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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 

| **x**      | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|---------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                              |
| ** ** | **FOR THE  QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009.**                                                 |
| ** ** | ** **                                                                                              |
| ** ** | **OR**                                                                                                  |
| ** ** | ** **                                                                                              |
| **o**      | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**FOR THE TRANSITION PERIOD FROM           TO          .**

 

**CommissionFile Number:  001-31569**

 

****

 

**CANTERBURY PARK HOLDINGCORPORATION**

(Exact Name ofRegistrant as Specified in Its Charter)

 

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

 

**1100 Canterbury Road**

**Shakopee,MN  55379**

(Address of principalexecutive offices and zip code)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities 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 mark whether the Registrant hassubmitted electronically and posted on its corporate Website, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T during the preceding 12 months (or for such shorter periodthat the Registrant was required to submit and post such files).  YES o  NO o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company (asdefined in Exchange Act Rule 12b-2).

 

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

 

Indicateby check mark whether the registrant is a shell company (as defined in ExchangeAct Rule 12b-2). YES o  NO x

 

TheCompany had 3,998,196 shares of common stock, $.01 par value, outstanding as ofNovember 13, 2009.

 

 

 

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Canterbury Park HoldingCorporation

 

#### **INDEX**

 
| ** **        | ** **                | ** **                                                                                              | **Page** |
|-------------------|---------------------------|---------------------------------------------------------------------------------------------------------|----------|
| **PART I.**  | **FINANCIAL INFORMATION** |                                                                                                    |
|              |                      |                                                                                                    |     |
|              | Item 1.                   | Financial Statements                                                                                    |     |
|              |                      |                                                                                                    |     |
|              |                      | Condensed Consolidated Balance Sheets as of  September 30, 2009 and December 31, 2008         | 3        |
|              |                      |                                                                                                    |     |
|              |                      | Condensed Consolidated Statements of Operations for  the periods Ended September 30, 2009 and 2008 | 4        |
|              |                      |                                                                                                    |     |
|              |                      | Condensed Consolidated Statements of Cash Flows for  the periods Ended September 30, 2009 and 2008 | 5        |
|              |                      |                                                                                                    |     |
|              |                      | Notes to Condensed Consolidated Financial Statements                                                    | 6        |
|              |                      |                                                                                                    |     |
|              | Item 2.                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations             | 14       |
|              |                      |                                                                                                    |     |
|              | Item 3.                   | Quantitative  and Qualitative Disclosures about Market Risk                                             | 20       |
|              |                      |                                                                                                    |     |
|              | Item 4.                   | Controls and  Procedures                                                                                | 20       |
|              |                      |                                                                                                    |     |
| **PART II.** | **OTHER INFORMATION**     |                                                                                                    |
|              |                      |                                                                                                    |     |
|              | Item 1.                   | Legal Proceedings                                                                                       | 21       |
|              |                      |                                                                                                    |     |
|              | Item  1A.                 | Risk  Factors                                                                                           | 21       |
|              |                      |                                                                                                    |     |
|              | Item 2.                   | Unregistered  Sales of Equity Securities and Use of Proceeds                                            | 21       |
|              |                      |                                                                                                    |     |
|              | Item 3.                   | Defaults  Upon Senior Securities                                                                        | 21       |
|              |                      |                                                                                                    |     |
|              | Item 4.                   | Submission  of Matters to a Vote of Security Holders                                                    | 21       |
|              |                      |                                                                                                    |     |
|              | Item 5.                   | Other Information                                                                                       | 21       |
|              |                      |                                                                                                    |     |
|              | Item  6.                  | Exhibits                                                                                                | 21       |
|              |                      |                                                                                                    |     |
|              | Signatures                | 22                                                                                                      |
|              |                      |                                                                                                    |     |
|              | Certifications            | 23                                                                                                      |

 

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**PART 1 - FINANCIAL INFORMATION**

 

**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

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

 
| ** **                                                                                                                        | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                        | ** ** | **2009**               | ** ** | **2008**              | ** ** |
| **ASSETS**                                                                                                                        |       |                   |       |                  |       |
| CURRENT ASSETS                                                                                                                    |       |                   |       |                  |       |
| Cash                                                                                                                              |       | $                      | 4,129,401  |                  | $          | 3,745,731 |   |
| Restricted cash                                                                                                                   |       | 1,269,052              |       | 1,261,292             |       |
| Short-term investments                                                                                                            |       | 28,005                 |       | 312,995               |       |
| Accounts receivable, net of  allowance of $10,000                                                                                 |       | 808,223                |       | 475,576               |       |
| Inventory                                                                                                                         |       | 198,807                |       | 213,682               |       |
| Prepaid expenses                                                                                                                  |       | 701,111                |       | 429,859               |       |
| Income taxes receivable                                                                                                           |       | 156,372                |       | 566,436               |       |
| Deferred income taxes                                                                                                             |       | 342,900                |       | 286,200               |       |
| Due from Minnesota horsemen  associations                                                                                         |       | 1,304,922              |       | —                |       |
| Total current assets                                                                                                              |       | 8,938,793              |       | 7,291,771             |       |
|                                                                                                                              |       |                   |       |                  |       |
| LONG-TERM ASSETS                                                                                                                  |       |                   |       |                  |       |
| Deposits                                                                                                                          |       | 20,000                 |       | 20,000                |       |
| Land, buildings and equipment, net of accumulated depreciation of  $18,108,753 and $16,616,000, respectively                      |       | 24,144,926             |       | 24,931,900            |       |
|                                                                                                                              |       | $                      | 33,103,719 |                  | $          | 32,243,671 |   |
|                                                                                                                              |       |                   |       |                  |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                    |       |                   |       |                  |       |
|                                                                                                                              |       |                   |       |                  |       |
| CURRENT LIABILITIES                                                                                                               |       |                   |       |                  |       |
| Accounts payable                                                                                                                  |       | $                      | 2,732,606  |                  | $          | 1,852,253 |   |
| Card club accruals                                                                                                                |       | 1,592,341              |       | 1,689,213             |       |
| Accrued wages and payroll  taxes                                                                                                  |       | 861,248                |       | 1,189,088             |       |
| Due to MHBPA                                                                                                                      |       | —                 |       | 48,251                |       |
| Accrued property taxes                                                                                                            |       | 653,508                |       | 513,816               |       |
| Payable to horsepersons                                                                                                           |       | 69,590                 |       | 95,217                |       |
| Total current liabilities                                                                                                         |       | 5,909,293              |       | 5,387,838             |       |
|                                                                                                                              |       |                   |       |                  |       |
| DEFERRED INCOME TAXES                                                                                                             |       | —                 |       | 174,400               |       |
|                                                                                                                              |       |                   |       |                  |       |
| COMMITMENTS AND  CONTINGENCIES (Note 6)                                                                                           |       | —                 |       | —                |       |
|                                                                                                                              |       |                   |       |                  |       |
| STOCKHOLDERS’ EQUITY                                                                                                         |       |                   |       |                  |       |
| Common stock, $.01 par value, 10,000,000 shares authorized, 3,994,352  and 3,938,021, respectively, shares issued and outstanding |       | 39,944                 |       | 39,380                |       |
| Additional paid-in capital                                                                                                        |       | 15,441,797             |       | 15,089,438            |       |
| Retaned earnings                                                                                                                  |       | 11,712,685             |       | 11,552,615            |       |
| Total stockholders’ equity                                                                                                   |       | 27,194,426             |       | 26,681,433            |       |
|                                                                                                                              |       | $                      | 33,103,719 |                  | $          | 32,243,671 |   |

 

Seenotes to consolidated financial statements.

