal to the market price on the date of grant of $8.28.  The stock options vest over a 42-month periodand expire in ten years.  Thecompensation cost associated with this grant of employee options is $282,355 tobe recognized as expense over the 42-month vesting period.  On April 23, 2009, 100,000 options weregranted to employees with an exercise price per share equal to the market priceon the date of grant of $6.00.

 

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

 
| ** **             | ** ** | **Three  Months Ended**  | ** ** |
|------------------------|------------|--------------------------|------------|
| ** **             | ** ** | **March 31,  2010** | ** ** | **March 31,  2009** | ** ** |
| ** **             | ** ** | ** **               | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **             | ** ** | ** **               | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **             | ** ** | ** **               | ** ** | **Fair  Value** | ** ** | ** ** | ** ** | **Fair  Value** | ** ** |
| ** **             | ** ** | **Grant**                | ** ** | **Per  Share** | ** ** | **Grant** | ** ** | **Per  Share** | ** ** |
|                   |       |                     |       |   |   |   |   |   |   |
| Board stock options    |       | 15,000                   |       | $ | 3.03 |   | 15,000 |   | $ | 1.26 |   |
| Employee stock options |       | 86,500                   |       | $ | 3.79 |   | — |   | — |   |
|                   |       |                     |       |   |   |   |   |   |   |
| Total options          |       | 101,500                  |       |   |   | 15,000 |   |   |   |
|                        |            |                          |            |  |  |  |  |  |  |  |  |

 

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The fair value ofstock options granted under the Company’s 1994 Stock Plan during the firstthree months of 2010 and 2009 were estimated on the date of grant using theBlack-Scholes option-pricing model with the following weighted averageassumptions and results:

 
| ** **                                 | ** ** | **2010** | ** ** | **2009** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| Dividend  yield                            |       | 0.00     | %          | 3.75     | %          |
| Weighted-average  volatility               |       | 43       | %          | 26       | %          |
| Risk-free  interest rate                   |       | 2.66     | %          | 2.76     | %          |
| Expected  term of stock options in years   |       | 6.0      |       | 7.4      |       |
| Fair  value of stock options on grant date |       | $        | 327,805    |     | $          | 18,900 |   |
|                                            |            |          |            |          |            |  |  |

 

A summary of stockoption activity as of March 31, 2010 and changes during the three monthsthen ended is presented below:

 
| ** **                           | ** ** | ** **     | ** ** | **Weighted** | ** ** | **Average**     | ** ** | ** **      | ** ** |
|--------------------------------------|------------|----------------|------------|--------------|------------|-----------------|------------|-----------------|------------|
| ** **                           | ** ** | ** **     | ** ** | **Average**  | ** ** | **Remaining**   | ** ** | **Aggregate**   | ** ** |
| ** **                           | ** ** | **Number  of** | ** ** | **Exercise** | ** ** | **Contractual** | ** ** | **Grant  Date** | ** ** |
| **Stock Options**                    | ** ** | **Shares**     | ** ** | **Price**    | ** ** | **Term**        | ** ** | **Fair  Value** | ** ** |
|                                 |       |           |       |         |       |            |       |            |       |
| Outstanding at  January 1, 2010 |       | 403,244        |       | $            | 10.15      |            |       |            |       |   |
|                                 |       |           |       |         |       |            |       |            |       |
| Granted                              |       | 101,500        |       | 8.10         |       |            |       |            |       |
| Exercised                            |       | (46,494        | )          | 5.63         |       |            |       |            |       |
| Expired/Forfeited                    |       | (12,500        | )          | 16.75        |       |            |       |            |       |
|                                 |       |           |       |         |       |            |       |            |       |
| Outstanding at  March 31, 2010  |       | 445,750        |       | $            | 9.97       |            | 5.8 Years  |            | $          | 4,443,725 |   |
|                                 |       |           |       |         |       |            |       |            |       |
| Exercisable at  March 31, 2010  |       | 280,500        |       | $            | 11.55      |            | 3.6 Years  |            | $          | 3,239,255 |   |

 

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

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

 

*EmployeeStock Ownership Plan*— Prior to 2008, the Company contributed shares of its common stock to itsEmployee Stock Ownership Plan (“ESOP”). However, on October 24, 2008, the Company announced it would notcontribute shares to the ESOP for fiscal 2008. Since then, the Company has not taken any action to reinstatecontributions to the ESOP.

