**U.S. SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

** **
| **ý** |   | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|--------|----------------------------------------------------------------------------------------|
|       |   | **FOR THE QUARTERLY PERIOD ENDED JUNE  30, 2002.**                                     |

 
| **o**                                                            |   | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                     |
|------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                             |   | **FOR THE TRANSITION PERIOD FROM                     TO                   .** |
|                                                             |   |                                                                                                                                                                                                                                                                        |
| **Commission  File Number 0-24554**                              |
|                                                             |
|                                                             |
|                                                             |        |                                                                                                                                                                                                                                                                        |
|                                                             |
| **Canterbury Park Holding Corporation**                          |
| (Exact name of business  issuer as specified in its charter)     |
|                                                             |   |                                                                                                                                                                                                                                                                        |
| **Minnesota**                                                    |   | **41-1775532**                                                                                                                                                                                                                                                              |
| (State or other  jurisdiction of  incorporation or organization) |   | (IRS Employer  Identification No.)                                                                                                                                                                                                                                          |
|                                                             |   |                                                                                                                                                                                                                                                                        |
| **1100  Canterbury Road, Shakopee, Minnesota**                   |   | **55379**                                                                                                                                                                                                                                                                   |
| (Address of principal  executive offices)                        |   | (Zip Code)                                                                                                                                                                                                                                                                  |
|                                                             |   |                                                                                                                                                                                                                                                                        |
| **(952)  445-7223**                                              |
| (Issuer’s Telephone  Number)                                |
|                                                                  |        |                                                                                                                                                                                                                                                                             |  |  |  |  |

 

Indicate by check mark whether the Registrant (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.   YES  ý  NO  o

 

The Company had 3,588,474 shares of common stock, $.01 par value pershare, outstanding as of August 9, 2002.

 

 

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Canterbury Park HoldingCorporation

 

**INDEX**

 
| **PART  1.** | **FINANCIAL  INFORMATION** |
|--------------|----------------------------|
|         |                       |   |
|         | Item 1.                    | Financial Statements |
|         |                       |   |
|         |                       | Consolidated Balance Sheets  as of June 30, 2002 and December 31, 2001 |
|         |                       |   |
|         |                       | Consolidated  Statements of Operations for the periods ended June 30, 2002 and 2001 |
|         |                       |   |
|         |                       | Consolidated  Statements of Cash Flows for the periods ended June 30, 2002 and 2001 |
|         |                       |   |
|         |                       | Notes to  Consolidated Financial Statements |
|         |                       |   |
|         | Item 2.                    | Management’s  Discussion and Analysis |
|         |                       |   |
|         | Item 3.                    | Quantitative  and Qualitative Disclosure about Market Risk |
|         |                       |   |
| **PART II.** | **OTHER INFORMATION**      |
|         |                       |   |
|         | Signatures                 |
|              |                            |  |  |

 

2

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**CANTERBURY PARK HOLDING CORPORATIONAND SUBSIDIARY**

 

**CONSOLIDATEDBALANCE SHEETS**

**JUNE 30, 2002 AND DECEMBER 31, 2001**

 
|                                                                                                                               |   | **June 30,  2002** |       | **December  31,  2001** |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|------------|-------------------------|--------|
| **ASSETS**                                                                                                                         |   |               |       |                    |   |
|                                                                                                                               |   |               |       |                    |   |
| CURRENT ASSETS                                                                                                                     |   |               |       |                    |   |
| Cash                                                                                                                               |   | $                  | 5,064,880  |                    | $      | 3,088,844 |   |
| Accounts  receivable                                                                                                               |   | 548,368            |       | 556,192                 |   |
| Inventory                                                                                                                          |   | 189,217            |       | 113,324                 |   |
| Deposits                                                                                                                           |   | 20,000             |       | 45,000                  |   |
| Prepaid expenses                                                                                                                   |   | 692,128            |       | 300,845                 |   |
|                                                                                                                               |   |               |       |                    |   |
| Total current  assets                                                                                                              |   | 6,514,593          |       | 4,104,205               |   |
|                                                                                                                               |   |               |       |                    |   |
| PROPERTY AND  EQUIPMENT, net of accumulated depreciation of $6,884,000 and $6,425,974,  respectively                               |   | 13,964,842         |       | 12,439,413              |   |
|                                                                                                                               |   |               |       |                    |   |
|                                                                                                                               |   | $                  | 20,479,435 |                    | $      | 16,543,618 |   |
|                                                                                                                               |   |               |       |                    |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                     |   |               |       |                    |   |
|                                                                                                                               |   |               |       |                    |   |
| CURRENT  LIABILITIES                                                                                                               |   |               |       |                    |   |
| Accounts payable                                                                                                                   |   | $                  | 3,823,881  |                    | $      | 1,683,092 |   |
| Card club  accruals                                                                                                                |   | 1,099,075          |       | 1,058,465               |   |
| Accrued wages  and payroll taxes                                                                                                   |   | 798,556            |       | 782,461                 |   |
| Accrued interest                                                                                                                   |   | 5,918              |       | 15,878                  |   |
| Advance from  MHBPA                                                                                                                |   | 162,516            |       | 373,240                 |   |
| Accrued property  taxes                                                                                                            |   | 229,624            |       | 237,784                 |   |
| Cash dividend  payable                                                                                                             |   | 896,394            |       |                    |   |
| Income taxes  payable                                                                                                              |   | 66,669             |       | 134,330                 |   |
| Payable to  horsepersons                                                                                                           |   | 295,342            |       | 235,158                 |   |
| Deferred tax  liability                                                                                                            |   | 251,000            |       | 168,000                 |   |
| Total current  liabilities                                                                                                         |   | $                  | 7,628,975  |                    | $      | 4,688,408 |   |
|                                                                                                                               |   |               |       |                    |   |
| COMMITMENTS AND  CONTINGENCIES (Note 4)                                                                                            |   |               |       |                    |   |
|                                                                                                                               |   |               |       |                    |   |
|                                                                                                                               |   |               |       |                    |   |
| STOCKHOLDERS’  EQUITY                                                                                                         |   |               |       |                    |   |
| Common stock,  $.01 par value, 10,000,000 shares authorized, 3,585,574 and 3,529,324,  respectively, shares issued and outstanding |   | 35,856             |       | 35,293                  |   |
| Additional  paid-in capital                                                                                                        |   | 10,587,287         |       | 10,240,249              |   |
| Accumulated  earnings                                                                                                              |   | 2,227,317          |       | 1,579,668               |   |
| Total stockholders’  equity                                                                                                   |   | 12,850,460         |       | 11,855,210              |   |
|                                                                                                                               |   | $                  | 20,479,435 |                    | $      | 16,543,618 |   |