 

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**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

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

 
| ** **                                             | ** ** | **Three Months  Ended Sept. 30,** | ** ** | **Nine Months  Ended Sept. 30,** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------|------------|----------------------------------|------------|
| ** **                                             | ** ** | **2009**                          | ** ** | **2008**                         | ** ** | **2009** | ** ** | **2008** | ** ** |
| OPERATING REVENUES:                                    |       |                              |       |                             |       |   |   |   |   |
| Pari-mutuel                                            |       | $                                 | 3,926,451  |                             | $          | 4,361,535 |   | $ | 9,410,489 |   | $ | 11,131,403 |   |
| Card Club                                              |       | 4,998,890                         |       | 5,674,592                        |       | 15,213,489 |   | 18,844,770 |   |
| Concessions                                            |       | 2,119,612                         |       | 2,244,017                        |       | 4,594,317 |   | 5,179,074 |   |
| Other                                                  |       | 1,178,847                         |       | 1,033,438                        |       | 2,443,920 |   | 2,274,872 |   |
| Total Revenues                                         |       | 12,223,800                        |       | 13,313,582                       |       | 31,662,215 |   | 37,430,119 |   |
| Less: Promotional  Allowances                          |       | (73,078                           | )          | (77,162                          | )          | (156,063 | ) | (188,743 | ) |
| Net Revenues                                           |       | 12,150,722                        |       | 13,236,420                       |       | 31,506,152 |   | 37,241,376 |   |
|                                                   |       |                              |       |                             |       |   |   |   |   |
| OPERATING EXPENSES:                                    |       |                              |       |                             |       |   |   |   |   |
| Purse expense                                          |       | 2,258,067                         |       | 2,489,590                        |       | 4,817,770 |   | 6,134,298 |   |
| Minnesota Breeders’ Fund                          |       | 247,653                           |       | 278,766                          |       | 642,535 |   | 821,361 |   |
| Other pari-mutuel expenses                             |       | 362,922                           |       | 398,968                          |       | 1,196,775 |   | 1,413,555 |   |
| Salaries and benefits                                  |       | 4,780,410                         |       | 5,304,726                        |       | 13,255,700 |   | 15,686,350 |   |
| Cost of sales                                          |       | 1,064,499                         |       | 1,127,372                        |       | 2,442,659 |   | 2,804,491 |   |
| Depreciation                                           |       | 505,950                           |       | 532,050                          |       | 1,584,240 |   | 1,544,763 |   |
| Utilities                                              |       | 379,251                           |       | 536,206                          |       | 896,843 |   | 1,232,459 |   |
| Advertising and marketing                              |       | 529,973                           |       | 563,249                          |       | 1,193,048 |   | 1,376,063 |   |
| Other                                                  |       | 1,982,770                         |       | 2,049,935                        |       | 5,153,585 |   | 5,537,726 |   |
|                                                   |       | 12,111,495                        |       | 13,280,862                       |       | 31,183,155 |   | 36,551,066 |   |
| NONOPERATING (EXPENSES)                                |       |                              |       |                             |       |   |   |   |   |
| REVENUES:                                              |       |                              |       |                             |       |   |   |   |   |
| Interest expense                                       |       | (150                              | )          | (5,600                           | )          | (4,585 | ) | (7,964 | ) |
| Other, net                                             |       | 12,118                            |       | 20,445                           |       | 24,358 |   | 105,120 |   |
|                                                   |       | 11,968                            |       | 14,845                           |       | 19,773 |   | 97,156 |   |
|                                                   |       |                              |       |                             |       |   |   |   |   |
| INCOME (LOSS) BEFORE INCOME TAX EXPENSE                |       | 51,195                            |       | (29,597                          | )          | 342,770 |   | 787,466 |   |
|                                                   |       |                              |       |                             |       |   |   |   |   |
| INCOME TAX EXPENSE (Note 1)                            |       | (34,800                           | )          | (11,198                          | )          | (182,700 | ) | (364,800 | ) |
|                                                   |       |                              |       |                             |       |   |   |   |   |
| NET INCOME (LOSS)                                      |       | $                                 | 16,395     |                             | $          | (40,795 | ) | $ | 160,070 |   | $ | 422,666 |   |
|                                                   |       |                              |       |                             |       |   |   |   |   |
| BASIC NET INCOME (LOSS) PER COMMON SHARE (Note 1) |       | $                                 | .00        |                             | $          | (.01 | ) | $ | .04 |   | $ | .11 |   |
|                                                   |       |                              |       |                             |       |   |   |   |   |
| DILUTED NET INCOME (LOSS) PER COMMON SHARE (Note 1)    |       | $                                 | .00        |                             | $          | (.01 | ) | $ | .04 |   | $ | .10 |   |

 

Seenotes to consolidated financial statements.

 

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**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**PERIODS ENDED SEPTEMBER 30, 2009 AND2008 (Unaudited)**