 

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3.               FAIR VALUE

 

ASC 820 definesfair value as the exchange price that would be received for an asset or paid totransfer a liability (an exit price) in the principal or most advantageousmarket for the asset or liability in an orderly transaction between marketparticipants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entityto maximize the use of observable inputs and minimize the use of unobservableinputs when measuring fair value.  Thestandard describes three levels of inputs that may be used to measure fairvalue:

 

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

 

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

 

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

 

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

 

Assets and liabilitiesmeasured at fair value on a recurring basis for March 31, 2010 and December 31,2009 are summarized below:

 
| ** **                                        | ** ** | **Fair Value Measurements as of  March 31, 2010** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------|------------|
| **Description**                                   | ** ** | **Total**                                              | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|                                              |       |                                                   |       |   |   |   |   |   |   |
| Short-term  investments (Certificates of Deposit) |       | $                                                      | 339,377    |   | $ | — |   | $ | 339,377 |   | $ | — |   |
| Long-term  investments (Certificates of Deposit)  |       | $                                                      | 250,000    |   | $ | — |   | $ | 250,000 |   | $ | — |   |
|                                              |       |                                                   |       |   |   |   |   |   |   |
| Total                                             |       | $                                                      | 589,377    |   | $ | — |   | $ | 589,377 |   | $ | — |   |

 
| ** **                                        | ** ** | **Fair Value Measurements as of  December 31, 2009** | ** ** |
|---------------------------------------------------|------------|-----------------------------------------------------------|------------|
| **Description**                                   | ** ** | **Total**                                                 | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|                                              |       |                                                      |       |   |   |   |   |   |   |
| Short-term  investments (Certificates of Deposit) |       | $                                                         | 365,894    |   | $ | — |   | $ | 365,894 |   | $ | — |   |
| Long-term  investments (Certificates of Deposit)  |       | $                                                         | 250,000    |   | $ | — |   | $ | 250,000 |   | $ | — |   |
|                                              |       |                                                      |       |   |   |   |   |   |   |
| Total                                             |       | $                                                         | 615,894    |   | $ | — |   | $ | 615,894 |   | $ | — |   |

 

4.               GENERAL CREDIT AGREEMENT

 

The Company has ageneral credit agreement with Bremer Bank, which provides a revolving creditline.  On September 30, 2009, theCompany signed an amendment with Bremer Bank extending the expiration date fromSeptember 30, 2009 to June 30, 2010 and adjusting the credit linefrom $5,000,000 to $3,000,000.  TheCompany had no borrowings under this credit line at March 31, 2010 and December 31,2009.  The credit agreement containscertain covenants requiring the Company to maintain certain financialratios.  The Company was in compliancewith these requirements as of March 31, 2010.  The Company believes that unrestricted fundsavailable in its cash accounts, funds available under this line of credit,along with funds generated from operations, will be sufficient to satisfy itsliquidity and capital resource requirements during 2010.

 

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5.   OPERATING SEGMENTS

 

During the firstthree months of 2010 and 2009, the Company had three reportable operatingsegments:  horse racing, card room, andconcessions.  The horse racing segmentprimarily represents simulcast and live horse racing operations.  The card room segment primarily representsoperations of Canterbury Park’s card room, and the concessions segmentprimarily represents food and beverage operations provided during simulcast andlive racing, in the card room, and during special events.  The Company’s reportable operating segmentsare strategic business units that offer different products and services.  They are managed separately because thesegments differ in the nature of the products and services provided as well asprocesses to produce those products and services.  The Minnesota Racing Commission regulates thehorse racing and card room segments.