 

See notes to consolidatedfinancial statements.

 

3

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**CANTERBURY PARK HOLDING CORPORATIONAND SUBSIDIARY**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**PERIODSENDED JUNE 30, 2002 AND 2001**

 
|                                              |   | **Three  Months Ended June 30** |      | **Six Months  Ended June 30** |   |
|---------------------------------------------------|--------|---------------------------------|-----------|-------------------------------|--------|
|                                              |   | **2002**                        |      | **2001**                      |   | **2002** |   | **2001** |   |
| OPERATING  REVENUES:                              |   |                            |      |                          |   |   |   |   |   |
| Pari-mutuel                                       |   | $                               | 5,065,234 |                          | $      | 4,808,598 |   | $ | 8,405,518 |   | $ | 7,874,036 |   |
| Card Club                                         |   | 4,552,300                       |      | 4,054,922                     |   | 9,094,076 |   | 8,028,325 |   |
| Concessions                                       |   | 1,359,852                       |      | 1,236,489                     |   | 2,141,667 |   | 1,929,727 |   |
| Admissions and  parking                           |   | 231,956                         |      | 219,734                       |   | 263,915 |   | 255,567 |   |
| Programs and  racing forms                        |   | 207,423                         |      | 210,392                       |   | 341,499 |   | 337,715 |   |
| Other operating  revenue                          |   | 513,984                         |      | 164,415                       |   | 631,297 |   | 303,966 |   |
|                                              |   | 11,930,749                      |      | 10,694,550                    |   | 20,877,972 |   | 18,728,796 |   |
|                                              |   |                            |      |                          |   |   |   |   |   |
| OPERATING  EXPENSES:                              |   |                            |      |                          |   |   |   |   |   |
| Pari-mutuel  expenses                             |   |                            |      |                          |   |   |   |   |   |
| Statutory purses                                  |   | 2,106,716                       |      | 1,915,621                     |   | 2,976,912 |   | 2,641,283 |   |
| Host track fees                                   |   | 639,787                         |      | 559,018                       |   | 1,194,445 |   | 1,047,746 |   |
| Pari-mutuel  taxes                                |   | 83,643                          |      | 58,822                        |   | 136,163 |   | 95,298 |   |
| Minnesota  breeders’ fund                    |   | 315,958                         |      | 283,637                       |   | 555,664 |   | 493,192 |   |
| Salaries and  benefits                            |   | 4,228,736                       |      | 4,109,399                     |   | 7,649,285 |   | 7,415,655 |   |
| Cost of  concession sales                         |   | 544,721                         |      | 497,142                       |   | 862,317 |   | 837,352 |   |
| Cost of  publication sales                        |   | 271,075                         |      | 276,710                       |   | 419,813 |   | 421,859 |   |
| Depreciation and  amortization                    |   | 276,230                         |      | 257,361                       |   | 566,388 |   | 488,265 |   |
| Utilities                                         |   | 234,925                         |      | 241,007                       |   | 423,750 |   | 534,812 |   |
| Repairs,  maintenance and supplies                |   | 415,658                         |      | 534,121                       |   | 716,031 |   | 696,764 |   |
| Property taxes                                    |   | 54,510                          |      | 37,868                        |   | 109,020 |   | 91,511 |   |
| Advertising and  marketing                        |   | 735,985                         |      | 678,039                       |   | 1,001,429 |   | 901,552 |   |
| Other operating  expenses                         |   | 995,601                         |      | 1,020,411                     |   | 1,659,445 |   | 1,596,769 |   |
|                                              |   | 10,903,545                      |      | 10,469,156                    |   | 18,270,662 |   | 17,262,059 |   |
| NONOPERATING  (EXPENSES) REVENUES:                |   |                            |      |                          |   |   |   |   |   |
| Interest expense                                  |   | (4,229                          | )         | (6,190                        | )      | (9,889 | ) | (12,450 | ) |
| Other, net                                        |   | 8,558                           |      | 21,596                        |   | 15,511 |   | 40,133 |   |
|                                              |   | 4,331                           |      | 15,406                        |   | 5,622 |   | 27,683 |   |
|                                              |   |                            |      |                          |   |   |   |   |   |
| INCOME BEFORE  INCOME TAX EXPENSE                 |   | 1,031,533                       |      | 240,800                       |   | 2,612,932 |   | 1,494,420 |   |
| INCOME TAX  EXPENSE (Note 1)                      |   | (418,528                        | )         | (107,750                      | )      | (1,068,889 | ) | (637,750 | ) |
|                                              |   |                            |      |                          |   |   |   |   |   |
| NET INCOME                                        |   | $                               | 613,005   |                          | $      | 133,050 |   | $ | 1,544,043 |   | $ | 856,670 |   |
|                                              |   |                            |      |                          |   |   |   |   |   |
| BASIC NET INCOME  PER COMMON SHARE  (Note 1) |   | $                               | .17       |                          | $      | .04 |   | $ | .43 |   | $ | .25 |   |
|                                              |   |                            |      |                          |   |   |   |   |   |
| DILUTED NET  INCOME PER COMMON SHARE   (Note 1)   |   | $                               | .16       |                          | $      | .04 |   | $ | .40 |   | $ | .23 |   |