 
| ** **                                                                         | ** ** | **Nine Months  Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                         | ** ** | **2009**                                  | ** ** | **2008** | ** ** |
| **Operating  Activities:**                                                         |       |                                      |       |   |   |
| Net Income                                                                         |       | $                                         | 160,070    |   | $ | 422,666 |   |
| Adjustments to reconcile net income to net cash provided by (used in)  operations: |       |                                      |       |   |   |
| Depreciation                                                                       |       | 1,584,240                                 |       | 1,544,763 |   |
| Stock-based compensation  expense                                                  |       | 103,692                                   |       | 116,086 |   |
| Excess tax benefit from  exercise of stock options                                 |       | —                                    |       | (21,550 | ) |
| Loss on sale of property  and equipment                                            |       | —                                    |       | 1,968 |   |
| Decrease in deferred income  taxes                                                 |       | (227,364                                  | )          | (139,212 | ) |
| (Increase) decrease in  restricted cash                                            |       | (7,760                                    | )          | 878,455 |   |
| Increase in accounts  receivable                                                   |       | (332,647                                  | )          | (76,463 | ) |
| Increase in other current  assets                                                  |       | (256,377                                  | )          | (342,610 | ) |
| Decrease (increase) in  income taxes receivable                                    |       | 410,064                                   |       | (317,824 | ) |
| Increase (decrease) in accounts payable and accrued wages and payroll  taxes       |       | 562,963                                   |       | (367,538 | ) |
| Decrease in card club  accruals                                                    |       | (96,872                                   | )          | (936,596 | ) |
| Decrease in accrued  interest                                                      |       | —                                    |       | (5,196 | ) |
| Increase in accrued  property taxes                                                |       | 139,692                                   |       | 126,442 |   |
| Decrease in payable to  horsepersons                                               |       | (25,627                                   | )          | (58,017 | ) |
| Increase in due from  Minnesota horsemen associations                              |       | (1,353,173                                | )          | (1,281,096 | ) |
| Net cash provided by (used  in) operations                                         |       | 660,901                                   |       | (455,722 | ) |
| ** **                                                                         |       |                                      |       |   |   |
| **Investing  Activities:**                                                         |       |                                      |       |   |   |
| Additions to buildings and  equipment                                              |       | (807,716                                  | )          | (1,638,538 | ) |
| Proceeds from sale of  equipment                                                   |       | —                                    |       | 4,254 |   |
| Decrease (increase) in  short-term investments                                     |       | 284,990                                   |       | (29,722 | ) |
| Net cash used in investing  activities                                             |       | (522,726                                  | )          | (1,664,006 | ) |
|                                                                               |       |                                      |       |   |   |
| **Financing  Activities**                                                          |       |                                      |       |   |   |
| Proceeds from exercise of  stock options                                           |       | 245,495                                   |       | 140,750 |   |
| Common stock repurchases                                                           |       | —                                    |       | (1,478,185 | ) |
| Cash dividend paid to  shareholders                                                |       | —                                    |       | (1,007,173 | ) |
| Excess tax benefit from  exercise of stock options                                 |       | —                                    |       | 21,550 |   |
| Net cash provided by (used  in) financing activities                               |       | 245,495                                   |       | (2,323,058 | ) |
|                                                                               |       |                                      |       |   |   |
| Net increase (decrease) in  cash                                                   |       | 383,670                                   |       | (4,442,786 | ) |
|                                                                               |       |                                      |       |   |   |
| Cash at beginning of period                                                        |       | 3,745,731                                 |       | 7,050,389 |   |
|                                                                               |       |                                      |       |   |   |
| Cash at end of period                                                              |       | $                                         | 4,129,401  |   | $ | 2,607,603 |   |
|                                                                               |       |                                      |       |   |   |
| Supplemental disclosure of  cash flow information:                                 |       |                                      |       |   |   |
| Income taxes paid, net of  refunds                                                 |       | —                                    |       | $ | 775,000 |   |
|                                                                               |       |                                      |       |   |   |
| Non-cash investing and  financing activities:                                      |       |                                      |       |   |   |
| Additions to buildings and  equipment funded through accounts payable              |       | $                                         | 21,279     |   | $ | 82,432 |   |
| Non-cash exercise of stock  options                                                |       | $                                         | 15,880     |   | $ | 20,000 |   |

 

###### **See notes to consolidatedfinancial statements.**

 

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

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**PERIODS ENDED SEPTEMBER 30, 2009AND 2008 (Unaudited)**

 

In the opinion ofmanagement, the accompanying unaudited condensed consolidated financialstatements contain all adjustments necessary to present fairly, in accordancewith accounting principles generally accepted in the United States of America(GAAP), the financial position of Canterbury Park Holding Corporation as of September 30,2009 and December 31, 2008; the results of its operations for the threeand nine months ended September 30, 2009 and 2008; and its cash flows forthe nine months ended September 30, 2009 and 2008.  The condensed consolidated financialstatements were derived from the audited financial statements.  All adjustments are of a normal, recurringnature, except as otherwise disclosed. Management has also evaluated the impact of events occurring after September 30,2009 up to November 13, 2009, which is the date of issuance of theseconsolidated financial statements.  These statements contain all necessaryadjustments and disclosures resulting from that evaluation.  Results for an interim period are notnecessarily considered as indicative of results for a full year.

 

The summary ofsignificant accounting policies is included in the notes to consolidatedfinancial statements in the 2008 Annual Report on Form 10-K.

 

1.               SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

 

*Business* — Canterbury Park Holding Corporation(the “Company”) was incorporated under the laws of Minnesota and acquired landand buildings to conduct pari-mutuel horse racing operations (the “Racetrack”)in March 1994.  The Racetrack islocated in Shakopee, Minnesota, approximately 25 miles southwest of downtownMinneapolis.  In May 1994, wecommenced year-round horse racing simulcast operations and hosted the firstannual live race meet during the summer of 1995.  Our live racing operations are a seasonalbusiness as we host live race meets each year from May until August.  We earn additional pari-mutuel revenue bytelevising our live racing to out-of-state racetracks around the country.  We also derive revenues from related servicesand activities, such as advertising, admissions, parking and publication salesand from other entertainment events and activities held at the Racetrack.  In April 2000, we opened Canterbury Park’sCard Club (the “Card Club”).  The CardClub operates 24 hours a day, seven days a week and is limited by MinnesotaState law to a maximum of 50 tables.  TheCard Club currently offers 31 tables of Poker Games and 19 tables of CasinoGames.  Our three largest sources ofrevenues, Card Club operations, pari-mutuel operations and concessions sales,generate cash revenues.

 

*Presentation —*The Condensed Consolidated Statement ofOperations from the prior-period has been conformed to the 2009presentation.  This presentation change had no effect on net income,earnings per share, or stockholders’ equity.

 

*Reclassifications* — Segment income before income taxes asviewed in Note 5 “Operating Segments” and short-term investments found in Note3 “Fair Value” from the prior-period have been conformed to the 2009presentation.  These reclassification changes had no effect on net income,earnings per share, or stockholders’ equity.

 

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

 

*Estimates* - The preparation of the condensedconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe condensed consolidated financial statements and the 

 

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reported amountsof revenues and expenses during the reporting period.  Actual results could differ from theseestimates.

 

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

 

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

 

*Income Taxes*- Income tax expense is computed byapplying the estimated annual effective tax rate to the year-to-dateincome.  Income taxes are accounted forunder the asset and liability method. Deferred tax assets and liabilities are recognized for the estimatedfuture tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and theirrespective tax bases.  Deferred taxassets and liabilities are measured using enacted tax rates in effect for theyear in which those temporary differences are expected to reverse.

