**U.S. SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

 

 

(Mark One)

 

| **ý** |   | **QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002.**                                                                                                               |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                |
| **o**      |   | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM           TO           .** |

 

**CommissionFile Number 0-24554**

**Canterbury Park Holding Corporation**

(Exact name of businessissuer as specified in its charter)

 

 

| **Minnesota**                                                   |   | **41-1775532**                     |
|-----------------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |   | (IRS Employer  Identification No.) |

 

| **1100  Canterbury Road, Shakopee, Minnesota** |   | **55379**  |
|------------------------------------------------|--------|------------|
| (Address of principal  executive offices)      |   | (Zip Code) |

 

**(952)445-7223**

(Issuer’sTelephone Number)

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports, and (2) has been subject to such filing requirements for the past90 days.   YES ý   NO o

 

The Company had 3,562,174 shares of common stock, $.01 par value pershare, outstanding as of May 8, 2002.

 

 

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Canterbury Park HoldingCorporation

 

INDEX

 

|      |                   |                                                                                 |   |
|-----------|------------------------|--------------------------------------------------------------------------------------|--------|
| PART  1.  | FINANCIAL  INFORMATION |                                                                                 |   |
|      |                   |                                                                                 |   |
|      | Item  1.               | Financial  Statements                                                                |   |   |
|      |                   |                                                                                 |   |
|      |                   | Consolidated Balance Sheets  as of March 31, 2002 and December 31, 2001              |   |   |
|      |                   |                                                                                 |   |   |
|      |                   | Consolidated  Statements of Income for the periods ended March 31, 2002 and 2001     |   |   |
|      |                   |                                                                                 |   |   |
|      |                   | Consolidated  Statements of Cash Flows for the periods ended March 31, 2002 and 2001 |   |   |
|      |                   |                                                                                 |   |   |
|      |                   | Notes to  Consolidated Financial Statements                                          |   |   |
|      |                   |                                                                                 |   |
|      | Item  2.               | Management’s  Discussion and Analysis                                           |   |   |
|      |                   |                                                                                 |   |
|      | Item  3.               | Quantitative  and Qualitative Disclosure about Market Risk                           |   |   |
|      |                   |                                                                                 |   |
|      |                   |                                                                                 |   |
| PART  II. | OTHER  INFORMATION     |                                                                                 |   |
|      |                   |                                                                                 |   |
|      | Signatures             |                                                                                 |   |

 

 

2

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**Item 1****:**

**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY**

 

**CONSOLIDATEDBALANCE SHEETS**

**MARCH 31, 2002 AND DECEMBER 31, 2001**

 
|                                                                                                                               |   | **March 31,**