 

The accountingpolicies of the operating segments are the same as those described in thesummary of significant accounting policies in the 2009 Annual Report on Form 10-K.

 

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

 

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

 
| ** **                                                                         | ** ** | **Three Months Ended March 31, 2010** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                         | ** ** | **Horse  Racing**                          | ** ** | **Card  Room** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                                                               |       |                                       |       |   |   |   |   |   |   |
| Net  revenues from external customers                                              |       | $                                          | 2,111      |   | $ | 4,938 |   | $ | 740 |   | $ | 7,789 |   |
|                                                                               |       |                                       |       |   |   |   |   |   |   |
| Intersegment  revenues                                                             |       | 60                                         |       | — |   | 304 |   | 364 |   |
|                                                                               |       |                                       |       |   |   |   |   |   |   |
| Net  interest income                                                               |       | 3                                          |       | — |   | — |   | 3 |   |
|                                                                               |       |                                       |       |   |   |   |   |   |   |
| Depreciation                                                                       |       | 294                                        |       | 158 |   | 40 |   | 492 |   |
|                                                                               |       |                                       |       |   |   |   |   |   |   |
| Segment  loss before income taxes                                                  |       | (139                                       | )          | (589 | ) | (108 | ) | (836 | ) |
|                                                                               |       |                                       |       |   |   |   |   |   |   |
| Segment (loss) income before income taxes and  one-time loss on disposal of assets |       | (139                                       | )          | 321 |   | (108 | ) | 74 |   |
|                                                                               |       |                                       |       |   |   |   |   |   |   |
| Segment  Assets                                                                    |       | $                                          | 30,637     |   | $ | 1,786 |   | $ | 9,677 |   | $ | 42,100 |   |

 
| ** **                            | ** ** | **Three Months Ended March 31, 2009** | ** ** |
|---------------------------------------|------------|--------------------------------------------|------------|
| ** **                            | ** ** | **Horse  Racing**                          | ** ** | **Card  Room** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Net  revenues from external customers |       | $                                          | 2,320      |   | $ | 5,104 |   | $ | 788 |   | $ | 8,212 |   |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 90                                         |       | — |   | 335 |   | 425 |   |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Net  interest income                  |       | —                                     |       | — |   | — |   | — |   |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Depreciation                          |       | 377                                        |       | 162 |   | 43 |   | 582 |   |
|                                  |       |                                       |       |   |   |   |   |   |   |
| Segment  income before income taxes   |       | 88                                         |       | 552 |   | 24 |   | 664 |   |
|                                       |            |                                            |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **      | ** ** | **At December 31, 2009** | ** ** |
|-----------------|------------|-----------------------------------------|------------|
|            |       |                                    |       | ** ** |   |   |   |   |   |
| Segment  Assets |       | $                                       | 28,279     |   | $ | 2,841 |   | $ | 9,636 |   | $ | 40,756 |   |
|                 |            |                                         |            |  |  |  |  |  |  |  |  |  |  |

 

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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,** | ** ** |
|----------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                     | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| Revenues                                                       |       |                                  |       |   |   |
| Total net revenue for  reportable segments                     |       | $                                     | 8,153      |   | $ | 8,637 |   |
| Elimination of  intersegment revenues                          |       | (364                                  | )          | (425 | ) |
| Total consolidated net  revenues                               |       | $                                     | 7,789      |   | $ | 8,212 |   |
|                                                           |       |                                  |       |   |   |
| (Loss) income before  income taxes                             |       |                                  |       |   |   |
| Total segment (loss)  income before income taxes               |       | $                                     | (836       | ) | $ | 664 |   |
| Elimination of  intersegment loss (income) before income taxes |       | 50                                    |       | (85 | ) |
| Total consolidated (loss)  income before income taxes          |       | $                                     | (786       | ) | $ | 579 |   |

 
|                                     | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------|------------|--------------------|------------|-----------------------|------------|
|                                     | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| Assets                                   | ** ** | ** **         | ** ** | ** **            | ** ** |
| Total assets for  reportable segments    |       | $                  | 42,100     |                  | $          | 40,756 |   |
| Elimination of  intercompany receivables |       | (8,932             | )          | (9,004                | )          |
| Total consolidated  assets               |       | $                  | 33,168     |                  | $          | 31,752 |   |