 

See notes toconsolidated financial statements.

 

4

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**CANTERBURY PARK HOLDING CORPORATIONAND SUBSIDIARY**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**PERIODS ENDED JUNE 30, 2002 AND 2001**

 
|                                                                     |   | **Six Months  Ended  June 30, 2002** |      | **Six Months  Ended  June 30, 2001** |   |
|--------------------------------------------------------------------------|--------|--------------------------------------|-----------|--------------------------------------|--------|
|                                                                     |   |                                 |      |                                 |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                   |   |                                 |      |                                 |   |
| Net Income                                                               |   | $                                    | 1,544,043 |                                 | $      | 856,670 |   |
| Adjustments to  reconcile net income to net cash provided by operations: |   |                                 |      |                                 |   |
| Depreciation and  amortization                                           |   | 566,388                              |      | 488,265                              |   |
| Gain on disposal  of real estate                                         |   | (258,074                             | )         |                                 |   |
| Decrease in  accounts receivable                                         |   | 7,824                                |      | 20,622                               |   |
| Increase in  other current assets                                        |   | (442,176                             | )         | (145,561                             | )      |
| Increase in  accounts payable and accrued expenses                       |   | 2,257,678                            |      | 2,087,422                            |   |
| Decrease in  deferred income taxes                                       |   | 174,200                              |      | 216,310                              |   |
| Decrease in  income taxes payable                                        |   | (67,661                              | )         | (508,060                             | )      |
| (Decrease)  increase in accrued interest                                 |   | (9,960                               | )         | 12,450                               |   |
| (Decrease) in  accrued property taxes                                    |   | (8,160                               | )         | (27,381                              | )      |
| Net cash  provided by operations                                         |   | 3,764,102                            |      | 3,000,737                            |   |
|                                                                     |   |                                 |      |                                 |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                   |   |                                 |      |                                 |   |
| Real estate  property addition                                           |   | (1,022,733                           | )         |                                 |   |
| Fixed asset  additions                                                   |   | (1,233,673                           | )         | (1,807,558                           | )      |
| Proceeds on  disposal of real estate                                     |   | 422,663                              |      |                                 |   |
| Net cash used in  investing activities                                   |   | (1,833,743                           | )         | (1,807,558                           | )      |
|                                                                     |   |                                 |      |                                 |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                   |   |                                 |      |                                 |   |
| Proceeds from  issuance of common stock                                  |   | 256,401                              |      | 70,593                               |   |
| Payment on  advance from MHBPA, net                                      |   | (210,724                             | )         | (51,751                              | )      |
| Net cash  provided by financing activities                               |   | 45,677                               |      | 18,842                               |   |
|                                                                     |   |                                 |      |                                 |   |
| NET INCREASE IN  CASH                                                    |   | 1,976,036                            |      | 1,212,021                            |   |
|                                                                     |   |                                 |      |                                 |   |
| CASH AT  BEGINNING OF PERIOD                                             |   | 3,088,844                            |      | 1,198,849                            |   |
|                                                                     |   |                                 |      |                                 |   |
| CASH AT END OF  PERIOD                                                   |   | $                                    | 5,064,880 |                                 | $      | 2,410,870 |   |
|                                                                     |   |                                 |      |                                 |   |
| INTEREST PAID                                                            |   | $                                    | 19,849    |                                 | $      | 0 |   |
|                                                                     |   |                                 |      |                                 |   |
| INCOME TAXES  PAID                                                       |   | $                                    | 965,000   |                                 | $      | 927,500 |   |
|                                                                     |   |                                 |      |                                 |   |
| DIVIDEND  DECLARED                                                       |   | $                                    | 896,394   |                                 | $      | 0 |   |