**2002** |       | **December  31,**

**2001** |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|-----------------------------|--------|
| **ASSETS**                                                                                                                         |   |                    |       |                        |   |
|                                                                                                                               |   |                    |       |                        |   |
| CURRENT ASSETS                                                                                                                     |   |                    |       |                        |   |
| Cash                                                                                                                               |   | $                       | 4,191,732  |                        | $      | 3,088,844 |   |
| Accounts  receivable                                                                                                               |   | 291,290                 |       | 556,192                     |   |
| Inventory                                                                                                                          |   | 109,623                 |       | 113,324                     |   |
| Deposits                                                                                                                           |   | 20,000                  |       | 45,000                      |   |
| Prepaid expenses                                                                                                                   |   | 286,056                 |       | 300,845                     |   |
| Total current  assets                                                                                                              |   | 4,898,701               |       | 4,104,205                   |   |
|                                                                                                                               |   |                    |       |                        |   |
|                                                                                                                               |   |                    |       |                        |   |
| PROPERTY AND  EQUIPMENT, net of accumulated depreciation of $6,716,132 and $6,425,974,  respectively                               |   | 13,321,360              |       | 12,439,413                  |   |
|                                                                                                                               |   |                    |       |                        |   |
|                                                                                                                               |   |                    |       |                        |   |
|                                                                                                                               |   | $                       | 18,220,061 |                        | $      | 16,543,618 |   |
|                                                                                                                               |   |                    |       |                        |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                     |   |                    |       |                        |   |
|                                                                                                                               |   |                    |       |                        |   |
| CURRENT  LIABILITIES                                                                                                               |   |                    |       |                        |   |
| Accounts payable                                                                                                                   |   | $                       | 1,393,874  |                        | $      | 1,683,092 |   |
| Card club  accruals                                                                                                                |   | 1,399,086               |       | 1,058,465                   |   |
| Accrued wages  and payroll taxes                                                                                                   |   | 822,260                 |       | 782,461                     |   |
| Accrued interest                                                                                                                   |   | 1,689                   |       | 15,878                      |   |
| Advance from  MHBPA                                                                                                                |   | 335,777                 |       | 373,240                     |   |
| Accrued property  taxes                                                                                                            |   | 292,294                 |       | 237,784                     |   |
| Income taxes  payable                                                                                                              |   | 550,717                 |       | 134,330                     |   |
| Payable to  horsepersons                                                                                                           |   | 312,665                 |       | 235,158                     |   |
| Deferred tax  liability                                                                                                            |   | 136,000                 |       | 168,000                     |   |
| Total current  liabilities                                                                                                         |   | 5,244,362               |       | 4,688,408                   |   |
|                                                                                                                               |   |                    |       |                        |   |
| COMMITMENTS AND  CONTINGENCIES (Note 4)                                                                                            |   |                    |       |                        |   |
|                                                                                                                               |   |                    |       |                        |   |
| STOCKHOLDERS’  EQUITY                                                                                                         |   |                    |       |                        |   |
| Common stock,  $.01 par value, 10,000,000 shares authorized, 3,556,674 and 3,529,324,  respectively, shares issued and outstanding |   | 35,567                  |       | 35,293                      |   |
| Additional  paid-in capital                                                                                                        |   | 10,429,426              |       | 10,240,249                  |   |
| Accumulated  earnings                                                                                                              |   | 2,510,706               |       | 1,579,668                   |   |
| Total  stockholders’ equity                                                                                                   |   | 12,975,699              |       | 11,855,210                  |   |
|                                                                                                                               |   | $                       | 18,220,061 |                        | $      | 16,543,618 |   |
|                                                                                                                               |   |                    |       |                        |   |
| See notes to  consolidated financial statements.                                                                                   |   |                    |       |                        |   |

 

 

3

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY**

 

**CONSOLIDATEDSTATEMENTS OF INCOME**

**PERIODS ENDED MARCH 31, 2002 AND 2001**

 
|                                             |   | **Three  Months Ended**

**March 31,  2002** |      | **Three  Months Ended**

**March 31,  2001** |   |
|--------------------------------------------------|--------|----------------------------------------------|-----------|----------------------------------------------|--------|
|                                             |   |                                         |      |                                         |   |
| OPERATING  REVENUES:                             |   |                                         |      |                                         |   |
| Pari-mutuel                                      |   | $                                            | 3,340,284 |                                         | $      | 3,065,438 |   |
| Card Club                                        |   | 4,541,776                                    |      | 3,973,403                                    |   |
| Concessions                                      |   | 781,815                                      |      | 693,237                                      |   |
| Admissions and  parking                          |   | 31,959                                       |      | 35,834                                       |   |
| Programs and  racing forms                       |   | 134,076                                      |      | 126,783                                      |   |
| Other operating  revenue                         |   | 117,313                                      |      | 139,550                                      |   |
|                                             |   | 8,947,223                                    |      | 8,034,245                                    |   |
|                                             |   |                                         |      |                                         |   |
| OPERATING  EXPENSES:                             |   |                                         |      |                                         |   |
| Pari-mutuel  expenses                            |   |                                         |      |                                         |   |
| Statutory purses                                 |   | 870,196                                      |      | 725,662                                      |   |
| Host track fees                                  |   | 554,658                                      |      | 488,728                                      |   |
| Pari-mutuel  taxes                               |   | 52,520                                       |      | 36,476                                       |   |
| Minnesota breeders’  fund                   |   | 239,706                                      |      | 209,555                                      |   |
| Salaries and  benefits                           |   | 3,420,549                                    |      | 3,306,256                                    |   |
| Cost of  concession sales                        |   | 317,596                                      |      | 340,210                                      |   |
| Cost of  publication sales                       |   | 148,738                                      |      | 145,149                                      |   |
| Depreciation and  amortization                   |   | 290,158                                      |      | 230,904                                      |   |
| Utilities                                        |   | 188,825                                      |      | 293,805                                      |   |
| Repairs,  maintenance and supplies               |   | 300,373                                      |      | 162,644                                      |   |
| Property taxes                                   |   | 54,510                                       |      | 53,643                                       |   |
| Advertising and  marketing                       |   | 265,444                                      |      | 223,514                                      |   |
| Other operating  expenses                        |   | 663,844                                      |      | 576,357                                      |   |
|                                             |   | 7,367,117                                    |      | 6,792,903                                    |   |
|                                             |   |                                         |      |                                         |   |
| NONOPERATING  (EXPENSES) REVENUES:               |   |                                         |      |                                         |   |
| Interest expense                                 |   | (5,660                                       | )         | (6,259                                       | )      |
| Other, net                                       |   | 6,953                                        |      | 18,537                                       |   |
|                                             |   | 1,293                                        |      | 12,278                                       |   |
|                                             |   |                                         |      |                                         |   |
| INCOME BEFORE  INCOME TAX EXPENSE                |   | 1,581,399                                    |      | 1,253,620                                    |   |
|                                             |   |                                         |      |                                         |   |
| INCOME TAX  EXPENSE (Note 1)                     |   | (650,361                                     | )         | (530,000                                     | )      |
|                                             |   |                                         |      |                                         |   |
| NET INCOME                                       |   | $                                            | 931,038   |                                         | $      | 723,620 |   |
|                                             |   |                                         |      |                                         |   |
|                                             |   |                                         |      |                                         |   |
| BASIC NET INCOME  PER COMMON SHARE (Note 1)      |   | $                                            | .26       |                                         | $      | .21 |   |
|                                             |   |                                         |      |                                         |   |
| DILUTED NET  INCOME PER COMMON SHARE (Note 1)    |   | $                                            | .24       |                                         | $      | .20 |   |
|                                             |   |                                         |      |                                         |   |
| See notes to  consolidated financial statements. |   |                                         |      |                                         |   |