 

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6.     COMMITMENTS AND CONTINGENCIES

 

In accordance withan Earn Out Note, given to the prior owner of the Racetrack as part of theconsideration paid by the Company to acquire the Racetrack in 1994, if (i) off-trackbetting becomes legally permissible in the State of Minnesota and (ii) theCompany begins to conduct off-track betting with respect to or in connectionwith its operations, the Company will be required to pay to the IMR Fund, L.P.the greater of $700,000 per operating year, as defined, or 20% of the netpretax profit, as defined for each of five operating years.  At this time, management believes that thelikelihood that these two conditions will be met, and that the Company will berequired to pay these amounts is remote. At the date (if any) that these two conditions are met, the five minimumpayments will be discounted back to their present value and the sum of thosediscounted payments will be capitalized as part of the purchase price inaccordance with generally accepted accounting principles.  The purchase price will be further increasedif payments become due under the “20% of Net Pretax Profit” calculation.  The first payment is to be made 90 days afterthe end of the third operating year in which off-track betting is conducted bythe Company.  Remaining payments would bemade within 90 days of the end of each of the next four operating years.

 

The Companyperiodically is subject to claims or involved in legal proceedings arising inthe normal course of business.  At March 31,2010, management believes that the resolution of any pending claims or legalproceedings will not have a material impact on the consolidated financialstatements.

 

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7.     LOSS ON DISPOSAL OF ASSETS

 

In January 2010,and in accordance with Minnesota Statute 240, the Company obtained approvalfrom the MRC to remodel its existing card room. Construction and architectural contracts with various firms were signedshortly thereafter, and the card room was moved to a temporary location on themezzanine level on January 25, 2010. The Company anticipates using cash on hand to fund the project and toavoid drawing on its line of credit.  Aspart of the remodeling project, the Company disposed of assets during the firstquarter of 2010 with an original cost of $2,354,619 and associated accumulateddepreciation of $1,445,079, resulting in a loss on disposal of $909,540.  The remodeling project was completed duringthe second quarter of 2010 and on April 14, 2010, Canterbury Park openedits new Card Casino.

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

 

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

 

**Overview:**

 

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

 

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

 

Canterbury Park’s cardroom hosts “unbanked” card games in which players compete against each otherand not against the house.  The card roomis open twenty-four hours a day, seven days a week.  Under Minnesota law, the Company is requiredto pay up to 14% of the gross card room revenues to the Racetrack’s purse fundand the State of Minnesota Breeders’ Fund.

 

The Company alsogenerates revenues from other activities such as parking fees and from the saleof food and beverage, programs and other racing publications, and corporatesponsorships.  Additional revenues arederived from the use of the Racetrack facilities for special events such asconcerts, craft shows and snowmobile racing.

 

**Operations Review for the****Three****Months Ended March 31, 2010 and March 31, 2009:**

 

The following table setsforth a reconciliation of net income, a GAAP financial measure, to EBITDA andAdjusted EBITDA, non-GAAP measures, for the periods ended March 31, 2010and 2009:

 

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| ** **                             | ** ** | **March 31,  2010** | ** ** | **March 31,  2009** | ** ** |
|----------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Net  (loss) income                     |       | $                        | (639,641   | )                        | $          | 316,774 |   |
| Other  income, net of interest expense |       | (3,253                   | )          | (287                     | )          |
| Income  tax (benefit) expense          |       | (146,800                 | )          | 262,000                  |       |
| Depreciation                           |       | 491,700                  |       | 582,150                  |       |
| EBITDA                                 |       | $                        | (297,994   | )                        | $          | 1,160,637 |   |
| Loss  on disposal of assets            |       | 909,540                  |       | —                   |       |
| Adjusted  EBITDA                       |       | $                        | 611,546    |                     | $          | 1,160,637 |   |