 

See notes to consolidatedfinancial statements.

 

5

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**CANTERBURY PARK HOLDING CORPORATIONAND SUBSIDIARY**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**PERIODS ENDED JUNE 30, 2002 AND 2001**

 

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The summary ofsignificant accounting policies is included in the notes to consolidatedfinancial statements in the 2001 Annual Report on form 10-KSB.

 

*Income Taxes*- Income tax expense iscomputed by applying the estimated annual effective tax rate to theyear-to-date income.

 

*Unaudited Financial Statements*- The consolidated balance sheet as of June 30, 2002, the consolidatedstatements of operations for the three and six months ended June 30, 2002 and2001, the consolidated statements of cash flows for the six months ended June30, 2002 and 2001, and the related information contained in these notes havebeen prepared by management without audit. In the opinion of management, all accruals (consisting of normalrecurring accruals) which are necessary for a fair presentation of financialposition and 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.

 

*Net Income Per Share –*Basic net income per common share is based on the weighted average number ofcommon shares outstanding during each year. The weighted average number of common shares outstanding for the threeand six month periods ended June 30, 2002 were 3,571,507 and 3,554,479,respectively.  The weighted averagenumber of common shares outstanding for the three and six month periods endedJune 30, 2001 were 3,456,059 and 3,438,884, respectively.  Diluted net income per common share takesinto effect the dilutive effect of potential common shares outstanding.  The Company’s only potential common sharesoutstanding are stock options.  Afterconsidering the dilutive effect of stock options outstanding, the weightedaverage shares used to calculate diluted earnings per share for the three andsix month periods ended June 30, 2002 were 3,896,706 and 3,858,146,respectively.  The weighted averageshares used to calculate diluted earnings per share for the three and six monthperiods ended June 30, 2001 were 3,744,614 and 3,734,871, respectively.

 

2.     BORROWINGS UNDER CREDIT AGREEMENT

 

Borrowings underthe Company’s credit agreement with Bremer Bank, include a commercial revolvingcredit line which provides for maximum advances of $2,250,000 with interest atthe prime rate until April 20, 2003. The Company had no borrowings under this credit line at June 30,2002.  The credit agreement containscertain covenants requiring the Company to maintain certain financialratios.  The Company was in compliancewith these requirements as of June 30, 2002. 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 during2002.

 

6

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3.     OPERATING SEGMENTS

 

During the firstsix months of 2002 and 2001, the Company had three reportable operatingsegments:  horse racing, card club andconcessions.  The card club segmentincludes operations of the Canterbury Card Club.  The horse racing segment includes simulcast and live horse racingoperations, and the concessions segment provides concessions during simulcastand live racing, in the card club, and during special events.  The Company’s reportable operating segmentsare strategic business units that offer different products and services.  They are managed separately because thesegments differ in the nature of the products and services provided as well asprocesses to produce those products and services.  The horse racing and card club segments are regulated by theState of Minnesota Racing Commission.

 

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

 

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

 

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

 
|                                |   | **Six Months  Ended June 30, 2002** |   |
|-------------------------------------|--------|-------------------------------------|--------|
|                                |   | **Horse  Racing**                   |   | **Card Club** |   | **Concessions** |   | **Total** |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Revenues from  external customers   |   | $                                   | 9,641  |   | $ | 9,094 |   | $ | 2,143 |   | $ | 20,878 |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Intersegment  revenues              |   | 173                                 |   |   |   | 577 |   | 750 |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Net interest  expense               |   | 10                                  |   |   |   |   |   | 10 |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Depreciation and  amortization      |   | 280                                 |   | 286 |   |   |   | 566 |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Segment income  before income taxes |   | 642                                 |   | 1,971 |   | 323 |   | 2,936 |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Segment Assets                      |   | $                                   | 16,094 |   | $ | 4,253 |   | $ | 900 |   | $ | 21,247 |   |

