**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

**(MarkOne)**

**x****         ****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**FOR THEQUARTERLY PERIOD ENDED MARCH 31, 2008.**

** **

**OR**

** **

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

 

**FOR THETRANSITION PERIOD FROM           TO          .**

 

**Commission File Number:  001-31569**

 

****

 

**CANTERBURY PARK HOLDING CORPORATION**

(Exact Name of Registrant as Specified in Its Charter)

 

| **Minnesota**                                                     |   | **41-1775532**                        |
|-------------------------------------------------------------------|--------|---------------------------------------|
| (State or Other  Jurisdiction

of Incorporation  or Organization) |   | (I.R.S. Employer  Identification No.) |

 

**1100Canterbury Road**

**Shakopee, MN 55379**

(Address ofprincipal executive offices and zip code)

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.
|   | YES  o |   | NO  x |   |
|--------|------------------|--------|-----------------|--------|

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.
|   | YES  o |   | NO  x |   |
|--------|------------------|--------|-----------------|--------|

 

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

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large  accelerated filer o                     |   | Accelerated  filer o         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company x |
| (Do not check if  a smaller reporting company) |   |                              |

 

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

 

TheCompany had 4,046,310 shares of common stock, $.01 par value, outstanding as ofMay 9, 2008.

 

 

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Canterbury ParkHolding Corporation

 

#### **INDEX**

#### ** **

| ** **        | ** **                | ** **                                                                                  | **Page**   |
|-------------------|---------------------------|---------------------------------------------------------------------------------------------|------------|
|              |                      |                                                                                        |       |
| **PART I.**  | **FINANCIAL INFORMATION** | ** **                                                                                  |
| ** **        | ** **                | ** **                                                                                  | ** ** |
|              | Item 1.                   | Financial Statements                                                                        |       |
|              |                      |                                                                                        |       |
|              |                      | Consolidated Balance  Sheets as of March 31, 2008 and December 31, 2007           | 3          |
|              |                      |                                                                                        |       |
|              |                      | Consolidated  Statements of Operations for the periods ended March 31, 2008 and 2007   | 4          |
|              |                      |                                                                                        |       |
|              |                      | Consolidated  Statements of Cash Flows for the periods ended March 31, 2008 and 2007   | 5          |
|              |                      |                                                                                        |       |
|              |                      | Notes  to Consolidated Financial Statements                                                 | 6          |
|              |                      |                                                                                        |       |
|              | Item 2.                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 13         |
|              |                      |                                                                                        |       |
|              | Item 3.                   | Quantitative  and Qualitative Disclosures about Market Risk                                 | 18         |
|              |                      |                                                                                        |       |
|              | Item 4.                   | Controls and  Procedures                                                                    | 18         |
|              |                      |                                                                                        |       |
| **PART II.** | **OTHER INFORMATION**     |                                                                                        |
| ** **        | ** **                |                                                                                        |
|              | Item 1.                   | Legal Proceedings                                                                           | 19         |
|              |                      |                                                                                        |       |
|              | Item 1A.                  | Risk Factors                                                                                | 19         |
|              |                      |                                                                                        |       |
|              | Item 2.                   | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 19         |
|              |                      |                                                                                        |       |
|              | Item 3.                   | Defaults Upon  Senior Securities                                                            | 19         |
|              |                      |                                                                                        |       |
|              | Item 4.                   | Submission  of Matters to a Vote of Security Holders                                        | 19         |
|              |                      |                                                                                        |       |
|              | Item 5.                   | Other Information                                                                           | 19         |
|              |                      |                                                                                        |       |
|              | Item 6.                   | Exhibits                                                                                    | 19         |
|              |                      |                                                                                        |       |
|              | Signatures                | 20                                                                                          |
|              |                      |                                                                                        |       |
|              | Certifications            |                                                                                        |

 

2

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**PART 1- FINANCIAL INFORMATION**

 