 

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

 

*NetIncome (Loss) Per Share*- Basic net income (loss) per common share is based onthe weighted average number of common shares outstanding during eachperiod.  The weighted average number ofcommon shares outstanding for the three and nine-month periods ended September 30,2009 were 3,994,352 and 3,987,714, respectively.  The weighted average number of common sharesoutstanding for the three and nine-month periods ended September 30, 2008were 3,948,473 and 4,011,126, 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 stockoptions.  After considering the dilutiveeffect of stock options outstanding, the weighted average shares used tocalculate diluted earnings per share for the three and nine-month periods endedSeptember 30, 2009 were 4,011,360 and 3,997,456, respectively.  The weighted average shares used to calculatediluted earnings per share for the three and nine-month periods ended September 30,2008 were 3,948,473 and 4,098,070, respectively.  61,092 weighted average shares were consideredanti-dilutive and excluded from the computation of common equivalent shares forthe three months ended September 30, 2008, as the Company reported a netloss for that period.

 

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

 

TheCompany adopted an update to ASC 805 — Business Combinations (“ASC 805”) onJanuary 1, 2009.  ASC 805 establishes principles andrequirements for how the acquirer of a business recognizes and measures in itsfinancial statements the identifiable assets acquired, the liabilities assumed,and any noncontrolling interest in the acquiree.  The statement also provides guidance forrecognizing and measuring the goodwill acquired in the business combination anddetermines what information to disclose to enable users of the financialstatements to evaluate the nature and financial effects of the businesscombination. This update had no material impact on the Company’s financialposition, results of operations or cash flows.

 

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

 

The Companyadopted an update to ASC 855 — “Subsequent Events” (“ASC 855”) on April 1,2009.  ASC 855 provides guidance on when a subsequent event should berecognized in the financial statements. Subsequent events that provideadditional evidence about conditions that existed at the date of the balancesheet should be recognized at the balance sheet date.  Subsequent events that provide evidence aboutconditions that arose after the balance sheet date but before financialstatements are issued, or are available to be issued, are not required to berecognized.  The date through whichsubsequent events have been evaluated must be disclosed as well as whether itis the date the financial statements were issued or the date the financialstatements were available to be issued. For non-recognized subsequent events which should be disclosed to keepthe financial statements from being misleading, the nature of the event and anestimate of its financial effect, or a statement that such an estimate cannotbe made, should be disclosed. The standard is effective for interim or annualperiods ending after June 15, 2009. The adoption of ASC 855 and the update had no material impact on theCompany’s financial position, results of operations, or cash flows.

 

2.               STOCK BASED COMPENSATION

 

Stock basedcompensation is included in the salaries and benefits expense line item on theconsolidated statements of operations and amounted to $103,692 and $116,086during the nine months ended September 30, 2009 and 2008, respectively.

 

Each non-employeemember of the Board of Directors receives an annual recurring grant of 3,000non-qualified stock options on the first business day in February.  On February 2, 2009, 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 $6.66. The stock options vested over a six-month period and expire in tenyears.  Thecompensation cost associated with this grant of Board of Director options was$18,900 and was recognized as expense over the six-month vesting period.  On February 1, 2008, 15,000 options were grantedto the five non-employee board members with an exercise price equal to themarket price on the date of grant of $11.35.

 

In addition, on April 23,2009, 100,000 options were granted to employees with an exercise price equal tothe market price on the date of grant of $6.00. The stock options vest over a 42-month period and expire in ten years.  The compensation cost associated with thisgrant of employee options is $92,555 to be recognized as expense over the42-month vesting period.

 

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

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

 

The fair value ofstock options granted during the first nine months of 2009 and 2008 wasestimated on the date of grant using the Black-Scholes option-pricing modelwith the following weighted average assumptions and results:

 

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

 

A summary of stockoption activity as of September 30, 2009 and changes during the nine monthsthen ended is presented below:

 
| ** **                             | ** ** | ** **    | ** ** | ** **   | ** ** | **Weighted**    | ** ** | ** **     | ** ** |
|----------------------------------------|------------|---------------|------------|--------------|------------|-----------------|------------|----------------|------------|
| ** **                             | ** ** | ** **    | ** ** | **Weighted** | ** ** | **Average**     | ** ** | ** **     | ** ** |
| ** **                             | ** ** | ** **    | ** ** | **Average**  | ** ** | **Remaining**   | ** ** | **Aggregate**  | ** ** |
| ** **                             | ** ** | **Number of** | ** ** | **Exercise** | ** ** | **Contractual** | ** ** | **Grant Date** | ** ** |
| **Stock Options**                      | ** ** | **Shares**    | ** ** | **Price**    | ** ** | **Term**        | ** ** | **Fair Value** | ** ** |
|                                   |       |          |       |         |       |            |       |           |       |
| Outstanding at January 1, 2009    |       | 470,000       |       | $            | 11.12      |            |       |           |       |   |
|                                   |       |          |       |         |       |            |       |           |       |
| Granted                                |       | 115,000       |       | $            | 6.09       |            |       |           |       |   |
| Exercised                              |       | (59,000       | )          | $            | 4.43       |            |       |           |       |   |
| Expired/Forfeited                      |       | (85,000       | )          | $            | 15.57      |            |       |           |       |   |
|                                   |       |          |       |         |       |            |       |           |       |
| Outstanding at September 30, 2009 |       | 441,000       |       | $            | 9.85       |            | 4.3 Years  |           | $          | 4,342,630 |   |
|                                   |       |          |       |         |       |            |       |           |       |
| Exercisable at September 30, 2009 |       | 337,250       |       | $            | 10.94      |            | 2.7 Years  |           | $          | 3,688,068 |   |

 

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A summary of stockoption activity as of September 30, 2008 and changes during the ninemonths then ended is presented below:

 
| ** **                             | ** ** | ** **    | ** ** | ** **   | ** ** | **Weighted**    | ** ** | ** **     | ** ** |
|----------------------------------------|------------|---------------|------------|--------------|------------|-----------------|------------|----------------|------------|
| ** **                             | ** ** | ** **    | ** ** | **Weighted** | ** ** | **Average**     | ** ** | ** **     | ** ** |
| ** **                             | ** ** | ** **    | ** ** | **Average**  | ** ** | **Remaining**   | ** ** | **Aggregate**  | ** ** |
| ** **                             | ** ** | **Number of** | ** ** | **Exercise** | ** ** | **Contractual** | ** ** | **Grant Date** | ** ** |
| **Stock Options**                      | ** ** | **Shares**    | ** ** | **Price**    | ** ** | **Term**        | ** ** | **Fair Value** | ** ** |
|                                   |       |          |       |         |       |            |       |           |       |
| Outstanding at January 1, 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 |   |

 

*EmployeeStock Ownership Plan*— During the first quarter of 2008, the Company contributed 10,000 shares ofcommon stock to the Employee Stock Ownership Plan (“ESOP”).  This contribution of $110,000 was a noncashtransaction in which shares were issued and were allocated to the accounts ofeligible employees based upon their 2007 compensation during the first quarterof 2008.  On October 24, 2008, theCompany announced it had suspended its ESOP contribution for fiscal 2008.  As of the date of this filing, the Companyhas taken no further action regarding possible re-introduction of thecontribution.

