**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-K**

 

**(Mark One)**

 
| ý                                                      | **ANNUAL REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**    |
|-------------------------------------------------------------|----------------------------------------------------------------------------------------------------|
| ** **                                                  | ** **                                                                                         | ** ** |
| **For the fiscal year ended December 31,  2004 ** |
|                                                        |
| **OR**                                                      |
| ** **                                                  | ** **                                                                                         |   |
| o                                                           | **TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(d) OF  THESECURITIES EXCHANGE ACT OF 1934** |

 

**For the Transition period from              to              **

 

**CommissionFile Number:  001-31569**

 

**CANTERBURY PARK HOLDING CORPORATION**

(Exact Name of Registrant as Specified in ItsCharter)

 
| **Minnesota**                                                                      | ** ** | **41-1775532**                        |
|------------------------------------------------------------------------------------|------------|---------------------------------------|
| (State or Other  Jurisdiction  of Incorporation or  Organization)             |       | (I.R.S. Employer  Identification No.) |
|                                                                               |       |                                  |
| **1100 Canterbury Road  Shakopee, MN 55379**                                       |
| (Address of principal  executive offices and zip code)                             |
|                                                                               |
| Registrant’s telephone  number, including area code:  **(952) 445-7223** |
|                                                                               |
| Securities registered  pursuant to Section 12(b) of the Act:                  |

 
| **Title of Each Class**       | ** ** | **Name of Exchange on which  Registered** |
|-------------------------------|------------|-------------------------------------------|
| Common Stock, $.01 par  value |       | American Stock Exchange                   |

 

Securities registered pursuant to Section 12(g)of the Act:   **None**

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 
|   | YES | ý |   | NO | o |   |
|--------|-----|--------|--------|----|---|--------|

 

Indicateby check mark if disclosure of delinquent filers pursuant to Rule 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K.  ý

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inExchange Act Rule 12b-2).

 
|   | YES | o |   | NO | ý |   |   |
|--------|-----|---|--------|----|--------|--------|--------|

 

Theaggregate market value of the shares of voting and non-voting common equityheld by non-affiliates of the Company (persons other than directors and officers)computed at the closing price of $17.10 per share on the American StockExchange on June 30, 2004 was approximately $40,027,500.

 

OnMarch 15, 2005, the Company had 3,888,169 shares of common stock, $.01 parvalue, outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portionsof the Company’s definitive Proxy Statement for its 2005 Annual Meeting ofShareholders, to be held on June 2, 2005, are incorporated by referenceinto Part III of this Form 10-K.

 

 

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CANTERBURY PARK HOLDING CORPORATION

FORM 10-K ANNUAL REPORT

FOR THE YEAR ENDED DECEMBER 31, 2004

 

TABLE OF CONTENTS

 
|           | PART I                                                                                                              |   |
|----------------|---------------------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                                |   |
| ITEM 1.        | Business                                                                                                            |   |
| ITEM 2.        | Properties                                                                                                          |   |
| ITEM 3.        | Legal Proceedings                                                                                                   |   |
| ITEM 4.        | Submission of  Matters to a Vote of Security Holders                                                                |   |
|           |                                                                                                                |   |
|           | PART II                                                                                                             |   |
|           |                                                                                                                |   |
| ITEM 5.        | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |   |
| ITEM 6.        | Selected Financial  Data                                                                                            |   |
| ITEM 7.        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |   |
|           |                                                                                                                |   |
| ITEM 7A.       | Quantitative and Qualitative Disclosures  about Market Risk                                                         |   |
| ITEM  8.       | Financial  Statements and Supplementary Data                                                                        |   |
| ITEM  9.       | Changes  In and Disagreements With Accountants on Accounting and Financial Disclosure                               |   |
| ITEM  9A.      | Controls  and Procedures                                                                                            |   |
| ITEM  9B.      | Other  Information                                                                                                  |   |
|           |                                                                                                                |   |
|           | PART  III                                                                                                           |   |
|           |                                                                                                                |   |
| ITEM  10.      | Directors  and Executive Officers of the Registrant                                                                 |   |
| ITEM 11.       | Executive Compensation                                                                                              |   |
| ITEM  12.      | Security  Ownership of Certain Beneficial Owners and Management                                                     |   |
| ITEM  13.      | Certain  Relationships and Related Transactions                                                                     |   |
| ITEM  14.      | Principal  Accounting Fees and Services                                                                             |   |
|           |                                                                                                                |   |
|           | PART IV                                                                                                             |   |
|           |                                                                                                                |   |
| ITEM  15.      | Exhibits,  Financial Statement Schedules                                                                            |   |
|           |                                                                                                                |   |
| SIGNATURES     |                                                                                                                |
|           |                                                                                                                |
| EXHIBIT INDEX  |                                                                                                                |
|           |                                                                                                                |
| CERTIFICATIONS |                                                                                                                |

 

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**Item 1.****   ****BUSINESS**

 

#### ***(a) General Development of the Business***

####  

Canterbury Park Holding Corporation (the “Company”)hosts pari-mutuel wagering on live thoroughbred and quarter horse racing at itsfacilities in Shakopee, Minnesota (the “Racetrack”) and pari-mutuel wagering onraces held at out-of-state racetracks that are televised simultaneously at theRacetrack (“simulcasting”).  In addition,the Company hosts “unbanked” card games. The Company also derives revenues from related services and activities,such as concessions, parking, advertising, admissions, programs, a recreationalvehicle park and from other entertainment events held at the Racetrack.

 

The Company was incorporated under the laws ofMinnesota on March 24, 1994 and acquired the Racetrack on March 29,1994.  On May 6, 1994 the Companycommenced simulcasting operations, which now are generally conducted seven daysper week.  Beginning in May 1995, theCompany began hosting live horse racing and related pari-mutuel wagering on aseasonal basis, generally from mid May to late August or early September.

 

  On April 19,2000, the Company opened its Canterbury Card Club (the “Card Club”).  At the Card Club patrons compete against eachother in various unbanked card games. The Card Club operates under laws adopted in 1999 (the “Card ClubLegislation”) and is regulated by the Minnesota Racing Commission (the “RacingCommission”).  Under the Card ClubLegislation, the Company is authorized to host card games at up to 50 tablesand receive a percentage of the wagers or a fee from the players as its revenuefor providing the facility and services. The Card Club Legislation requires that the Racetrack’s purse fund andthe State of Minnesota Breeders’ Fund receive a minimum of 10% to 14% of thegross revenue generated by the Card Club

 

The Company maintains a website atwww.canterburypark.com.  Our annualreports on Form 10-K, our quarterly reports on Form 10-Q and our periodicreports on Form 8-K (and any amendments to these reports) are available free ofcharge on our website.

 

***(b) Financial Information AboutSegments***

 

The Company divides its business into threesegments: card club, horse racing and concessions. The card club segmentincludes operations of the Canterbury Card Club. The horse racing segmentincludes simulcast and live racing operations, and the concessions segmentrepresents food and beverage services for simulcast and live racing, the CardClub, and during special events. Further information regarding the Company’sbusiness segments is set forth in Note 10 of the Notes to ConsolidatedFinancial Statements under Item 8 of this Form 10K and such information isincorporated herein by reference.

 

***(c) Narrative Description ofBusiness***

 

**(i)****           ****Card Club Operations**

 

The Card Club is open 24 hours per day, seven daysper week, offering two types of unbanked card games: Poker and Casino Games.

 

Poker games, including Texas Hold ‘Em, 7-Card Studand Omaha, with table limits ranging between $2 and $60, are currently offeredon a maximum of 31 tables in the poker room. In the Canterbury Card Club, a dealer, employed by the Company,regulates the play of the game at each table and deals the cards, but does notparticipate in play.  In poker games, thesponsor (the Company), is allowed to deduct a percentage from the accumulatedwagers and impose other charges for hosting the activity, but does not have aninterest in the outcome of a game.  Thesponsor may add additional prizes, awards, or money to any game for promotionalpurposes.  The Company collects a “rake”of 10% of each addition to the “pot”, up to a maximum of $4.00 or $4.50 perhand, depending on the game, as its collection revenue.  In addition, poker games offer progressivejackpots 

 

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formost games.  In order to fund the jackpotpool, the dealer withholds $1.00 from each final pot, which exceeds the minimumof $15.

 

Casino Games, including Pai Gow Poker, Minnesota 21(a version of blackjack), Super Nine, Caribbean Stud, Let-It-Ride and ThreeCard poker, are currently offered at 19 tables and are played using a “playerpool” system.  “Player pool” means awagering system, in which wagers lost in card games, are accumulated into apool for purposes of enhancing the total amount paid back to winning players inother card games.  In such instances, thesponsor may only serve as custodian of the player pool and may not have anactive interest in any card game.  In thecasino games area of the Card Club, the amount that the dealer “wins” or “loses”during the course of play is accumulated in a “Player Pool” to be used to repayplayers in the form of promotions, giveaways, prizes or by other means.  The Company also takes a “rake” of $.50 to$3.00 per wager, depending on the game and size of wager, for the Company’scollection revenue.  The only casino gameto offer a progressive jackpot is Caribbean Stud.  The player has the option of playing thejackpot, and has the opportunity to win some, or all, of the jackpot amountdepending upon his hand.

 

**(ii)****          ****Horse Racing Operations**

 

The Company’s horse racing operations consist ofyear-round pari-mutuel wagering on simulcast horse races (“simulcasting”) andlive horse races (“live meets”) held on a seasonal basis beginning in May andconcluding in September.  Thoroughbredand quarter horse racing is conducted during the live meet.  The Company has also conducted two-dayharness racing live meets from time to time.

 

*Simulcasting.*

 

Simulcasting is the process by which live horseraces held at one facility (the “host track”) are transmitted simultaneously toother locations that allow patrons at each receiving location (the “guest track”)to place wagers on races transmitted from the host track.  Monies are collected at the guest track andthe information with respect to the total amount wagered is electronicallytransmitted to the host track.  All ofthe amounts wagered at guest tracks are combined into the appropriate pools atthe host track with the final odds and payouts determined based upon all themonies in the respective pools.

 

The Company offers “full card” simulcast racing(broadcasting of another racetrack’s entire daily live racing program) from upto 20 racetracks per day, seven days a week, 364 days per year, includingChurchill Downs, Hollywood Park, Santa Anita, Gulfstream Park, Belmont Park andSaratoga Racecourse.  In addition, racesof national interest, such as the Kentucky Derby, Preakness Stakes and Breeders’Cup, supplement the regular simulcast program. The Company regularly evaluates its agreements with other racetracks inorder to offer the most popular simulcast signals of live horse racing which isfeasible to offer at the Racetrack.

 

Under applicable provisions of federal and statelaw, the Racetrack must obtain the consent of the state’s regulatory authority,and the organization which represents the majority of the owners and trainersof the horses who race at the Racetrack, with respect to simulcast operationsboth as a host and guest track.  InMinnesota such consent must be obtained from the Minnesota Horsemen’sBenevolent and Protective Association (the “MHBPA”) and the Minnesota RacingCommission.

 

*Live Racing.*

 

The Company conducts live horse racing at itsfacility generally from mid-May until early September each year.  The 2004 live meet was 67 days long,beginning May 14th and ending September 6th, and consisted of 35 days ofmixed Thoroughbred and Quarter Horse racing and 32 days of Thoroughbred onlyracing.  In 2005, the Racetrack plans tohost a 69 day live meet, beginning May 7th and concluding September 5ththat will include 46 days of mixed Thoroughbred and Quarter Horse racing and 23days of Thoroughbred only racing.

 

Currently, Minnesota law requires the Racetrack to schedule aminimum of 125 days of live racing annually, unless the MHBPA agrees to alesser number of live racing days.  Since1995, the MHBPA has agreed to waive the 125-day requirement and allow theCompany to run a live meet of at least 50 days each year. After

 

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2005,no assurance can be given that the MHBPA will agree to a shorter live meet thanthe 125-day statutory minimum.  If theMHBPA does not agree to a live meet shorter than 125 days, the Company’soperations could be adversely impacted by a decrease in the daily purses andpotential reduction in quality of horses, attendance and overall handle, aswell as increased operating expenses.

 

**(iii)****        ****Special Events**

 

While pari-mutuel horse racing and card cluboperations are the Company’s principal businesses, the Company’s facilities arecapable of being used for multiple purposes. In an effort to more fully utilize the property and to generateadditional revenues, the Company has, in each year of its operations, expandedthe use of the grandstand, grounds and parking lot for special events andrentals.  While the use of the Company’sfacilities for particular special events and purposes varies from year to year,the following are among the types of events and purposes for which the Company’sfacilities have been used: snowmobile races, major arts and crafts shows, tradeshows, concerts, motorcycle races, fund raisers, automobile shows andcompetitions, vehicle and boat storage, and private parties.

