Tableof Contents

 

 

** **

**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**(Mark One)**

** **

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

 

| ** ** | **FOR THE QUARTERLY PERIOD ENDED  SEPTEMBER 30, 2008.** |
|------------|---------------------------------------------------------|

 

**OR**

 

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

 

| ** ** | **FOR THE TRANSITION PERIOD FROM             TO            .** |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Commission File Number: 001-31569**

 

****

 

**CANTERBURYPARK HOLDING CORPORATION**

(ExactName of Registrant as Specified in Its Charter)

 

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

 

**1100Canterbury Road**

**Shakopee,MN  55379**

(Addressof principal executive offices and zip code)

 

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

YES  o      NO  x

 

Indicate by check mark if the registrant isnot required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.

YES  o      NO  x

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

YES  x      NO  o

 

**Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company (as defined in ExchangeAct Rule 12b-2).**

 

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

 

**Indicate by check markwhether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).**

YES   o   NO   x

 

**The Company had 3,930,483shares of common stock, $.01 par value, outstanding as of November 14,2008.**

 

 

 

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Table of Contents

 

CanterburyPark Holding Corporation

 

#### **INDEX**

 
| ** **        | ** **                | ** **                                                                                     | **Page** |
|-------------------|---------------------------|------------------------------------------------------------------------------------------------|----------|
| **PART I.**  | **FINANCIAL INFORMATION** | ** **                                                                                     |
| ** **        | ** **                | ** **                                                                                     |
|              | Item 1.                   | Financial Statements                                                                           |     |
|              |                      |                                                                                           |     |
|              |                      | Consolidated  Balance Sheets as of September 30, 2008 and December 31, 2007          | 3        |
|              |                      |                                                                                           |     |
|              |                      | Consolidated  Statements of Operations for the periods ended September 30, 2008 and  2007 | 4        |
|              |                      |                                                                                           |     |
|              |                      | Consolidated  Statements of Cash Flows for the periods ended September 30, 2008 and  2007 | 5        |
|              |                      |                                                                                           |     |
|              |                      | Notes to Consolidated Financial Statements                                                     | 6        |
|              |                      |                                                                                           |     |
|              | Item 2.                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations    | 13       |
|              |                      |                                                                                           |     |
|              | Item 3.                   | Quantitative  and Qualitative Disclosures about Market Risk                                    | 19       |
|              |                      |                                                                                           |     |
|              | Item 4.                   | Controls and  Procedures                                                                       | 19       |
|              |                      |                                                                                           |     |
| **PART II.** | **OTHER INFORMATION**     |                                                                                           |
| ** **        | ** **                |                                                                                           |
|              | Item 1.                   | Legal Proceedings                                                                              | 20       |
|              |                      |                                                                                           |     |
|              | Item 1A.                  | Risk Factors                                                                                   | 20       |
|              |                      |                                                                                           |     |
|              | Item 2.                   | Unregistered  Sales of Equity Securities and Use of Proceeds                                   | 20       |
|              |                      |                                                                                           |     |
|              | Item 3.                   | Defaults Upon  Senior Securities                                                               | 20       |
|              |                      |                                                                                           |     |
|              | Item 4.                   | Submission of  Matters to a Vote of Security Holders                                           | 20       |
|              |                      |                                                                                           |     |
|              | Item 5.                   | Other Information                                                                              | 20       |
|              |                      |                                                                                           |     |
|              | Item 6.                   | Exhibits                                                                                       | 21       |
|              |                      |                                                                                           |     |
|              | Signatures                | 22                                                                                             |
|              |                      |                                                                                           |
|              | Certifications            | 23                                                                                             |

 

2

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**PART 1 - FINANCIAL INFORMATION**

 

**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**SEPTEMBER 30, 2008 AND DECEMBER 31, 2007 (Unaudited)**

 
| ** **                                                                                                                         | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                         | ** ** | **2008**               | ** ** | **2007**              | ** ** |
| **ASSETS**                                                                                                                         |       |                   |       |                  |       |
| CURRENT ASSETS                                                                                                                     |       |                   |       |                  |       |
| Cash                                                                                                                               |       | $                      | 2,607,603  |                  | $          | 7,050,389 |   |
| Restricted cash                                                                                                                    |       | 1,154,177              |       | 2,032,632             |       |
| Short-term investments                                                                                                             |       | 110,410                |       | 80,688                |       |
| Accounts receivable, net of allowance of  $3,325 and $46,400, respectively                                                         |       | 826,245                |       | 749,782               |       |
| Inventory                                                                                                                          |       | 209,277                |       | 169,801               |       |
| Prepaid expenses                                                                                                                   |       | 756,484                |       | 453,350               |       |
| Income taxes receivable                                                                                                            |       | 533,418                |       | 215,594               |       |
| Deferred income taxes                                                                                                              |       | 345,600                |       | 295,900               |       |
| Due from Minnesota horsemen associations                                                                                           |       | 1,224,145              |       |                  |       |
| Total current assets                                                                                                               |       | 7,767,359              |       | 11,048,136            |       |
|                                                                                                                               |       |                   |       |                  |       |
| LONG-TERM ASSETS                                                                                                                   |       |                   |       |                  |       |
| Deposits                                                                                                                           |       | 20,000                 |       | 20,000                |       |
| Land, buildings and equipment, net of  accumulated depreciation of $16,047,548 and $14,593,197, respectively                       |       | 25,113,424             |       | 25,037,636            |       |
|                                                                                                                               |       | $                      | 32,900,783 |                  | $          | 36,105,772 |   |
|                                                                                                                               |       |                   |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                      |       |                   |       |                  |       |
| CURRENT LIABILITIES                                                                                                                |       |                   |       |                  |       |
| Accounts payable                                                                                                                   |       | $                      | 2,573,631  |                  | $          | 2,209,639 |   |
| Card club accruals                                                                                                                 |       | 1,477,200              |       | 2,413,796             |       |
| Accrued wages and payroll taxes                                                                                                    |       | 997,845                |       | 1,851,140             |       |
| Accrued interest payable                                                                                                           |       |                   |       | 5,196                 |       |
| Due to MHBPA                                                                                                                       |       |                   |       | 56,951                |       |
| Accrued property taxes                                                                                                             |       | 618,072                |       | 491,630               |       |
| Payable to horsepersons                                                                                                            |       | 104,914                |       | 162,931               |       |
| Total current liabilities                                                                                                          |       | 5,771,662              |       | 7,191,283             |       |
|                                                                                                                               |       |                   |       |                  |       |
| DEFERRED INCOME TAXES                                                                                                              |       | 200,100                |       | 336,400               |       |
|                                                                                                                               |       |                   |       |                  |       |
| COMMITMENTS AND CONTINGENCIES (Note 6)                                                                                             |       |                   |       |                  |       |
|                                                                                                                               |       |                   |       |                  |       |
| STOCKHOLDERS’ EQUITY                                                                                                          |       |                   |       |                  |       |
| Common stock, $.01 par value, 10,000,000  shares authorized, 3,978,920 and 4,084,087, respectively, shares issued and  outstanding |       | 39,789                 |       | 40,841                |       |
| Additional paid-in capital                                                                                                         |       | 15,162,994             |       | 15,395,778            |       |
| Accumulated earnings                                                                                                               |       | 11,726,238             |       | 13,141,470            |       |
| Total stockholders’ equity                                                                                                    |       | 26,929,021             |       | 28,578,089            |       |
|                                                                                                                               |       | $                      | 32,900,783 |                  | $          | 36,105,772 |   |

 

See notes to consolidated financialstatements.