 

3.               FAIR VALUE

 

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

 

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

 

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

 

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

 

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

 

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Assets and liabilities measured at fair value on arecurring basis for September 30, 2009 and December 31, 2008 aresummarized below:

 
| ** **                                        | ** ** | **Fair Value Measurements as of  September 30, 2009** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------------------|------------|
| **Description**                                   | ** ** | **Total**                                                  | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|                                              |       |                                                       |       |   |   |   |   |   |   |
| Short-term  investments (Certificates of Deposit) |       | $                                                          | 28,005     |   | $ | — |   | $ | 28,005 |   | $ | — |   |
|                                              |       |                                                       |       |   |   |   |   |   |   |
| Total                                             |       | $                                                          | 28,005     |   | $ | — |   | $ | 28,005 |   | $ | — |   |

 
| ** **                                        | ** ** | **Fair Value Measurements as of  December 31, 2008** | ** ** |
|---------------------------------------------------|------------|-----------------------------------------------------------|------------|
| **Description**                                   | ** ** | **Total**                                                 | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|                                              |       |                                                      |       |   |   |   |   |   |   |
| Short-term  investments (Certificates of Deposit) |       | $                                                         | 312,995    |   | $ | — |   | $ | 312,995 |   | $ | — |   |
|                                              |       |                                                      |       |   |   |   |   |   |   |
| Total                                             |       | $                                                         | 312,995    |   | $ | — |   | $ | 312,995 |   | $ | — |   |

 

4.               GENERAL CREDIT AGREEMENT

 

The Company has ageneral credit agreement with Bremer Bank, which provides a revolving creditline.  On September 30, 2009, theCompany signed an amendment with Bremer Bank extending the expiration date fromSeptember 30, 2009 to June 30, 2010 and adjusting the credit line from$5,000,000 to $3,000,000.  The Companyhad no borrowings under this credit line at September 30, 2009 and December 31,2008.  The credit agreement containscertain covenants requiring the Company to maintain certain financialratios.  The Company was in compliancewith these requirements as of September 30, 2009.  Management believes that funds availableunder this line of credit, along with funds generated from card club andsimulcast operations, will be sufficient to satisfy its liquidity and capital resourcerequirements during 2009.

 

5.               OPERATING SEGMENTS

 

During the firstnine months of 2009 and 2008, the Company had three reportable operatingsegments:  horse racing, card club, andconcessions.  The horse racing segmentprimarily represents simulcast and live horse racing operations.  The card club segment primarily representsoperations of Canterbury Park’s Card Club, and the concessions segmentprimarily represents food and beverage operations provided during simulcast andlive racing, in the card club, and during special events.  The Company’s reportable operating segmentsare strategic business units that offer different products and services.  They are managed separately because thesegments differ in the nature of the products and services provided as well asprocesses to produce those products and services.  The Minnesota Racing Commission regulates thehorse racing and card club segments.

 

The accountingpolicies of the operating segments are the same as those described in thesummary of significant accounting policies in the 2008 Annual Report on Form 10-K.

 

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

 

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

 
| ** **                            | ** ** | **Nine  Months Ended September 30, 2009** | ** ** |
|---------------------------------------|------------|------------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                               | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Net revenues from external  customers |       | $                                              | 11,691     |   | $ | 15,213 |   | $ | 4,602 |   | $ | 31,506 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Intersegment revenues                 |       | 521                                            |       |   |   | 1,074 |   | 1,595 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Net interest income                   |       | 20                                             |       |   |   |   |   | 20 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Depreciation                          |       | 980                                            |       | 483 |   | 121 |   | 1,584 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Segment income before  income taxes   |       | (1,455                                         | )          | 2,086 |   | 767 |   | 1,398 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Segment Assets                        |       | $                                              | 29,383     |   | $ | 2,997 |   | $ | 9,743 |   | $ | 42,123 |   |

 
| ** **                            | ** ** | **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   |       | (1,498                                         | )          | 2,580 |   | 856 |   | 1,938 |   |
|                                       |            |                                                |            |  |  |  |  |  |  |  |  |  |  |

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

 

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

 
| ** **                                              | ** ** | **Nine  Months Ended Sept. 30,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                              | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Revenues                                                |       |                             |       |   |   |
| Total net revenue for reportable segments               |       | $                                | 33,101     |   | $ | 39,247 |   |
| Elimination of intersegment revenues                    |       | (1,595                           | )          | (2,006 | ) |
| Total consolidated net revenues                         |       | $                                | 31,506     |   | $ | 37,241 |   |
|                                                    |       |                             |       |   |   |
| Income before income taxes                              |       |                             |       |   |   |
| Total segment income before income taxes                |       | $                                | 1,398      |   | $ | 1,938 |   |
| Elimination of intersegment income before income  taxes |       | (1,055                           | )          | (1,151 | ) |
| Total consolidated income before income taxes           |       | $                                | 343        |   | $ | 787 |   |

 
| ** **                              | ** ** | **Sept. 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|---------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2009**      | ** ** | **2008**              | ** ** |
| Assets                                  |       |          |       |                  |       |
| Total assets for reportable segments    |       | $             | 42,123     |                  | $          | 40,106 |   |
| Elimination of intercompany receivables |       | (9,019        | )          | (7,862                | )          |
| Total consolidated assets               |       | $             | 33,104     |                  | $          | 32,244 |   |

 

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6.               COMMITMENTS AND CONTINGENCIES

 

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

 

The Company isperiodically involved in various legal actions arising in the normal course ofbusiness.  At September 30, 2009,management believes that the resolution of any legal actions outstanding willnot have a material impact on the consolidated financial statements.

 

On June 5,2008, Company’s Board of Directors declared a special cash dividend of $.25 pershare of common stock payable on July 11, 2008 to shareholders of recordon June 20, 2008.  The aggregateamount paid to shareholders on July 11, 2008 pursuant to this dividenddeclaration was $1,007,173.  No specialdividend has been declared year-to-date in 2009, and it is not anticipated thatany special dividend will be declared in 2009.

 

In April 2008, the Minnesota Legislature passed abill allowing pari-mutuel simulcast wagering on all breeds at Running Aces, aharness track and card club that opened in Anoka County in April 2008.  In anticipation of the passing of thislegislation, the Company entered into a revenue sharing agreement with RunningAces.  This agreement has benefited therespective horsemen’s associations by requiring the Company and Running Aces tomake purse set aside contributions and Breeders Fund contributions as requiredby law.  Additionally, under the terms ofthe agreement, the Company pays Running Aces a portion of net revenues forsimulcast wagers taken on harness racing at Canterbury Park, and Running Acespays the Company a portion of net revenues for simulcast wagers taken onthoroughbred racing at Running Aces. Canterbury Park recognized net revenues of $122,383 and $43,804 for thenine months ended September 30, 2009 and 2008, respectively.