 

 

4

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**PERIODS ENDED MARCH 31, 2002 AND 2001**

 
|                                                                     |   | **Three  Months Ended**

**March 31,  2002** |      | **Three  Months Ended**

**March 31,  2001** |   |
|--------------------------------------------------------------------------|--------|----------------------------------------------|-----------|----------------------------------------------|--------|
|                                                                     |   |                                         |      |                                         |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                   |   |                                         |      |                                         |   |
| Net income                                                               |   | $                                            | 931,038   |                                         | $      | 723,620 |   |
| Adjustments to  reconcile net income to net cash provided by operations: |   |                                         |      |                                         |   |
| Depreciation and  amortization                                           |   | 290,158                                      |      | 230,904                                      |   |
| Decrease in  deferred income taxes                                       |   | 20,300                                       |      | 189,100                                      |   |
| Decrease in  accounts receivable                                         |   | 264,902                                      |      | 148,126                                      |   |
| Decrease in  other current assets                                        |   | 43,490                                       |      | 10,398                                       |   |
| Increase in  income taxes payable                                        |   | 416,387                                      |      | 38,400                                       |   |
| Increase in  accounts payable and accrued expenses                       |   | 168,709                                      |      | 1,099,086                                    |   |
| (Decrease)  increase in accrued interest                                 |   | (14,189                                      | )         | 5,846                                        |   |
| Increase in  accrued property taxes                                      |   | 54,510                                       |      | 53,643                                       |   |
| Net cash  provided by operations                                         |   | 2,175,305                                    |      | 2,499,123                                    |   |
|                                                                     |   |                                         |      |                                         |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                   |   |                                         |      |                                         |   |
| Additions to  property and equipment                                     |   | (1,172,105                                   | )         | (528,727                                     | )      |
|                                                                     |   |                                         |      |                                         |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                   |   |                                         |      |                                         |   |
| Proceeds from  issuance of common stock                                  |   | 137,151                                      |      | 34,312                                       |   |
| (Payment on)  proceeds from advance from MHBPA, net                      |   | (37,463                                      | )         | 88,911                                       |   |
| Net cash  provided by financing activities                               |   | 99,688                                       |      | 123,223                                      |   |
|                                                                     |   |                                         |      |                                         |   |
| NET INCREASE IN  CASH                                                    |   | 1,102,888                                    |      | 2,093,619                                    |   |
|                                                                     |   |                                         |      |                                         |   |
| CASH AT  BEGINNING OF PERIOD                                             |   | 3,088,844                                    |      | 1,198,849                                    |   |
|                                                                     |   |                                         |      |                                         |   |
| CASH AT END OF  PERIOD                                                   |   | $                                            | 4,191,732 |                                         | $      | 3,292,468 |   |
|                                                                     |   |                                         |      |                                         |   |
|                                                                     |   |                                         |      |                                         |   |
| See notes to  consolidated financial statements.                         |   |                                         |      |                                         |   |