**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**MARCH 31,2008 AND DECEMBER 31, 2007 (Unaudited)**

 
| ** **                                                                                                                         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                         | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| **ASSETS**                                                                                                                         |       |               |       |                  |       |
| CURRENT ASSETS                                                                                                                     |       |               |       |                  |       |
| Cash                                                                                                                               |       | $                  | 7,558,949  |                  | $          | 7,050,389 |   |
| Restricted cash                                                                                                                    |       | 2,308,999          |       | 2,032,632             |       |
| Short-term  investments                                                                                                            |       | 82,160             |       | 80,688                |       |
| Accounts  receivable, net of allowance of $9,325 and $46,400                                                                       |       | 713,439            |       | 749,782               |       |
| Inventory                                                                                                                          |       | 170,561            |       | 169,801               |       |
| Prepaid expenses                                                                                                                   |       | 354,669            |       | 453,350               |       |
| Income taxes  receivable                                                                                                           |       | 38,391             |       | 215,594               |       |
| Deferred income  taxes                                                                                                             |       | 381,500            |       | 295,900               |       |
| Total current  assets                                                                                                              |       | 11,608,668         |       | 11,048,136            |       |
|                                                                                                                               |       |               |       |                  |       |
| LONG-TERM ASSETS                                                                                                                   |       |               |       |                  |       |
| Deposits                                                                                                                           |       | 20,000             |       | 20,000                |       |
| Land, buildings  and equipment, net of accumulated depreciation of $15,045,807 and  $14,593,197, respectively                      |       | 25,186,335         |       | 25,037,636            |       |
|                                                                                                                               |       | $                  | 36,815,003 |                  | $          | 36,105,772 |   |
|                                                                                                                               |       |               |       |                  |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                     |       |               |       |                  |       |
|                                                                                                                               |       |               |       |                  |       |
| CURRENT  LIABILITIES                                                                                                               |       |               |       |                  |       |
| Accounts payable                                                                                                                   |       | $                  | 2,794,722  |                  | $          | 2,209,639 |   |
| Card club  accruals                                                                                                                |       | 2,400,601          |       | 2,413,796             |       |
| Accrued wages  and payroll taxes                                                                                                   |       | 1,052,162          |       | 1,851,140             |       |
| Accrued interest  payable                                                                                                          |       | 6,144              |       | 5,196                 |       |
| Due to MHBPA                                                                                                                       |       | 109,922            |       | 56,951                |       |
| Accrued property  taxes                                                                                                            |       | 615,338            |       | 491,630               |       |
| Payable to  horsepersons                                                                                                           |       | 304,055            |       | 162,931               |       |
| Total current  liabilities                                                                                                         |       | 7,282,944          |       | 7,191,283             |       |
|                                                                                                                               |       |               |       |                  |       |
| DEFERRED INCOME  TAXES                                                                                                             |       | 301,700            |       | 336,400               |       |
|                                                                                                                               |       |               |       |                  |       |
| COMMITMENTS AND  CONTINGENCIES (Note 6)                                                                                            |       |               |       |                  |       |
|                                                                                                                               |       |               |       |                  |       |
| STOCKHOLDERS’  EQUITY                                                                                                         |       |               |       |                  |       |
| Common stock,  $.01 par value, 10,000,000 shares authorized, 4,115,303 and 4,084,087,  respectively, shares issued and outstanding |       | 41,153             |       | 40,841                |       |
| Additional  paid-in capital                                                                                                        |       | 15,589,938         |       | 15,395,778            |       |
| Accumulated  earnings                                                                                                              |       | 13,599,268         |       | 13,141,470            |       |
| Total  stockholders’ equity                                                                                                   |       | 29,230,359         |       | 28,578,089            |       |
|                                                                                                                               |       | $                  | 36,815,003 |                  | $          | 36,105,772 |   |

 

See notes to consolidated financial statements.

 

3

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**CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**PERIODSENDED MARCH 31, 2008 AND 2007 (Unaudited)**

 
| ** **                                    | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| OPERATING  REVENUES:                          |       |                                                 |       |   |   |
| Pari-mutuel                                   |       | $                                                    | 2,477,922  |   | $ | 2,713,880 |   |
| Card Club                                     |       | 6,523,056                                            |       | 7,494,996 |   |
| Concessions                                   |       | 875,803                                              |       | 884,769 |   |
| Admissions and  parking                       |       | 22,722                                               |       | 29,696 |   |
| Publications                                  |       | 85,058                                               |       | 96,829 |   |
| Other                                         |       | 254,405                                              |       | 299,099 |   |
| Total Revenues                                |       | 10,238,966                                           |       | 11,519,269 |   |
| Less:  Promotional Allowances                 |       | (38,903                                              | )          | (50,680 | ) |
| Net Revenues                                  |       | 10,200,063                                           |       | 11,468,589 |   |
|                                          |       |                                                 |       |   |   |
| OPERATING  EXPENSES:                          |       |                                                 |       |   |   |
| Purse expense                                 |       | 1,274,050                                            |       | 1,365,290 |   |
| Minnesota  Breeders’ Fund                |       | 231,851                                              |       | 257,398 |   |
| Host track fees                               |       | 431,537                                              |       | 458,402 |   |
| Pari-mutuel  taxes                            |       | 6,871                                                |       | 26,561 |   |
| Salaries and  benefits                        |       | 4,572,023                                            |       | 5,020,709 |   |
| Cost of  concessions and publication sales    |       | 587,943                                              |       | 593,425 |   |
| Depreciation                                  |       | 505,050                                              |       | 507,690 |   |
| Utilities                                     |       | 307,067                                              |       | 331,446 |   |
| Repairs,  maintenance and supplies            |       | 213,865                                              |       | 201,986 |   |
| License fees and  property taxes              |       | 195,363                                              |       | 198,263 |   |
| Advertising and  marketing                    |       | 181,705                                              |       | 105,664 |   |
| Insurance                                     |       | 153,341                                              |       | 235,582 |   |
| Other                                         |       | 729,204                                              |       | 715,172 |   |
|                                          |       | 9,389,870                                            |       | 10,017,588 |   |
| NONOPERATING  REVENUES (EXPENSES):            |       |                                                 |       |   |   |
| Interest income  (expense)                    |       | 967                                                  |       | (5,168 | ) |
| Other, net                                    |       | 45,820                                               |       | 77,628 |   |
|                                          |       | 46,787                                               |       | 72,460 |   |
|                                          |       |                                                 |       |   |   |
| INCOME BEFORE  INCOME TAX EXPENSE             |       | 856,980                                              |       | 1,523,461 |   |
|                                          |       |                                                 |       |   |   |
| INCOME TAX  EXPENSE (Note 1)                  |       | (358,100                                             | )          | (631,084 | ) |
|                                          |       |                                                 |       |   |   |
| NET INCOME                                    |       | $                                                    | 498,880    |   | $ | 892,377 |   |
|                                          |       |                                                 |       |   |   |
| BASIC NET INCOME  PER COMMON SHARE (Note 1)   |       | $                                                    | .12        |   | $ | .22 |   |
|                                          |       |                                                 |       |   |   |
| DILUTED NET  INCOME PER COMMON SHARE (Note 1) |       | $                                                    | .12        |   | $ | .21 |   |

 

See notes to consolidated financial statements.