 

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

** **

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

 

**Overview:**

 

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

 

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

 

Canterbury Park’s CardClub (the “Card Club”) hosts “unbanked” card games in which players competeagainst each other and not against the house. The Card Club is open twenty-four hours a day, seven days a week.  Under Minnesota law, the Company is requiredto pay up to 14% of the gross Card Club revenues to the Racetrack’s purse fundand the State of Minnesota Breeders’ Fund.

 

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

 

**Operations Review for the****Threeand****Nine Months Ended September 30, 2009 andSeptember 30, 2008:**

 

The following table sets forth a reconciliation of netincome, a GAAP financial measure, to EBITDA, a non-GAAP measure, for theperiods ended September 30, 2009 and 2008:

 

| ** **                                | ** ** | **Sept. 30,** | ** ** | **Sept. 30,** | ** ** |
|-------------------------------------------|------------|---------------|------------|---------------|------------|
| ** **                                | ** ** | **2009**      | ** ** | **2008**      | ** ** |
| Net income                                |       | $             | 160,070    |          | $          | 422,666 |   |
| Interest income,  net of interest expense |       | (19,773       | )          | (97,156       | )          |
| Income tax  expense                       |       | 182,700       |       | 364,800       |       |
| Depreciation                              |       | 1,584,240     |       | 1,544,763     |       |
| EBITDA                                    |       | $             | 1,907,237  |          | $          | 2,235,073 |   |

 

EBITDA represents earnings before interest income,income tax expense, and depreciation and amortization.  EBITDA is not a measure of performance orliquidity calculated in accordance with generally accepted accountingprinciples (“GAAP”), and should not be considered an alternative to, or moremeaningful than, net income as an indicator of our operating performance, orcash flows from operating activities as a measure of liquidity.  EBITDA has been presented as a supplementaldisclosure because it is a widely used measure of performance and basis forvaluation of companies in our industry. Moreover, other companies that provide EBITDA information may calculateEBITDA differently than we do.

 

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EBITDA increased slightly as a percentage of netrevenues to 6.1% for the first nine months ended September 30, 2009compared to 6.0% for the first nine months ended September 30, 2008.

 

Total net revenues decreased $5,735,224, or 15.4%,during the nine months ended September 30, 2009 compared to the ninemonths ended September 30, 2008, and decreased $1,085,695, or 8.2%, forthe three months ended September 30, 2009 compared to the three monthsended September 30, 2008.  Thedecrease was due primarily to reductions of 15.5% and 19.3% in pari-mutuel andCard Club revenues, respectively, for the nine months ended September 30,2009.  Pari-mutuel and Card Club revenuesdecreased 10.0% and 11.9%, respectively, for the three months ended September 30,2009.

 

Pari-mutuel revenues decreased $1,720,914, or 15.5%,in the nine-month period ended September 30, 2009 compared to the sameperiod in 2008, and decreased $435,084, or 10.0%, for the three-month periodended September 30, 2009 compared to the same period in 2008.  Total handle wagered for the first ninemonths of 2009 was down $14.2 million, or 20.3%, compared to the same periodlast year.  The decrease is attributableto the economic recession that has adversely impacted discretionary spending onentertainment.  The economic recession,which began in 2008, has continued to erode revenues throughout the first ninemonths of 2009.  In addition, the Companynow faces direct pari-mutuel competition from Running Aces Harness Park (“RunningAces”), a harness track that opened in Anoka County in April 2008.  The Company also believes that an increasingnumber of Minnesota residents are unlawfully wagering on horse races by meansof the Internet.  Finally, the Companyconducted 81 fewer races during 2009, which further resulted in decreasedon-track handle.  See the “Summary ofPari-mutuel Data” below:

 
| ** **                                     | ** ** | **Nine  Months Ended Sept. 30,** | ** **     |
|------------------------------------------------|------------|----------------------------------|----------------|
| **Summary of  Pari-mutuel Data:**              | ** ** | **2009**                         | ** **     | **2008** | ** ** |
|                                           |       |                             |           |   |   |
| Racing Days                                    |       |                             |           |   |   |
| Simulcast only                                 |       | 211                              |           | 207 |   |
| Live and Simulcast                             |       | 62                               |           | 67 |   |
| **Total Number of Racing Days**                | ** ** | **273**                          | ** **     | **274** | ** ** |
|                                           | ** ** | ** **                       | ** **     | ** ** | ** ** |
| On-Track Handle                                |       |                             |           |   |   |
| Simulcast racing handle on simulcast only days |       | $                                | 19,190,000     |   | $ | 22,098,000 |   |
| Live and Simulcast days:                       |       |                             |           |   |   |
| Live racing handle                             |       | 12,181,000                       |           | 13,848,000 |   |
| Simulcast racing handle                        |       | 10,482,000                       |           | 14,001,000 |   |
| Total On-Track Handle                          |       | 41,853,000                       |           | 49,947,000 |   |
|                                           |       |                             |           |   |   |
| Out-of-State Live Handle                       |       | 13,712,000                       |           | 19,791,000 |   |
|                                           |       |                             |           |   |   |
| **Total Handle**                               | ** ** | **$**                            | **55,565,000** | ** ** | **$** | **69,738,000** | ** ** |
|                                           |       |                             |           |   |   |
| On-Track Average Daily Handle                  |       |                             |           |   |   |
| Simulcast only racing days                     |       | $                                | 90,948         |   | $ | 106,754 |   |
| Live and simulcast racing days                 |       | $                                | 365,532        |   | $ | 415,657 |   |

 

Total Card Club revenue decreased $3,631,281, or19.3%, for the first nine months of 2009 and $675,702, or 11.9%, for the thirdquarter of 2009 compared to the same periods in 2008.  The primary source of Card Club revenue is apercentage of the wagers received from the players as compensation for providingthe Card Club facility and services, referred to as the “collection revenue.”  Other revenue includes fees collected for theadministration of tournaments, and amounts earned as reimbursement of theadministrative costs of maintaining jackpot funds.  Poker collection revenue fell $3,417,813 or28.3% compared to the first nine months of 2008.  In addition, Casino Games collection revenuedropped $618,879 or 10.2% compared to the first three quarters of 2008.  The decrease is attributable to the economicrecession that has adversely

 