 

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**PERIODS ENDED SEPTEMBER 30, 2008 AND 2007 (Unaudited)**

 
| ** **                                           | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                           | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| OPERATING REVENUES:                                  |       |                                                     |       |                                                    |       |   |   |   |   |
| Pari-mutuel                                          |       | $                                                        | 4,361,535  |                                                    | $          | 5,122,305 |   | $ | 11,131,403 |   | $ | 12,559,858 |   |
| Card Club                                            |       | 5,674,592                                                |       | 6,981,774                                               |       | 18,844,770 |   | 21,553,965 |   |
| Concessions                                          |       | 2,244,017                                                |       | 2,380,086                                               |       | 5,179,074 |   | 5,207,151 |   |
| Admissions and parking                               |       | 282,454                                                  |       | 349,919                                                 |       | 586,563 |   | 704,250 |   |
| Publications                                         |       | 111,866                                                  |       | 140,296                                                 |       | 325,734 |   | 378,965 |   |
| Other                                                |       | 639,118                                                  |       | 627,106                                                 |       | 1,362,575 |   | 1,425,214 |   |
| Total Revenues                                       |       | 13,313,582                                               |       | 15,601,486                                              |       | 37,430,119 |   | 41,829,403 |   |
| Less: Promotional Allowances                         |       | (77,162                                                  | )          | (78,855                                                 | )          | (188,743 | ) | (212,160 | ) |
| Net Revenues                                         |       | 13,236,420                                               |       | 15,522,631                                              |       | 37,241,376 |   | 41,617,243 |   |
|                                                 |       |                                                     |       |                                                    |       |   |   |   |   |
| OPERATING EXPENSES:                                  |       |                                                     |       |                                                    |       |   |   |   |   |
| Purse expense                                        |       | 2,489,590                                                |       | 2,918,841                                               |       | 6,134,298 |   | 6,831,031 |   |
| Minnesota Breeders’ Fund                        |       | 278,766                                                  |       | 343,597                                                 |       | 821,361 |   | 940,197 |   |
| Host track fees                                      |       | 391,516                                                  |       | 474,974                                                 |       | 1,391,868 |   | 1,541,475 |   |
| Pari-mutuel taxes                                    |       | 7,452                                                    |       | 44,412                                                  |       | 21,687 |   | 106,320 |   |
| Salaries and benefits                                |       | 5,304,726                                                |       | 5,911,853                                               |       | 15,686,350 |   | 16,776,767 |   |
| Cost of concessions and publication sales            |       | 1,127,372                                                |       | 1,221,852                                               |       | 2,804,491 |   | 2,824,175 |   |
| Depreciation                                         |       | 532,050                                                  |       | 509,400                                                 |       | 1,544,763 |   | 1,471,690 |   |
| Utilities                                            |       | 536,206                                                  |       | 504,754                                                 |       | 1,232,459 |   | 1,207,227 |   |
| Repairs, maintenance and supplies                    |       | 356,786                                                  |       | 296,000                                                 |       | 993,489 |   | 846,462 |   |
| License fees and property taxes                      |       | 215,353                                                  |       | 219,353                                                 |       | 621,274 |   | 631,174 |   |
| Advertising and marketing                            |       | 563,249                                                  |       | 674,665                                                 |       | 1,376,063 |   | 1,336,434 |   |
| Insurance                                            |       | 143,580                                                  |       | 281,805                                                 |       | 511,197 |   | 831,708 |   |
| Other                                                |       | 1,334,216                                                |       | 1,232,210                                               |       | 3,411,766 |   | 3,130,250 |   |
|                                                 |       | 13,280,862                                               |       | 14,633,716                                              |       | 36,551,066 |   | 38,474,910 |   |
| NONOPERATING (EXPENSES) REVENUES:                    |       |                                                     |       |                                                    |       |   |   |   |   |
| Interest expense                                     |       | (5,600                                                   | )          | (892                                                    | )          | (7,964 | ) | (10,805 | ) |
| Other, net                                           |       | 20,445                                                   |       | 98,769                                                  |       | 105,120 |   | 262,434 |   |
|                                                 |       | 14,845                                                   |       | 97,877                                                  |       | 97,156 |   | 251,629 |   |
|                                                 |       |                                                     |       |                                                    |       |   |   |   |   |
| (LOSS) INCOME BEFORE INCOME TAX EXPENSE              |       | (29,597                                                  | )          | 986,792                                                 |       | 787,466 |   | 3,393,962 |   |
|                                                 |       |                                                     |       |                                                    |       |   |   |   |   |
| INCOME TAX EXPENSE (Note 1)                          |       | (11,198                                                  | )          | (396,800                                                | )          | (364,800 | ) | (1,408,600 | ) |
|                                                 |       |                                                     |       |                                                    |       |   |   |   |   |
| NET (LOSS) INCOME                                    |       | $                                                        | (40,795    | )                                                       | $          | 589,992 |   | $ | 422,666 |   | $ | 1,985,362 |   |
|                                                 |       |                                                     |       |                                                    |       |   |   |   |   |
| BASIC NET (LOSS) INCOME PER COMMON SHARE  (Note 1)   |       | $                                                        | (.01       | )                                                       | $          | .14 |   | $ | .11 |   | $ | .49 |   |
|                                                 |       |                                                     |       |                                                    |       |   |   |   |   |
| DILUTED NET (LOSS) INCOME PER COMMON SHARE  (Note 1) |       | $                                                        | (.01       | )                                                       | $          | .14 |   | $ | .10 |   | $ | .47 |   |

 

See notes to consolidated financialstatements.

 

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**PERIODS ENDED SEPTEMBER 30, 2008 AND 2007 (Unaudited)**

 
| ** **                                                                   | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| **Operating Activities:**                                                    |       |                                                    |       |   |   |
| Net Income                                                                   |       | $                                                       | 422,666    |   | $ | 1,985,362 |   |
| Adjustments to reconcile net income to net  cash provided by operations:     |       |                                                    |       |   |   |
| Depreciation                                                                 |       | 1,544,763                                               |       | 1,471,690 |   |
| Stock-based compensation expense                                             |       | 116,086                                                 |       | 185,434 |   |
| Excess tax benefit from exercise of stock  options                           |       | (21,550                                                 | )          | (64,423 | ) |
| Loss on sale of property and equipment                                       |       | 1,968                                                   |       | 6,323 |   |
| Decrease in deferred income taxes                                            |       | (139,212                                                | )          | (139,279 | ) |
| Decrease in restricted cash                                                  |       | 878,455                                                 |       | 25,722 |   |
| Increase in accounts receivable                                              |       | (76,463                                                 | )          | (279,675 | ) |
| Increase in other current assets                                             |       | (342,610                                                | )          | (72 | ) |
| Increase in income taxes receivable                                          |       | (317,824                                                | )          | (222,121 | ) |
| (Decrease) increase in accounts payable and  accrued wages and payroll taxes |       | (367,538                                                | )          | 331,910 |   |
| (Decrease) increase in card club accruals                                    |       | (936,596                                                | )          | 9,826 |   |
| (Decrease) increase in accrued interest                                      |       | (5,196                                                  | )          | 57 |   |
| Increase in accrued property taxes                                           |       | 126,442                                                 |       | 153,950 |   |
| Decrease in payable to horsepersons                                          |       | (58,017                                                 | )          | (277,539 | ) |
| Increase in due from Minnesota horsemen  associations                        |       | (1,281,096                                              | )          | (714,748 | ) |
| Net cash (used in) provided by operating  activities                         |       | (455,722                                                | )          | 2,472,417 |   |
|                                                                         |       |                                                    |       |   |   |
| **Investing Activities:**                                                    |       |                                                    |       |   |   |
| Additions to buildings and equipment                                         |       | (1,638,538                                              | )          | (1,794,576 | ) |
| Proceeds from sale of equipment                                              |       | 4,254                                                   |       | 4,975 |   |
| Increase in short-term investments                                           |       | (29,722                                                 | )          | (29,052 | ) |
| Net cash used in investing activities                                        |       | (1,664,006                                              | )          | (1,818,653 | ) |
|                                                                         |       |                                                    |       |   |   |
| **Financing Activities**                                                     |       |                                                    |       |   |   |
| Proceeds from issuance of common stock                                       |       | 140,750                                                 |       | 244,931 |   |
| Common stock repurchases                                                     |       | (1,478,185                                              | )          | (54,954 | ) |
| Cash dividend paid to shareholders                                           |       | (1,007,173                                              | )          | (1,027,695 | ) |
| Excess tax benefit from exercise of stock  options                           |       | 21,550                                                  |       | 64,423 |   |
| Net cash used in financing activities                                        |       | (2,323,058                                              | )          | (773,295 | ) |
|                                                                         |       |                                                    |       |   |   |
| Net decrease in cash                                                         |       | (4,442,786                                              | )          | (119,531 | ) |
|                                                                         |       |                                                    |       |   |   |
| Cash at beginning of period                                                  |       | 7,050,389                                               |       | 5,745,556 |   |
|                                                                         |       |                                                    |       |   |   |
| Cash at end of period                                                        |       | $                                                       | 2,607,603  |   | $ | 5,626,025 |   |
|                                                                         |       |                                                    |       |   |   |
| Supplemental disclosure of noncash  investing activities:                    |       |                                                    |       |   |   |
| Additions to buildings and equipment funded  through accounts payable        |       | $                                                       | 82,432     |   | $ | 42,931 |   |
|                                                                         |       |                                                    |       |   |   |   |   |
| Supplemental disclosure of cash flow  information:                           |       |                                                    |       |   |   |   |   |
| Income taxes paid, net of refunds                                            |       | $                                                       | 775,000    |   | $ | 1,770,000 |   |