 
|                                |   | **Six Months  Ended June 30, 2001** |   |
|-------------------------------------|--------|-------------------------------------|--------|
|                                |   | **Horse  Racing**                   |   | **Card Club** |   | **Concessions** |   | **Total** |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Revenues from  external customers   |   | $                                   | 8,752  |   | $ | 8,028 |   | $ | 1,949 |   | $ | 18,729 |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Intersegment  revenues              |   | 306                                 |   |   |   | 619 |   | 925 |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Net interest  expense               |   | (28                                 | )      |   |   |   |   | (28 | ) |
|                                |   |                                |   |   |   |   |   |   |   |
| Depreciation and  amortization      |   | 275                                 |   | 213 |   |   |   | 488 |   |
|                                |   |                                |   |   |   |   |   |   |   |
| Segment income  before income taxes |   | 4                                   |   | 1,490 |   | 73 |   | 1,567 |   |
|                                     |        |                                     |        |  |  |  |  |  |  |  |  |  |  |

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

 

7

----

 

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

 
|                                                    |   | **Six Months  Ended  June 30,2002** |   | **Six Months  Ended  June 30,2001** |   |
|---------------------------------------------------------|--------|-------------------------------------|--------|-------------------------------------|--------|
| **Revenues**                                            |   |                                |   |                                |   |   |   |
| Total revenue  for reportable segments                  |   | $                                   | 21,628 |                                | $      | 19,654 |   |
| Elimination of  intersegment revenues                   |   | (750                                | )      | (925                                | )      |
| Total  consolidated revenues                            |   | 20,878                              |   | 18,729                              |   |
|                                                    |   |                                |   |                                |   |
| **Income  before income taxes**                         |   |                                |   |                                |   |
| Total segment  income before income taxes               |   | $                                   | 2,936  |                                | $      | 1,567 |   |
| Elimination of  intersegment income before income taxes |   | (323                                | )      | (73                                 | )      |
| Total  consolidated income before income taxes          |   | 2,613                               |   | 1,494                               |   |

 
|                                     |   | **June 30,  2002** |   | **December  31,  2001** |   |
|------------------------------------------|--------|--------------------|--------|-------------------------|--------|
| **Assets**                               |   |               |   |                    |   |
| Total assets for  reportable segments    |   | $                  | 21,247 |                    | $      | 16,977 |   |
| Elimination of  intercompany receivables |   | (768               | )      | (433                    | )      |
| Total  consolidated assets               |   | 20,479             |   | 16,544                  |   |
|                                          |        |                    |        |                         |        |  |  |

 

4.     CONTINGENCIES

 

In accordance withan Earn Out Note, given to the prior owner of the racetrack as part of theconsideration paid by the Company to acquire the racetrack in 1994, if (i)off-track betting becomes legally permissible in the State of Minnesota and(ii) the Company begins to conduct off-track betting with respect to or inconnection with its operations, the Company will be required to pay to the IMRFund, L.P. the greater of $700,000 per operating year, as defined, or 20% ofthe net pretax profit, as defined, for each of five operating years.  At the date (if any) that these twoconditions are met, the five minimum payments will be discounted back to theirpresent value and the sum of those discounted payments will be recorded as anincrease to the purchase price.  Thepurchase price will be further increased if payments become due under the 20%of Net Pre-Tax Profit calculation.  Thefirst payment is to be made 90 days after the end of the third operating yearin which off-track betting is conducted by the Company.  Remaining payments would be made within 90days of the end of each of the next four operating years.

 

The Company isperiodically involved in various legal actions arising in the normal course ofbusiness.  At June 30, 2002, managementbelieves that the resolution of any legal actions outstanding will not have amaterial impact on the consolidated financial statements.

 

The MinnesotaDepartment of Labor and Industry (DOL&I) is conducting an audit for theperiod April 10, 1999 through April 10, 2001 regarding compliance with the tiplaw sections of the Minnesota Fair Labor Standards Act.  At June 30, 2002, the Company has receivedno communications from the DOL&I regarding the disposition of theiraudit.  Management believes that theCompany’s practices regarding tips are consistent with the requirements ofMinnesota law.

 

8

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5.     CURRENT ACCOUNTING PRONOUNCEMENTS

 

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

 

The FASB alsoissued SFAS No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets,*which is**required to be adopted for fiscal yearsbeginning after December 15, 2001.  SFASNo. 144 establishes accounting and reporting standards for the impairment ordisposal of long-lived assets.  Theprovisions of SFAS No. 144 became effective for the Company on January 1, 2002and did not have a material impact on its financial position and results ofoperations.

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS**

 

**General**

 

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

 

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

 

The Canterbury Card Club (the “Card Club”) is the onlyfacility in the State of Minnesota given the legislative authority to hostunbanked card games in which players compete against each other and not againstthe house.  The Company receives apercentage of the wagers from the players as compensation for providing theCard Club facility and services.  CardClub operations commenced on April 19, 2000. The Card Club is open twenty-four hours a day, seven days a week.

 

The Company also generates revenues from admissions,parking, publication sales, facility rental for special events, vehiclestorage, advertising and other sources.