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impacted discretionaryspending on entertainment.  The economicrecession, which began in 2008, has continued to erode revenues throughout thefirst nine months of 2009.  In addition,the Company now faces direct card room competition from Running Aces, who begantheir card room operations on June 30, 2008.  The Company believes patronage at RunningAces card room has had a material adverse effect on the Company’s card roomrevenue.  Total Card Club revenuesrepresented 48.3% and 41.1% of net revenues for the nine-month and three-monthperiods ended September 30, 2009, respectively.  See the “Summary of Card Club Data” below:

 
| ** **                     | ** ** | **Nine Months Ended Sept. 30,** | ** ** |
|--------------------------------|------------|---------------------------------|------------|
| **Summary of Card Club Data:** | ** ** | **2009**                        | ** ** | **2008** | ** ** |
|                           |       |                            |       |   |   |
| Poker Games                    |       | $                               | 8,665,000  |   | $ | 12,083,000 |   |
| Casino Games                   |       | 5,433,000                       |       | 6,052,000 |   |
| Total Collection  Revenue      |       | 14,098,000                      |       | 18,135,000 |   |
|                           |       |                            |       |   |   |
| Other Revenue                  |       | 1,115,000                       |       | 710,000 |   |
| Total Card Club Revenue        |       | $                               | 15,213,000 |   | $ | 18,845,000 |   |
|                           |       |                            |       |   |   |
| Number of Days Offered         |       | 273                             |       | 274 |   |
| Average Revenue per Day        |       | $                               | 55,725     |   | $ | 68,777 |   |

 

Concessions revenuesdecreased $584,757, or 11.3%, and $124,405, or 5.5%, for the nine-month andthree-month periods ended September 30, 2009, respectively, compared tothe same period in the prior year.  Thedecrease is primarily attributable to the decrease in card room patronage andrelated concession sales.  Additionally,there were five less live race days in 2009, resulting in decreased concessionsrevenues.

 

Total operating expensesdecreased $5,367,911, or 14.7%, and $1,169,367, or 8.8%, for the nine-month andthree-month periods ended September 30, 2009, respectively, compared tothe same period in the prior year. Factors contributing to these decreases are discussed in greater detailbelow.

 

Total expense forstatutory purses and the Minnesota Breeders’ Fund decreased 21.5% to $5,460,305for the first nine months ended September 30, 2009 compared to the firstnine months ended September 30, 2008. The decrease was due primarily to a reduction in purse and breeders’fund expenses due to lower Card Club collection revenues in the first ninemonths of 2009 compared to 2008. Additionally, beginning in July of 2008, the Company reverted topaying into the purse fund the statutory purse rate of 10% on the first $6million of gross Card Club revenues and 14% thereafter.  The Company paid 15% of Card Club revenuesinto the purse fund for the first half of 2008.

 

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

 
| ** **             | ** ** | ** **                      | ** ** | ** **                      | ** ** | **Minnesota** | ** ** |
|------------------------|------------|---------------------------------|------------|---------------------------------|------------|---------------|------------|
| ** **             | ** ** | **Purse Expense**               | ** ** | **Breeders’ Fund Expense** | ** ** |
| ** **             | ** ** | **Nine Months Ended Sept. 30,** | ** ** | **Nine Months Ended Sept. 30,** | ** ** |
| ** **             | ** ** | **2009**                        | ** ** | **2008**                        | ** ** | **2009**      | ** ** | **2008** | ** ** |
|                   |       |                            |       |                            |       |          |       |   |   |
| Card Club              |       | $                               | 1,701,000  |                            | $          | 2,493,000     |       | $ | 189,000 |   | $ | 283,000 |   |
|                   |       |                            |       |                            |       |          |       |   |   |
| Simulcast Horse Racing |       | 1,770,000                       |       | 2,116,000                       |       | 331,000       |       | 400,000 |   |
|                   |       |                            |       |                            |       |          |       |   |   |
| Live Horse Racing      |       | 1,347,000                       |       | 1,525,000                       |       | 123,000       |       | 138,000 |   |
|                   |       |                            |       |                            |       |          |       |   |   |
|                   |       | $                               | 4,818,000  |                            | $          | 6,134,000     |       | $ | 643,000 |   | $ | 821,000 |   |

 

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Salaries and benefitsdecreased $2,430,650, or 15.5%, in the 2009 nine-month period ended September 30and $524,316, or 9.9%, in the three-month period ended September 30, 2009compared to the same periods last year primarily due to savings achievedthrough a reduction-in-force that occurred in October of 2008.  Additionally, the suspension of the bonusprogram, contributions to the Company’s Employee Stock Ownership Plan (ESOP),and 401(k) match contributions, as reported in prior filings, havecontinued to provide cost savings. Advertising and marketing costs decreased $183,015, or 13.3%, in the2009 nine-month period ended September 30 and $33,276, or 5.9%, in thethree-month period ended September 30 compared to the same periods lastyear primarily as a result of lower advertising agency and related feescompared to the prior year.  In addition,utility expenses decreased $335,616, or 27.2%, and $156,955, or 29.3%, for thenine-month and three-month periods ended September 30, 2009, respectively,compared to the prior year.  Thisdecrease is attributable to the efficiencies provided by a new buildingmanagement system and decreased prices for utilities.

 

Income before incometaxes was $342,770 for the nine months ended September 30, 2009 comparedto $787,466 for the nine months ended September 30, 2008.  After income tax expense of $182,700 for thenine months ended September 30, 2009, net income was $160,070 in 2009compared to $422,666 in 2008, a decrease of $262,596 or 62.1%.  For the quarter ended September 30,2009, the Company recorded $51,195 in income before income tax expense comparedto a loss before income tax expense of $29,597 for the quarter ended September 30,2008, an increase of $80,792 or 273.0%. After income tax expense of $34,800 in the third quarter of 2009, netincome was $16,395 compared to a net loss of $40,795 for the third quarter of2008, an increase of $57,190 or 140.2%.

 

#### **Contingencies:**

#### ** **

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

 

**Liquidity and Capital Resources:**

 

Cash provided byoperating activities during the period January 1, 2009 through September,2009 was $660,901, resulting primarily from net income of $160,070,depreciation of $1,584,240, and an increase in accounts payable and accruedwages and payroll taxes of $562,963, caused primarily by a seasonal increase of$396,548 in horse racing payables.  Theseitems were offset by an increase in accounts receivable of $332,647 and anincrease in due from Minnesota horsemen associations of $1,353,173, resultingprimarily from purse overpayments.  Cashused in operating activities 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.

 

Pursuant to an agreementwith the MHBPA, during the nine months ended September 30, 2009 and 2008,the Company transferred into a trust account or paid directly to the MHBPAapproximately $5,525,000 and $6,534,091, respectively.  At September 30, 2009, the Minnesotahorsemen associations owed the Company $1,304,922 resulting from purseoverpayments by the Company during the live race meet that ended August 30,2009.

 

Net cash used ininvesting activities for the first nine months of 2009 of $522,726 resultedprimarily from upgrades to our grandstand for approximately $261,000 and thepurchase of equipment for our backside operations for approximately $167,000,offset by a decrease in our short-term investments of $284,990.  The Company expects to spend an estimated$200,000 in additional investments in property, plant, and equipment for theremainder of fiscal year 2009.  Net cash usedin investing activities for the first nine months of 2008 of $1,664,006 resultedprimarily from the purchase of a building management system for approximately$391,000, upgrades to the grandstand building of approximately $306,000, andupgrades to the Card Club of approximately $150,000.