 

###### **Seenotes to consolidated financial statements.**

###### ** **

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

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**PERIODSENDED SEPTEMBER 30, 2008 AND 2007**

 

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

*Business* – Canterbury Park Holding Corporation (the “Company”) was incorporatedunder the laws of Minnesota and acquired land and buildings to conduct pari-mutuelhorse racing operations (the “Racetrack”) in March 1994.  The Racetrack is located in Shakopee,Minnesota, approximately 25 miles southwest of downtown Minneapolis.  In May 1994, we commenced year-roundhorse racing simulcast operations and hosted the first annual live race meetduring the summer of 1995.  Our liveracing operations are a seasonal business as we host live race meets each yearfrom early May until Labor Day.  Weearn additional pari-mutuel revenue by televising our live racing to out-of-stateracetracks around the country.  We alsoderive revenues from related services and activities, such as advertising,admissions, parking and publication sales and from other entertainment eventsand activities held at the Racetrack.  InApril 2000, we opened Canterbury Park’s Card Club (the “Card Club”), whichis authorized to host “unbanked” card games. The Card Club operates 24 hours a day, seven days a week and is limitedby Minnesota State law to a maximum of 50 tables.  The Card Club currently offers 34 tables ofPoker Games and 16 tables of Casino Games. Our three largest sources of revenues, Card Club operations, pari-mutueloperations and concessions sales, generate cash revenues.

 

*Unaudited Financial Statements* - The consolidated balance sheet as of September 30,2008, the consolidated statements of operations for the three and nine monthsended September 30, 2008 and 2007, the consolidated statements of cashflows for the nine months ended September 30, 2008 and 2007, and therelated information contained in these notes have been prepared by managementwithout audit.  In the opinion ofmanagement, all adjustments (consisting only of normal recurring adjustments)which are necessary for a fair presentation of financial position and resultsof operations for such periods have been made. Results for an interim period should not be considered as indicative ofresults for a full year.

 

The summary of significantaccounting policies is included in the notes to consolidated financialstatements in the 2007 Annual Report on Form 10-K.

 

*Revenue Recognition -*Our revenues are derived primarily from theoperations of a Card Club, pari-mutuel wagering on simulcast and live horseraces, concession sales, and related activities.  Collection revenue from Card Club operationsand pari-mutuel commission and fee revenues are recognized at the time that thewagering process is complete.  Revenuesrelated to concession and publication sales and parking and admission fees arerecognized as revenue when the service has been performed or the product hasbeen delivered.

 

*Estimates* - The preparation of the consolidated financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the consolidated financial statements andthe reported amounts of revenues and expenses during the reporting period.  Actual results could differ from theseestimates.

 

*Restricted Cash* – Restricted cash represents refundable deposits and amounts due tohorsemen for purses, stakes and awards, and amounts accumulated in the playerpool and jackpot pools to be used to repay card club players in the form ofpromotions, giveaways, prizes, or by other means.

 

*Income Taxes*- Income tax expense is computed by applying the estimated annualeffective tax rate to the year-to-date income. Income taxes are accounted for under the asset and liabilitymethod.  Deferred tax assets andliabilities are recognized for the estimated future tax consequences attributedto differences between the financial statement carrying amounts of existingassets and liabilities and their respective tax bases.  Deferred tax assets and liabilities aremeasured using enacted tax rates in effect for the year in which thosetemporary differences are expected to reverse.

 

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The Company adopted theprovisions of FASB Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes — an interpretation of FASB No. 109,*(“FIN48”), on January 1, 2007.  FIN 48clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with FASB Statement 109, *Accounting for Income Taxes,*andprescribes a recognition threshold and measurement process for financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return.  FIN 48 alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure and transition.  Interest and penalties associated withuncertain income tax positions are presented in income tax expense. The Companyhas not recorded any significant income tax related interest or penaltiesduring any of the periods presented. Upon implementation, we determined all recorded benefits and income taxpositions were more-likely-than-not. Therefore, no cumulative effect relating to the adoption of FIN 48 wasrecorded.

 

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

 

*Net (Loss) Income Per Share*- Basic net (loss) income per common share isbased on the weighted average number of common shares outstanding during eachperiod.  The weighted average number ofcommon shares outstanding for the three and nine-month periods ended September 30,2008 were 3,948,473 and 4,011,126, respectively.  The weighted average number of common sharesoutstanding for the three and nine-month periods ended September 30, 2007were 4,071,570 and 4,064,435, respectively. Diluted net income per common share takes into effect the dilutiveeffect of potential common shares outstanding. The Company’s potential common shares outstanding are stock options andshares of unvested (“restricted”) stock. After considering the dilutive effect of stock options outstanding, theweighted average shares used to calculate diluted earnings per share for thethree and nine-month periods ended September 30, 2008 were 3,948,473 and4,098,070, respectively.  61,092 weightedaverage shares were considered anti-dilutive and excluded from the computationof common equivalent shares for the three months ended September 30, 2008,as the Company reported a net loss for that period.  The weighted average shares used to calculatediluted earnings per share for the three and nine-month periods ended September 30,2007 were 4,205,514 and 4,236,214, respectively.

 

*Fair Values of Financial Instruments*– Due to the current classification of allfinancial instruments of the Company, and given the short-term nature of therelated account balances, carrying amounts reported in the consolidated balancesheets approximate fair value.

 

*New Accounting Pronouncements –*In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 157 (“SFAS 157”), *Fair Value Measurements,* which definesfair value, establishes a framework for measuring fair value, and expandsdisclosures about fair value measurements. SFAS 157 for financial assets and liabilities is effective for fiscalyears beginning after November 15, 2007, and the Company has adopted thestandard for those assets and liabilities as of January 1, 2008 and theimpact of adoption had no impact on our financial position or results ofoperation.  See Note 3 for furtherdiscussion.

 

InFebruary 2007, the FASB issued SFAS No. 159 (“SFAS 159”), *The Fair Value Option for Financial Assets andFinancial Liabilities* including an amendment of FASB Statement No. 115.  SFAS 159 provides companies with an option toreport selected financial assets and financial liabilities at fairvalue.  Unrealized gains and losses on items for which the fair valueoption has been elected are reported in earnings at each subsequent reportingdate. SFAS 159 becameeffective for fiscal years beginning after November 15, 2007.  We have elected not to implement the fairvalue option with respect to any existing assets or liabilities; therefore, theadoption of SFAS 159 had no impact on our financial position or results ofoperations.