 

 

5

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# **CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARY**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**PERIODS ENDED MARCH 31, 2002 AND 2001**

 

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The summary of significantaccounting policies is included in the notes to consolidated financialstatements in the 2001 Annual Report on Form 10-KSB.

 

*Income Taxes* - Income tax expense is computed byapplying the estimated annual effective tax rate to the year-to-date income.

 

*Unaudited Financial Statements* - The consolidated balance sheet as ofMarch 31, 2002, the consolidated statements of operations for the three monthsended March 31, 2002 and 2001, the consolidated statements of cash flows forthe three months ended March 31, 2002 and 2001, and the related informationcontained in these notes have been prepared by management without audit.  In

the opinion ofmanagement, all accruals (consisting of normal recurring accruals) which arenecessary for a fair presentation of financial position and results ofoperations for such periods have been made. Results for an interim period should not be considered as indicative ofresults for a full year.

 

*NetIncome Per Share —*Basicnet income per common share is based on the weighted average number of commonshares outstanding during each period. The weighted average number of commonshares outstanding for the three months ended March 31, 2002 and March 31, 2001were 3,537,262 and 3,479,491, respectively. Diluted net income per common share takes into effect the dilutiveeffect of potential common shares outstanding. The Company’s only 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 months ended March 31, 2002and 2001 were 3,841,099 and 3,707,557, respectively.

 

 

2.     BORROWINGS UNDER CREDIT AGREEMENT

 

Borrowings underthe Company’s credit agreement with Bremer Bank include a commercial revolvingcredit line which provides for maximum advances of $2,250,000 with interest atthe prime rate.  The Company had noborrowings under this credit line at March 31, 2002.  The credit agreement contains certain covenants requiring theCompany to maintain certain financial ratios. The Company was in compliance with these requirements as of March 31,2002.  Management believes that fundsavailable under this line of credit, along with funds generated from card cluband simulcast operations, will be sufficient to satisfy its liquidity andcapital resource requirements during 2002.

 

 

6

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3.     OPERATING SEGMENTS

 

During the firstthree months of 2002 and 2001, the Company had three reportable operatingsegments:  card club, horse racing andconcessions.  The card club segmentincludes operations of the Canterbury Card Club. The horse racing segmentincludes simulcast and live racing operations, and the concessions segmentprovides concessions during simulcast and live racing, in the card club andduring special events.  The Company’sreportable operating segments are strategic business units that offer differentproducts and services.  They are managedseparately because the segments differ in the nature of the products andservices provided as well as processes to produce those products andservices.  The horse racing and cardclub segments are regulated by the State of Minnesota Racing Commission.

 

The accountingpolicies of the operating segments are the same as those described in thesummary of significant accounting policies.

 

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

 

 

The followingtable provides information about the Company’s operating segments (in 000’s):

 
|                                |   | **Three Months  Ended March 31, 2002** |   |
|-------------------------------------|--------|----------------------------------------|--------|
|                                |   | **Card Club**                          |   | **Horse  Racing** |   | **Concessions** |   | **Total** |   |
|                                |   |                                   |   |   |   |   |   |   |   |
| Revenues from  external customers   |   | $                                      | 4,542  |   | $ | 3,623 |   | $ | 782 |   | $ | 8,947 |   |
| Intersegment  revenues              |   |                                   |   | 41 |   | 292 |   | 333 |   |
| Net Interest  expense               |   |                                   |   | (1 | ) |   |   | (1 | ) |
| Depreciation and  amortization      |   | 136                                    |   | 154 |   |   |   | 290 |   |
| Segment income  before income taxes |   | 1,068                                  |   | 513 |   | 111 |   | 1,692 |   |
| Segment Assets                      |   | $                                      | 4,264  |   | $ | 13,906 |   | $ | 621 |   | $ | 18,791 |   |