 

The Minnesota RacingCommission is authorized by Minnesota law to regulate Card Cluboperations.  The law requires that up to14% of the gross revenue generated by the Card Club be paid to the Racetrack’spurse fund and the State of Minnesota Breeders’ Fund.  The original 15,828 square foot Card Club, constructed within theRacetrack grandstand facility, was completed in mid-April 2000 and accommodatedapproximately 40 tables.  In May 2001,the Company expanded the Card Club for 50 tables, the maximum allowed byMinnesota law.

 

9

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**Resultsof Operations for the****Three and****Six Months Ended June 30, 2002 and June 30, 2001**

 

Total operating revenues increased approximately $2.1million or 11.5% during the six months ended June 30, 2002 compared to the sixmonths ended June 30, 2001, and increased approximately $1.2 million or 11.6%for the three months ended June 30, 2002 compared to the three months endedJune 30, 2001.

 

Pari-mutuel revenues increased $531,482 or 6.7% in thesix month period ended June 30, 2002 compared to the same period in 2001.  Total handle for the six months ended June30, 2002 was up $3.3 million or 7.9% compared to total handle during thesix-month period in 2001. Total handle wagered on simulcast races year-to-datein 2002 is up $3.1 million or 10.3% compared to year-to-date June 30, 2001.  On-track live handle decreased slightly by$64,000 or 1% compared to the same period in 2001 partially due to inclementweather which led to fewer races. However, out-of-state live handle increased $200,000 or 4.9% compared tothe same period last year due to the addition of several simulcastoutlets.  See the “Summary of OperatingData” below.

 

**Summary of Operating Data:**

** **
|                              |   | **Six Months  Ended  June 30, 2002** |       | **Six Months  Ended  June 30, 2001** |       |
|-----------------------------------|--------|--------------------------------------|------------|--------------------------------------|------------|
|                              |   |                                 | ** ** |                                 | ** ** |
| **Racing Days**                   |   |                                 | ** ** |                                 | ** ** |
| Simulcast only  days              |   | 155                                  |       | 156                                  |       |
| Live and  simulcast days          |   | 26                                   |       | 25                                   |       |
| Total Racing  Days                |   | 181                                  |       | 181                                  |       |
|                              |   |                                 | ** ** |                                 | ** ** |
| **On-Track Handle**               |   |                                 | ** ** |                                 | ** ** |
| Simulcast only  days              |   | $                                    | 26,720,000 |                                 | $          | 24,619,000 |   |
| Live and  simulcast days          |   |                                 | ** ** |                                 | ** ** |
| Live racing                       |   | 6,454,000                            |       | 6,518,000                            |       |
| Simulcast racing                  |   | 6,933,000                            |       | 5,899,000                            |       |
| **Out-of-state Live Handle**      |   | 4,311,000                            |       | 4,111,000                            |       |
| Total Handle                      |   | $                                    | 44,418,000 |                                 | $          | 41,147,000 |   |
|                              |   |                                 | ** ** |                                 | ** ** |
| **On-Track Average Daily Handle** |   |                                 | ** ** |                                 | ** ** |
| Simulcast only  days              |   | $                                    | 172,387    |                                 | $          | 157,814 |   |
| Live and  simulcast days          |   | 514,885                              |       | 496,680                              |       |

 

Card Club revenues were $9.1 and $4.5 million for thesix-month and three-month periods ended June 30, 2002, representing increasesof 13.3% and 12.3%, respectively.  CardClub revenues represented 43.6% and 38.2% of total revenues for the six-monthand three-month periods ended June 30, 2002, respectively.  The year-to-date increase is primarily dueto an increased number of tables in operation in 2002, compared to 2001.  The Card Club operation offered games on 50tables in 2002, compared to 42 tables in the first half of 2001.

 

10

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Concession sales for the six-month and three-monthperiods ended June 30, 2002 increased 11.0% and 10.0%, respectively, comparedto the same periods in 2001 due to the increased Card Club operations and oneadditional live racing day in the 2002 periods.

 

Other operating revenues for the six-month andthree-month periods ended June 30, 2002 increased $327,331 and $349,569,respectively compared to the same periods in 2001 primarily due to a $258,074gain on sale of five acres of real estate.

 

Operating expenses (excluding pari-mutuel expenses)increased 3.3% during the six month period ended June 30, 2002 compared to thesix month period ended June 30, 2001, and 1.4% during the three months endedJune 30, 2002 compared to the three month period ended June 30, 2001.  Salaries and benefits increasedapproximately $233,000 or 3.1% in the six-month period and $119,000 or 2.9% inthe three-month period compared to the same periods last year primarilyassociated with the increase in revenues. Advertising and marketing increased approximately $100,000 or 11.1% inthe six month period and approximately $58,000 or 8.5% in the three monthperiod compared to the same periods last year due primarily to increasedparticipation in the patron loyalty program. Utilities expense decreasedapproximately $111,000 or 20.7% and approximately $6,000 or 2.5% for the sameperiods in 2001 due to rate reductions experienced during the past twelvemonths.