 

4

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**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**PERIODSENDED MARCH 31, 2008 AND 2007 (Unaudited)**

 
| ** **                                                               | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                               | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| **Operating  Activities:**                                               |       |                                                 |       |   |   |
| Net Income                                                               |       | $                                                    | 498,880    |   | $ | 892,377 |   |
| Adjustments to  reconcile net income to net cash provided by operations: |       |                                                 |       |   |   |
| Depreciation                                                             |       | 505,050                                              |       | 507,690 |   |
| Stock-based  compensation expense                                        |       | 50,203                                               |       | 63,691 |   |
| Excess tax  benefit from exercise of stock options                       |       | (4,261                                               | )          | (28,782 | ) |
| Loss on sale of  property and equipment                                  |       | 2,008                                                |       | 4,953 |   |
| Decrease in  deferred income taxes                                       |       | (114,103                                             | )          | (81,962 | ) |
| Increase in  restricted cash                                             |       | (276,367                                             | )          | (107,148 | ) |
| Decrease  (increase) in accounts receivable                              |       | 36,343                                               |       | (32,383 | ) |
| Decrease in  other current assets                                        |       | 97,921                                               |       | 124,346 |   |
| Increase in  income taxes payable                                        |       | 177,203                                              |       | 8,046 |   |
| Decrease in  accounts payable and accrued wages and payroll taxes        |       | (298,024                                             | )          | (521,809 | ) |
| Decrease in card  club accruals                                          |       | (13,195                                              | )          | (187,957 | ) |
| Increase in  accrued interest                                            |       | 948                                                  |       | 3,336 |   |
| Increase in  accrued property taxes                                      |       | 123,708                                              |       | 126,708 |   |
| Increase in  payable to horsepersons                                     |       | 141,124                                              |       | 133,133 |   |
| Increase  (decrease) in due to MHBPA                                     |       | 52,971                                               |       | (17,843 | ) |
| Net cash  provided by operations                                         |       | 980,409                                              |       | 886,396 |   |
|                                                                     |       |                                                 |       |   |   |
| **Investing  Activities:**                                               |       |                                                 |       |   |   |
| Additions to  buildings and equipment                                    |       | (483,355                                             | )          | (608,609 | ) |
| Proceeds from  sale of equipment                                         |       | 3,500                                                |       | 4,475 |   |
| Increase in  short-term investments                                      |       | (1,472                                               | )          | (26,596 | ) |
| Net cash used in  investing activities                                   |       | (481,327                                             | )          | (630,730 | ) |
|                                                                     |       |                                                 |       |   |   |
| **Financing  Activities**                                                |       |                                                 |       |   |   |
| Proceeds from  issuance of common stock                                  |       | 56,000                                               |       | 189,625 |   |
| Common stock  repurchases                                                |       | (50,783                                              | )          |   |   |
| Excess tax  benefit from exercise of stock options                       |       | 4,261                                                |       | 28,782 |   |
| Net cash  provided by financing activities                               |       | 9,478                                                |       | 218,407 |   |
|                                                                     |       |                                                 |       |   |   |
| Net increase in  cash                                                    |       | 508,560                                              |       | 474,073 |   |
|                                                                     |       |                                                 |       |   |   |
| Cash at  beginning of period                                             |       | 7,050,389                                            |       | 5,745,556 |   |
|                                                                     |       |                                                 |       |   |   |
| Cash at end of  period                                                   |       | $                                                    | 7,558,949  |   | $ | 6,219,629 |   |
|                                                                     |       |                                                 |       |   |   |
| Supplemental  disclosure of noncash investing activities:                |       |                                                 |       |   |   |
| Additions to  buildings and equipment funded through accounts payable    |       | $                                                    | 270,100    |   | $ | 35,815 |   |
|                                                                     |       |                                                 |       |   |   |
| Supplemental  disclosure of noncash financing activities:                |       |                                                 |       |   |   |
| Common stock  repurchases funded through accounts payable                |       | $                                                    | 18,227     |   |   |   |
|                                                                     |       |                                                 |       |   |   |
| Supplemental  disclosure of cash flow information:                       |       |                                                 |       |   |   |
| Income taxes  paid, net of refunds                                       |       | $                                                    | 295,000    |   | $ | 705,000 |   |
|                                                                     |       |                                                 |       |   |   |

 

See notes to consolidated financial statements.

 

5

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

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**PERIODSENDED MARCH 31, 2008 AND 2007**

 

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 early May until LaborDay.  We earn additional pari-mutuelrevenue by televising our live racing to out-of-state Racetracks around thecountry.  We also derive revenues fromrelated services and activities, such as advertising, admissions, parking andpublication sales and from other entertainment events and activities held atthe Racetrack.  In April 2000, weopened Canterbury Park’s Card Club (the “Card Club”).  The Card Club operates 24 hours a day, sevendays a week and is limited by Minnesota State law to a maximum of 50tables.  The Card Club currently offers34 tables of Poker Games and 16 tables of Casino Games.  Our three largest sources of revenues, CardClub operations, pari-mutuel operations and concessions sales, generate cashrevenues.

 

*UnauditedFinancial Statements*- The consolidated balance sheet as of March 31, 2008, the consolidatedstatements of operations for the three months ended March 31, 2008 and2007, the consolidated statements of cash flows for the three months ended March 31,2008 and 2007, and the related information contained in these notes have beenprepared by management without audit.  Inthe opinion of management, all adjustments (consisting only of normal recurringadjustments) which are necessary for a fair presentation of financial positionand results of operations for such periods have been made.  Results for an interim period should not beconsidered as indicative of results for a full year.