 

**(iv)****         ****Sources of Revenue**

 

*General.*

 

The Company’s revenues are principally derived fromCard Club operations and pari-mutuel wagering. The percentage of total revenuethe Company obtained from its three business segments during 2004 are: 51.8%,Card Club; 38.1%, pari-mutuel wagering; and 10.1%, Concessions.

 

*Card Club Operations*

 

The Company receives revenues from its Card Cluboperations, which run 24 hours per day, seven days per week.  The Company currently receives collectionrevenue from 31 poker tables and 19 tables offering table games.  Under Minnesota law, the Company is requiredto pay 10% of the first $6 million of gross Card Club revenues as purse monies.  After meeting the $6,000,000 threshold, theCompany must pay 14% of gross Card Club revenues as purse monies, although byagreement with the MHBPA the Company paid 14% of Card Club collection revenuesinto the purse fund in 2002 and 2003 and 15% of Card Club revenues in2004.  For 2005, the Company has agreed withthe MHBPA to pay 15% of all Card Club revenues into the purse fund.  Of funds allocated for purses, the Companypays 10% of the purse monies to the State of Minnesota Breeders’ Fund, with theremaining 90% of purse monies divided between thoroughbred (90%), quarter horse(9%) and standard bred (1%) purse funds

 

*Pari-mutuel wagering – General.*

 

In pari-mutuel wagering, bettors wager against eachother in a pool, rather than against the operator of the facility or withpreset odds.  From the total amountwagered or “handle,” the Minnesota Pari-Mutuel Horse Racing Act (the “RacingAct”) specifies the maximum percentage, referred to as the “takeout,” which maybe withheld by the Racetrack, with the balance returned to the winningbettors.  The takeout constitutes one ofthe Racetrack’s primary sources of operating revenue.  From the takeout, funds are paid to the Stateof Minnesota for pari-mutuel taxes, with additional amounts set aside forpurses and for the “Breeders’ Fund,” which is a fund apportioned by theMinnesota Racing Commission (“Racing Commission”) among various purposesrelated to Minnesota’s horse breeding and horse racing industries.  The balance of the takeout remaining afterthese deductions is commonly referred to as the “retainage.”

 

The various forms of pari-mutuel wagering can bedivided into two categories:  straightwagering pools and multiple wagering pools, which are also referred to as “exotic”wagering pools.  Examples of straightwagers include:  “win” (a wager on onespecific horse to finish first); “place” (a wager on one specific horse tofinish first or 

 

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second);and “show” (a wager on one specific horse to finish first, second orthird).  Examples of exotic wagersinclude: “daily double” (a wager in which the bettor selects the horses thatwill win two consecutive races);  “exacta”(a wager in which the bettor selects the horses that will finish first andsecond, in order); “trifecta” (a wager in which the bettor selects the horsesthat will finish first, second and third, in order); and “pick six” (a wager inwhich the bettor selects the horses that will finish first in six consecutiveraces).

 

The amount of takeout earned by the Company dependson where the race is run and the form of wager (straight or exotic).  Net revenues from pari-mutuel wagering onlive races run at the Racetrack consist of the total amount wagered, less theamounts paid (i) to winning patrons, (ii) for purses, (iii) to the Breeders’Fund and (iv) for pari-mutuel taxes to the State of Minnesota.  Net revenues from pari-mutuel wagering onraces being run at out-of-state racetracks and simulcast to the Racetrack havesimilar expenses, but also include a host fee payment to the host track.  The host fee, which is calculated as apercentage of monies wagered (generally 2.50% to 4.50%), is negotiated with thehost track and must comply with state laws governing the host track.

 

*Wagering on Live Races.*

 

The Racing Act establishes the maximum takeout thatmay be deducted from the handle.  Thetakeout percentage on live races depends on the type of wager.  The total maximum takeouts are 17% fromstraight wagering pools and 23% from exotic wagering pools.  From this takeout, Minnesota law requiresdeductions for purses, pari-mutuel taxes and the Breeders’ Fund.

 

While the Racing Act provides that a minimum of 8.4%of the live racing handle is to be paid as purses to the owners of the horses,the size of the purse is subject to further agreement with the horsepersons’ associations.The Breeders’ Fund receives 1% of the handle. The pari-mutuel tax applicable to wagering on all live races is 6% oftakeout in excess of $12 million during the twelve month period beginning July 1and ending the following June 30.

 

The following table sets forth the percentagedistribution of each dollar wagered on live races at the Racetrack, asestablished by the Racing Act, and the Racetrack’s retainage:

 

 
| ** **                       | ** ** | **Live Racing** | ** ** |
|----------------------------------|------------|-----------------|------------|
| ** **                       | ** ** | **Straight**    | ** ** | **Exotic** | ** ** |
|                             |       |            |       |   |   |   |   |   |   |
| Returned to  Winning Patrons     |       |            |       | 83.00 | % |   |   | 77.00 | % |
| Purse (1)                        |       | 8.40            |       |   |   | 8.40 |   |   |   |
| Minnesota  Breeders’ Fund   |       | 1.00            |       |   |   | 1.00 |   |   |   |
| Minnesota  Pari-Mutuel Taxes (2) |       | .17             |       |   |   | .23 |   |   |   |
| Racetrack  Retainage (1)         |       | 7.43            |       |   |   | 13.37 |   |   |   |
| Total  Takeout                   |       |            |       | 17.00 |   |   |   | 23.00 |   |
|                             |       |            |       |   |   |   |   |   |   |
| Total Handle                     |       |            |       | 100.00 | % |   |   | 100.00 | % |

 

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(1)           Minnesota law provides that the 8.40% pursepayment is a minimum.  The actualpercentage, if any, above the minimum is determined between the Racetrack andthe MHBPA.  Any additional amounts paidfor purses decrease the Racetrack’s retainage.

 

(2)           The current pari-mutuel tax structure exemptsthe first $12 million of takeout during a statutorily mandated twelve-monthperiod.  The total pari-mutuel taxliability for a twelve-month period will depend upon the total takeout duringthat period.

 

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*Wagering on Simulcast Races.*

 

The amount of takeout from simulcast wagering isdetermined by the laws of the state in which the host track is located.  In addition, the Racing Act establishes aminimum that must be set aside from simulcasting for purse payments on racingwithin Minnesota.  Different amounts arededucted for purses from the takeout depending on whether simulcasting occursduring the “Racing Season,” a statutorily defined 25 week period beginning inearly May each year, or outside of the Racing Season.  If simulcasting occurs during the RacingSeason, the amount set aside for purses further depends on whether thesimulcasting is part of a full racing card that occurs during the part of theday that live races are conducted at the Racetrack.  For races that are part of a full simulcastracing card that takes place within the time of live races at the Racetrack,the amount reserved for purse payout is 8.4%. For simulcasting conducted during the Racing Season that does not occurwithin the time period of live races, the purse is equal to 50% of the takeoutremaining after deductions for pari-mutuel taxes, payments to the Breeders’Fund and payments to the host racetrack for host track fees.  For simulcasting conducted outside of theRacing Season, the amount that must be contributed to the purses is 25% of thetakeout after deducting an 8% expense factor, pari-mutuel taxes, payments tothe Minnesota Breeders’ Fund and host fee payments to the host racetrack.

 

The following table sets forth the approximatepercentage distribution of each dollar wagered for races simulcast at theRacetrack and the Racetrack’s retainage:

 
| ** **                       | ** ** | **During Racing Season**       | ** ** | ** **                          | ** ** |
|----------------------------------|------------|--------------------------------|------------|-------------------------------------|------------|
| ** **                       | ** ** | **Concurrent with  Live Card** | ** ** | **Not Concurrent  with  Live Card** | ** ** | **Outside of  Racing Season** | ** ** |
|                             |       |                           |       |                                |       |   |   |
| Returned to  Winning Patrons (1) |       | 80.50                          | %          | 80.50                               | %          | 80.50 | % |
| Minnesota  Breeders’ Fund   |       | 1.00                           | %          |                                | 1.10       | % |   | 1.10 | % |   |
| Minnesota  Pari-Mutuel Taxes (2) |       | .19                            |       |                                | .19        |   |   | .19 |   |   |
| Purse (3)                        |       | 8.40                           |       |                                | 7.39       |   |   | 1.70 |   |   |
| Host Track  Fees (4)             |       | 3.50                           |       |                                | 3.50       |   |   | 3.50 |   |   |
| Racetrack  Retainage (3)         |       | 6.41                           |       |                                | 7.32       |   |   | 13.01 |   |   |
| Total  Takeout                   |       | 19.50                          |       | 19.50                               |       | 19.50 |   |
|                             |       |                           |       |                                |       |   |   |   |   |   |
| Total Handle                     |       | 100.00                         | %          | 100.00                              | %          | 100.00 | % |
|                                  |            |                                |            |                                     |            |  |  |  |  |  |  |  |  |

 

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(1)           This amount will depend upon the takeout atthe host racetrack.  This percentage willbe determined by local and state law applicable to the host track, and rangesfrom 75.0% to 85.0%.

 

(2)           The current pari-mutuel tax structure exemptsthe first $12 million of takeout during a statutorily mandated twelve-monthperiod.  The total pari-mutuel taxliability for a twelve-month period will depend upon the total takeout duringthat period.

 

(3)           Although Minnesota law specifies a minimum,the actual percentage is determined by agreement between the Racetrack and theMHBPA.  Any additional amounts paid forpurses reduce the Racetrack’s retainage.

 

(4)           Payments to the host track generally rangefrom 2.5% to 4.5% of total handle, subject to negotiation with each hosttrack.  For purposes of this table, thehost track fee is assumed to be 3.5%.

 

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*Other Revenues*

 

The Company also derives revenue from otheractivities such as admissions and parking fees, as well as from the sale offood and beverage, programs, and other racing publications.  The Company offers advertising signage spacesimilar to that appearing at many sports stadiums.  Finally, additional revenues are derived fromits RV Park and the use of the facilities for events such as concerts, tradeand craft shows, snowmobile racing, business meetings, private parties, horseexpositions and sales, boat and automobile storage, community events, andrental of the parking lot for various automobile activities and vehiclestorage.

 

**(v)****           ****Competition**

 

From 1994 through 2004, the Company was the onlyRacetrack licensed to operate in the State of Minnesota.  On January 20, 2005, the RacingCommission granted a license to the North Metro Harness Initiative, LLC (“NMHI”)to construct and operate a harness racetrack in Columbus Township, AnokaCounty, MN.  Columbus Township isapproximately 50 miles from Canterbury Park. This license authorizes NMHI to engage in pari-mutuel wagering on liveand simulcast racing for only standardbred (harness) horses.  Current Minnesota state law permits licensedracetracks to operate a card room with up to 50 tables subject to completion ofa 50-day live race meet and regulatory approval of a card room plan ofoperation.  NMHI has publicly stated itsintentions to seek legislation to allow them to apply for a license to operatea card room prior to completion of the minimum 50 live race days, and to permitpari-mutuel simulcast racing of all breeds to its racetrack.  At the current time, the Company does not havesufficient information to determine whether the addition of a second racetrackfacility for harness racing will have a material adverse affect on its horseracing operations.  The opening of a cardroom by NMHI has the potential to adversely affect the Company’s revenues andsubsequent purse payments to the Thoroughbred and Quarter Horse industries.

 

The Company competes with other forms of gaming inthe State of Minnesota, principally casino-style gambling including slots andblackjack, and more recently unbanked card games available at Native Americanreservations throughout the State of Minnesota, including a large casinolocated approximately four miles from the Racetrack.  In addition, the Company competes againstcharitable gambling (bingo and pull tabs) and various state lottery products.The Company also faces increasing competition from offshore and out-of-statesimulcast operations illegally marketing Internet and telephone account homewagering systems to Minnesota residents.

 

The Company also competes with other forms ofentertainment in the Minneapolis-Saint Paul metropolitan area, including a widerange of live and televised professional and collegiate sporting events.  In addition, live horse racing competes witha wide variety of summer attractions, including amusements parks, sportingevents and other local activities.