 
|                                |   | **Three  Months Ended March 31, 2001** | ** ** |
|-------------------------------------|--------|----------------------------------------|------------|
|                                |   | **Card Club**                          |       | **Horse  Racing** |   | **Concessions** |   | **Total** | ** ** |
|                                |   |                                   |       |   |   |   |   |   |   |
| Revenues from  external customers   |   | $                                      | 3,973      |   | $ | 3,361 |   | $ | 699 |   | $ | 8,034 |   |
| Intersegment  revenues              |   |                                   |       | 98 |   | 298 |   | 397 |   |
| Net Interest  expense               |   |                                   |       | (12 | ) |   |   | (12 | ) |
| Depreciation and  amortization      |   | 102                                    |       | 129 |   |   |   | 231 |   |
| Segment income  before income taxes |   | 842                                    |       | 411 |   | 28 |   | 1,282 |   |
|                                     |        |                                        |            |  |  |  |  |  |  |  |  |  |  |

 
|           |   | **Twelve  Months Ended December 31, 2001** | ** ** |
|----------------|--------|--------------------------------------------|------------|
|           |   |                                       |       |   |   |   |   |   |   |
| Segment Assets |   | $                                          | 11,962     |   | $ | 4,493 |   | $ | 522 |   | $ | 16,977 |   |
|                |        |                                            |            |  |  |  |  |  |  |  |  |  |  |

 

 

 

7

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

 
| **Revenues**                                            |   | **Quarter  Ended**

**March  31,2002** |       | **Quarter  Ended**

**March  31,2001** |   |
|---------------------------------------------------------|--------|----------------------------------------|------------|----------------------------------------|--------|
| Total revenue  for reportable segments                  |   | $                                      | 9,280      |                                   | $      | 8,431 |   |
| Elimination of  intersegment revenues                   |   | (333                                   | )          | (397                                   | )      |
| Total  consolidated revenues                            |   | 8,947                                  |       | 8,034                                  |   |
|                                                    |   |                                   |       |                                   |   |
|                                                    |   |                                   |       |                                   |   |
| **Income before income taxes**                          |   |                                   |       |                                   |   |
| Total segment  income before income taxes               |   | $                                      | 1,692      |                                   | $      | 1,282 |   |
| Elimination of  intersegment income before income taxes |   | (111                                   | )          | (28                                    | )      |
| Total  consolidated income before income taxes          |   | 1,581                                  |       | 1,254                                  |   |
|                                                    |   |                                   |       |                                   |   |
|                                                    |   |                                   |       |                                   |   |
| **Assets**                                              |   | **March 31,2002**                      | ** ** | **December  31, 2001**            |   |
| Total assets for  reportable segments                   |   | $                                      | 18,791     |                                   | $      | 16,977 |   |
| Elimination of  intercompany receivables                |   | (571                                   | )          | (433                                   | )      |
| Total consolidated  assets                              |   | 18,220                                 |       | 16,544                                 |   |

 

 

4.     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, 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 the date (if any) that these twoconditions are met, the five minimum payments will be discounted back to theirpresent value and the sum of those discounted payments will be recorded as anincrease to the purchase price.  Thepurchase price will be further increased if payments become due under the 20%of Net Pre-Tax Profit calculation.  Thefirst payment is to be made 90 days after the end of the third operating yearin which off-track betting is conducted by the Company.  Remaining payments would be made within 90days of the end of each of the next four operating years.

 

The Company isperiodically involved in various legal actions arising in the normal course ofbusiness.  At March 31, 2002, managementbelieves that the resolution of any legal actions outstanding will not have amaterial impact on the consolidated financial statements.

 

The MinnesotaDepartment of Labor and Industry (DOL&I) is conducting an audit for theperiod April 10, 1999 through April 10, 2001 regarding compliance with the tiplaw sections of the Minnesota Fair Labor Standards Act.  At March 31, 2002, the Company has receivedno communications from the DOL&I regarding the disposition of theiraudit.  Management believes that theCompany’s practices regarding tips are consistent with the requirements ofMinnesota law.

 

 

8

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5.     CURRENT ACCOUNTING PRONOUNCEMENTS

 

 

In conjunctionwith the issuance of the new guidance for business combinations, the FASB alsoissued SFAS No. 142, *Goodwill and OtherIntangible Assets*, which addresses the accounting and reporting foracquired goodwill and other intangible assets and supersedes APB Opinion17.  Under the provisions of SFAS No.142, intangible assets acquired in a business combination, which do not possessfinite useful lives will no longer be amortized into net income over anestimated useful life but rather will be tested for impairment at leastannually based on specific guidance provided in the new standard.  The company adopted SFAS No. 142 on January1, 2002, which had no material impact on the Company’s financial statements.