 

The summary ofsignificant accounting policies is included in the notes to consolidatedfinancial statements in the 2007 Annual Report on Form 10-K.

 

*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 and pari-mutuel commissionand fee revenues are recognized at the time that the wagering process iscomplete.  Revenues related to wageringactivities including concession and publication sales, and parking andadmission fees are recognized as revenue when the service has been performed orthe product has been delivered.

 

*Estimates* - The preparation of the consolidatedfinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  Actual resultscould differ from these estimates.

 

*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.

 

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

 

6

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The Companyadopted the provisions of FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes – aninterpretation of FASB No. 109,*(“FIN 48”), on January 1,2007.  FIN 48 clarifies the accountingfor uncertainty in income taxes recognized in an enterprise’s financialstatements in accordance with FASB Statement 109, *Accounting for Income Taxes,*and prescribes a recognitionthreshold and measurement process for financial statement recognition andmeasurement of a tax position taken or expected to be taken in a taxreturn.  FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition. Interest and penalties associated with uncertain income tax positionsare presented in income tax expense. The Company has not recorded anysignificant income tax related interest or penalties during any of the periodspresented.  Upon implementation, wedetermined all recorded benefits and income tax positions weremore-likely-than-not.  Therefore, nocumulative effect relating to the adoption of FIN 48 was recorded.

 

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 2004 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 Per Share*- Basic net income per common share is based on the weighted averagenumber of common shares outstanding during each period.  The weighted average number of common sharesoutstanding for the three-month periods ended March 31, 2008 and March 31,2007 were 4,066,403 and 4,052,421, respectively.  Diluted net income per common share takesinto effect the dilutive effect of potential common shares outstanding.  The Company’s potential common sharesoutstanding are stock options and shares of unvested (“restricted”) stock.  After considering the dilutive effect ofstock options and restricted stock outstanding, the weighted average sharesused to calculate diluted earnings per share for the three month periods ended March 31,2008 and March 31, 2007 were 4,159,925 and 4,210,633, respectively.

 

*FairValues of Financial Instruments –*Due to the current classification of all financialinstruments of the Company and given the short-term nature of the relatedaccount balances, carrying amounts reported in the consolidated balance sheetsapproximate fair value.

 

*EmployeeTermination Benefits –* Management of the Company is continually re-evaluating the Company’soperating costs against its long-term strategic goals.  During the first quarter of 2007, the Companycreated a voluntary retirement incentive program, which provided eligibleemployees the opportunity to voluntarily resign their employment in exchangefor severance pay and other specified benefits. Eligible employees could electto participate in this voluntary program during the period from January 11,2007 through February 25, 2007. In accordance with SFAS 88, *Employers Accounting for Settlements and Curtailmentsof Defined Benefit Pension Plans and for Termination Benefits,*theCompany recognized a charge to income of approximately $182,000 associated withthis special termination benefit.  Inaddition, the Company incurred $64,000 in severance costs related to theinvoluntary termination of salaried and hourly personnel during the firstquarter of 2007.  No changes to theliability and no additional expense was incurred during the first quarter of2008.

 

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

 

In February 2007,the FASB issued SFAS No. 159 (SFAS 159), “The Fair Value Option forFinancial Assets and Financial Liabilities” including anamendment of FASB Statement No. 115.  SFAS 159 provides companies with an option toreport selected financial assets and financial liabilities at fairvalue.  Unrealized gains and losses on items for which the fair valueoption has been elected are reported in earnings at each 

 

7

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subsequentreporting date. SFAS 159 became effective for fiscal years beginningafter November 15, 2007. We have elected not to implement the fair valueoption with respect to any existing assets or liabilities; therefore, theadoption of SFAS 159 had no impact on our financial position or results ofoperations.

 

In December 2007, the FASB issuedStatement of Financial Accounting Standards No. 141(revised) “BusinessCombinations.” Statement No. 141(R) applies to all businesscombinations. Under SFAS No. 141(R), an entity is required to recognizethe assets acquired, liabilities assumed, contractual contingencies, andcontingent consideration at their fair values on the acquisition date. We arerequired to adopt this statement starting in 2009 and it is to be applied tobusiness combinations occurring in 2009 and after. Early adoption of thisstatement is prohibited.  The Company isevaluating the impact the adoption of SFAS No. 141 (R) will have on itsconsolidated results of operations and financial condition.

 

In December 2007,the FASB issued SFAS No. 160 “Noncontrolling Interests in ConsolidatedFinancial Statements.” Statement No. 160 applies to the accounting fornoncontrolling interests and transactions with noncontrolling interest holdersin consolidated financial statements. SFAS No. 160 changes the accounting and reporting for minorityinterests, which will be recharacterized as noncontrolling interests andclassified as a component of equity. We are required to adopt this statementbeginning in 2009.  Early adoption ofthis statement is prohibited and we are currently in the process of evaluatingthe effect that this statement will have on our consolidated results ofoperations and financial condition.

 

In March of2008, the FASB issued Statement of Financial Accounting Standards No. 161,“Disclosures about Derivative Instruments and Hedging Activities, an amendmentof FASB Statement No. 133” (SFAS 161).  SFAS 161 requiresentities to provide greater transparency about how and why the entity usesderivative instruments, how the instruments and related hedged items areaccounted for under SFAS 133, and how the instruments and related hedged itemsaffect the financial position, results of operations, and cash flows of theentity.  SFAS 161 is effective for fiscal years beginning after November 15,2008.  The Company is evaluating the impact the adoption of SFAS 161will have on its consolidated results of operations and financial condition.