 

In addition, the Company competes with racetrackslocated throughout the United States in securing better quality horses to runat the Racetrack.  Attracting the ownersand trainers of better quality horses is largely dependent on the ability tooffer large purses.  The Companyexperiences significant competition for better quality horses from a racetracklocated near Des Moines, Iowa, as well as racetracks in Chicago, Illinois, bothof which offer substantially larger purses than the Company.  This competition is expected to continue forthe foreseeable future.

 

**(vi)****         ****Legislation**

 

On March 9, 2005, a bill was introduced in theMinnesota Legislature, to allow electronic gaming devices and banked card gamesto be operated by the Minnesota State Lottery at the Racetrack. This concept,often referred to as a “Racino”, as proposed for Canterbury Park would includeapproximately 3,000 gaming devices, 40 table games, a 250-room hotel, anOlympic scale horse park and additional restaurant venues.  A similar bill was an agenda item in the 2004Minnesota Legislature, however no action was taken prior to adjournment.  Based on the success of several Racinos inother states, the Company believes that if this legislation becomes law, itwill 

 

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enhancehorse racing with increased purses, provide growth and developmentopportunities for the Company, and produce significant new tax revenues forstate and local governments.

 

The effort to obtain legislative authority forinitiatives has required, and will continue to require, substantialexpenditures and there can be no assurance that any bill favorable to theCompany’s interests will be enacted into law.

 

**(vii)****        ****Marketing**

 

The Company’s primary market is the seven-countyMinneapolis-Saint Paul metropolitan area. Current demographic informationindicates that approximately 2.3 million adults age 20 and older, reside withina 50-mile radius of Shakopee, Minnesota and another .8 million adults age 20and older, reside between a 50-100 mile radius of the Racetrack.  The City of Shakopee, located in thesouthwestern portion of the metropolitan area, is one of the fastest growingcommunities in the region and Scott County is one of the fastest growingmid-sized counties in the country. Between 2004 and 2009, the population base within 100 miles of theRacetrack is expected to increase by an estimated 5.0%.

 

To support its pari-mutuel horse racing and CardClub businesses, the Company conducts year-round marketing efforts to maintainthe loyalty of live and simulcast patrons and attract new racing and Card Clubcustomers.  The Company’s marketing usesnewspapers, television, the Internet, other print media, radio and directmail.  Often the Company combines itsmarketing efforts to communicate the excitement of both wagering on horseracing and card playing.  In addition toits regular advertising program, the Company conducts numerous specialpromotions and handicapping contests to increase simulcast patronage, andmaintains successful pari-mutuel player and Casino Games player rewardsprograms.

 

The 2004 combined Card Club and live racingadvertising campaigns utilized print, radio and television advertising tohighlight the attractive, park-like atmosphere of Canterbury Park, promotingactivities for the entire family, as well as the fun and excitement of livehorse racing and card playing.  Inaddition, the development over the past six years of a customer database hasenabled the Company to increasingly utilize direct mail advertising.

 

Because wagering on horse racing and playing pokercard games and table card games are more complex than many other forms ofgaming, such as slot machines or the various lottery products, the Companycontinues to develop and conduct various educational programs, such ascomplimentary poker and table game lessons, tours of the Racetrack, wageringclasses and contests that it believes will make the sport of horse racing andpari-mutuel wagering and card playing more understandable to the generalpublic.

 

**(viii)****       ****Regulation**

 

*General.*

 

The ownership and operation of the Racetrack inMinnesota is subject to significant regulation by the Racing Commission underthe Racing Act and the rules adopted by the Racing Commission.  The Racing Act provides for the allocation ofeach wagering pool to winning bettors, the Racetrack, purses, the State ofMinnesota and the Breeders’ Fund and empowers the Racing Commission to licenseand regulate substantially all aspects of horse racing in the State.  The Racing Commission, among other things,grants operating licenses to racetracks after an application process and publichearings, licenses all employees of a racetrack, jockeys, trainers, veterinariansand other participants, regulates the transfer of ownership interests inlicenses, allocates live race days and simulcast-only race days, approves raceprograms, regulates the conduct of races, sets specifications for the racingovals, animal facilities, employee quarters and public areas of racetracks,regulates the types of wagers on horse races and approves significantcontractual arrangements with racetracks, including management agreements,simulcast arrangements, totalizator contracts and concessionaire agreements.  Decisions by the Racing Commission in regardto any one or more of the foregoing matters could adversely affect the Company’soperations.

 

9

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A federal statute, the Interstate Horse Racing Actof 1978, also provides that a racetrack must obtain the consent of the grouprepresenting the horsepersons (owners and trainers) racing the breed of horsesthat race a majority of the time at the racetrack, and the consent of the stateagency regulating the racetrack, in order to transmit simulcast signals of itslive races or to receive and use simulcast signals from other racetracks.  The Company has obtained the consent of theMHBPA and Racing Commission for receiving and sending simulcasting signals.

 

*Issuance of Class A, and Class BLicenses to the Company.*

 

The Company holds a Class A License, issued by theRacing Commission, which allows the Company to own and operate theRacetrack.  The Class A License iseffective until revoked or suspended by the Racing Commission, or relinquishedby the licensee.  The fee for a Class ALicense until June 30, 2003 was $10,000 per fiscal year.  Effective July 1, 2003 the fee for aClass A License increased to $253,000 per fiscal year.

 

The Company also holds a Class B License, issued bythe Racing Commission that allows the Company to sponsor and manage horseracing on which pari-mutuel wagering is conducted at its Class A licensedracetrack and on other horse races run at out-of-state locations as authorizedby the Racing Commission.  The Class BLicense is renewable each year by the Racing Commission after a public hearing(if required by the Racing Commission). Until June 30, 2003 the fee for the Class B License was $100 foreach assigned race day on which live racing is actually conducted and $50 foreach day on which simulcasting is authorized and actually takes place.  Effective July 1, 2003, the Class BLicense fee increased to $500 for each live racing day and $100 for eachsimulcast day.

 

The Racing Commission has the ability to imposefurther increases in the Class A and Class B license fees, which couldmaterially adversely impact the Company’s operating results.

 

*Limitation on the Number of ClassA, and Class B Licenses.*

 

Pursuant to the Racing Act, so long as the Racetrackmaintains its Class A License, no other Class A License may be issued tooperate a racetrack in the seven county metropolitan area (the counties ofHennepin, Ramsey, Washington, Scott, Dakota, Anoka and Carver), except theRacing Commission may issue an additional Class A License within the sevencounty metropolitan area, provided that the additional license may only beissued for a facility which, among other conditions, is located more than 20miles from the Racetrack, contains a track no larger than five-eighths of a milein circumference, and is used exclusively for standard bred (harness)racing.  An additional Class A licensewas issued to NMHI on January 20, 2005 (see “Competition” above).  However, as long as the Company holds itsClass A License, only the Company may own and operate a racetrack in the sevencounty metropolitan area where thoroughbred horses and quarter horses may beraced.

 

*Limitation on Ownership andManagement of an Entity, which holds a Class A License and/or Class B License.*

 

The Racing Act requires prior Racing Commissionapproval of all officers, directors, 5% shareholders, or other persons having apresent or future direct or indirect financial or management interest in anyperson applying for a Class A and Class B license, and if a change of ownershipof more than 5% of the licensee’s shares is made after an application is filedor the license issued, the applicant or licensee must notify the RacingCommission of the changes within five days of this occurrence and provide theinformation required by the Racing Act.

 

*Card Club Regulation.*

 

The Racing Commission is authorized by law toregulate Card Club operations and the law requires that the Company reimbursethe Racing Commission for it’s actual costs, including personnel costs, ofregulating the Card Club.  The RacingCommission issued an additional Class B License to the Company on January 19,2000.  This Class B License allows theCompany to host unbanked card games.  TheClass B License is renewable each year by the Racing Commission after a publichearing (if required by the Racing Commission). The fee for this Class B License was $10,000 per calendar year until June 30,2003.  Effective July 1, 2003, theClass B License Fee of $10,000 is included in the Class A License Fee of$253,000 per calendar year.

 

10

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*Local Regulation.*

 

The Company’s operations are subject to state andlocal laws, regulations, ordinances and other provisions affecting zoning andother matters which may have the effect of restricting the uses to which theCompany’s land and other assets may be used. Also, any development of the Racetrack site will, among other things, besubject to applicable zoning ordinances and require approval by the City ofShakopee and other authorities and there can be no assurance such approvalswill be obtained.

 

**(ix)****         ****Employees**

 

At March 15, 2005, the Company had 421full-time employees and 285 part-time employees.  On a seasonal basis the Company addsapproximately 120 full-time and 260 part-time employees for live racingoperations from early May until early September.  The Company’s management believes itsemployee relations are good.

 

 **(x)****         ****Executive Officers**

 

The executive officers of the Company, their agesand their positions with the Company are as follows:

 
| **Name**           | ** ** | **Age** | ** ** | **Position with Company**                               |
|--------------------|------------|---------|------------|---------------------------------------------------------|
|               |       |    |       |                                                    |
| Randall D. Sampson |       | 46      |       | President, CEO and General Manager                      |
|               |       |    |       |                                                    |
| David C. Hansen    |       | 48      |       | Vice President of Finance, CFO & Secretary          |
|               |       |    |       |                                                    |
| Mark A. Erickson   |       | 48      |       | Vice President of Facilities                            |
|               |       |    |       |                                                    |
| Michael J. Garin   |       | 49      |       | Vice President of Hospitality & Assistant Secretary |
|               |       |    |       |                                                    |
| John R. Harty      |       | 60      |       | Vice President of Marketing                             |

 

Randall D. Sampson has been President and ChiefExecutive Officer since the formation of the Company in March 1994 andGeneral Manager since September 1995. He has been active in horse industry associations, currently serving onthe Board of Directors of the Thoroughbred Racetracks of America and is pastPresident of the Minnesota Thoroughbred Association.  Mr. Sampson also currently serves as adirector of Communications Systems, Inc. (AMEX:JCS), a manufacturer oftelecommunications and data communications products based in Hector,Minnesota.  Mr. Sampson is the son ofCurtis A. Sampson, the Company’s Chairman of the Board and the beneficial ownerof approximately 23% of the Company’s common stock.

 

David C. Hansen joined the Company in July 2001as Vice President of Finance and Chief Financial Officer.  From 2000 to 2001 Mr. Hansen served asDirector of Accounting for Prairie Meadows Racetrack and Casino in Altoona, IA,one of the nations first Racino operations. He served as Controller, and later Director of Finance at TreasureIsland Resort & Casino, in Red Wing, MN, from 1993 until 2000.  Mr. Hansen earned his CPA certification in1983.  Mr. Hansen is a member of theMinnesota Society of Certified Public Accountants and the Hospitality Financialand Technology Professionals association.

 

Mark A. Erickson has been Vice President ofFacilities since May 1997, serving as the Racetrack’s Director of Facilitiessince April 1994.  From 1992 to 1994Mr. Erickson served as Maintenance Supervisor for the Mall of America,supervising the interior maintenance for one of the largest shopping malls inNorth America.  Mr. Erickson was Master Electricianfor Canterbury Downs from 1986 to 1992, supervising the installation andmaintenance of all electrical equipment.

 

11

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Michael J. Garin has been Vice President ofHospitality since May of 1997. He had served as President of Canterbury ParkConcessions, Inc. since April of 1994. From 1993 to 1994 Mr. Garin served as Food & Beverage Supervisor forLittle Six, Inc., one of the largest tribal casino operations in thecountry.  Mr. Garin was President of MMRVending, Inc., a regional vending company, from 1988 to 1992.  Prior to 1988 he was a Regional Director atGeneral Mills Restaurant Group overseeing seven restaurants in three states.

 

John R. Harty joined the Company in February 2000as Vice President of Marketing.  From1996 to 1999 Mr. Harty served as President of Minneapolis based Sun Products amanufacturer of sporting goods and pet products.  He served that company as Vice President ofSales and Marketing from 1992 to 1996. From 1977 to 1991 Mr. Harty worked for Genesco, a billion dollarfootwear company.  He served as ExecutiveVice President in charge of Sales and Marketing for its Hosiery Divisionslocated in New York City.  Mr. Hartycurrently serves on the Board of the Shakopee Area Chamber of Commerce.

 

**Item 2.****   ****PROPERTIES**

 

*General.*

 

The Company’s facilities, which are operated underthe name “Canterbury Park,” are a modern complex of buildings and grounds,generally comparable to other major racetracks located throughout thecountry.  The Racetrack’s grandstand hasa patron capacity of approximately 10,000 within enclosed areas, and a maximumpatron capacity of over 30,000, including outside areas around thegrandstand.  The grandstand and mostpublic outdoor areas contain numerous pari-mutuel windows, odds informationboards, video monitors, concessions stands and other amenities.  The audio/visual system includes over 600television monitors with most areas providing multi-screen viewing of theraces.