 

InDecember 2007, the FASB issued SFAS No. 141(revised) (“SFAS 141(R)”),*Business Combinations*.  SFAS 141(R) applies to all businesscombinations. Under SFAS 141(R), an entity is required to recognize the assetsacquired, liabilities assumed, contractual contingencies, and contingentconsideration at their

 

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fairvalues on the acquisition date. We are required to adopt this statementstarting in 2009 and it is to be applied to business combinations occurring in2009 and after. Early adoption of this statement is prohibited.  The Company will evaluate the impact theadoption of SFAS No. 141 (R) will have on any future businesscombinations.

 

In December 2007, theFASB issued SFAS No. 160 (“SFAS 160”), *NoncontrollingInterests in Consolidated Financial Statements*.  SFAS 160 applies to the accounting fornoncontrolling interests and transactions with noncontrolling interest holdersin consolidated financial statements. SFAS 160 changes the accounting and reporting for minority interests,which will be recharacterized as noncontrolling interests and classified as acomponent of equity.  We are required toadopt this statement beginning in 2009. Early adoption of this statement is prohibited and we are currently inthe process of evaluating the effect that this statement will have on ourconsolidated results of operations and financial condition.

 

In March 2008, the FASBissued SFAS No. 161 (“SFAS 161”), *Disclosuresabout Derivative Instruments and Hedging Activities*, an amendment ofSFAS 133.”  SFAS 161 requires entities to provide greatertransparency about how and why the entity uses derivative instruments, how theinstruments and related hedged items are accounted for under SFAS 133, and howthe instruments and related hedged items affect the financial position, resultsof operations, and cash flows of the entity.  SFAS 161 is effective forfiscal years beginning after November 15, 2008.  The Company isevaluating the impact the adoption of SFAS 161 will have on its consolidatedresults of operations and financial condition.

 

In May 2008, the FASBissued SFAS No. 162 (“SFAS 162”), *TheHierarchy of Generally Accepted Accounting Principles*.  SFAS 162 identifies the sources of accountingprinciples and the framework for selecting the principles used in thepreparation of financial statements of nongovernmental entities that arepresented in conformity with generally accepted accounting principles (GAAP) inthe United States (the GAAP hierarchy).  SFAS 162 will be effective60 days following the SEC’s approval of the Public Company Accounting OversightBoard’s amendments to AU Section 411, *TheMeaning of Present Fairly in Conformity With Generally Accepted AccountingPrinciples.  *The FASB has stated that it does not expectSFAS 162 will result in a change in current practice.  The application of SFAS 162 will have noeffect on the Corporation’s financial position or results of operations.

 

In October 2008, theFASB issued FSP 157-3 (“FSP 157-3”), *Determiningthe Fair Value of a Financial Asset When the Market for That Asset Is NotActive,*which clarifies the application of SFAS 157 in a market thatis not active.  FSP 157-3 was effectiveupon issuance, including prior periods for which financial statements had notbeen issued.  The adoption of FSP 157-3had no impact on our financial position or results of operations.

 

2.     STOCK BASED COMPENSATION

 

Effective January 1,2006, we adopted FASB Statement No.123(R), *ShareBased Payment* (“SFAS 123R”), applying the modified prospectivetransition method.  We recognized$116,086 and $185,434 in stock-based compensation expense in salaries andbenefits expense line item on the consolidated statements of operations duringthe nine months ended September 30, 2008 and 2007, respectively.

 

Our annual grant ofstock-based compensation generally takes place during the first quarter of eachfiscal year.  Each non-employee member ofthe Board of Directors receives an annual recurring grant of 3,000non-qualified stock options on the first business day in February.  On February 1, 2008, 15,000 options weregranted to the five non-employee board members with an exercise price equal tothe market price on the date of grant of $11.35.  The stock options vest over a six monthperiod and expire in ten years.  Thecompensation cost associated with this grant of Board of Director options is$29,700 to be recognized as expense over the six month vesting period.  On February 1, 2007, 15,000 options weregranted to the five non-employee board members with an exercise price equal tothe market price on the date of grant of $13.76.

 

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The number of shares grantedand the weighted average fair value per share during the periods presentedwere:

 
| ** **    | ** ** | **Nine Months Ended**  | ** ** |
|---------------|------------|----------------------------------|------------|
| ** **    | ** ** | **September 30, 2008** | ** ** | **September 30, 2007** | ** ** |
| ** **    | ** ** | ** **                       | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
|          |       | ** **                       | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** |   |
|          |       | ** **                       | ** ** | **Fair  Value** | ** ** | ** ** | ** ** | **Fair  Value** |   |
|          |       | **Grant**                        | ** ** | **Per  Share** | ** ** | **Grant** | ** ** | **Per  Share** |   |
|          |       |                             |       |   |   |   |   |   |   |
| Stock options |       | 15,000                           |       | $ | 1.98 |   | 15,000 |   | $ | 3.89 |   |
|          |       |                             |       |   |   |   |   |   |   |
| Total shares  |       | 15,000                           |       |   |   | 15,000 |   |   |   |
|          |       |                             |       |   |   |   |   |   |   |
|               |            |                                  |            |  |  |  |  |  |  |  |  |

 

The fair value of stockoptions granted under the Plan during first nine months of 2008 were estimatedon the date of grant using the Black-Scholes option-pricing model with thefollowing weighted average assumptions and results:

 

| ** **                                | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Dividend yield                            |       | 2.20     | %          | 1.82     | %          |
| Weighted-average volatility               |       | 15       | %          | 22       | %          |
| Risk-free interest rate                   |       | 3.62     | %          | 4.86     | %          |
| Expected term of stock options in years   |       | 7.3      |       | 7.2      |       |
| Fair value of stock options on grant date |       | $        | 29,700     |     | $          | 58,400 |   |
|                                           |            |          |            |          |            |  |  |

 

A summary of stock option activityas of September 30, 2008 and changes during the nine months then ended ispresented below:

 
| ** **                             | ** ** | ** **         | ** ** | ** **   | ** ** | **Weighted**    | ** ** | ** **          | ** ** |
|----------------------------------------|------------|--------------------|------------|--------------|------------|-----------------|------------|---------------------|------------|
| ** **                             | ** ** | ** **         | ** ** | **Weighted** | ** ** | **Average**     | ** ** | ** **          | ** ** |
| ** **                             | ** ** | ** **         | ** ** | **Average**  | ** ** | **Remaining**   | ** ** | **Aggregate**       | ** ** |
| ** **                             | ** ** | **Number of** | ** ** | **Exercise** | ** ** | **Contractual** | ** ** | **Grant Date** | ** ** |
| **Stock  Options**                     | ** ** | **Shares**         | ** ** | **Price**    | ** ** | **Term**        | ** ** | **Fair  Value**     |       |
|                                   |       |               |       |         |       |            |       |                |       |
| Outstanding at January 1, 2008    |       | 605,900            |       | $            | 11.00      |            |       |                |       |   |
|                                   |       |               |       |         |       |            |       |                |       |
| Granted                                |       | 15,000             |       | $            | 11.35      |            |       |                |       |   |
| Exercised                              |       | (50,000            | )          | $            | 3.22       |            |       |                |       |   |
| Expired                                |       | (83,000            | )          | $            | 15.63      |            |       |                |       |   |
|                                   |       |               |       |         |       |            |       |                |       |
| Outstanding at September 30, 2008 |       | 487,900            |       | $            | 11.04      |            | 2.5 Years  |                | $          | 5,388,168 |   |
|                                   |       |               |       |         |       |            |       |                |       |
| Exercisable at September 30, 2008 |       | 480,400            |       | $            | 10.99      |            | 2.4 Years  |                | $          | 5,279,043 |   |

 

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3.     FAIR VALUE

 

        SFAS157 defines fair value as the exchange price that would be received for anasset or paid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transactionbetween market participants on the measurement date.  SFAS 157 also establishes a fair valuehierarchy which requires an entity to maximize the use of observable inputs andminimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputsthat may be used to measure fair value:

 

*Level 1* – Quoted prices in active markets for identical assets or liabilities.