 

EBITDA representsearnings before interest income, income tax expense, and depreciation andamortization.  EBITDA is not a measure ofperformance or liquidity calculated in accordance with generally acceptedaccounting principles (“GAAP”), and should not be considered an alternative to,or more meaningful than, net income as an indicator of our operatingperformance, or cash flows from operating activities as a measure ofliquidity.  EBITDA has been presented asa supplemental disclosure because it is a widely used measure of performanceand basis for valuation of companies in our industry.  Moreover, other companies that provide EBITDAinformation may calculate EBITDA differently than we do.  Adjusted EBITDA is calculated as EBITDA with theaddition of material, one-time non-cash expenses.  During the quarter ended March 31, 2010,this included the loss on disposal of assets during the remodel of our cardroom.

 

Adjusted EBITDA as apercentage of net revenues was 7.9% for the first quarter ended March 31,2010 compared to 14.2% for the first quarter ended March 31, 2009.  The decrease is attributable to an increasein salaries and benefits, due to factors described below, and other fixed coststhat are not able to adjust downward with similar decreases in revenue.

 

Total net revenuesdecreased $422,909, or 5.2%, during the three months ended March 31, 2010compared to the three months ended March 31, 2009.  The decrease is due primarily to reductionsof 9.3% and 3.3% in pari-mutuel and card room revenues, respectively.

 

Pari-mutuel revenuedecreased $185,681, or 9.3%, in the three-month period ended March 31,2010 compared to the same period in 2009. Total handle was approximately $8.2 million, or 10.4%, lower than totalhandle of $9.1 million during the same quarter a year ago.  The decrease is attributable to the economicrecession that has adversely impacted discretionary spending onentertainment.  In addition, inclementweather during the first quarter of 2010 resulted in the cancellation of asignificant number of races at racetracks simulcasting their signal to ourracetrack.  Finally, the Company believesthat an increasing number of Minnesota residents are unlawfully wagering onhorse races over the Internet.  See the “Summaryof Pari-Mutuel Data” below.

 
| ** **                        | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|
| **Summary  of Pari-Mutuel Data:** | ** ** | **2010**                         | ** ** | **2009** | ** ** |
|                              |       |                             |       |   |   |
| Simulcast  racing days            |       | 90                               |       | 90 |   |
| ** **                        | ** ** | ** **                       | ** ** | ** ** | ** ** |
| On-track  simulcast handle        |       | $                                | 8,172,000  |   | $ | 9,123,000 |   |
|                              | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Average  daily handle             |       | $                                | 90,800     |   | $ | 101,000 |   |

 

Total card room revenuedecreased $166,820, or 3.3%, for the first three months of 2010 compared to thesame period in 2009.  The primary sourceof card room revenue is a percentage of the wagers received from the players ascompensation for providing the card room facility and services, referred to asthe “collection revenue”.  Other revenueincludes fees collected for the administration of tournaments, and amountsearned as reimbursement of the administrative costs of maintaining jackpotfunds.  Poker collection revenue fell$419,047, or 13.2%, compared to the first quarter of 2009.  The Company believes that the decrease islargely attributable to the economic recession that has adversely impacteddiscretionary spending on entertainment. In addition, the Company believes an increasing number of Minnesotaresidents unlawfully wager on poker over the Internet.  In spite of the economic recession notedabove, table games collection revenue increased $166,596, or 10.4%, compared tothe first three months of 2009.  TheCompany believes its smoke-free environment and variety of gaming 

 

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options have resulted inan increased market share for table games. Total card room revenues represented 63.4% and 62.2% of net revenues forthe three-month periods ended March 31, 2010 and 2009, respectively.