 

2.     STOCK-BASED COMPENSATION

 

Effective January 1,2006, we adopted FASB Statement No.123(R), *ShareBased Payment* (“SFAS 123R”), applying the modified prospectivetransition method.  We recognized $50,203and $63,691 in stock-based compensation expense in salaries and benefitsexpense line item on the consolidated statements of operations during thethree-months ended March 31, 2008 and 2007, respectively.

 

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

 

8

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

 
| ** **    | ** ** | **Three Months Ended** | ** ** |
|---------------|------------|----------------------------------|------------|
| ** **    | ** ** | **March 31, 2008**     | ** ** | **March 31, 2007** | ** ** |
| ** **    | ** ** | ** **                       | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **    | ** ** | ** **                       | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **    | ** ** | ** **                       | ** ** | **Fair Value** | ** ** | ** ** | ** ** | **Fair Value** | ** ** |
| ** **    | ** ** | **Grant**                        | ** ** | **Per Share** | ** ** | **Grant** | ** ** | **Per Share** | ** ** |
|          |       |                             |       |   |   |   |   |   |   |
| Stock options |       | 15,000                           |       | $ | 1.98 |   | 15,000 |   | $ | 3.89 |   |
|          |       |                             |       |   |   |   |   |   |   |
| Total shares  |       | 15,000                           |       |   |   | 15,000 |   |   |   |
|               |            |                                  |            |  |  |  |  |  |  |  |  |

 

The fair value ofstock options granted under the Company’s 1994 Stock Plan during first threemonths of 2008 and 2007 were estimated on the date of grant using theBlack-Scholes option-pricing model with the following weighted averageassumptions and results:

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

 

A summary of stockoption activity as of March 31, 2008 and changes during the three monthsthen ended is presented below:

 
| ** **                           | ** ** | ** **         | ** ** | ** **   | ** ** | **Weighted**    | ** ** | ** **          | ** ** |
|--------------------------------------|------------|--------------------|------------|--------------|------------|-----------------|------------|---------------------|------------|
| ** **                           | ** ** | ** **         | ** ** | **Weighted** | ** ** | **Average**     | ** ** | ** **          | ** ** |
| ** **                           | ** ** | ** **         | ** ** | **Average**  | ** ** | **Remaining**   | ** ** | **Aggregate**       | ** ** |
| ** **                           | ** ** | **Number of** | ** ** | **Exercise** | ** ** | **Contractual** | ** ** | **Grant Date** | ** ** |
| **Stock Options**               | ** ** | **Shares**         | ** ** | **Price**    | ** ** | **Term**        | ** ** | **Fair Value** | ** ** |
|                                 |       |               |       |         |       |            |       |                |       |
| Outstanding at  January 1, 2008 |       | 605,900            |       | $            | 11.00      |            |       |                |       |   |
|                                 |       |               |       |         |       |            |       |                |       |
| Granted                              |       | 15,000             |       | 11.35        |       |            |       |                |       |
| Exercised                            |       | (30,000            | )          | 2.53         |       |            |       |                |       |
| Expired                              |       | (77,000            | )          | 15.55        |       |            |       |                |       |
|                                 |       |               |       |         |       |            |       |                |       |
| Outstanding at  March 31, 2008  |       | 513,900            |       | $            | 10.83      |            | 2.9 Years  |                | $          | 5,564,000 |   |
|                                 |       |               |       |         |       |            |       |                |       |
| Exercisable at  March 31, 2008  |       | 491,400            |       | $            | 10.76      |            | 2.6 Years  |                | $          | 5,285,000 |   |

 

*EmployeeStock Ownership Plan*– During the first quarter of 2008, the Company contributed 10,000 shares ofcommon stock to the Employee Stock Ownership Plan.  This contribution was a non-cash transactionin which shares were issued and were allocated to the accounts of eligibleemployees based upon their 2007 compensation during the first quarter of 2008.

 

9

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3.     FAIR VALUE

 

SFAS 157 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. SFAS 157 also establishes a fair value hierarchy which requires anentity to maximize the use of observable inputs and minimize the use ofunobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used tomeasure fair value:

 

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

 

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

 

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

 

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

 

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

 
| ** **              | ** ** | **Fair Value Measurements as of  March 31, 2008** | ** ** |
|-------------------------|------------|---------------------------------------------------------------------------------|------------|
| **Description**         | ** ** | **Total**                                                                       | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|                    |       |                                                                            |       |   |   |   |   |   |   |
| Short-term  investments |       | $                                                                               | 82,160     |   | $ | 82,610 |   | $ | — |   | $ | — |   |
|                    |       |                                                                            |       |   |   |   |   |   |   |
| Total                   |       | $                                                                               | 82,160     |   | $ | 82,160 |   | $ | — |   | $ | — |   |

 

4.     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, 2008.  The credit agreement contains certaincovenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements as of March 31, 2008. Management believes that funds available under this line of credit,along with funds generated from card club and simulcast operations, will besufficient to satisfy its liquidity and capital resource requirements during2008.