 

*Level 2* – Observable inputs other than Level 1 prices such as quoted pricesfor similar assets or liabilities; quoted prices in markets that are notactive; or other inputs that are observable or can be corroborated byobservable market data for substantially the full term of the assets orliabilities.

 

*Level 3* – Unobservable inputs that are supported by little or no marketactivity and that are significant to the fair value of the assets orliabilities.

 

The Company utilizes themarket approach to measure fair value for its financial assets andliabilities.  The market approach uses prices and other relevantinformation generated by market transactions involving identical or comparableassets or liabilities.

 

Assets and liabilitiesmeasured at fair value on a recurring basis are summarized below:

 
| ** **             | ** ** | **Fair Value Measurements as of  September 30, 2008** | ** ** |
|------------------------|------------|-------------------------------------------------------------------------------------|------------|
| **Description**        | ** ** | **Total**                                                                           | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|                   |       |                                                                                |       |   |   |   |   |   |   |
| Short-term investments |       | $                                                                                   | 110,410    |   | $ | 110,410 |   | $ | — |   | $ | — |   |
|                   |       |                                                                                |       |   |   |   |   |   |   |
| Total                  |       | $                                                                                   | 110,410    |   | $ | 110,410 |   | $ | — |   | $ | — |   |

 

4.     BORROWINGS UNDER CREDIT AGREEMENT

 

Borrowings under the Company’scredit agreement with Bremer Bank include a commercial revolving credit line,which provides for maximum advances of $5,000,000 until June 30, 2009 withinterest at the prime rate but not less than 4.5% per annum.  The Company had no borrowings under thiscredit line at September 30, 2008 and December 31, 2007.  The credit agreement contains certaincovenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements as of September 30, 2008. Management believes that funds available under this line of credit,along with funds generated from card club and simulcast operations, will besufficient to satisfy its liquidity and capital resource requirements during2008.

 

5.     OPERATING SEGMENTS

 

During the first nine monthsof 2008 and 2007, the Company had three reportable operating segments:  horse racing, card club, andconcessions.  The horseracing segmentprimarily represents simulcast and live horse racing operations.  The card club segment primarily representsoperations of Canterbury Park’s Card Club, and the concessions segmentprimarily represents concessions provided during simulcast and live racing, inthe Card Club, and during special events. The Company’s reportable operating segments are strategic business unitsthat offer different products and services. They are managed separately because the segments differ in the nature ofthe products and services provided as well as processes to produce thoseproducts and services.  The MinnesotaRacing Commission regulates the horse racing and card club segments.

 

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The accounting policies ofthe operating segments are the same as those described in the summary ofsignificant accounting policies in the 2007 Annual Report on Form 10-K.

 

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

 

The following tables provideinformation about the Company’s operating segments (in 000’s):

 
| ** **                           | ** ** | **Nine Months Ended September 30, 2008** | ** ** |
|--------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Horse Racing**                                             | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                 |       |                                                              |       |   |   |   |   |   |   |
| Net revenues from external customers |       | $                                                                 | 13,195     |   | $ | 18,845 |   | $ | 5,201 |   | $ | 37,241 |   |
|                                 |       |                                                              |       |   |   |   |   |   |   |
| Intersegment revenues                |       | 618                                                               |       |   |   | 1,388 |   | 2,006 |   |
|                                 |       |                                                              |       |   |   |   |   |   |   |
| Net interest income                  |       | 97                                                                |       |   |   |   |   | 97 |   |
|                                 |       |                                                              |       |   |   |   |   |   |   |
| Depreciation                         |       | 988                                                               |       | 431 |   | 126 |   | 1,545 |   |
|                                 |       |                                                              |       |   |   |   |   |   |   |
| Segment income before income taxes   |       | (1,346                                                            | )          | 2,128 |   | 1,156 |   | 1,938 |   |
|                                 |       |                                                              |       |   |   |   |   |   |   |
| Segment Assets                       |       | $                                                                 | 28,579     |   | $ | 3,478 |   | $ | 8,740 |   | $ | 40,797 |   |
|                                 |       |                                                              |       |   |   |   |   |   |   |

 
| ** **                           | ** ** | **Nine Months Ended September 30, 2007** | ** ** |
|--------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Horse Racing**                                             | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                 |       |                                                              |       |   |   |   |   |   |   |
| Net revenues from external customers |       | $                                                                 | 14,817     |   | $ | 21,554 |   | $ | 5,246 |   | $ | 41,617 |   |
|                                 |       |                                                              |       |   |   |   |   |   |   |
| Intersegment revenues                |       | 630                                                               |       |   |   | 1,548 |   | 2,178 |   |
|                                 |       |                                                              |       |   |   |   |   |   |   |
| Net interest income                  |       | 252                                                               |       |   |   |   |   | 252 |   |
|                                 |       |                                                              |       |   |   |   |   |   |   |
| Depreciation                         |       | 916                                                               |       | 452 |   | 103 |   | 1,471 |   |
|                                 |       |                                                              |       |   |   |   |   |   |   |
| Segment income before income taxes   |       | (443                                                              | )          | 3,851 |   | 1,399 |   | 4,807 |   |
|                                 |       |                                                              |       |   |   |   |   |   |   |
|                                      |            |                                                                   |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **     | ** ** | **At  December 31, 2007** | ** ** |
|----------------|------------|--------------------------------|------------|
|           |       |                           |       |   |   |   |   |   |   |
| Segment Assets |       | $                              | 31,431     |   | $ | 3,857 |   | $ | 7,723 |   | $ | 43,011 |   |
|                |            |                                |            |  |  |  |  |  |  |  |  |  |  |

 

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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):

 
| ** **                                              | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                              | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| Revenues                                                |       |                                                    |       |   |   |
| Total net revenue for reportable segments               |       | $                                                       | 39,247     |   | $ | 43,795 |   |
| Elimination of intersegment revenues                    |       | (2,006                                                  | )          | (2,178 | ) |
| Total consolidated net revenues                         |       | $                                                       | 37,241     |   | $ | 41,617 |   |
|                                                    |       |                                                    |       |   |   |
| Income before income taxes                              |       |                                                    |       |   |   |
| Total segment income before income taxes                |       | $                                                       | 1,938      |   | $ | 4,807 |   |
| Elimination of intersegment income before  income taxes |       | (1,151                                                  | )          | (1,413 | ) |
| Total consolidated income before income  taxes          |       | $                                                       | 787        |   | $ | 3,394 |   |
|                                                    |       |                                                    |       |   |   |

 
| ** **                              | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|------------------------|------------|-----------------------|------------|
|                                    | ** ** | **2008**               | ** ** | **2007**              | ** ** |
| Assets                                  |       |                   |       |                  |       |   |   |
| Total assets for reportable segments    |       | $                      | 40,797     |                  | $          | 43,011 |   |
| Elimination of intercompany receivables |       | (7,896                 | )          | (6,905                | )          |
| Total consolidated assets               |       | $                      | 32,901     |                  | $          | 36,106 |   |

 

6.     COMMITMENTS AND CONTINGENCIES

 

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

 

The Company is periodicallyinvolved in various legal actions arising in the normal course ofbusiness.  At September 30, 2008,management believes that the resolution of any legal actions outstanding willnot have a material impact on the consolidated financial statements.

 

On October 24, 2008,the Company announced that it had begun to implement a reduction in itsworkforce of roughly 10%.  Thiselimination of approximately 60 full and part-time positions was completed bythe date of this filing and will result in the payment of severance costs toterminated employees during the fourth quarter of 2008.

 

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**ITEM 2:     MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITIONAND 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 consolidated financial statementsand the accompanying notes to the financial statements (the “Notes”).