 

The Racetrack is located approximately 25 milessouthwest of downtown Minneapolis.  Thearea immediately surrounding the Racetrack consists of commercial andindustrial buildings, farmland and residential areas.  The Racetrack is in reasonable proximity to anumber of major entertainment destinations including:  Valleyfair, an amusement park about two milesfrom the Racetrack which annually attracts approximately more than one millionvisitors during the spring and summer; the Renaissance Festival, a seven-weekendlate summer attraction attracting approximately 350,000 visitors, located aboutfive miles from the Racetrack; and Mystic Lake Casino, located about four milesfrom the Racetrack, which draws approximately 5.2 million patronsannually.  The Mall of America, thelargest enclosed shopping mall in the United States, which attractsapproximately 35 to 40 million visitors per year, is approximately 17 milesfrom the Racetrack.

 

*Racing Surfaces.*

 

The racing surfaces consist of a one-mile ovaldirt/limestone track and a 7/8 mile oval turf course.  The dirt track includes a mile andone-quarter front stretch chute, a 6-1/2 furlong backstretch chute, a 3-1⁄2furlong chute, and is lighted for night racing.

 

*Grandstand.*

 

The grandstand is a modern, air-conditioned, andenclosed structure of approximately 275,000 square feet with a variety offacilities on six levels.  The LowerLevel contains space for support functions such as jockey quarters,administrative offices, Racing Commission offices, first aid, mechanical andelectrical rooms.  The Track Levelincludes pari-mutuel windows, restrooms, a variety of concession stands andother services.  The Card Club occupies27,000 square feet on the Track Level. The Mezzanine Level contains 1,320 fixedseats in a glass-enclosed, air-conditioned area and an additional 3,000 seatslocated outside.  In addition to theseats, the Mezzanine Level contains pari-mutuel windows, restrooms, concessionstands and other guest facilities. A portion of the mezzanine level is currentlybeing used as a simulcast center during live racing, and for banquets and otherevents during the off-season.  TheKitchen Level is an intermediate level located between the Mezzanine andClubhouse floors; it contains a full-service kitchen which can support a fulldining menu for the track-side dining terraces on the Clubhouse Level and foodpreparation for the other concession areas. The Clubhouse Level is a 

 

12

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multi-purposearea serving as a simulcast center during wagering sessions on televised races,as well as a full-service dining area during the live racing season.  The Clubhouse Level includes 325 tracksidetables, each equipped with a television set, with a total seating capacity of1,200 patrons and an additional 1,000 seats are located in lounges locatedthroughout the area.  The PressBox/Officials’ Level is located in the roof trusses over the Clubhouse andcontains work areas for the press, racing officials, closed-circuit television,photo finish and the track announcer.  Inaddition, the grandstand was structurally built to accommodate skyboxes underthe Press Box/Officials’ Level, although none have yet been constructed.  Escalators and elevators are available tomove patrons among the various levels within the grandstand.

 

*Barn and Backside Facilities.*

 

The stable area consists of 33 barns with a total ofapproximately 1,650 stalls.  In thestable area, there are 216 dormitory rooms for the grooms and others working atthe Racetrack.  The stable area alsocontains a combination racing office and cafeteria/recreation building forstable personnel, two blacksmith buildings and a one half mile training track.

 

*Parking.*

 

Approximately 7,500 paved parking spaces areavailable for patron and employee automobiles at the Racetrack, includingparking spaces that are reserved for physically challenged patrons.  The Racetrack also has unpaved areasavailable for overflow parking for approximately 5,000 additional automobiles.  Areas are also reserved for bus parking.

 

*Other Properties.*

 

*Undeveloped Land:*

 

In December 2003, the Company acquired anadditional 18 acres of undeveloped land adjacent to the Racetrack.  More than 100 acres of the 380 acres owned bythe Company are not necessary for current operations.  This property is undeveloped and could besold in whole or in part, depending upon future opportunities.  The Company regularly evaluates otherbusiness activities and development opportunities that would maximize the useof the real estate surrounding the Racetrack and which would complement theCompany’s primary businesses of horse racing and card club operations.

 

*RV Park:*

 

In December 2002, the Company acquired arecreational vehicle (RV) park, located on approximately 29 acres adjacent tothe Minnesota River.  The RV Park,located 2 miles from the Racetrack in Shakopee, has 68 independent sites and 40dependent sites, an indoor swimming pool, laundry facilities, game room andmini store.  The sites are rented tohorsemen participating in Canterbury’s racing operations, seasonal employees,and the general public.

 

**Item 3.****   ****LEGAL PROCEEDINGS**

 

 There are nomaterial legal proceedings currently pending against the Company.  From time to time, the Company is party toordinary and routine litigation incidental to our business.  We do not expect the outcome of any pendinglitigation to have a material adverse effect on our consolidated financialposition or results of operations.

 

**Item 4.****   ****SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**

 

Not Applicable.

 

13

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**PART II**

 

**Item 5****.****   ****MARKET FOR REGISTRANT’SCOMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES**

 

**(a)****          ****MARKET INFORMATION**

 

The Company’s Common Stock trades on the AmericanStock Exchange under the symbol ECP.  Thetable set forth below indicates the high and low sale prices for the CommonStock in the quarterly periods ending December 31, 2004 and 2003.

 
| ** **      | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
| ** **      | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
|            |       |     |       |     |       |   |   |   |   |
| Common Stock    |       |     |       |     |       |   |   |   |   |
|            |       |     |       |     |       |   |   |   |   |
| First Quarter   |       | $        | 19.25      |     | $          | 16.31 |   | $ | 15.98 |   | $ | 13.15 |   |
| Second  Quarter |       | 23.10    |       | 15.10    |       | 17.50 |   | 10.41 |   |
| Third  Quarter  |       | 17.25    |       | 15.50    |       | 16.25 |   | 11.31 |   |
| Fourth  Quarter |       | 20.50    |       | 15.71    |       | 17.18 |   | 14.91 |   |
|                 |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

**(b)****          ****HOLDERS**

 

At March 15, 2005, the Company had 701 holdersof record of its common stock.  Inaddition, on that date a depository company held approximately 2,325,000 sharesas nominee for an estimated 2,200 beneficial holders.

 

**(c)****          ****DIVIDENDS**

 

The Company paid special cash dividends on itscommon stock of $.25 per share on July 9, 2004 and $.15 per share on July 11,2003.  The Company has not adopted anypolicies regarding the payment of dividends and further dividend payments, ifany, would require Board of Director approval.

 

**(d)****          ****RECENT SALES OF UNREGISTEREDSECURITIES**

 

Not applicable.

 

**(e)****          ****REPURCHASES OF REGISTRANT’SEQUITY SECURITIES**

 

Not applicable.

 

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**Item 6.****   ****SELECTED FINANCIAL DATA**

 

(Inthousands except for per share amounts)

 
| ** **                        | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|
| **OPERATING DATA**                | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|                              |       |                             |       |   |   |   |   |   |   |   |   |
| Total  Revenues                   |       | $                                | 54,899     |   | $ | 47,846 |   | $ | 41,701 |   | $ | 39,492 |   | $ | 32,463 |   |
|                              |       |                             |       |   |   |   |   |   |   |   |   |
| Operating  expenses               |       | 48,132                           |       | 42,587 |   | 37,899 |   | 36,405 |   | 30,969 |   |
|                              |       |                             |       |   |   |   |   |   |   |   |   |
| Income  Before Income Tax Expense |       | 6,801                            |       | 5,299 |   | 3,831 |   | 3,143 |   | 1,482 |   |
|                              |       |                             |       |   |   |   |   |   |   |   |   |
| Income Tax  Expense               |       | (2,939                           | )          | (2,429 | ) | (1,554 | ) | (1,327 | ) | (643 | ) |
|                              |       |                             |       |   |   |   |   |   |   |   |   |
| Net Income                        |       | $                                | 3,862      |   | $ | 2,870 |   | $ | 2,277 |   | $ | 1,817 |   | $ | 839 |   |
|                              |       |                             |       |   |   |   |   |   |   |   |   |
| Basic Net  Income per Share       |       | $                                | 1.02       |   | $ | .78 |   | $ | .64 |   | $ | .52 |   | $ | .24 |   |
| Diluted Net  Income per Share     |       | .92                              |       | .70 |   | .57 |   | .49 |   | .23 |   |
| Dividends  per Share              |       | .25                              |       | .15 |   | .25 |   | .00 |   | .00 |   |
|                              |       |                             |       |   |   |   |   |   |   |   |   |
| Cash Flow  from Operations        |       | $                                | 6,334      |   | $ | 4,784 |   | $ | 3,593 |   | $ | 3,631 |   | $ | 3,561 |   |

 
| ** **                                       | ** ** | **At December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------|------------|
| **BALANCE SHEET DATA**                           | ** ** | **2004**                 | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                       | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land,  Buildings & Equipment                 |       | $                        | 20,439     |   | $ | 17,113 |   | $ | 14,551 |   | $ | 12,439 |   | $ | 11,334 |   |
|                                             |       |                     |       |   |   |   |   |   |   |   |   |
| Total Assets                                     |       | 28,223                   |       | 22,418 |   | 19,030 |   | 16,544 |   | 13,318 |   |
|                                             |       |                     |       |   |   |   |   |   |   |   |   |
| Stockholders’  Equity                       |       | 20,996                   |       | 16,826 |   | 13,907 |   | 11,855 |   | 9,763 |   |
|                                             |       |                     |       |   |   |   |   |   |   |   |   |
| Book Value  per Share                            |       | $                        | 5.47       |   | $ | 4.53 |   | $ | 3.82 |   | $ | 3.36 |   | $ | 2.81 |   |
|                                             |       |                     |       |   |   |   |   |   |   |   |   |
| Number of  Common Shares Outstanding at Year End |       | 3,836                    |       | 3,714 |   | 3,638 |   | 3,529 |   | 3,474 |   |

 

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**I****tem 7.****   ****MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

Canterbury Park Holding Corporation (the “Company”)hosts pari-mutuel wagering on live thoroughbred and quarter horse racing at itsfacilities in Shakopee, Minnesota (the “Racetrack”) and pari-mutuel wagering onraces held at out-of-state racetracks that are televised simultaneously at theRacetrack (“simulcasting”).  In addition,the Company hosts “unbanked” card games in which patrons compete against eachother and not against the house.  TheCompany also derives revenues from related services and activities, such asconcessions, parking, advertising, admissions and programs, and from otherentertainment events and activities held at the Racetrack.

 

###### ***YEAR ENDED DECEMBER 31, 2004 COMPAREDTO YEAR ENDED DECEMBER 31, 2003***

######  

Total operating revenues for the year ended December 31,2004 were $54.9 million, an increase of $7.1 million or 14.7% compared to totaloperating revenues of $47.8 million for the year ended December 31,2003.  Total Card Club revenues increased23.9%, pari-mutuel revenues increased 2.7% and concession revenues increased14.5% in fiscal 2004 compared to fiscal 2003. Discussions of Pari-mutuel and Card Club results follow.

 
| **SUMMARY OF PARI-MUTUEL OPERATING DATA:** | ** ** | **Year Ended  12/31/04** | ** ** | **Year Ended  12/31/03** | ** ** |
|--------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                                 | ** ** | ** **               | ** ** | ** **               | ** ** |
| **Racing  Days**                           | ** ** | ** **               | ** ** | ** **               | ** ** |
| Simulcast  only days                       |       | 298                      |       | 299                      |       |
| Live and  simulcast days                   |       | 67                       |       | 63                       |       |
| Live harness  and simulcast days           |       | —                   |       | 2                        |       |
| **Total  Racing Days**                     |       | 365                      |       | 364                      |       |
|                                       |       |                     |       |                     |       |
| **On-Track  Handle**                       |       |                     |       |                     |       |
| Simulcast  handle on non-live race days    |       | $                        | 46,295,000 |                     | $          | 46,568,000 |   |
|                                       |       |                     |       |                     |       |
| Simulcast  handle on live race days        |       | 17,657,000               |       | 16,243,000               |       |
| Total  simulcast handle                    |       | 63,952,000               |       | 62,811,000               |       |
|                                       |       |                     |       |                     |       |
| Live racing  handle                        |       | 17,990,000               |       | 17,709,000               |       |
| **Total  On-Track Handle**                 |       | 81,942,000               |       | 80,520,000               |       |
|                                       |       |                     |       |                     |       |
| **Out-of-state  Live Handle**              |       | 17,473,000               |       | 13,090,000               |       |
|                                       |       |                     |       |                     |       |
| **Total  Handle**                          |       | $                        | 99,415,000 |                     | $          | 93,610,000 |   |
|                                       |       |                     |       |                     |       |
| **On-Track  Average Daily Handle**         |       |                     |       |                     |       |
| Simulcast  only days                       |       | $                        | 155,000    |                     | $          | 156,000 |   |
| Live and  simulcast days                   |       | 532,000                  |       | 522,000                  |       |

 

Total handle increased $5,805,000 or 6.2% in 2004compared to 2003.  Total Pari-mutuelrevenues increased 2.7% to approximately $17,806,000 in 2004 from $17,331,000in 2003 principally due to two more live race days and higher average dailyout-of-state handle on live race days in 2004. Total on-track handle increased approximately 1.8% to $81,942,000 in2004 from $80,520,000 in 2003.  Totalsimulcast handle increased 1.8% to $63,952,000 in 2004 from $62,811,000 in2003.  Consequently, pari-mutuel revenuesrelated to simulcast racing increased 1.8% to $13,059,000 in 2004 from$12,834,000 in 2003.  On track wageringon live races increased by $281,000, or 1.6% to $17,990,000 in 2004 from$17,709,000 in 2003, causing pari-mutuel revenue related to live racing toincrease by 1.6% to $3,792,000 in 2004 from $3,732,000 in 2003.  This increase is partially due to an increasein the number of live racing days to 67 in 2004 from 65 in 2003.