 

The FASB alsoissued SFAS no. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets*, which is required to beadopted for fiscal years beginning after December 15, 2001.  SFAS No. 144 establishes accounting andreporting standards for the impairment or disposal of long-lived assets.  The provisions of SFAS No. 144 becameeffective for the Company on January 1, 2002 and did not have a material impacton its financial position and results of operations.

 

 

9

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**Item 2****:**  **MANAGEMENT’SDISCUSSION AND ANALYSIS**

 

**General:**

 

Canterbury Park Holding Corporation (the “Company”)owns and operates Canterbury Park Racetrack and Card Club in Shakopee,Minnesota.  The primary businesses ofthe Company are pari-mutuel horse racing, hosting unbanked card games, and foodand beverage operations.

 

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

 

 The CanterburyCard Club (the “Card Club”) is the only facility in the State of Minnesotagiven the legislative authority to host unbanked card games in which playerscompete against each other and not against the house.  The Company receives a percentage of the wagers from the playersas compensation for providing the Card Club facility and services.  Card Club operations commenced on April 19,2000.  The Card Club is open twenty-fourhours a day, seven days a week.

 

 The Companygenerates revenues from admissions, parking, publication sales, facility rentalfor special events, vehicle storage, advertising and other sources.

 

The Minnesota RacingCommission is authorized by Minnesota law to regulate Card Club and horseracing operations.  The law requiresthat up to 14% of the gross revenue generated by the Card Club be paid to theRacetrack’s purse fund and the State of Minnesota Breeders’ Fund.  The original 15,828 square foot Card Club,constructed within the Racetrack grandstand facility, was completed inmid-April 2000 and provided room for approximately 40 tables.  In May 2001, the Company completedconstruction of an expansion of the Card Club to create space for 50 tables,the maximum allowed by Minnesota law. The total cost of approximately $1.1 million for the expansion andrelated furniture, fixtures and equipment was funded with cash flows fromoperations.

 

 

**Resultsof Operations for the Three Months Ended March 31, 2002 and March 31, 2001:**

 

                During the firstthree months of 2002 the Company conducted 90 simulcast racing days.  Total wagering handle for the quarters endedMarch 31, 2002 and 2001 was $16,107,524 and $14,584,065, respectively.

 

                Pari-mutuelrevenue or “take-out” (gross wagering after deducting statutorily mandatedamounts from the handle to be paid to winning bettors) for the quarters endingMarch 31, 2002 and 2001 was $3,340,284 and $3,065,438, respectively.  Total pari-mutuel expenses including statepari-mutuel taxes, contributions to the Minnesota Breeders’ Fund, statutorypurses and host fees were $1,717,080 and $1,460,421 for the quarters endingMarch 31, 2002 and 2001, respectively. The increase is due primarily to statutory purse expense and breeders’fund expense related to the Card Club operations, which amounted to $612,084for the three months ended March 31, 2002.

 

                Card Club revenuesincreased 14.3% to $4,541,776 for the first three months of 2002 compared to$3,973,403 for the same period in 2001. The increase is primarily due to a full quarter of expanded card gamesfrom 38 tables in 2001 to 50 tables in 2002.

 

                Concessionrevenues increased to $781,815 for the quarter ended March 31, 2002 compared to$693,237 for the first quarter of 2001, primarily due to concession sales inthe Card Club.  The Company 

 

 

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also hosted three snowmobile racing weekends in 2002 compared to twoweekends of snowmobile racing during the first quarter of 2001.

 

                Operating expenses in the first quarter of 2002(excluding pari-mutuel expenses) increased by approximately $317,555 or 6.0%,compared to 2001 primarily due to the operation of the expanded Card Club andpreparation for the live racing meet. Salary and benefit costs, increased $114,293,or 3.5% compared to thesame period last year.  Repairs,maintenance & supplies increased $137,729 or 84.6% primarily due tosignificant repairs to the backside administration building and periodic liveracing preparation expenses.  Utilitiesdecreased $104,980 or 35.7% primarily due to the relatively mild winter andrates continuing to fall compared to 2001.