 

**Overview:**

 

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

 

The Racetrack is the onlypari-mutuel thoroughbred and quarter horse racing facility in the State ofMinnesota.  The Racetrack earns revenuesfrom pari-mutuel take-out on races simulcast year-round to Canterbury Park fromracetracks throughout the country and from live race meets featuring thoroughbredand quarter horse racing.  In 2008, thelive race meet began in May and concluded in September.  During the live meet, the Company televisesits races to out-of-state racetracks around the country and earns additionalpari-mutuel revenue on wagers placed on our races at the out-of-stateracetracks.

 

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

 

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

 

**OperationsReview for the****Three and****Nine Months Ended September 30, 2008 and September 30,2007:**

 

Total net revenues decreased$4,375,867, or 10.5%, during the nine months ended September 30, 2008compared to the nine months ended September 30, 2007, and decreased$2,286,211, or 14.7%, for the three months ended September 30, 2008compared to the three months ended September 30, 2007. The decrease wasdue primarily to reductions of 11.4% and 12.6% in pari-mutuel and Card Clubrevenues for the nine months ended September 30, 2008.  Pari-mutuel and Card Club revenues decreased14.9% and 18.7%, respectively, for the three months ended September 30,2008.

 

Pari-mutuel revenuesdecreased $1,428,455, or 11.4%, in the nine-month period ended September 30,2008 compared to the same period in 2007, and decreased $760,770, or 14.9%, forthe three-month period ended September 30, 2008 compared to the sameperiod in 2007.  Total handle wagered onsimulcast races for the first nine months of 2008 was down $6.7 million, or8.7%, compared to the same period last year. The decrease in pari-mutuel revenues is partially due to a smoking banthat became effective October 1, 2007. The Company believes that those simulcast customers who smoke and nolonger visit our facilities are unlawfully wagering on the Internet.  The smoking ban is discussed later in thisfiling under the *Legislation*heading.  Inclement weather during thefirst quarter of 2008 at racetracks that simulcast their signal to ourracetrack also resulted in decreased pari-mutuel revenues.  In addition, on April 11, 2008, RunningAces Harness Park, located in Columbus Township, Anoka County, Minnesota, begantheir race meet.  The Company believesthat this new alternative simulcast betting location for our simulcast customershas resulted in decreased simulcast wagering at the Racetrack.  Finally, the economic downturn has adverselyimpacted discretionary spending on entertainment throughout 2008, especiallyduring the third quarter.

 

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The following table providesadditional information regarding pari-mutuel operations:

 
| ** **                                      | ** ** | **Nine Months Ended Sept. 30,** | ** **     |
|-------------------------------------------------|------------|-----------------------------------------------------|----------------|
| **Summary of Pari-mutuel Data:** | ** ** | **2008**                                            | ** **     | **2007** | ** ** |
|                                            |       |                                                |           |   |   |
| Racing Days                                     |       |                                                |           |   |   |
| Simulcast only                                  |       | 207                                                 |           | 205 |   |
| Live and Simulcast                              |       | 67                                                  |           | 68 |   |
| **Total Number of Racing Days**                 | ** ** | **274**                                             | ** **     | **273** | ** ** |
| ** **                                      | ** ** | ** **                                          | ** **     | ** ** | ** ** |
| On-Track Handle                                 |       |                                                |           |   |   |
| Simulcast racing handle on simulcast only  days |       | $                                                   | 22,098,000     |   | $ | 25,565,000 |   |
| Live and Simulcast days:                        |       |                                                |           |   |   |
| Live racing handle                              |       | 13,848,000                                          |           | 15,375,000 |   |
| Simulcast racing handle                         |       | 14,001,000                                          |           | 15,912,000 |   |
| Total On-Track Handle                           |       | 49,947,000                                          |           | 56,852,000 |   |
|                                            |       |                                                |           |   |   |
| Out-of-State Live Handle                        |       | 19,791,000                                          |           | 19,572,000 |   |
|                                            |       |                                                |           |   |   |
| **Total Handle**                                | ** ** | **$**                                               | **69,738,000** | ** ** | **$** | **76,424,000** | ** ** |
|                                            |       |                                                |           |   |   |
| On-Track Average Daily Handle                   |       |                                                |           |   |   |
| Simulcast only racing days                      |       | $                                                   | 106,754        |   | $ | 124,707 |   |
| Live and simulcast racing days                  |       | $                                                   | 415,657        |   | $ | 460,103 |   |

 

Total Card Club revenuedecreased $2,709,195, or 12.6%, for the first nine months of 2008 and$1,307,182, or 18.7%, for the third quarter of 2008 compared to the sameperiods in 2007.  The primary source ofCard Club revenue, referred to as “collection revenue,” is a percentage of thewagers received from the players as compensation for providing the Card Clubfacility and services.  Other revenueincludes fees collected for the administration of tournaments and amountsearned as reimbursement of the administrative costs of maintaining jackpotfunds.  Poker collection revenue fell$1,085,741 or 8.2% compared to the first nine months of 2007.  In addition, Casino Games collection revenuedropped $1,554,673 or 20.4% compared to the first nine months of 2007.  The decrease in revenue is partially due tothe smoking ban that became effective on October 1, 2007.  The Company believes that those Card Clubcustomers who smoke and no longer visit the Card Club are now patronizingtribal casinos where smoking is permitted. The smoking ban is discussed later in this filing under the *Legislation* heading.  Also, on June 30, 2008, Running AcesHarness Park opened their card room.  TheCompany believes that this alternative location for our poker and casino gamescustomers has resulted in decreased attendance at the Racetrack.  In addition, the economic downturn hasadversely impacted discretionary spending on entertainment throughout 2008,especially during the third quarter. Total Card Club revenues represented 50.6% and 42.9% of net revenues forthe nine-month and three-month periods ended September 30, 2008,respectively.

 

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The following table providesadditional information regarding Card Club operations:

 
| ** **                      | ** ** | **Nine Months Ended Sept. 30,** | ** ** |
|---------------------------------|------------|-----------------------------------------------------|------------|
| **Summary  of Card Club Data:** | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
|                            |       |                                                |       |   |   |
| Poker Games                     |       | $                                                   | 12,083,000 |   | $ | 13,169,000 |   |
| Casino Games                    |       | 6,052,000                                           |       | 7,607,000 |   |
| Total Collection Revenue        |       | 18,135,000                                          |       | 20,776,000 |   |
|                            |       |                                                |       |   |   |
| Other Revenue                   |       | 710,000                                             |       | 778,000 |   |
| Total Card Club Revenue         |       | $                                                   | 18,845,000 |   | $ | 21,554,000 |   |
|                            |       |                                                |       |   |   |
| Number of Days Offered          |       | 274                                                 |       | 273 |   |
| Average Revenue per Day         |       | $                                                   | 68,777     |   | $ | 78,952 |   |

 

Concessions revenuedecreased $28,077, or 0.5%, and $136,069, or 5.7%, for the nine-month andthree-month periods ended September 30, 2008, respectively, compared tothe prior year.  The decrease wasprimarily attributed to a decrease in card room patronage, which resulted inless purchases of card room food and beverages.

 

Total operating expensesdecreased $1,923,844, or 5.0%, and $1,352,854, or 9.2%, during the nine-monthand three-month period ended September 30, 2008, respectively, compared tothe prior year.

 

Total expense for statutorypurses and the Minnesota Breeders’ Fund decreased 10.5% to $6,955,659 for thefirst nine months ended September 30, 2008 compared to the first ninemonths ended September 30, 2007. The decrease was due primarily to a reduction in Card Club purse andbreeders’ fund expenses due to lower Card Club collection revenues in the firstnine months of 2008 compared to 2007.