 

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Handle wagered at out-of-state locations during the2004 live meet increased by $4,383,000 million or 33.5% compared to 2003.  Canterbury Park was the site of the ClaimingCrown national event in 2004 and is the scheduled site for this event in2005.  Handle wagered at out-of-statelocations on Claiming Crown day in 2004 was $2.7 million compared to $2.5million for the 2003 Claiming Crown. Excluding Claiming Crown days, average daily import handle increased toapproximately $220,000 per day in 2004 compared to $163,000 per day in 2003.

 

Revenues recognized on proceeds from winningpari-mutuel tickets, which were not presented for payment within one year ofthe end of the respective race meets increased to approximately $426,000 in2004 compared to $373,000 in 2003, reflecting the growth in overall handle in2004.

 
| **SUMMARY OF CARD CLUB REVENUES:** | ** ** | **Year Ended  12/31/04** | ** ** | **Year Ended  12/31/03** | ** ** |
|------------------------------------|------------|--------------------------|------------|--------------------------|------------|
|                               |       |                     |       |                     |       |
| Poker Games                        |       | $                        | 16,214,000 |                     | $          | 11,511,000 |   |
| Casino Games                       |       | 11,418,000               |       | 10,655,000               |       |
| Total  Collection Revenue          |       | $                        | 27,632,000 |                     | $          | 22,166,000 |   |
|                               |       |                     |       |                     |       |
| Other  Revenue                     |       | 801,000                  |       | 788,000                  |       |
| Total Card  Club Revenue           |       | $                        | 28,433,000 |                     | $          | 22,954,000 |   |
|                               |       |                     |       |                     |       |
| Number of Days  Offered            |       | 365                      |       | 364                      |       |
| Average  Revenue per Day           |       | $                        | 77,900     |                     | $          | 63,060 |   |

 

The Company receives a percentage of the wagers or afee from the players as compensation for providing the Card Club facility andservices, referred to as the “collection revenue”.  2004 collection revenue was $27.6 million, anincrease of 24.7% compared to 2003, which reflects the continued growth inpopularity of poker.  The Company alsoretains a specified percentage of the jackpot fund collections as reimbursementfor administrative costs of maintaining the jackpot funds, and collects feesfor administering tournaments.

 

The Card Club is divided into two areas, the casinogames area and the poker area.  Theaverage daily collection amount per game is dependent upon the number of tablesutilized to offer the game.  Patrondemand determines the number of tables to be used for a specific game.  There were a total of 19 tables in the Casinogames area and 31 tables in the Poker area at December 31, 2004, 2003 and2002.

 

**CONCESSION AND OTHER REVENUES**

 

Concession revenues increased 14.5% to $5,529,000 in2004 compared to $4,829,000 in 2003.  Theincrease is primarily attributable to increased patronage in the Card Clubduring 2004 compared to 2003, and to two more live racing days in 2004 comparedto 2003.

 

Other operating revenue increased $428,000 or 27.9%to $1,960,000 in fiscal year 2004.  Theincrease in 2004 was due primarily to growth in the corporate sponsorshipprogram of $128,000, increases in cash services fees resulting from increasedpatronage in the card club of $77,000, and a $79,000 increase in special eventrevenues in 2004.

 

**SUMMARY OF****OPERATING EXPENSES**

 

Total operating expenses increased approximately$5,545,000, or 13.0%, to $48,132,000 in 2004, from $42,587,000 in 2003primarily due to increases in purse expense, salaries and wages, and otheroperating expenses incurred to support the overall increase in revenues in2004. Total operating expenses as a percentage of total revenues decreased to87.7% from 89.0% in 2003. The Company experienced rapid growth in the Card Clubfor the third straight year.  As CardClub revenues grow, it results in increased amounts of variable operatingexpenses, particularly purse and salaries and benefits expenses.  However, many of the Card Club’s operatingexpenses are fixed and won’t increase in proportion to business volume.  Consequently, the percentage increase in 

 

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variableoperating expenses is being outpaced by the increase in the collection revenuefrom higher wagering in the Card Club.

 

Total statutory purses and Minnesota Breeders’ Fundexpenses increased 13.2% or approximately $1.1 million for the year ended December 31,2004 compared to the year ended December 31, 2003.  Purse expense is one of the Company’s largestsingle expense items.  Minnesota lawrequires the Company to allocate a portion of funds received from betting inthe Card Club and wagering on simulcast and live horse races for future paymentas purses for live horse races or other uses of Minnesota’s horsepersons’associations.  The increase in purseexpense was due primarily to the funds generated by the Card Club operation forpurses.  The Company paid 15% of totalCard Club collection revenue to the purse fund and the Breeders’ Fund in 2004,compared to 14% in 2003.  Total pursefund expenses related to Card Club operations for the year ended December 31,2004 increased $937,000 to $3,730,000, compared to $2,793,000 for the yearended December 31, 2003. The Company also paid $414,000 and $310,000 tothe Breeders Fund related to Card Club operations in 2004 and 2003,respectively.  Purse expense related tolive racing increased approximately $50,000 compared to 2003 due primarily toan increase in handle wagered at out-of-state locations.  The Company incurred incremental pari-mutuelpurse expense due to a Claiming Crown net purse guarantee of $50,000 for theyear 2004 compared to $83,000 in 2003. Amounts paid to the Minnesota Breeders’ Fund for simulcast and live horseracingincreased to $885,000 in 2004 compared to $869,000 in 2003. The increase isattributable to and consistent with the increase in total on-track handle.

 

Salary and benefit expenses increased by $2,788,000or 15.9% for the twelve months ended December 31, 2004 compared to thetwelve months ended December 31, 2003. Health benefit costs increased by $499,000 in 2004 compared to 2003 dueto higher insurance rates along with increased participation.  Direct hourly Card Club labor and relatedpayroll taxes increased approximately $1,080,000 or 20.9% in 2004 compared to2003 due to a 27.6% increase in Card Club revenues.  In addition, the Company added an EmployeeStock Ownership Plan effective January 1, 2004 resulting in a charge tooperations for 2004 of $252,000.  Theincrease in labor costs also reflects a longer live race meet in 2004,increased revenues in the concessions company, the effects of inflation onwages and salaries and an increase in incentive pay.

 

Cost of concessions and publication sales increaseda total of $394,000.  Publicationsexperienced an $82,000 increase in costs due to higher production costs of thesimulcast and live racing programs. Concessions cost of sales increased $312,000 to $2,310,000 due primarilyto higher sales volumes.

 

License fees and property taxes increased $234,000or 54.3% to $664,000 in 2004 compared to $431,000 in 2003.  License fees assessed to the Company by theMinnesota Racing Commission increased $115,000 to $323,500 in 2004 from$208,700 in 2003.  The Company’s annualassessment for license fees increased effective July 1, 2003.  The year ended December 31, 2004 was thefirst full year of the higher license fee rates.  In addition, real estate tax expenseincreased $119,000 or 53.4% in 2004 compared to 2003.

 

Advertising and marketing expenses increasedapproximately $124,000 or 5.5% in 2004 compared to 2003.  The increase is primarily attributable tohigher coupon expense of $68,000 and an increase in television advertising of$55,000 compared to 2003 due to the increased utilization of televisionadvertising for the Card Club.

 

Insurance costs increased $191,000 or 20.8% in 2004compared to 2003.  Workers compensationcosts increased $99,000 and property and liability insurance premium costsincreased $92,000 due to rate increases, higher volumes of business activityand growth in labor costs for the Company in 2004.

 

Other operating expenses include personnelrecruiting and training costs, professional fees, equipment rental, contractedservices and other expenses.  Theseexpenses increased approximately $320,000 or 8.5% in 2004 compared to 2003,primarily due to increases in charitable contributions of $101,000, contractedservices related to live racing of $46,000 and an increase of $172,000 in professionalfees including audit, legal and consulting, attributable to general businessgrowth and costs related to compliance with the Sarbanes-Oxley Act of 2002.

 

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Income tax expense as a percentage of pre-tax incomedecreased to 43.2% for the year ended December 31, 2004 from 45.8% for theyear ended December 31, 2003.  Thedecrease is primarily attributable to lower non-deductible lobbying expenses in2004.

 

###### ***YEAR ENDED DECEMBER 31, 2003 COMPAREDTO YEAR ENDED DECEMBER 31, 2002***

######  

Total operating revenues for 2003 were $47.8million, an increase of $6.1 million, or 14.7%, from total operating revenuesof $41.7 million for 2002.  Total CardClub revenues increased 26.5%, pari-mutuel revenues increased 2.8% andconcession revenues increased 11.0% in fiscal 2003 compared to fiscal2002.  Discussions of Pari-mutuel andCard Club results follow.

 
| ** **                                 | ** ** | **Year Ended  12/31/03** | ** ** | **Year Ended  12/31/02** | ** ** |
|--------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| **SUMMARY OF PARI-MUTUEL OPERATING DATA:** | ** ** | ** **               | ** ** | ** **               | ** ** |
| ** **                                 | ** ** | ** **               | ** ** | ** **               | ** ** |
| **Racing  Days**                           | ** ** | ** **               | ** ** | ** **               | ** ** |
| Simulcast  only days                       |       | 299                      |       | 303                      |       |
| Live and  simulcast days                   |       | 63                       |       | 61                       |       |
| Live harness  and simulcast days           |       | 2                        |       | —                   |       |
|                                       |       | 364                      |       | 364                      |       |
|                                       |       |                     |       |                     |       |
| **On-Track  Handle**                       |       |                     |       |                     |       |
| Simulcast  handle on non-live race days    |       | $                        | 46,568,000 |                     | $          | 48,175,000 |   |
|                                       |       |                     |       |                     |       |
| Simulcast  handle on live race days        |       | 16,243,000               |       | 15,397,000               |       |
| Total  simulcast handle                    |       | 62,811,000               |       | 63,572,000               |       |
|                                       |       |                     |       |                     |       |
| Live racing  handle                        |       | 17,709,000               |       | 15,256,000               |       |
| **Total  On-Track Handle**                 |       | 80,520,000               |       | 78,828,000               |       |
|                                       |       |                     |       |                     |       |
| **Out-of-state  Live Handle**              |       | 13,090,000               |       | 11,256,000               |       |
| **Total  Handle**                          |       | $                        | 93,610,000 |                     | $          | 90,084,000 |   |
|                                       |       |                     |       |                     |       |
| **On-Track  Average Daily Handle**         |       |                     |       |                     |       |
| Simulcast  only days                       |       | $                        | 156,000    |                     | $          | 159,000 |   |
| Live and  simulcast days                   |       | 522,000                  |       | 503,000                  |       |

 

Total handle increased $3,526,000 or 3.9% in 2003compared to 2002.  Total Pari-mutuelrevenues increased 2.8% to approximately $17,331,000 in 2003 from $16,858,000in 2002 principally due to four additional live racing days in 2003 includingthe return of the Claiming Crown.  Totalon-track handle increased approximately 2.1% to $80,520,000 in 2003 from$78,828,000 in 2002. An increase in live on-track handle was partially offsetby a decrease in total simulcast handle. Total simulcast handle decreased 1.2% to $62,811,000 in 2003 from$63,572,000 in 2002.  Consequently,pari-mutuel revenues related to simulcast racing decreased 1.3% to $12,834,000in 2003 from $13,006,000 in 2002.  Ontrack wagering on live races increased by $2,453,000, or 16.1% to $17,709,000in 2003 from $15,256,000 in 2002, causing pari-mutuel revenue related to liveracing to increase by 16.1% to $3,732,000 in 2003 from $3,215,000 in 2002.  This increase is partially due to an increasein the number of live racing days to 65 in 2003 from 61 in 2002, and also tothe Company hosting the Claiming Crown event in 2003 which was hosted atanother racetrack in 2002.  Handlewagered at out-of-state locations on the 2003 Claiming Crown races was $2.5million, contributing to an overall increase in 2003 in handle wagered atout-of-state locations of $1.8 million or 16.3% compared to 2002 out-of-statelive handle.