 

Income before income taxes increased $327,779, or26.1%, to $1,581,399 for the three months ended March 31, 2002, from $1,253,620for the three months ended March 31, 2001. Income tax expense was $650,361 and $530,000 for the first quarter of2002 and 2001, respectively, resulting in net income of $931,038 and $723,620,respectively.

 

 

Commitments and Contingencies

 

                There have been nomaterial changes in our outstanding commitments and contingencies since thosereported at December 31, 2001.

 

 

Liquidity and Capital Resources:

 

                Cash provided byoperating activities for the three months ended March 31, 2002 of $2,175,305resulted principally from net income of $931,038, an increase in income taxespayable of $416,387, depreciation and amortization of $290,158, a decrease inaccounts receivable of $264,902 and an increase in accounts payable and accruedexpenses of $168,709. During the period January 1, 2001 through March 31, 2001,cash provided by operating activities was $2,499,123, which resultedprincipally from net income of $723,620, an increase in accounts payable andaccrued expenses of $1,099,086 depreciation and amortization of $230,904, a decreasein deferred income taxes of $189,100 and a decrease in accounts receivable of$148,126.

 

Net cash used in investing activities for the firstquarter of 2002 of $1,172,105 resulted primarily from the purchase of 12 acresof land just south of the main parking lot, and acquisitions of equipment. Thiscompared to $528,727 in the first quarter of 2001, related primarily to theexpansion of the Card Club.

 

                Cash provided byfinancing activities during the first three months of 2002 consisted ofproceeds received upon the exercise of stock options of $137,151 partiallyoffset by net payments on the advance from the Minnesota Horsemen’s Benevolentand Protective Association (the “MHBPA”) of $37,463. Cash provided by financingactivities during the first three months of 2001 consisted of proceeds receivedupon the exercise of stock options of $34,312, and proceeds from the advancefrom the MHBPA of $88,911.

 

                The Company isrequired by statute to segregate a portion of funds received from revenues inthe Card Club and wagering on simulcast and live horse races for future paymentas purses for live horse races at the Racetrack or other uses of Minnesota’shorsepersons associations.  Pursuant toan agreement with the MHBPA, during the three months ended March 31, 2002 and2001, the Company transferred into a trust account for these purposes or paiddirectly to the MHBPA approximately $850,000 and $500,000 respectively.  At March 31, 2002, the Company had anadditional liability to MHBPA of $335,777. This liability will be paid in 2002, including interest earned at theprime-lending rate, in accordance with the agreement with the MHBPA.

 

 

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The Company has a creditagreement with Bremer Bank.  Borrowingsunder the credit agreement include a commercial revolving credit line providingfor maximum advances of $2,250,000 with interest at the prime rate.  The Company had no borrowings under the lineof credit at March 31, 2002 or December 31, 2001.  The credit agreement contains certain covenants requiring theCompany to maintain certain financial ratios. The Company was in compliance with these requirements as of March 31,2002.

 

                Cash balances atMarch 31, 2002 were $4,191,732 compared to $3,088,844 at December 31, 2001.  The Company believes that funds available inits cash accounts, amounts available under the general credit and securityagreement, along with funds generated from operations, will be sufficient tosatisfy its liquidity and capital resource requirements during 2002.

 

 

CriticalAccounting Policies:

* *

In preparing thefinancial statements, we follow accounting principles generally accepted in theUnited States of America, which in many cases require us to make assumptions,estimates and judgments that affect the amounts reported.  Many of these policies are relativelystraightforward.  There are, however, afew policies that are critical because they are important in determining thefinancial condition and results of operations and they can be difficult to apply.  We believe that the most critical accountingpolicies applied in the preparation of our financial statements relate to: a)accounting for contingencies, under which we accrue a loss when it is probablethat a liability has been incurred and the amount can be reasonably measured;and b) measuring long-term assets for impairment.  An impairment loss would be measured by the amount by which thecarrying value of the asset exceeds the fair value of the asset.  To date, management has determined that noimpairment of these assets exists.

 

The difficulty inapplying these policies arises from the assumptions, estimates and judgmentsthat have to be made currently about matters that are inherently uncertain,such as future economic conditions, operating results and valuations as well asmanagement intentions.  As thedifficulty increases, the level of precision decreases, meaning that actualresults can and probably will be different from those currently estimated.  We base our assumptions, estimates and judgmentson a combination of historical experience and other reasonable factors.