 

5.     OPERATING SEGMENTS

 

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

 

10

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

 

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

 

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

 
| ** **                            | ** ** | **Three Months Ended March 31, 2008** | ** ** |
|---------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                                          | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Net revenues  from external customers |       | $                                                              | 3,066      |   | $ | 6,253 |   | $ | 881 |   | $ | 10,200 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 91                                                             |       |   |   | 433 |   | 524 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Net interest  income                  |       | 47                                                             |       |   |   |   |   | 47 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Depreciation                          |       | 323                                                            |       | 140 |   | 42 |   | 505 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Segment income  before income taxes   |       | 215                                                            |       | 608 |   | 90 |   | 913 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Segment Assets                        |       | $                                                              | 32,287     |   | $ | 3,737 |   | $ | 7,720 |   | $ | 43,744 |   |

 
| ** **                            | ** ** | **Three Months Ended March 31, 2007** | ** ** |
|---------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                                          | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Net revenues  from external customers |       | $                                                              | 3,081      |   | $ | 7,495 |   | $ | 893 |   | $ | 11,469 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 83                                                             |       |   |   | 483 |   | 566 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Net interest  income                  |       | 72                                                             |       |   |   |   |   | 72 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Depreciation                          |       | 299                                                            |       | 179 |   | 30 |   | 508 |   |
|                                  |       |                                                           |       |   |   |   |   |   |   |
| Segment income  before income taxes   |       | 187                                                            |       | 1,306 |   | 151 |   | 1,644 |   |
|                                       |            |                                                                |            |  |  |  |  |  |  |  |  |  |  |

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

 

11

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

 
| ** **                                              | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                              | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Revenues                                                |       |                                                 |       |   |   |
| Total net  revenue for reportable segments              |       | $                                                    | 10,724     |   | $ | 12,035 |   |
| Elimination of  intersegment revenues                   |       | (524                                                 | )          | (566 | ) |
| Total  consolidated net revenues                        |       | $                                                    | 10,200     |   | $ | 11,469 |   |
|                                                    |       |                                                 |       |   |   |
| Income before  income taxes                             |       |                                                 |       |   |   |
| Total segment  income before income taxes               |       | $                                                    | 913        |   | $ | 1,644 |   |
| Elimination of  intersegment income before income taxes |       | (56                                                  | )          | (121 | ) |
| Total  consolidated income before income taxes          |       | $                                                    | 857        |   | $ | 1,523 |   |

 
| ** **                               | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **Assets**                               | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| Total assets for  reportable segments    |       | $                  | 43,712     |                  | $          | 43,011 |   |
| Elimination of  intercompany receivables |       | (6,897             | )          | (6,905                | )          |
| Total  consolidated assets               |       | $                  | 36,815     |                  | $          | 36,106 |   |
|                                     |       |               |       |                  |       |

 

6.     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 March 31, 2008,management believes that the resolution of any legal actions outstanding willnot have a material impact on the consolidated financial statements.

 

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** **

**ITEM2:**                 MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

** **

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

 

**Overview:**

 

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

 

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

 

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. However, the Company has agreed with the Minnesota Horsemen’s Benevolentand Protective Association (“MHBPA”) to pay 15% of Card Club revenues into thepurse fund for 2008 and 2007.

 

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

 

**Operations Review for the****Three****Months Ended March 31, 2008 and March 31, 2007:**

 

Total net revenuesdecreased $1,268,526, or 11.1%, during three months ended March 31, 2008compared to the three months ended March 31, 2007.  The decrease is due primarily to decreases inpari-mutuel and card club revenues.

 

Pari-mutuel revenuedecreased $235,958, or 8.7% in the three-month period ended March 31, 2008compared to the same period in 2007. Total handle was approximately $11.9 million or 6.8%, lower than totalhandle of $12.7 million during the same quarter a year ago.  The decrease is primarily attributable toinclement weather during the first quarter of 2008 at racetracks simulcastingtheir signal to our racetrack, which resulted in the cancellation of asignificant number of races.  Also, asmoking ban became effective October 1, 2007.  This legislation has had, and may continue tohave, a significant adverse effect on the Company’s revenues and profits.  The Company believes that those simulcastcustomers who smoke and no longer visit our facilities are wagering on theInternet.  The smoking ban is discussedlater in this filing under the *Legislation*heading.  In addition, a difficulteconomy has adversely impacted discretionary spending on entertainment.

 

13

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See the “Summary ofPari-Mutuel Data” below.

 
| ** **                                      | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------|------------|
| **Summary of Pari-Mutuel Data:** | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
|                                            |       |                                                 |       |   |   |
| Simulcast racing  days                          |       | 91                                                   |       | 90 |   |
| ** **                                      | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| On-track  simulcast handle                      |       | $                                                    | 11,881,000 |   | $ | 12,744,000 |   |
| ** **                                      | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Average daily  handle                           |       | $                                                    | 131,000    |   | $ | 142,000 |   |

 

Total Card Club revenue decreased 13.0% or $971,940for the first three months of 2008 compared to the same period in 2007.  The primary source of Card Club revenue is apercentage of the wagers received from the players as compensation forproviding the Card Club facility and services, referred to as the “collectionrevenue”.  Other revenue includes feescollected for the administration of tournaments, and amounts earned asreimbursement of the administrative costs of maintaining jackpot funds.  Poker collection revenue fell $115,818 or2.5% compared to the first quarter of 2007. In addition, Casino Games collection revenue dropped $797,576 or 29.8% comparedto the first three months of 2007.  Thedecrease in revenue is primarily due to the smoking ban that became effectiveon October 1, 2007.  The Companybelieves that those Card Club customers who smoke and no longer visit the CardClub are now patronizing tribal casinos where smoking is permitted.  This legislation has had, and may continue tohave, a significant adverse effect on the Company’s revenues and profits.  The smoking ban is discussed later in thisfiling under the *Legislation*heading.  In addition, a difficulteconomy has adversely impacted discretionary spending on entertainment.  Total Card Club revenues represented 64.0%and 65.3% of net revenues for the three-month periods ended March 31, 2008and 2007, respectively.  See the “Summaryof Card Club Data” below.