 

Revenues recognized on proceeds from winningpari-mutuel tickets, which were not presented for payment within one year ofthe end of the respective race meets increased to approximately $373,000 in 2003compared to $309,000 in 2002.

 

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| ** **                         | ** ** | **Year Ended  12/31/03** | ** ** | **Year Ended  12/31/02** | ** ** |
|------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| **SUMMARY OF CARD CLUB REVENUES:** |       |                     |       |                     |       |
|                               |       |                     |       |                     |       |
| Poker Games                        |       | $                        | 11,511,000 |                     | $          | 9,017,000 |   |
| Casino Games                       |       | 10,655,000               |       | 8,412,000                |       |
| Total  Collection Revenue          |       | $                        | 22,166,000 |                     | $          | 17,429,000 |   |
|                               |       |                     |       |                     |       |
| Other  Revenue                     |       | 788,000                  |       | 723,000                  |       |
| Total Card  Club Revenue           |       | $                        | 22,954,000 |                     | $          | 18,152,000 |   |
|                               |       |                     |       |                     |       |
| Number of  Days Offered            |       | 364                      |       | 364                      |       |
| Average  Revenue per Day           |       | $                        | 63,060     |                     | $          | 47,900 |   |

 

Collection revenue totaled $22.2 million in 2003 anincrease of 27.2% compared to $17.4 million in 2002 reflecting the renewedpopularity of Poker and the increased awareness of the Casino Games room.  The Company also retains a specifiedpercentage of the jackpot fund collections as reimbursement for administrativecosts of maintaining the jackpot funds, and collects fees for administeringtournaments referred to as Other Revenue above.

 

**CONCESSIONS AND OTHER REVENUES**

 

Concession revenues increased 11.0% to $4,829,000 in2003 compared to $4,351,000 in 2002.  Theincrease is primarily attributable to increased patronage in the Card Clubduring 2003 compared to 2002, and to four more live racing days in 2003compared to 2002.

 

Other operating revenue increased $382,000 or 33.2%to $1,533,000 in fiscal year 2003.  Theincrease was due primarily to increases in cash services fees, and corporatesponsorships in 2003, partially offset by the effect of a $258,000 gain on thesale of five acres of real estate in 2002.

 

**SUMMARY OF****OPERATING EXPENSES**

 

Total operating expenses increased approximately$4,688,000, or 12.4%, to $42,587,000 in 2003, from $37,899,000 in 2002principally in purse expense, salaries and wages and marketing and advertisingexpenses to support the growth in revenues, particularly in the Card Club.  However, total operating expenses as apercentage of total operating revenues were 89% for 2003 compared to 90.9% in2002.  The increase in variable operatingexpenses was outpaced by the increase in operating revenues, particularly CardClub revenues from higher wagering taking place in the Card Club.

 

Total statutory purses and Minnesota Breeders fundexpenses increased 13.0% or $999,000 for the year ended December 31, 2003compared to the year ended December 31, 2002.  This increase was due primarily to the fundsgenerated by the Card Club operation for purses.  Total purse fund expenses related to CardClub operations for the year ended December 31, 2003 were $2,793,000compared to $2,196,000 for the year ended December 31, 2002. The Companyalso paid $310,000 and $244,000 to the Breeders Fund related to Card Cluboperations in 2003 and 2002, respectively. In addition, live racing purse expense increased $289,000 compared to2002 due to an increase in on-track live handle and the return of the ClaimingCrown races to the Racetrack in 2003. The Company incurred incremental pari-mutuel purse expense due to aClaiming Crown net purse guarantee of $83,000 for the year 2003.  This amount is included in pari-mutuelstatutory purse expense in the 2003 statement of operations.  Amounts paid to the Minnesota Breeders’ Fundfor simulcast and live horseracing are a function of on-track handle andincreased to $869,000 in 2003 compared to $852,000 in 2002. The increase isattributable to and consistent with the increase in total on-track handle.

 

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Salary and benefit expenses increased by $1,839,000or 11.7% for the twelve months ended December 31, 2003 compared to thetwelve months ended December 31, 2002. The Company experienced increases in health insurance rates along withincreased labor rates and hours worked consistent with the increased operatinglevels.

 

Utilities expense increased $242,000 and insuranceexpenses increased $333,000 in 2003 primarily due to increases in rates chargedto the Company compared to 2002 and to higher volumes of business activityduring the year.  The increase ininsurance includes a $48,000 increase in workers’ compensation costs and a$285,000 increase in other property and liability insurance costs.

 

License fees assessed to the Company by theMinnesota Racing Commission increased $164,300 to $208,700 in 2003 from $44,400in 2002.  The increase in license feerates effective July 1, 2003, is a result of the 2003 Legislative Session,which directed the Commission to establish a dedicated license fee revenuestructure for the racing and card playing industries, sufficient to recover theregulation costs of the Commission.  Thefull impact of the license fee increase will occur in the year 2004 when thehigher license fees are in effect for the full twelve-month period.

 

Advertising and marketing expenses increasedapproximately $219,000 or 10.8% in 2003 compared to 2002 primarily due to anincrease in costs related to participation in the patron loyalty program of$70,000.  The Company also experiencedincreased costs for fulfillment of corporate sponsorships of $41,000 and anincrease in coupon expense of $42,000.

 

Other operating expenses include personnelrecruiting and training costs, professional fees, equipment rental, contractedservices and other expenses.  Theseexpenses increased approximately $618,000 or 19.6% in 2003, compared to 2002primarily due to increases in charitable contributions of $132,000, contractedservices related to live racing of $120,000, and costs associated with theCompany’s legislative efforts of $143,000.

 

*COMMITMENTS AND CONTINGENCIES*

 

The Company entered into a five-year extension ofits totalizator services agreement with Autotote Systems, Inc. (Autotote) in January 2004.  Pursuant to the agreement, Autotote providestotalizator equipment and computer programs which record and process all wagersand calculate odds and payoffs.  Amountscharged to operations under this agreement for the years ended December 31,2004, 2003 and 2002 were approximately $370,000, $390,000 and $383,000,respectively.  During live meets,Autotote also provides uplink services, which enable the Company to simulcasthorse races held at Canterbury Park to out-of-state racetracks.  Amounts charged in 2004, 2003 and 2002 forthese services were approximately $135,500, $126,000 and $124,000,respectively.

 

In connection with the purchase of the Racetrack,the company entered into an Earn Out Promissory Note dated March 29, 1994.In accordance with the Earn Out Note if (i) off-track betting becomes legallypermissible in the State of Minnesota and (ii) the Company begins to conductoff-track betting with respect to or in connection with its operations, theCompany will be required to pay to the IMR Fund, L.P. the greater of $700,000per operating year, as defined, or 20% of the net pretax profit, as defined foreach of five operating years.  At thistime, management believes that the likelihood that these two conditions will bemet, and that the Company will be required to pay these amounts is remote.  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 capitalized aspart of the purchase price in accordance with generally accepted accountingprinciples.  The purchase price will befurther increased if 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.

 

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*CRITICAL ACCOUNTING POLICIES*

 

The preparation of consolidated financial statementsin conformity with generally accepted accounting principles in the UnitedStates of America requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the consolidated financialstatements and the reported amounts of revenues and expenses during the reportingperiod. Actual results could differ from those estimates.

 

Our significant accounting policies are included inNote 1 to our consolidated financial statements. We believe the followingcritical accounting policies affect our more significant judgments andestimates used in the preparation of our consolidated financial statements.

 

*Property and Equipment -*We have significant capital invested in ourproperty and equipment, which represents approximately 72.4% of our totalassets. We utilize our judgment in various ways including: determining whetheran expenditure is considered a maintenance expense or a capital asset;determining the estimated useful lives of assets; and determining if or when anasset has been impaired.  Management ofthe Company periodically reviews the carrying value of property and equipmentfor potential impairment by comparing the carrying value of these assets withtheir related expected future net cash flows. Should the sum of the related expected future net cash flows be lessthan the carrying value, management will determine whether an impairment lossshould be recognized.  An impairment losswould be measured by the amount by which the carrying value of the assetexceeds the fair value of the assets.  Todate, management has determined that no impairment of these assets exists.

 

*Regulation -*Our business can be materially impacted bothpositively and negatively by legislative and regulatory changes, such as thosepreviously described. Significant negative changes resulting from theseactivities could result in an impairment of our property and equipment inaccordance with generally accepted accounting principles. Additionalinformation regarding how our business can be impacted by legislative andregulatory changes are included in Item 1 (vi), and Item 1 (vii), respectively,in this Form 10-K.

 

##### *ACCOUNTING PRONOUNCEMENTS*

#####  

In December 2004, the FASB revised SFAS No.123, Share Based Payment (SFAS No. 123R). This Statement supercedes Accounting Principles Board (APB) Opinion No.25, Accounting for Stock Issued to Employees, which resulted in no stock-basedemployee compensation cost related to stock options if the options granted hadan exercise price equal to the market value of the underlying common stock onthe date of grant.  SFAS No. 123Rrequires recognition of employee services provided in exchange for ashare-based payment based on the grant date fair market value.  The Company is required to adopt SFAS No.123R as of July 1, 2005.  As of theeffective date, this Statement applies to all new awards issued as well asawards modified, repurchased, or cancelled. Additionally, for stock-based awards issued prior to the effective date,compensation cost attributable to future services will be recognized as theremaining service is rendered.  TheCompany may also elect to restate prior periods by applying a modifiedretrospective method to periods prior to the effective date.  The Company is in the process of determiningwhich method of adoption it will elect as well as the potential impact on itsconsolidated financial statements upon adoption.

 

**LIQUIDITY AND CAPITAL RESOURCES:**

 

*Cash Flows from OperatingActivities.*

 

During the year ended December 31, 2004, netcash provided by operations was $6,586,262, which resulted primarily from netincome of $3,862,308, depreciation and amortization of $1,311,124, an increasein accounts payable and accrued wages and payroll taxes of $910,384 and anincrease in card club accruals of $441,920. The increase in accounts payable and accrued wages and payroll taxes isdue to an increase of $276,000 in accounts payable and accruals due primarilyto payments due on a large capital project, and to an 

 

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increasein the liability for uncashed winning tickets of $240,000.  In addition, payroll accruals increased$365,000 due to an increase in year-end incentive awards of $200,000 and anincrease in the number of days payable as of year-end.  Card club accruals increased due primarily toan increase of $238,000 in the poker promotional fund and an increase of$245,000 in the poker jackpot pools. These items providing cash from operations were partially offset by anincrease in restricted cash of $459,861 and an increase in accounts receivableof $380,636 due primarily to an increase in amounts receivable from othertracks for fees and settlements.  Thechange in restricted cash includes an increase of $102,000 in liabilities tohorsemen, including the MHBPA, resulting from the timing of payments to thehorsepersons’ associations.  In addition,the poker jackpot funds increased $483,000 and the player pool decreased by$132,000 compared to year-end 2003. Card club accruals have the potential forsignificant fluctuation on a daily basis, and do not change in directcorrelation to card club revenues.