 

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See the “Summary of Card Room Data”below.

 
| ** **                           | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|
| **Summary  of Card Room Data:** | ** ** | **2010**                         | ** ** | **2009** | ** ** |
|                                 |       |                             |       |   |   |
| Poker  Games                         |       | $                                | 2,758,000  |   | $ | 3,177,000 |   |
| Table  Games                         |       | 1,761,000                        |       | 1,594,000 |   |
| Total  Collection Revenue            |       | 4,519,000                        |       | 4,771,000 |   |
|                                 |       |                             |       |   |   |
| Other  Revenue                       |       | 418,000                          |       | 333,000 |   |
| Total  Card Room Revenue        |       | $                                | 4,937,000  |   | $ | 5,104,000 |   |
|                                 |       |                             |       |   |   |
| Number  of Days Offered              |       | 90                               |       | 90 |   |
| Average  Revenue per Day             |       | $                                | 55,000     |   | $ | 57,000 |   |

 

Concession revenuesdecreased $46,434, or 5.9%, for the quarter ended March 31, 2010 comparedto the first quarter of 2009.  Thedecrease is primarily attributable to discounted prices in the temporary cardroom location due to our remodeling project.

 

Total operating expensesin the first quarter of 2010 increased by $945,272, or 12.4%, compared to thethree-month period ended March 31, 2009. See below for a further discussion of operating expenses.

 

Total expense forstatutory purses and the Minnesota Breeders’ Fund remained relatively flat atapproximately $916,000 for the quarter ended March 31, 2010 compared to$906,000 for the quarter ended March 31, 2009.

 

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

 
| ** **        | ** ** | **Purse Expense**                | ** ** | **Minnesota Breeders’ Fund  Expense** | ** ** |
|-------------------|------------|----------------------------------|------------|--------------------------------------------|------------|
| ** **        | ** ** | **Three Months Ended March 31,** | ** ** | **Three Months Ended March 31,**           | ** ** |
| ** **        | ** ** | **2010**                         | ** ** | **2009**                                   | ** ** | **2010** | ** ** | **2009** | ** ** |
|              |       |                             |       |                                       |       |   |   |   |   |
| Card  Room        |       | $                                | 444,367    |                                       | $          | 459,381 |   | $ | 49,374 |   | $ | 51,042 |   |
|              |       |                             |       |                                       |       |   |   |   |   |
| Simulcast  Racing |       | 328,257                          |       | 292,145                                    |       | 93,553 |   | 103,847 |   |
|              |       |                             |       |                                       |       |   |   |   |   |
| Total             |       | $                                | 772,624    |                                       | $          | 751,526 |   | $ | 142,927 |   | $ | 154,889 |   |

 

Salary and benefit costsincreased $141,326, or 3.8%, compared to the first quarter of 2009.  Savings from reduced hours worked and thesuspension of 401 (k) match contributions were more than offset by anincrease in health care costs, an increase in the payroll tax rate by the Stateof Minnesota, and a federal minimum wage increase in July of 2009.  Advertising and marketing costs increased$47,541, or 41.3%, compared to the first quarter of 2009 primarily as a resultof consulting fees related to building our direct marketing capabilities.  We expect that these upgrades will make theCompany more competitive in attracting high value customers.

 

Loss before income taxeswas $786,441, for the three months ended March 31, 2010 compared to incomebefore income taxes of $578,774 for the three months ended March 31,2009.  Income tax benefit was $146,800for the first quarter of 2010 compared to income tax expense of $262,000 forthe first quarters of 2009, resulting in net loss and net income of $639,641and $316,774, for 2010 and 2009, respectively.

 

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#### **Contingencies:**

#### ** **

There have been nomaterial changes in the contingencies reported under Item 7 in our AnnualReport on Form 10-K for our year ended December 31, 2009 and suchinformation is incorporated herein by reference.