 

The following table providesadditional information regarding purse and Breeders’ Fund Expense:

 
| ** **             | ** ** | **Purse Expense**                | ** ** | **Minnesota  Breeders’ Fund Expense** | ** ** |
|------------------------|------------|----------------------------------|------------|--------------------------------------------|------------|
| ** **             | ** ** | **Nine  Months Ended Sept. 30,** | ** ** | **Nine  Months Ended Sept. 30,**           | ** ** |
| ** **             | ** ** | **2008**                         | ** ** | **2007**                                   | ** ** | **2008** | ** ** | **2007** | ** ** |
|                   |       |                             |       |                                       |       |   |   |   |   |
| Card Club              |       | $                                | 2,493,000  |                                       | $          | 2,910,000 |   | $ | 283,000 |   | $ | 323,000 |   |
|                   |       |                             |       |                                       |       |   |   |   |   |
| Simulcast Horse Racing |       | 2,116,000                        |       | 2,416,000                                  |       | 400,000 |   | 463,000 |   |
|                   |       |                             |       |                                       |       |   |   |   |   |
| Live Horse Racing      |       | 1,525,000                        |       | 1,505,000                                  |       | 138,000 |   | 154,000 |   |
|                   |       |                             |       |                                       |       |   |   |   |   |
|                   |       | $                                | 6,134,000  |                                       | $          | 6,831,000 |   | $ | 821,000 |   | $ | 940,000 |   |

 

Salaries and benefitsdecreased $1,090,417, or 6.5%, in the 2008 nine-month period ended September 30and $607,127, or 10.3%, in the three-month period ended September 30, 2008compared to the same periods last year. Salaries and benefits expense decreased in the first nine months of 2008primarily because expense accruals of $262,498 related to the Company’sEmployee Stock Ownership Plan and management bonus plan were reversed due tomanagement’s decision to suspend these programs for fiscal year 2008.  Insurance expense decreased $320,511, or38.5%, in the 2008 nine-month period ended September 30 and $138,225, or49.0%, in the three-month period ended September 30, 2008 compared to thesame periods last year.  The decrease wasdue to a change in insurance provider that has allowed for significantdecreases in premiums paid.  Repairs, maintenanceand supplies expense increased $147,027, or 17.4%, in the 2008 nine-monthperiod ended September 30 and $60,786, or 20.5%, in the three-month period

 

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ended September 30, 2008 compared tosame periods last year.  The increase wasprimarily due to necessary upgrades to the Company’s escalator system in orderto be in compliance with new laws and ordinances.  Other operating expenses increased $281,516,or 9.0%, in the 2008 nine-month period ended September 30 and $102,006, or8.3%, in the three-month period ended September 30, 2008 compared to thesame periods last year.  The increase isprimarily due to the Company incurring its benefit audit expense in the thirdquarter of 2008 compared to the fourth quarter of 2007.  Net interest income decreased $154,473, or61.4%, in the 2008 nine-month period ended September 30 and $83,032, or84.8%, in the three-month period ended September 30, 2008 compared to thesame periods last year.  The decrease isdue to decreases in both our cash balance and interest rate of return.

 

Income before income taxeswas $787,466 for the nine months ended September 30, 2008 compared to$3,393,962 for the nine months ended September 30, 2007.  After income tax expense of $364,800 for thenine months ended September 30, 2008, net income was $422,666 in 2008compared to $1,985,362 in 2007, a decrease of $1,562,696 or 78.7%.  For the quarter ended September 30,2008, the Company recorded a $29,597 loss before income tax expense compared toincome before income tax expense of $986,792 for the quarter ended September 30,2007, a decrease of $1,016,389 or 103.0%. After an income tax expense of $11,198 in the third quarter of 2008, netloss was $40,795 compared to net income of $589,992 for the third quarter of2007, a decrease of $630,787 or 106.9%.

 

#### **Contingencies:**

 

There have been no materialchanges in our contingencies from the information provided in our Report on Form 10-Kfor our year ended December 31, 2007.

 

**Liquidityand Capital Resources:**

 

Cash used in operatingactivities during the period January 1, 2008 through September 30,2008 was $455,722, resulting primarily from net income of $422,666,depreciation of $1,544,763, and a decrease in restricted cash of $878,455,resulting primarily from the decrease of $567,606 in the player pool, a fundwhich is used to enhance the total amount paid back to winning players.  These items were offset by a decrease in cardclub accruals of $936,596 and an increase in due from Minnesota horsemenassociations of $1,281,096, resulting primarily from purse overpayments.  Cash provided by operating activities duringthe period January 1, 2007 through September 30, 2007 was $2,472,417,resulting primarily from net income of $1,985,362, depreciation of $1,471,690,and an increase in accounts payable and accrued wages and payroll taxes of$331,910, primarily caused by a $264,000 increase in trade accounts payable anda $142,000 increase in amounts payable to out-of-state tracks forsettlements.  These items were partiallyoffset by an decrease in due to MHBPA of $714,748 resulting primarily frompurse overpayments.

 

Pursuant to an agreementwith the MHBPA, during the nine months ended September 30, 2008 and 2007,the Company transferred into a trust account or paid directly to the MHBPAapproximately $6,534,091 and $6,850,000, respectively.  At September 30, 2008, the Minnesotahorsemen associations owed the Company $1,224,145 resulting from purseoverpayments by the Company during the live race meet that ended September 1,2008.  This receivable willbe collected in the fourth quarter of 2008.

 

Net cash used in investingactivities for the first nine months of 2008 of $1,664,006 resulted primarilyfrom the purchase of a building management system for approximately $391,000,upgrades to the grandstand building of approximately $306,000, and upgrades tothe Card Club of approximately $150,000. During the nine-month period ended September 30, 2007, net cashused in investing activities of $1,818,653 resulted primarily from theacquisition of equipment for food and beverage operations of $227,000, a pokerroom management system of $295,000, upgrades to the grandstand building of$402,000, and upgrades to our surveillance systems of $430,000.

 

During the period January 1,2008 through September 30, 2008, cash used in financing activities was$2,323,058, resulting primarily from repurchases of company stock of $1,478,185authorized by Board action on January 16, 2008 and a cash dividend paid of$1,007,173 slightly offset by proceeds and tax benefits regarding the exerciseof stock options of $162,300.  Foradditional information regarding third quarter stock

 

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repurchases, see Part II, Item 2(c).  During the period January 1,2007 through September 30, 2007, cash used in financing activities was$773,295, resulting from a $.25 per share cash dividend paid to shareholders of$1,027,695. In addition, pursuant to a Stock Repurchase Plan approved in November 2006,the Company repurchased 4,381 shares of common stock for a total price of$54,954. These outflows were offset by proceeds and tax benefits regarding theexercise of stock options of $309,354.

 

The Company has a generalcredit agreement with Bremer Bank, which provides a revolving credit line of upto $5,000,000 until June 30, 2009 with interest at the prime rate but notless than 4.5% per annum.  The Companyhad no borrowings under the line of credit at September 30, 2008 or December 31,2007.  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 September 30, 2008.

 

Unrestricted cash balancesat September 30, 2008 were $2,607,603 compared to $7,050,389 at December 31,2007. The Company believes that the funds available in its cash accounts,amounts available under the general credit and security agreement, along withfunds generated from operations, will be sufficient to satisfy its anticipatedliquidity and capital resource requirements for the remainder of 2008 forregular operations and severance costs that will be incurred as a result of thereduction in its workforce as mentioned in Note 6 above.

 

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

##### ** **

The preparation ofconsolidated financial statements in conformity with generally acceptedaccounting principles requires management to make estimates that effect theamounts reported and disclosed in the consolidated financial statements. Bytheir nature, these estimates are subject to an inherent degree of uncertainty.These estimates are based on our experience and various other assumptions thatare believed to be reasonable in the circumstances, the results of which formthe basis for making judgments about the carrying values of assets andliabilities. On an ongoing basis, we evaluate our estimates. However, actualresults could differ from those estimates.

 

Our significant accountingpolicies are included in Note 1 to our consolidated financial statements in our2007 Annual Report on Form 10-K. We believe the following criticalaccounting policies affect our more significant judgments and estimates used inthe preparation of our consolidated financial statements.