 

Pari-mutuel expenses have increased 13.7% and 11.7%,respectively, during the six and three month periods of 2002 compared to 2001,due primarily to purse expense attributable to the Card Club.  Under Minnesota law, the Company is requiredto pay 10% of the first $6 million of gross Card Club revenues as pursemonies.  After meeting the $6 millionthreshold, the Company must pay 14% of gross Card Club revenues as pursemonies.  However, effective January 1,2002 the Company agreed to pay 14% of all Card Club gross revenues.  In 2001, the Company estimated an annualeffective rate for purse money payments of approximately 12.40%, which wasapplied to Card Club revenues throughout the year.  Therefore, the effective rate in 2002 is higher than during 2001.

 

Income before income taxes was $2,612,932 for the sixmonths ended June 30, 2002 compared to $1,494,420 for the six months ended June30, 2001.  After income tax expense of$1,068,889 for the six months ended June 30, 2002, net income was $1,544,043 in2002 compared to $856,670 in 2001. Income before income taxes for the quarter ended June 30, 2002 was$1,031,543 compared to $240,800 for the quarter ended June 30, 2001.  After income tax expense of $418,528 in thesecond quarter of 2002, net income was $613,005 compared to $133,050 for thesecond quarter of 2001.

 

**Commitments and Contingencies**

 

There have been no material changes in our outstandingcommitments and contingencies since those reported at December 31, 2001.

 

11

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**Liquidityand Capital Resources**

 

During the period January 1, 2002 through June 30,2002, cash provided by operating activities was $3,764,102, which resultedprincipally from an increase in accounts payable and accrued expenses of$2,257,678, net income of $1,544,043 and depreciation and amortization of$566,388. These items were partially offset by a decrease in other currentassets of $442,176 and a gain on sale of real estate of $258,074.  The significant increase in accounts payableand accrued expenses is due primarily to increases in amounts payable relatedto the live race meet.

 

Net cash used in investing activities for the firstsix months of 2002 was approximately $1.8 million resulting primarily from thepurchase of 12 acres of land just south of the main parking lot for $1 million,and acquisitions of equipment for $1.2 million, offset by the proceeds ondisposal of real estate of $422,663. During the six-month period ended June 30, 2001, net cash of $1.8million was invested in building improvements primarily related to theexpansion of the Card Club.

 

During the period January 1, 2002 through June 30,2002, cash provided by financing activities was $45,677, representing $256,401from the exercise of stock options which was partially offset by net paymentsto the Minnesota Horsemen’s Benevolent and Protective Association (the “MHBPA”)of $210,724.  During the period January1, 2001 through June 30, 2001, cash provided by financing activities was$18,842 representing $70,593 from the exercise of stock options which werepartially offset by net payments to the MHBPA of $51,751.

 

The Company is required by statute to segregate aportion of funds received from revenues in the Card Club and wagering onsimulcast and live horse races for future payment as purses for live horse racesat the Racetrack or other uses of Minnesota’s thoroughbred and quarterhorseassociations.  Pursuant to an agreementwith the MHBPA, during the six months ended June 30, 2002 and 2001, the Companytransferred into a trust account for these purposes or paid directly to theMHBPA approximately $2,850,000 and $2,300,000, respectively.  At June 30, 2002, the Company had anadditional liability to the MHBPA of $162,516. This liability will be paid in 2002, including interest earned at theprime-lending rate, in accordance with the agreement with the MHBPA.

 

The Company has a general credit agreement with BremerBank.  Borrowings under the creditagreement include a commercial revolving credit line providing for maximumadvances of $2,250,000 with interest at the prime rate until April 20,2003.  The Company had no borrowingsunder the line of credit at June 30, 2002 or December 31, 2001.  The credit agreement contains certaincovenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements as of June 30, 2002.

 

Cash balances at June 30, 2002 were $5,064,880compared to $3,088,844 at December 31, 2001. The Company believes that thefunds available in its cash accounts, amounts available under its $2,250,000line of credit, along with funds generated from operations, will be sufficientto satisfy its liquidity and capital resource requirements during 2002.

 

12

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**Critical Accounting Policies**

 

In preparing the financial statements, we followaccounting principles generally accepted in the United States of America, whichin many cases require us to make assumptions, estimates and judgments thataffect the amounts reported.  Many ofthese policies are relatively straightforward. There are, however, a few policies that are critical because they areimportant in determining the financial condition and results of operations andthey can be difficult to apply.  Webelieve that the most critical accounting policies applied in the preparationof our financial statements relate to: a) accounting for contingencies, underwhich we accrue a loss when it is probable that a liability has been incurredand the amount can be reasonably measured; and b) measuring long-term assetsfor impairment.  An impairment losswould be measured by the amount by which the carrying value of the assetexceeds the fair value of the asset.  Todate, management has determined that no impairment of these assets exists.