 

**Liquidityand Capital Resources:**

 

Cash provided byoperating activities for the three months ended March 31, 2010 was$1,234,639 and resulted principally from a net loss of $639,641 that was morethan offset by a one-time loss on disposal of assets in the amount of $909,540relating to the remodel of our card room. Additionally, depreciation of $491,700 and an increase in accountspayable, accrued wages and payroll taxes of $540,777, which was also due to theremodel of our card room, contributed to the net cash provided by operationsfor the first quarter of 2010.  Cashprovided by operating activities for the three months ended March 31, 2009was $861,103 and resulted principally from net income of $316,774, depreciationof $582,150, and a decrease in income taxes receivable of $415,309.  These items were partially offset by anincrease in restricted cash of $394,367 due primarily to an increase in theplayer pool of $248,176.  Pursuant to anagreement with the Minnesota Horsemen’s Benevolent and Protective Association(MHBPA), during the three months ended March 31, 2010 and 2009, theCompany transferred into a trust account for these purposes or paid directly tothe MHBPA approximately $675,000 and $600,000, respectively.

 

Net cash used ininvesting activities for the first quarter of 2010 of $821,448 was usedprimarily for the remodeling of our card room. Net cash used in investing activities for the first quarter of 2009 of$160,465 was used primarily on equipment for backside operations.

 

Net cash provided byfinancing activities during the first three months of 2010 consisted solely ofproceeds received upon the exercise of stock options of $9,999.  Net cash provided by financing activitiesduring the first three months of 2009 consisted solely of proceeds receivedupon the exercise of stock options of $221,495.

 

The Company has a generalcredit agreement with Bremer Bank, which provides a revolving credit line of upto $3,000,000 until June 30, 2010 with interest at the prime rate but notless than 4.5% per annum.  The Companyhad no borrowings under the line of credit at March 31, 2010 or December 31,2009.  The credit agreement containscovenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements at all times throughout the quarter ended March 31, 2010.

 

Unrestricted cashbalances at March 31, 2010 were $5,190,904 compared to $4,741,197 at December 31,2009.  The Company believes that fundsavailable in its cash accounts, amounts available under the general credit andsecurity agreement, along with funds generated from operations, will besufficient to satisfy its liquidity and capital resource requirements during2010 for regular operations.

 

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

##### ** **

Thepreparation of consolidated financial statements in conformity with generallyaccepted accounting principles in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the consolidated financial statements and the reported amountsof revenues and expenses during the reporting period.  We base our assumptions, estimates andjudgments on historical experience, current trends and other factors thatmanagement believes to be relevant at the time the consolidated financialstatements are prepared.  On a regularbasis, management reviews the accounting policies, assumptions, estimates andjudgments to ensure that our financial statements are presented fairly and inaccordance with generally accepted accounting principles.  However, because 

 

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futureevents and their effects cannot be determined with certainty, actual resultscould differ from our assumptions and estimates, and such differences could bematerial.

 

Our significantaccounting policies are included in Note 1 to our consolidated financialstatements in our 2009 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.

 

*Propertyand Equipment -*Wehave significant capital invested in our property and equipment, whichrepresents approximately 72.6% of our total assets at March 31, 2010.  We utilize our judgment in various waysincluding: determining whether an expenditure is considered a maintenanceexpense or a capital asset; determining the estimated useful lives of assets;and determining if or when an asset has been impaired or has beendisposed.  Management periodicallyreviews the carrying value of property and equipment for potential impairmentby comparing the carrying value of these assets with their related expectedfuture net cash flows.  Should the sum ofthe related expected future net cash flows be less than the carrying value, wewill determine whether an impairment loss should be recognized.  An impairment loss would be measured by theamount by which the carrying value of the asset exceeds the fair value of theasset.  To date, we have determined thatno impairment of these assets exists.

 

*StockBased Employee Compensation* — ASC 718, Compensation — Stock Compensation (“ASC718”), requires recognition of employee services provided in exchange for ashare-based payment based on the grant date fair market value.  We utilize our judgment in determining theassumptions used to determine the fair value of options granted using aBlack-Scholes model.