 

*Land, Buildings and Equipment* - We have significant capital invested inour property and equipment, which represents approximately 76.3% of our totalassets. We utilize our judgment in various ways including: determining whetheran expenditure is considered a maintenance expense or a capital asset;determining the estimated useful lives of assets; and determining if or when anasset has been impaired. Our property and equipment is evaluated for impairmentwhenever circumstances indicate that the carrying value of an asset may not berecoverable from the estimated future cash flows expected to result from itsuse. If the sum of the expected future cash flows (undiscounted and withoutinterest charges) is less than the carrying amount, we recognize an impairmentloss. The impairment loss recognized is the amount by which the carrying amountexceeds the fair value and is charged to operations in the period in which suchimpairment is determined by management. We do not believe that any impairmenthas occurred or is likely to occur in the near future.

 

*Regulation -*Our business can be materially impacted both positively and negativelyby legislative and regulatory changes, such as those described below.  Significant negative changes resulting fromthese activities could result in an impairment of our property and equipment inaccordance with generally accepted accounting standards. Additional informationregarding how our business can be impacted by legislative and regulatorychanges are included in Item 1 (vi), and Item 1 (vii), respectively, in our2007 Annual Report on Form 10-K.

 

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

##### ** **

Therehave been no additional material changes in our outstanding commitments andcontractual obligations since those reported at December 31, 2007.

 

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**Legislation:**

 

The Company did not proposeor support any legislation during the 2008 biannual session of the MinnesotaLegislature to obtain authorization for our Racino proposal that has beendiscussed in our previous flings with the SEC, mainly because a majority ofthose serving in the Minnesota Legislature following the November 2006elections are considered unlikely to favorably entertain our Racinoproposal.  Based on the success ofseveral Racinos in other states, we continue to believe that if a Racino wasauthorized at the Racetrack, it would enhance horseracing with increasedpurses, provide growth and development opportunities for the Company, andprovide significant new tax revenues for state and local governments.

 

On October 1, 2007,legislation became effective that severely restricted smoking in all publicplaces in Minnesota, including at the Racetrack.  Tribal casinos located in Minnesota are notcovered by this legislation and will continue to offer various gaming alternatives,including card games, in an environment that allows smoking.  Since October 1, 2007, this legislationhas had, and will likely continue to have, a significant adverse effect on theCompany’s revenues and profits.  TheCompany believes that those simulcast customers who smoke and no longer visitour facilities are now wagering on the Internet.  The Company also believes those Card Clubcustomers who smoke and no longer visit the Card Club are now patronizingtribal casinos where smoking is permitted.

 

In April 2008, theMinnesota Legislature passed a bill allowing pari-mutuel simulcast wagering onall breeds at Running Aces Harness Park (“Running Aces”), a harness track thatopened in Anoka County in April 2008. In anticipation of the passing of this legislation, the Company enteredinto a revenue sharing agreement with Running Aces.  Under the terms of the agreement, the Companypays Running Aces a portion of net revenues for simulcast wagers taken on harnessracing, and Running Aces pays the Company a portion of net revenues forsimulcast wagers taken on thoroughbred racing.

 

**Forward-LookingStatements:**

 

**               **Fromtime to time, in reports filed with the Securities and Exchange Commission, inpress releases, and in other communications to shareholders or the investingpublic, the Company may make forward-looking statements concerning possible oranticipated future financial performance, business activities or plans whichare typically preceded by the words “believes,” “expects,” “anticipates,” “intends”or similar expressions.  For suchforward-looking statements, the Company claims the protection of the safeharbor for forward-looking statements contained in federal securitieslaws.  Shareholders and the investingpublic should understand that such forward-looking statements are subject torisks and uncertainties which could cause actual performance, activities orplans to differ significantly from those indicated in the forward-lookingstatements.  Such risks and uncertaintiesinclude, but are not limited to: fluctuations in attendance at the Racetrack,material changes in the level of wagering by patrons, decline in interest inthe unbanked card games offered at the Card Club, legislative and regulatorychanges, the impact of wagering products and technologies introduced bycompetitors; increases in the percentage of revenues allocated for purse fundpayments; increase in compensation and employee benefit costs; the generalhealth of the gaming sector; higher than expected expense related to new marketinginitiatives; and other factors discussed under Item 1A in our Report on Form 10-Kfor the year ended December 31, 2007 and in the Company’s other filingswith the Securities and Exchange Commission.

 

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

** **

**Canterbury Park is not required to provide the informationrequested by this Item as it qualifies as a smaller reporting company.**

 

**ITEM4:     CONTROLS AND PROCEDURES**

 

(a)           Evaluation of Disclosure Controls and Procedures:

 

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

 

(b)           Changes in Internal Control Over FinancialReporting:

 

There has been no change in our internal controlover financial reporting (as defined in Rules 13a-15(f) under theSecurities Exchange Act of 1934) that occurred during our fiscal quarter ended September 30,2008 that have materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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**PART II**

**OTHER INFORMATION**

 
| Item  1.  | **Legal Proceedings**                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|      | Not Applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Item  1A. | **Risk Factors**                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|      | There have been no  material changes to the Risk Factors since those reported in the Form 10-K  for the year ended December 31, 2007.                                                                                                                                                                                                                                                                                                                                    |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Item  2.  | **Unregistered Sales of Equity****Securities  and Use of Proceeds**                                                                                                                                                                                                                                                                                                                                                                                                                |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|      | (a)   Not Applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|      | (b)   Not Applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|      | (c)   On January 16, 2008, the Company announced that its Board of  Directors had authorized a program to repurchase up to an additional 250,000  shares of the Company’s common stock. During the third quarter of 2008, the  Company repurchased 42,826 shares of common stock at an average price of  $9.21 for an aggregate purchase price of $394,337. A month-by-month breakdown  of purchases for the third quarter is included in the following table: |

 
| **Period**                         | ** ** | **Total Number of  Shares  Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plan** | ** ** | **Maximum Number  of Shares that May  Yet Be Purchased  Under the Plan** |
|------------------------------------|------------|----------------------------------------|------------|-----------------------------------|------------|---------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|
|                               |       |                                   |       |                              |       |                                                                            |       |                                                                     |
| July 1 to  July 31, 2008 |       | 37,114                                 |       | $                                 | 9.15       |                                                                            | 37,114     |                                                                     | 93,847 |
| Aug. 1 to  Aug. 31, 2008 |       | 5,712                                  |       | 9.57                              |       | 5,712                                                                           |       | 88,135                                                                   |
| Sept. 1 to Sept. 30, 2008          |       | 0                                      |       | 0.00                              |       | 0                                                                               |       | 88,135                                                                   |
| Total                              |       | 42,826                                 |       |                              |       | 42,826                                                                          |       | 88,135                                                                   |
|                                    |            |                                        |            |                                   |            |                                                                                 |            |                                                                          |  |

 
| 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                                          |

 

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Item 6.                    **Exhibits**

 

(a)      The following exhibits are included herein:

 
| 10.4   |   | Amended and Restated  General Credit and Security Agreement, as amended through October 30,  2008.                                                                                                            |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                               |
| 11     |   | Statement re computation  of per share earnings – See Net Income Per Share under Note 1 of Notes to  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     |   | Certfications pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).                                                                                                                    |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
| ** **                     | **Canterbury  Park Holding Corporation**     |
|--------------------------------|----------------------------------------------|
|                           |                                         |
| Dated: November 14,  2008 | /s/ Randall D. Sampson                       |
|                           | Randall D. Sampson,                          |
|                           | President, and Chief  Executive Officer      |
|                           |                                         |
|                           |                                         |
| Dated: November 14,  2008 | /s/ David C. Hansen                          |
|                           | David C. Hansen,                             |
|                           | Vice President, and Chief  Financial Officer |

 

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