 

The difficulty in applying these policies arises fromthe assumptions, estimates and judgments that have to be made currently aboutmatters that are inherently uncertain, such as future economic conditions,operating results and valuations as well as management intentions.  As the difficulty increases, the level ofprecision decreases, meaning that actual results can and probably will bedifferent from those currently estimated. We base our assumptions, estimates and judgments on a combination ofhistorical experience and other reasonable factors.

 

**OperatingPlan:**

 

On June 6, 2002 at the Annual Meeting, the Company’sBoard of Directors declared a special cash dividend of $.25 per share of commonstock payable to shareholders of record on June 28, 2002.  The Company has not adopted any policiesregarding dividends and there can be no assurance that any dividend will bepaid in the future.

 

At June 30, 2002, the Company was approximatelyhalfway through its 62-day 2002 live race meet featuring both thoroughbred andquarter horse racing.  The Companycontinues to experience stiff competition with racetracks located near DesMoines, Iowa and Chicago, Illinois in securing the better quality horses to runat the Racetrack.  Attracting the ownersand trainers of better quality horses is largely influenced by the ability tooffer large purses.  The Companyimplemented a 5% purse increase during this live race meet, the fourth in threeyears, which increased the average daily purses to approximately $125,000.

 

The expansion of the Card Club has positively affectedoperating results since its completion in May 2001.  The Company anticipates that the results for the remainder of2002 will be similar to those experienced in the second half of 2001 due to theoperation of the maximum 50 tables allowed by Minnesota law.

 

The Company continues to pursue special events and tomarket its facility as a venue for large outdoor and indoor events.  In August 2002, the Company will be theprimary public parking facility for the 84th PGA Championship to beheld at Hazeltine National Golf Club in nearby Chaska, Minnesota.

 

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Management intends to continue pursuing legislationfor additional potential sources of revenue. However, these efforts could also result in increased legislativerelated expenses in the future.

 

**FactorsAffecting Future Performance:**

 

*Fromtime to time, in reports filed with the Securities and Exchange Commission, inpress releases, and in other communications to shareholders or the investing public,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.  Forsuch forward-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 anduncertainties include, but are not limited to: fluctuations in attendance atthe Racetrack, changes in the level of wagering by patrons, continued interestin the unbanked card games offered at the Card Club, legislative and regulatorychanges, the impact of wagering products and technologies introduced by competitors;upward pressure on salary and benefit expense due to the tight labor market;the general health of the gaming sector; higher than expected expense relatedto new marketing initiatives; and other factors discussed from time to time inthe Company’s filings with the Securities and Exchange Commission.*

 

**QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

We are exposed to market risk from changes in interest rates onborrowings under our commercial revolving credit line that bears interest at theprime rate.  At June 30, 2002 we have nodebt borrowings under our credit facility.

 

We have no derivative financial instruments or derivative commodityinstruments in our cash and cash equivalents and marketable securities.  We invest cash and cash equivalents ininvestment grade, highly liquid investments, consisting of money marketinstruments, bank certificates of deposit, and short term government andcorporate bonds.

 

14

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**PART II**

**OTHER INFORMATION**

 
| Item 1. | **Legal  Proceedings**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    | Not Applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Item 2. | **Changes  in Securities**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    | Not Applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Item 3. | **Defaults  Upon Senior Securities**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    | Not Applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Item 4. | **Submission  of Matters to a Vote of Security Holders**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    | The Company held its Annual Meeting of Shareholders  on June 6, 2002.  Shareholders elected  or reelected the following directors for a one year term:  Brian C. Barenscheer, Gibson Carothers,  Patrick R. Cruzen, Carin J. Offerman, Curtis A. Sampson, Randall D. Sampson,  and Dale H. Schenian.  Not less than  3,264,111 shares were voted in favor of each of the directors (approximately  92% of all outstanding shares) and holders of no more than 21,571 shares  withheld authority to vote for such directors. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    | In addition, the shareholders approved by a vote of  2,132,513 shares in favor and 55,287 opposed an amendment to the Company’s  1994 Stock Plan to increase the number of shares which may be issued upon  exercise of options awarded under the Plan from 850,000 shares to 1,150,000  shares.                                                                                                                                                                                                                                      |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Item 5. | **Other  Information**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    | Not Applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Item 6. | **Exhibits  and Reports on Form 8-K**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    | (a)           Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    | 99.1 Certification under 18 U.S.C 1350                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    | (b)           Reports  on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

15

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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:   August 14, 2002 |   /s/ Randall D. Sampson          |
|                          | Randall D. Sampson,                         |
|                          | President, and Chief Executive Officer      |
|                          |                                        |
|                          |                                        |
| Dated:   August 14, 2002 |   /s/ David C. Hansen             |
|                          | David C. Hansen,                            |
|                          | Vice President, and Chief Financial Officer |

 

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