 

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

##### ** **

There have been nomaterial changes in our outstanding commitments and contractual obligationssince those reported at December 31, 2009.

 

**Legislation:**

 

As discussed in ourprevious filings with the SEC, the Company has supported over the past severalyears, and is currently supporting in the 2010 session of the MinnesotaLegislature, legislation that would authorize slot machines at the Racetrack(referred to as a “Racino”).  Based onthe success of Racinos in several other states, we continue to believe that ifa Racino was authorized at the Racetrack on similar terms to legislationapproved in other states, it would enhance horse racing with increased purses,provide growth and development opportunities for the Company, and provide newtax revenues for state and local governments facing significant deficit issues.

 

Theeffort to obtain legislative authority for initiatives favorable to the Companyhas required, 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.

 

**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:

 

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fluctuations in attendance at theRacetrack, material changes in the level of wagering by patrons, decline ininterest in the unbanked card games offered in the card room, 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; theeconomic health of the gaming sector; higher than expected expense related tonew marketing initiatives; and other factors discussed under Item 1A in ourAnnual Report on Form 10-K for the year ended December 31, 2009 andin the Company’s other filings with the Securities and Exchange Commission.

 

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

 

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

 

**ITEM4:     CONTROLS AND PROCEDURES**

 

(a)           Evaluation of Disclosure Controls and Procedures:

 

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

 

(b)           Changes in Internal Control Over FinancialReporting:

 

Therehas been no change in our internal control over financial reporting (as definedin Rules 13a-15(f) under the Securities Exchange Act of 1934) thatoccurred during our fiscal quarter ended March 31, 2010 that havematerially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

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**PART II**

**OTHERINFORMATION**

 

Item 1.                    **Legal Proceedings**

 

Not Applicable.

 

Item 1A.                 **Risk Factors**

 

Therehave been no material changes to the Risk Factors reported under Item 1A in theForm 10-K for the year ended December 31, 2009, and the statement ofrisk factors presented therein are incorporated by reference herein.

 

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

 

(a)   Not Applicable.

(b)   Not Applicable.

(c)   On January 16, 2008, the Company announced thatits Board of Directors had authorized a program to repurchase up to anadditional 250,000 shares of the Company’s common stock.  During the first quarter of 2010, the Companydid not repurchase any shares of common stock. As of March 31, 2010, there are 33,457 shares at maximum that theCompany may buy back as a result of this repurchase program.

 

Item 3.                    **Defaults Upon Senior Securities**

 

Not Applicable.

 

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

 

Not Applicable.

 

Item 5.                    **Other Information**

 

Not Applicable.

 

Item 6.                    **Exhibits**

 

(a)   The following exhibits are included herein:

 
| 11     | Statement re  computation of per share earnings — See Net Income Per Share under Note 1 of  Notes to Condensed Consolidated Financial Statements under Part 1, Item  1, which is incorporated herein by reference. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                         |
| 31.1   | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 (rules 13a-14 and 15d-14 of the Exchange Act).                                                                |
|   |                                                                                                                                                                                                                         |
| 31.2   | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 (rules 13a-14 and 15d-14 of the Exchange Act).                                                                |
|   |                                                                                                                                                                                                                         |
| 32     | Certifications pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).                                                                                                                             |

 

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**SIGNATURES**

 

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

 
|                           | **Canterbury  Park Holding Corporation**     |
|--------------------------------|----------------------------------------------|
|                           |                                         |
| Dated: May 17,  2010 | /s/ Randall D. Sampson                       |
|                           | Randall D. Sampson,                          |
|                           | President, and Chief  Executive Officer      |
|                           |                                         |
| Dated: May 17,  2010 | /s/ David C. Hansen                          |
|                           | David C. Hansen,                             |
|                           | Vice President, and  Chief Financial Officer |

 

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