 
| ** **                                         | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------------|------------|
| **Summary of Card Club Data:** | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
|                                               |       |                                                 |       |   |   |
| Poker Games                                        |       | $                                                    | 4,455,000  |   | $ | 4,570,000 |   |
| Casino Games                                       |       | 1,877,000                                            |       | 2,675,000 |   |
| Total Collection  Revenue                          |       | 6,332,000                                            |       | 7,245,000 |   |
|                                               |       |                                                 |       |   |   |
| Other Revenue                                      |       | 191,000                                              |       | 250,000 |   |
| Total Card Club  Revenue                           |       | $                                                    | 6,523,000  |   | $ | 7,495,000 |   |
|                                               |       |                                                 |       |   |   |
| Number of Days  Offered                            |       | 91                                                   |       | 90 |   |
| Average Revenue  per Day                           |       | $                                                    | 72,000     |   | $ | 83,000 |   |

 

Concession revenues decreased slightly for the quarterended March 31, 2008 compared to the first quarter of 2007. Increases insales volumes at stands, bars and the restaurant were more than offset byreductions of sales in the Card Club.

 

Total operating expensesin the first quarter of 2008 decreased by approximately $627,718, or 6.3%,compared to the three-month period ended March 31, 2007. However, totaloperating expenses as a percentage of net revenues increased to 92.1% for thefirst three months of 2008, compared to 87.3% for the same period in 2007.  While variable expenses did decrease with thereductions in revenues, fixed expenses increase as a percentage of revenues asrevenues decrease.

 

Total expense forstatutory purses and the Minnesota Breeders’ Fund decreased 7.2% toapproximately $1,506,000 for the quarter ended March 31, 2008 compared tothe quarter ended March 31, 2007. The decrease was due primarily to a reduction in Card Club purse andbreeders’ fund expenses due to 

 

14

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lower Card Club collection revenues in the first quarter of 2008compared to the first quarter of 2007. The following table provides additional information regarding purse andBreeders’ Fund Expense:

 
| ** **       | ** ** | **Purse Expense**                                     | ** ** | **Minnesota Breeders’ Fund  Expense** | ** ** |
|------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **       | ** ** | **Three Months Ended March 31, ** | ** ** | **Three Months Ended March 31,** | ** ** |
| ** **       | ** ** | **2008**                                                   | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| Card Club        |       | $                                                          | 880,612    |                                                 | $          | 1,010,831 |   | $ | 97,846 |   | $ | 112,315 |   |
|             |       |                                                       |       |                                                 |       |   |   |   |   |
| Simulcast Racing |       | 393,438                                                    |       | 354,459                                              |       | 134,005 |   | 145,083 |   |
|             |       |                                                       |       |                                                 |       |   |   |   |   |
| Total            |       | $                                                          | 1,274,050  |                                                 | $          | 1,365,290 |   | $ | 231,851 |   | $ | 257,398 |   |

 

Salary and benefit costsdecreased by $448,686, or 8.9%, compared to the first quarter of 2007 primarilyas a result of the expense related to the voluntary retirement incentiveprogram that occurred during the first quarter of 2007.  Insurance expense decreased $82,241, or 34.9%compared to the first quarter of 2007. The decrease is due to a change in insurance provider that has allowedfor significant decreases in premiums paid. Advertising and marketing costs increased by $76,041, or 72.0%, comparedto the first quarter of 2007 primarily as a result of the use of an advertisingagency and related fees in the current year.

 

Income before incometaxes decreased $666,481, or 43.7%, to $856,980 for the three months ended March 31,2008, from $1,523,461 for the three months ended March 31, 2007.  Income tax expense was $358,100 and $631,084for the first quarters of 2008 and 2007, respectively, resulting in net incomeof $498,880 and $892,377, respectively.

 

#### **Contingencies:**

#### ** **

There have been no material changes in ourcontingencies since those reported at December 31, 2007.

 

**Liquidityand Capital Resources:**

 

Cash provided by operating activities for the threemonths ended March 31, 2008 was $980,409 and resulted principally from netincome of $498,880 and depreciation of $505,050.  These items were partially offset by adecrease in accounts payable and accrued wages and payroll taxes of $298,024due primarily to an additional $270,100 of fixed asset additions being fundedthrough accounts payable. Cash provided by operating activities for the threemonths ended March 31, 2007 was $886,396 and resulted principally from netincome of $892,377 and depreciation of $507,690.  These items were partially offset by anincrease in accounts payable and accrued wages and payroll taxes of $521,809due primarily to the timing of payroll. Pursuant to an agreement with theMinnesota Horsemen’s Benevolent and Protective Association (MHBPA), during thethree months ended March 31, 2008 and 2007, the Company transferred into atrust account for these purposes or paid directly to the MHBPA approximately$1,025,000 and $1,250,000, respectively.

 

Net cash used ininvesting activities for the first quarter of 2008 of $481,327 was usedprimarily for upgrades to the grandstand building.  Net cash used in investing activities for thefirst quarter of 2007 of $630,730 was used primarily for additions to equipmentin the Card Club, continued improvements to the backside barns and generalremodeling of the grandstand in preparation for the 2007 live race meet.

 

Net cash provided by financing activities during thefirst three months of 2008 consisted primarily of proceeds received upon theexercise of stock options of $56,000 offset by stock repurchases of$50,783.  Net cash provided by financingactivities during the first three months of 2007 consisted of proceeds receivedupon the exercise of stock options of $189,625, and excess tax benefits fromthe exercise of stock options during the quarter of $28,782.