 

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During the period January 1,2009 through September 30, 2009, cash provided by financing activitiesconsisted solely of proceeds received upon the exercise of stock options of$245,495.  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 $1,478,185and a cash dividend paid of $1,007,173 offset by proceeds and tax benefitsregarding the exercise of stock options of $162,300.

 

The Company has a generalcredit agreement with Bremer Bank, which provides a revolving credit line.  On September 30, 2009, the Companysigned an amendment with Bremer Bank extending the expiration date from September 30,2009 to June 30, 2010 and adjusting the credit line from $5,000,000 to$3,000,000.  The Company had noborrowings under the line of credit at September 30, 2009 or December 31,2008.  The credit agreement containscertain covenants requiring the Company to maintain certain financialratios.  The Company was in compliancewith these requirements at all times throughout the quarter ended September 30,2009.

 

Unrestricted cashbalances at September 30, 2009 were $4,129,401 compared to $3,745,731 at December 31,2008. The Company believes that funds available in its cash accounts, amountsavailable under the general credit and security agreement, along with fundsgenerated from operations, will be sufficient to satisfy its liquidity andcapital resource requirements during 2009 for regular operations.

 

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

##### ** **

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

 

Our significantaccounting policies are included in Note 1 to our consolidated financialstatements in our 2008 Annual Report on Form 10-K. We believe thefollowing critical accounting policies affect our more significant judgmentsand estimates used in the preparation of our consolidated financial statements.

 

*Land,Buildings and Equipment* - We have significant capital invested in our property and equipment,which represents approximately 72.9% of our total assets. We utilize ourjudgment in various ways including: determining whether an expenditure isconsidered a maintenance expense or a capital asset; determining the estimateduseful lives of assets; and determining if or when an asset has been impaired. Ourproperty and equipment is evaluated for impairment whenever circumstancesindicate that the carrying value of an asset may not be recoverable from theestimated future cash flows expected to result from its use. If the sum of theexpected future cash flows (undiscounted and without interest charges) is lessthan the carrying amount, we recognize an impairment loss. The impairment lossrecognized is the amount by which the carrying amount exceeds the fair valueand is charged to operations in the period in which such impairment isdetermined by management. We do not believe that any impairment has occurred oris likely to occur in the near future. 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 our2008 Annual Report on Form 10-K.

 

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

##### ** **

Therehave been no material changes in our outstanding commitments and contractualobligations since those reported at December 31, 2008.

 

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**Legislation:**

 

The Company did notpropose or support any legislation during the 2009 biannual session of theMinnesota Legislature that would authorize slot machines and other games at theRacetrack (referred to as a “Racino”) which we have discussed in our previousflings with the SEC, mainly because a majority of those serving in theMinnesota Legislature are considered unlikely to favorably entertain our Racinoproposal.  Based on the success ofseveral Racinos in other states, we continue to believe that if a Racino wasauthorized at the Racetrack, it would enhance horseracing with increasedpurses, provide growth and development opportunities for the Company, andprovide significant new tax revenues for state and local governments.

 

**Forward-Looking Statements:**

 

Fromtime to time, in reports filed with the Securities and Exchange Commission, inpress releases, and in other communications to shareholders or the investingpublic, the Company may make forward-looking statements concerning possible oranticipated future financial performance, business activities or plans whichare typically preceded by the words “believes,” “expects,” “anticipates,” “intends”or similar expressions.  For suchforward-looking statements, the Company claims the protection of the safeharbor for forward-looking statements contained in federal securitieslaws.  Shareholders and the investingpublic should understand that such forward-looking statements are subject torisks and uncertainties which could cause actual performance, activities orplans to differ significantly from those indicated in the forward-lookingstatements.  Such risks and uncertaintiesinclude, but are not limited to: fluctuations in attendance at the Racetrack,material changes in the level of wagering by patrons, decline in interest inthe unbanked card games offered at the Card Club, legislative and regulatorychanges, the impact of wagering products and technologies introduced bycompetitors; increases in the percentage of revenues allocated for purse fundpayments; increase in compensation and employee benefit costs; the economichealth of the gaming sector; higher than expected expense related to newmarketing initiatives; and other factors discussed under Item 1A in our Reporton Form 10-K for the year ended December 31, 2008 and in the Company’sother filings with the Securities and Exchange Commission.

 

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

 

Canterbury Park is notrequired to provide the information requested by this Item as it qualifies as asmaller 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:

 

Therehas been no change in our internal control over financial reporting (as definedin Rules 13a-15(f) under the Securities Exchange Act of 1934) thatoccurred during our fiscal quarter ended September 30, 2009 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

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**PART II**

**OTHER INFORMATION**

 

Item 1.                   **Legal Proceedings**

 

Not Applicable.

 

Item 1A.                **Risk Factors**

 

There have been nomaterial changes to the Risk Factors since those reported in the Form 10-Kfor the year ended December 31, 2008.

 

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

 

(a)   Not Applicable.

(b)   Not Applicable.

(c)   On January 16, 2008, the Company announced thatits Board of Directors had authorized a program to repurchase up to anadditional 250,000 shares of the Company’s common stock.  During the first nine months of 2009, theCompany did not repurchase any shares of common stock.  As of September 30, 2009, there are33,457 shares that the Company may buy back as a result of this repurchaseprogram.

 

Item 3.                   **Defaults Upon Senior Securities**

 

Not Applicable.

 

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

 

Not Applicable.

 

Item 5.                   **Other Information**

 

Not Applicable.

 

Item 6.                   **Exhibits**

 

(a)   The following exhibits are included herein:

 

11           Statement re computation of per share earnings — SeeNet Income Per Share under Note 1 of Notes to Consolidated Financial Statementsunder Part 1, Item 1, which is incorporated herein by reference.

 

31.1        Certification of Chief Executive Officer pursuant to Section 302of the Sarbanes-Oxley Act of 2002 (rules 13a-14 and 15d-14 of the ExchangeAct).

 

31.2        Certification of Chief Financial Officer pursuant to Section 302of the Sarbanes-Oxley Act of 2002 (rules 13a-14 and 15d-14 of the ExchangeAct).

 

32           Certfications pursuant to Section 906 of theSarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

 

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**SIGNATURES**

 

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

 
|                                | **Canterbury  Park Holding Corporation**     |
|-------------------------------------|----------------------------------------------|
|                                |                                         |
| Dated:  November 13, 2009      | /s/ Randall D. Sampson                       |
|                                | Randall D. Sampson,                          |
|                                | President, and Chief  Executive Officer      |
|                                |                                         |
| Dated:  November 13, 2009 | /s/ David C. Hansen                          |
|                                | David C. Hansen,                             |
|                                | Vice President, and  Chief Financial Officer |

 

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