 

The Card Club offers progressive jackpots for pokergames and certain table games.  Amountscollected for these jackpot funds are accrued as liabilities until paid towinners.  At December 31, 2004,accrued jackpot funds totaled approximately $524,000 compared to $283,000 at December 31,2003.  Table games are played using a “playerpool”.  “Player pool” means a wageringsystem or game where wagers lost in a number of card games are accumulated intoa pool for purposes of enhancing the total amount paid back to players in anyother card game.  In such games, thesponsor may only serve as custodian of the player pool and may not have anactive interest in any card game.  In thetable games area of the Card Club, the net amount that the dealer “wins” or “loses”during the course of play is accumulated as a “player pool” liability, and isnot recognized as revenue by the Company. The Company is required by law to return accumulated player pool fundsto the players through giveaways, promotional items, prizes or by othermeans.  The accumulated player poolliability was approximately $341,000 at December 31, 2004 compared to$473,000 at December 31, 2003.  TheMinnesota Racing Commission regulates the operation of the jackpot and playerpool funds.  All games in the Card Clubare played using chips.  The value ofchips issued and outstanding, referred to as the “outstanding chip liability”,was approximately $196,000 at December 31, 2004 compared to $221,000 at December 31,2003.  These Card Club accruals have thepotential for significant fluctuation on a daily basis.  The Company believes it has adequateliquidity to meet the potential daily obligations of these accrual items.

 

Pursuant to an agreement with the Minnesota Horsemen’sBenevolent and Protective Association, (the “MHBPA”), the Company transferredinto a trust account or paid directly to the MHBPA, approximately $7,601,000and $6,770,000 in purse funds for the years ended December 31, 2004 and2003, respectively.  Minnesota Statutesspecify that amounts transferred into trust are the property of the trust andnot of the Company.  Unpaid purse fundobligations due the MHBPA were $131,146 and $103,194 at December 31, 2004and 2003, respectively.  The interestrates on any statutory purses accrued but not transferred into the trust (whichare guaranteed by the Company’s Chairman of the Board) were 5.25% and 4.00% at December 31,2004 and 2003, respectively.

 

During the year ended December 31, 2003 netcash provided by operating activities was $4,783,823, which resultedprincipally from net income of $2,870,130, depreciation and amortization of$1,158,458, an increase in accounts payable and accrued wages and payroll taxesof $498,242, an increase in income taxes payable of $412,170 and a decrease inrestricted cash of $468,093.  Theincrease in accounts payable and accrued wages and payroll taxes is dueprimarily to an increase of $200,000 in year-end incentive awards, and anincrease of $168,000 in wage accruals caused by an increase in labor rates,number of employees and hours worked. The decrease in restricted cash of $468,093 is primarily due to thedecrease in the card club’s jackpot pools and player pool of $347,000 caused bytiming differences due to jackpots, prizes and giveaways paid to theplayers.  In addition, purses payable forhorsemen decreased approximately $121,000 due to the timing of payments made tothe MHBPA.  These items were partiallyoffset by an increase in other current assets of $556,480, due mainly to anincrease in prepaid expenses including an increase of $402,000 in prepaidinsurance premiums and an increase of $113,000 in prepaid license fees assessedto the Company by the Minnesota Racing Commission as a result of the 2003legislative session; and a decrease in card club accruals of $197,837 resultingfrom a decrease of $347,000 in the jackpot funds and player pool, offset by anincrease of $149,000 in other card club accruals.

 

*Cash Flows from InvestingActivities.*

 

Cash used in investing activities for the year endedDecember 31, 2004 was $4,636,723 for capital expenditures, including$1,762,000 for remodeling and modernization of the clubhouse level of thegrandstand.

 

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TheCompany also invested $1,092,000 in several other projects which were onlypartially complete at December 31, 2004 including widening andsignificantly upgrading the surface of the practice track, installing an equineswimming pool, and replacing stalls in the summer barns on the backside.  These projects are planned to be completedfor the 2005 live race meet.  The Companyalso acquired gaming equipment for the Card Club amounting to $378,000 and madevarious other investments in building improvements and furniture, fixtures andequipment in 2004.  For fiscal 2003, netcash used in investing activities was $3,720,377 for capital expenditures,including the purchase of eighteen acres of undeveloped land adjacent to theRacetrack for approximately $2,085,000, and approximately $303,000 forimprovements to the track level of the grandstand, and various additions tofurniture, fixtures and equipment.

 

*Cash Flows from FinancingActivities.*

 

Cash used by financing activities was $294,555 forthe year ended December 31, 2004 compared to cash used by financingactivities of $193,924 for the year ended December 31, 2003. In 2004 thenet cash outflows resulted primarily from the special cash dividend of$947,129, partially offset by proceeds of $666,938 from the issuance of commonstock due to the exercise of stock options and the Company’s employee stockpurchase plan.  The 2003 net cashoutflows resulted primarily from the special cash dividend of $551,696 and netpayments to the MHBPA of $76,152, partially offset by proceeds of $433,924 fromthe issuance of common stock due to the exercise of stock options and theCompany’s employee stock purchase plan.

 

The Company renewed a general credit and securityagreement with Bremer Bank, N.A. on April 30, 2003.  Borrowings under the credit agreement includea commercial revolving credit line, which provides for maximum advances of$2,250,000 with interest at the prime rate (5.25% at December 31,2004).  No borrowings under the creditline were outstanding during the year ended December 31, 2004 and 2003respectively.  The Company is currentlyin negotiations to renew the agreement with Bremer Bank on April 30, 2005for another two-year term.

 

Cash balances at December 31, 2004 were$4,178,544 compared to $2,523,560 at December 31, 2003.  Restricted cash balances were $1,746,599 at December 31,2004 compared to $1,286,738 at December 31, 2003.  Management 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 2005.

 

**FACTORS AFFECTING FUTURE PERFORMANCE:**

 

From time to time, in reports filed with theSecurities and Exchange Commission, in press releases, and in othercommunications to shareholders or the investing public, the Company may makeforward-looking statements concerning possible or anticipated future financialperformance, business activities or plans which are typically preceded by thewords “believes,” “expects,” “anticipates,” “intends” or similarexpressions.  For such forward-lookingstatements, the Company claims the protection of the safe harbor forforward-looking statements contained in federal securities laws.  Shareholders and the investing public shouldunderstand that such forward-looking statements are subject to risks anduncertainties which could cause actual performance, activities or plans todiffer significantly from those indicated in the forward-looking statements.  Such risks and uncertainties include, but arenot limited to: material fluctuations in attendance at the Racetrack, materialchanges in the level of wagering by patrons, decline in interest in theunbanked card games offered at the Card Club, competition from other venuesoffering unbanked card games, legislative and regulatory decisions and changes,the impact of wagering products and technologies introduced by competitors;increases in the percentage of revenues allocated for purse fund payments;increases in compensation and employee benefit costs; the general health of thegaming sector; higher than expected expense related to new marketinginitiatives; and other factors discussed from time to time in the Company’sfilings with the Securities and Exchange Commission.

 

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**Item 7A.**** QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK**

 

We are exposed to market risk from changes ininterest rates on borrowings under our commercial revolving credit line thatbears interest at the prime rate.  At December 31,2004 we have no debt borrowings under our credit facility.

 

We have no derivative financial instruments orderivative commodity instruments in our cash and cash equivalents andmarketable securities.  We invest, or mayinvest, cash and cash equivalents in investment grade, highly liquidinvestments, consisting of money market instruments, bank certificates ofdeposit, and short-term government and corporate bonds.

 

**Item 8.****          ****FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

(a)                                  Financial Statements

 

Thefollowing financial statements of the Company are set forth on pages 26 through39 of the Form 10-K:

 
| Report  of Independent Registered Public Accounting Firm                                                                    |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                        |   |
| Consolidated Balance Sheets  as of December 31, 2004 and 2003                                                          |   |
|                                                                                                                        |   |
| Consolidated  Statements of Operations for the years ended December 31, 2004, 2003 and  2002                           |   |
|                                                                                                                        |   |
| Consolidated  Statements of Changes in Stockholders’ Equity for the years ended December 31,  2004, 2003 and 2002 |   |
|                                                                                                                        |   |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2004, 2003 and  2002                           |   |
|                                                                                                                        |   |
| Notes to  Consolidated Financial Statements for the years ended December 31, 2004,  2003 and 2002                      |   |

 

(b)                                 Supplementary Data

 

SeeNote 11 of Notes to Consolidated Financial Statements at page 39 of thisreport.

 

25

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Tothe Board of Directors and Stockholders of

CanterburyPark Holding Corporation

Shakopee,Minnesota

 

Wehave audited the accompanying consolidated balance sheets of Canterbury ParkHolding Corporation and subsidiaries (the Company) as of December 31, 2004and 2003 and the related consolidated statements of operations, stockholders’equity, and cash flows for each of the three years in the period ended December 31,2004.  These consolidated financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

 

Weconducted our audits in accordance with standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements arefree of material misstatement.  TheCompany is not required to have, nor were we engaged to perform, an audit ofits internal control over financial reporting. An audit includes consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in thecircumstances but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

Inour opinion, such consolidated financial statements present fairly, in allmaterial respects, the financial position of Canterbury Park HoldingCorporation and subsidiaries as of December 31, 2004 and 2003 and theresults of its operations and its cash flows for each of the three years in theperiod ended December 31, 2004 in conformity with accounting principlesgenerally accepted in the United States of America.

 

Deloitte& Touche LLP

 

 

March 25,2005

Minneapolis,Minnesota

 

26

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**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARY**

 

**CONSOLIDATEDBALANCE SHEETS**

**DECEMBER 31,2004 AND 2003**

 
| ** **                                                                                                                         | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                                                                               |       |       |       |       |       |
| **ASSETS**                                                                                                                         |       |       |       |       |       |
|                                                                                                                               |       |       |       |       |       |
| CURRENT  ASSETS:                                                                                                                   |       |       |       |       |       |
| Cash                                                                                                                               |       | $          | 4,178,544  |       | $          | 2,523,560 |   |
| Restricted  cash                                                                                                                   |       | 1,746,599  |       | 1,286,738  |       |
| Accounts  receivable, net of allowance of $82,600 and $32,600                                                                      |       | 750,612    |       | 369,976    |       |
| Inventory                                                                                                                          |       | 134,653    |       | 135,298    |       |
| Deposits                                                                                                                           |       | 20,000     |       | 20,000     |       |
| Prepaid  expenses                                                                                                                  |       | 850,881    |       | 848,959    |       |
| Deferred  income taxes                                                                                                             |       | 103,000    |       | 121,000    |       |
| Total  current assets                                                                                                              |       | 7,784,289  |       | 5,305,531  |       |
|                                                                                                                               |       |       |       |       |       |
| LAND,  BUILDINGS AND EQUIPMENT, net (Note 2)                                                                                       |       | 20,438,532 |       | 17,112,933 |       |
|                                                                                                                               |       | $          | 28,222,821 |       | $          | 22,418,464 |   |
|                                                                                                                               |       |       |       |       |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                     |       |       |       |       |       |
|                                                                                                                               |       |       |       |       |       |
| CURRENT  LIABILITIES:                                                                                                              |       |       |       |       |       |
| Accounts  payable                                                                                                                  |       | $          | 2,129,405  |       | $          | 1,584,145 |   |
| Card club  accruals                                                                                                                |       | 1,736,746  |       | 1,294,826  |       |
| Accrued  wages and payroll taxes                                                                                                   |       | 1,799,419  |       | 1,434,295  |       |
| Accrued  interest payable                                                                                                          |       | 229        |       | 2,158      |       |
| Advance from  MHBPA (Note 1)                                                                                                       |       | 131,146    |       | 103,194    |       |
| Accrued  property taxes                                                                                                            |       | 282,119    |       | 223,907    |       |
| Income taxes  payable (Note 3)                                                                                                     |       | 17,486     |       | 95,499     |       |
| Payable to  horsepersons                                                                                                           |       | 414,621    |       | 344,343    |       |
| Total  current liabilities                                                                                                         |       | 6,511,171  |       | 5,082,367  |       |
|                                                                                                                               |       |       |       |       |       |
| DEFERRED  INCOME TAXES (Note 3)                                                                                                    |       | 716,000    |       | 510,000    |       |
|                                                                                                                               |       |       |       |       |       |
| COMMITMENTS  AND CONTINGENCIES (Notes 7 and 8)                                                                                     |       |       |       |       |       |
|                                                                                                                               |       |       |       |       |       |
| STOCKHOLDERS’  EQUITY (Note 4):                                                                                               |       |       |       |       |       |
| Common  stock, $.01 par value, 10,000,000 shares authorized, 3,835,669 and 3,714,369,  respectively, shares issued and outstanding |       | 38,357     |       | 37,144     |       |
| Additional  paid-in capital                                                                                                        |       | 12,763,811 |       | 11,510,650 |       |
| Accumulated  earnings                                                                                                              |       | 8,193,482  |       | 5,278,303  |       |
| Total  stockholders’ equity                                                                                                   |       | 20,995,650 |       | 16,826,097 |       |
|                                                                                                                               |       | $          | 28,222,821 |       | $          | 22,418,464 |   |

 

Seenotes to consolidated financial statements.