 

15

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TheCompany has a credit agreement with Bremer Bank N. A. that provides a revolvingcredit line permitting advances of up to $2,250,000 with interest at the primerate.  The Company had no borrowingsunder the line of credit at March 31, 2008 or December 31, 2007.  The credit agreement contains certaincovenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements at all times throughout the quarter ended March 31, 2008.

 

Unrestricted cash balances at March 31, 2008 were$7,558,949 compared to $7,050,389 at December 31, 2007.  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 2008 for regularoperations.

 

##### **Critical AccountingPolicies and Estimates:**

 

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

 

Our significantaccounting policies are included in Note 1 to our consolidated financialstatements in our 2007 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 68.4% 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.Our property 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.

 

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

 

##### **Commitments andContractual Obligations:**

 

There have been no material changes in our outstandingcommitments and contractual obligations since those reported at December 31,2007.

 

**Legislation:**

 

The Company did not propose or support any legislationduring the 2008 biannual session of the Minnesota Legislature to pursue ourRacino proposal that has been discussed in our previous flings with the SEC,mainly because a majority of those serving in the Minnesota Legislaturefollowing the November 2006 elections are considered unlikely to favorablyentertain our Racino proposal.  Based onthe success of several Racinos in other states, we continue to believe that ifa Racino was authorized at the Racetrack, it would 

 

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enhance horseracing withincreased purses, provide growth and development opportunities for the Company,and provide significant new tax revenues for state and local governments.

 

On October 1, 2007,legislation became effective that severely restricted smoking in all publicplaces in Minnesota, including at the Racetrack.  Tribal casinos located in Minnesota are notcovered by this legislation and will continue to offer various gamingalternatives, including card games, in an environment that allows smoking.  Since October 1, 2007, this legislationhas had, and may continue to have, a significant adverse effect on the Company’srevenues and profits.  The Companybelieves that those simulcast customers who smoke and no longer visit ourfacilities are now wagering on the Internet. The Company also believes those Card Club customers who smoke and nolonger visit the Card Club are now patronizing tribal casinos where smoking ispermitted.

 

In April 2008, theMinnesota Legislature passed a bill allowing pari-mutuel simulcast wagering onall breeds at Running Aces Harness Park (Running Aces), a harness track thatopened in Anoka County in April 2008. In anticipation of the passing of this legislation, the Company enteredinto a revenue sharing agreement with Running Aces.  This agreement will benefit the respectivehorsemen’s associations by requiring the Company and Running Aces to make purseset aside contributions and Breeders Fund contributions as required bylaw.  Additionally, under the terms ofthe agreement, the Company will pay Running Aces a portion of net revenues forsimulcast wagers taken on harness racing, and Running Aces will pay the Companya portion of net revenues for simulcast wagers taken on thoroughbredracing.  The Company believes that thisagreement will help offset any revenue decreases that would have occurred as aresult of the passage of this bill.

 

**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 generalhealth of the gaming sector; higher than expected expense related to newmarketing initiatives; and other factors discussed under Item 1A in our Reporton Form 10-K for the year ended December 31, 2007 and in the Company’sother filings with the Securities and Exchange Commission.

 

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

 

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

 

**ITEM 4:****                ****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 March 31, 2008 that havematerially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

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**PART IIOTHER INFORMATION**

 

Item 1.                    **Legal Proceedings**

 

Not Applicable.

 

Item 1A.                 **Risk Factors**

 

Therehave been no material changes to the Risk Factors since those reported in the Form 10-Kfor the year ended December 31, 2007.

 

Item 2.                    **Unregistered Sales of Equity****Securities and Use ofProceeds**

 

(a)   Not Applicable.

 

(b)   Not Applicable.

 

(c)   On January 16, 2008, the Company announced thatits Board of Directors had authorized a program to repurchase up to anadditional 250,000 shares of the Company’s common stock.  During the first quarter of 2008, the Companyrepurchased 6,982 shares of common stock at an average price of $9.88 for anaggregate purchase price of $69,010.  Amonth-by-month breakdown of purchases is included in the following table:

 
| **Period**              | ** ** | **Total Number of  Shares  Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plan** | ** ** | **Maximum Number  of Shares that May  Yet Be Purchased  Under the Plan** | ** ** |
|-------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|
| January 16,  2008  |       | —                                           |       | —                                           |       | —                                                                                                        |       | 250,000                                                                                                          |       |
| Jan 17 to Jan  31, 2008 |       | —                                           |       | —                                           |       | —                                                                                                        |       | 250,000                                                                                                          |       |
| Feb 1 to Feb 29,  2008  |       | —                                           |       | —                                           |       | —                                                                                                        |       | 250,000                                                                                                          |       |
| Mar 1 to Mar 31,  2008  |       | 6,982                                            |       | $                                                | 9.88       |                                                                                                          | 6,982      |                                                                                                             | 243,018    |   |
| Total                   |       | 6,982                                            |       |                                             |       | 6,982                                                                                                         |       | 243,018                                                                                                          |       |
|                         |            |                                                  |            |                                                  |            |                                                                                                               |            |                                                                                                                  |            |  |

 

Item 3.                    **Defaults Upon Senior Securities**

 

Not Applicable.

 

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

 

Not Applicable.

 

Item 5.                    **Other Information**

 

Not Applicable.

 

Item 6.                    **Exhibits**

 

(a)   The following exhibits are included herein:

 

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

 

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**SIGNATURES**

 

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,  2008 | /s/ Randall D. Sampson                       |
|                      | Randall D. Sampson,                          |
|                      | President, and Chief  Executive Officer      |
|                      |                                         |
| Dated: May 15,  2008 | /s/ David C. Hansen                          |
|                      | David C. Hansen,                             |
|                      | Vice President, and  Chief Financial Officer |

 

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