 

 

Operating Plan:

 

In 2001 the Company successfully conducted its seventhconsecutive live race meet.  The Companyplans a 62-day live race meet in 2002 consisting of 27 days of mixedThoroughbred and Quarter Horse racing, and 35 days of Thoroughbred onlyracing.  The Company competes withracetracks located throughout the United States in securing the better qualityhorses to run at the Racetrack. Attracting the owners and trainers of better quality horses is largelyinfluenced by the ability to offer large purses.  Prior to the 2000 live meet, the Company offered consistentlevels of purse monies from year to year by limiting the number of live racingdays and utilizing purse monies from simulcasting and live race wagering.  However, since the commencement of Card Cluboperations in 2000, the Company has been able to offer significant purseincreases during the 2001 and 2000 live race meets.  The Company continues to experience stiff competition for betterquality horses from a racetrack located near Des Moines, Iowa, as well asracetracks near Chicago, Illinois, which offer substantially larger purses.

 

The Company anticipatesthat it will continue to improve its profitability in the year 2002 mainly dueto a full year of operation of the expanded Card Club.  The expansion of the Card Club haspositively affected operating results since its completion in May 2001.  In addition, management anticipates it willbe able to maintain levels of attendance and handle for live and simulcastracing at or near levels similar to previous years.  The Company is hopeful that higher purse rates in 2002 continueto draw better quality horses and increase attendance compared to the year2001.  The Company continues to pursuespecial events and to market its facility as a venue for large outdoor andindoor events.

 

 

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                Management intendsto continue pursuing legislation for additional potential sources ofrevenue.  However, these efforts couldalso result in increased legislative related expenses in the future.

 

 

Factors Affecting Future Performance:

 

           From time to time, in reports filedwith the Securities and Exchange Commission, in press releases, and in othercommunications to shareholders or the investing public, the Company may makeforward-looking statements concerning possible or anticipated future financialperformance, business activities or plans which are typically preceded by the words“believes,” “expects,” “anticipates,” “intends” or similar expressions.  For such forward-looking statements, theCompany claims the protection of the safe harbor for forward-looking statementscontained in federal securities laws. Shareholders and the investing public should understand that suchforward-looking statements are subject to risks and uncertainties which couldcause actual performance, activities or plans to differ significantly fromthose indicated in the forward-looking statements.  Such risks and uncertainties include, but are not limited to:fluctuations in attendance at the Racetrack, changes in the level of wageringby patrons, continued interest in the unbanked card games offered at the CardClub, legislative and regulatory changes, the impact of wagering products andtechnologies introduced by competitors; upward pressure on salary and benefitexpense due to the tight labor market; the general health of the gaming sector;higher than expected expense related to new marketing initiatives; and otherfactors discussed from time to time in the Company’s filings with theSecurities and Exchange Commission.

 

** **

** **

**Item 3****: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

** **

Weare exposed to market risk from changes in interest rates on borrowings underour commercial revolving credit line that bears interest at the primerate.  At March 31, 2002 we have no debtborrowings under our credit facility.

 

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

 

 

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PART II

OTHER INFORMATION

 

Item 1.                    Legal Proceedings

 

                                None

 

Item 2.                    Changes in Securities andUse of Proceeds

 

                                None

 

Item 3.                    Defaults Upon SeniorSecurities

 

                                None

 

Item 4.                    Submission of Matters to aVote of Security Holders

 

                                None

 

Item 5.                    Other Information

 

                                None

 

Item 6.                    Exhibits and Reports on Form8-K

 

                                (a)           Exhibits

 

                                                None

 

                                (b)           Reports on Form 8-K

 

                                                None

 

SIGNATURES

 

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

 

|                       |   | Canterbury Park Holding Corporation         |
|----------------------------|--------|---------------------------------------------|
|                       |   |                                        |
| Dated:  May  15, 2002 |   | /s/ Randall D.  Sampson                     |
|                       |   | Randall D. Sampson,                         |
|                       |   | President, and Chief Executive Officer      |
|                       |   |                                        |
|                       |   | /s/ David C.  Hansen                        |
|                       |   | David C. Hansen,                            |
|                       |   | Vice President, and Chief Financial Officer |
|                       |   |                                        |

 

 

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