 

27

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**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARY**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**YEARS ENDEDDECEMBER 31, 2004, 2003 AND 2002**

 
| ** **                                            | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|-------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                                                  |       |       |       |       |       |       |       |
| OPERATING  REVENUES:                                  |       |       |       |       |       |       |       |
| Pari-mutuel                                           |       | $          | 17,805,597 |       | $          | 17,330,838 |       | $ | 16,857,745 |   |
| Card Club                                             |       | 28,432,768 |       | 22,954,218 |       | 18,152,012 |       |
| Concessions                                           |       | 5,529,203  |       | 4,828,711  |       | 4,351,096  |       |
| Admissions  and parking                               |       | 539,826    |       | 552,746    |       | 526,443    |       |
| Publications                                          |       | 631,432    |       | 646,403    |       | 663,178    |       |
| Other  operating revenue                              |       | 1,960,466  |       | 1,532,823  |       | 1,150,840  |       |
|                                                  |       | 54,899,292 |       | 47,845,739 |       | 41,701,314 |       |
|                                                  |       |       |       |       |       |       |       |
| OPERATING  EXPENSES:                                  |       |       |       |       |       |       |       |
| Statutory  purses                                     |       | 8,496,480  |       | 7,472,370  |       | 6,556,575  |       |
| Minnesota  Breeders’ Fund                        |       | 1,299,908  |       | 1,178,890  |       | 1,096,076  |       |
| Host track  fees                                      |       | 2,344,500  |       | 2,244,721  |       | 2,234,115  |       |
| Pari-mutuel  taxes                                    |       | 267,754    |       | 246,475    |       | 251,338    |       |
| Salaries and  benefits                                |       | 20,283,216 |       | 17,495,140 |       | 15,656,565 |       |
| Cost of  concessions and publication sales            |       | 3,226,150  |       | 2,832,537  |       | 2,655,888  |       |
| Depreciation  and amortization                        |       | 1,311,124  |       | 1,158,458  |       | 1,152,298  |       |
| Utilities                                             |       | 1,168,824  |       | 1,158,207  |       | 916,249    |       |
| Repairs,  maintenance and supplies                    |       | 1,496,697  |       | 1,430,802  |       | 1,348,971  |       |
| License fees  and property taxes                      |       | 664,172    |       | 430,528    |       | 262,440    |       |
| Advertising  and marketing                            |       | 2,372,159  |       | 2,247,878  |       | 2,029,033  |       |
| Insurance                                             |       | 1,106,900  |       | 916,351    |       | 583,355    |       |
| Other  operating expenses                             |       | 4,094,163  |       | 3,774,322  |       | 3,156,547  |       |
|                                                  |       | 48,132,047 |       | 42,586,679 |       | 37,899,450 |       |
| NONOPERATING  (EXPENSES) REVENUES:                    |       |       |       |       |       |       |       |
| Interest  expense (Note 6)                            |       | (16,406    | )          | (3,116     | )          | (8,321     | )          |
| Other                                                 |       | 49,885     |       | 42,837     |       | 37,261     |       |
|                                                  |       | 33,479     |       | 39,721     |       | 28,940     |       |
|                                                  |       |       |       |       |       |       |       |
| INCOME  BEFORE INCOME TAX EXPENSE                     |       | 6,800,724  |       | 5,298,781  |       | 3,830,804  |       |
|                                                  |       |       |       |       |       |       |       |
| Income tax  expense (Note 3)                          |       | (2,938,416 | )          | (2,428,651 | )          | (1,554,209 | )          |
|                                                  |       |       |       |       |       |       |       |
| NET INCOME                                            |       | $          | 3,862,308  |       | $          | 2,870,130  |       | $ | 2,276,595 |   |
|                                                  |       |       |       |       |       |       |       |
| WEIGHTED  AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |       | 3,775,990  |       | 3,675,919  |       | 3,581,546  |       |
|                                                  |       |       |       |       |       |       |       |
| BASIC NET  INCOME PER COMMON SHARE (Note 5)           |       | $          | 1.02       |       | $          | .78        |       | $ | .64 |   |
|                                                  |       |       |       |       |       |       |       |
| DILUTED NET  INCOME PER COMMON SHARE (Note 5)         |       | $          | .92        |       | $          | .70        |       | $ | .57 |   |

 

Seenotes to consolidated financial statements.

 

28

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**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARY**

 

**CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

**YEARS ENDEDDECEMBER 31, 2004, 2003 AND 2002**

 
| ** **                                         | ** ** | **Number   of Shares** | ** ** | **Common   Stock** | ** ** | **Additional  Paid-in   Capital** | ** ** | **Accumulated  Earnings** | ** ** | **Total** | ** ** |
|----------------------------------------------------|------------|------------------------|------------|--------------------|------------|-----------------------------------|------------|---------------------------|------------|-----------|------------|
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| ***Balance, December 31, 2001***              |       | 3,529,324              |       | $                  | 35,293     |                              | $          | 10,240,249                |       | $         | 1,579,668  |   | $ | 11,855,210 |   |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Cash  dividend paid                                |       |                   |       |               |       |                              |       | (896,394                  | )          | (896,394  | )          |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Exercise of  stock options                         |       | 81,850                 |       | 819                |       | 372,238                           |       |                      |       | 373,057   |       |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Tax benefit  of stock option exercises             |       |                   |       |               |       | 159,000                           |       |                      |       | 159,000   |       |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Shares  issued under Employee Stock Purchase Plan  |       | 27,299                 |       | 273                |       | 139,498                           |       |                      |       | 139,771   |       |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Net income                                         |       |                   |       |               |       |                              |       | 2,276,595                 |       | 2,276,595 |       |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| ***Balance, December 31, 2002***              |       | 3,638,473              |       | $                  | 36,385     |                              | $          | 10,910,985                |       | $         | 2,959,869  |   | $ | 13,907,239 |   |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Cash  dividend paid                                |       |                   |       |               |       |                              |       | (551,696                  | )          | (551,696  | )          |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Exercise of  stock options                         |       | 43,500                 |       | 435                |       | 200,562                           |       |                      |       | 200,997   |       |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Tax benefit  of stock option exercises             |       |                   |       |               |       | 166,500                           |       |                      |       | 166,500   |       |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Shares  issued under Employee Stock Purchase Plan  |       | 32,396                 |       | 324                |       | 232,603                           |       |                      |       | 232,927   |       |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Net income                                         |       |                   |       |               |       |                              |       | 2,870,130                 |       | 2,870,130 |       |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| ***Balance, December 31, 2003***              |       | 3,714,369              |       | $                  | 37,144     |                              | $          | 11,510,650                |       | $         | 5,278,303  |   | $ | 16,826,097 |   |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Cash  dividend paid                                |       |                   |       |               |       |                              |       | (947,129                  | )          | (947,129  | )          |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Exercise of  stock options                         |       | 77,850                 |       | 779                |       | 293,834                           |       |                      |       | 294,613   |       |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Purchase and  retirement of common stock           |       | (752                   | )          | (8                 | )          | (14,356                           | )          |                      |       | (14,364   | )          |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Tax benefit  of stock option exercises             |       |                   |       |               |       | 349,800                           |       |                      |       | 349,800   |       |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Shares  issued under Employee Stock Purchase Plan  |       | 29,202                 |       | 292                |       | 372,033                           |       |                      |       | 372,325   |       |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Shares issued  under Employee Stock Ownership Plan |       | 15,000                 |       | 150                |       | 251,850                           |       |                      |       | 252,000   |       |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| Net income                                         |       |                   |       |               |       |                              |       | 3,862,308                 |       | 3,862,308 |       |
|                                               |       |                   |       |               |       |                              |       |                      |       |      |       |
| ***Balance, December 31, 2004***              |       | 3,835,669              |       | $                  | 38,357     |                              | $          | 12,763,811                |       | $         | 8,193,482  |   | $ | 20,995,650 |   |

 

Seenotes to consolidated financial statements.

 

29

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**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARY**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**YEARS ENDEDDECEMBER 31, 2004, 2003 AND 2002**

 
| ** **                                                               | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|--------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| CASH FLOWS  FROM OPERATING ACTIVITIES:                                   |       |       |       |       |       |       |       |
| Net income                                                               |       | $          | 3,862,308  |       | $          | 2,870,130  |       | $ | 2,276,595 |   |
| Adjustments  to reconcile net income to net cash provided by operations: |       |       |       |       |       |       |       |
| Depreciation  and amortization                                           |       | 1,311,124  |       | 1,158,458  |       | 1,152,298  |       |
| Tax benefit  from exercise of stock options                              |       | 349,800    |       | 166,500    |       | 159,000    |       |
| Gain on sale  of property & equipment                                |       |       |       |       |       | (258,074   | )          |
| Increase in  deferred income taxes                                       |       | 224,000    |       | 43,000     |       | 178,000    |       |
| (Increase)  decrease in restricted cash                                  |       | (459,861   | )          | 468,093    |       | (310,340   | )          |
| (Increase)  decrease in accounts receivable                              |       | (380,636   | )          | (64,395    | )          | 250,611    |       |
| (Increase)  decrease in other current assets                             |       | (1,277     | )          | (556,480   | )          | 11,392     |       |
| (Decrease)  increase in income taxes payable                             |       | (78,013    | )          | 412,170    |       | (451,001   | )          |
| Increase in  accounts payable and accrued wages & payroll taxes      |       | 910,384    |       | 498,242    |       | 54,645     |       |
| Increase  (decrease) in card club accruals                               |       | 441,920    |       | (197,837   | )          | 434,198    |       |
| (Decrease)  increase in accrued interest                                 |       | (1,929     | )          | 2,158      |       | (15,878    | )          |
| Increase  (decrease) in accrued property taxes                           |       | 58,212     |       | (4,983     | )          | (8,894     | )          |
| Increase  (decrease) in payable to horsepersons                          |       | 70,278     |       | (11,233    | )          | 120,418    |       |
| Increase in  due to MHBPA                                                |       | 27,952     |       |       |       |       |       |
| Contribution  of common stock to ESOP                                    |       | 252,000    |       |       |       |       |       |
| Net cash  provided by operations                                         |       | 6,586,262  |       | 4,783,823  |       | 3,592,970  |       |
|                                                                     |       |       |       |       |       |       |       |
| CASH FLOWS  FROM INVESTING ACTIVITIES:                                   |       |       |       |       |       |       |       |
| Additions to  land, buildings and equipment                              |       | (4,636,723 | )          | (3,720,377 | )          | (3,428,488 | )          |
| Proceeds  from sale of land                                              |       |       |       |       |       | 422,663    |       |
| Net cash  used in investing activities                                   |       | (4,636,723 | )          | (3,720,377 | )          | (3,005,825 | )          |
|                                                                     |       |       |       |       |       |       |       |
| CASH FLOWS  FROM FINANCING ACTIVITIES:                                   |       |       |       |       |       |       |       |
| Proceeds  from issuance of common stock                                  |       | 666,938    |       | 433,924    |       | 512,828    |       |
| Purchase of  stock                                                       |       | (14,364    | )          |       |       |       |       |
| Decrease in  due to MHBPA                                                |       |       |       | (76,152    | )          | (193,894   | )          |
| Cash  dividend to shareholders                                           |       | (947,129   | )          | (551,696   | )          | (896,394   | )          |
| Net cash  used in financing activities                                   |       | (294,555   | )          | (193,924   | )          | (577,460   | )          |
|                                                                     |       |       |       |       |       |       |       |
| NET INCREASE  IN CASH                                                    |       | 1,654,984  |       | 869,522    |       | 9,685      |       |
|                                                                     |       |       |       |       |       |       |       |
| CASH AT  BEGINNING OF YEAR                                               |       | 2,523,560  |       | 1,654,038  |       | 1,644,353  |       |
|                                                                     |       |       |       |       |       |       |       |
| CASH AT END  OF YEAR                                                     |       | $          | 4,178,544  |       | $          | 2,523,560  |       | $ | 1,654,038 |   |
|                                                                     |       |       |       |       |       |       |       |
| INTEREST  PAID                                                           |       | $          | 9,000      |       | $          | 608        |       | $ | 19,947 |   |
|                                                                     |       |       |       |       |       |       |       |
| INCOME TAXES  PAID                                                       |       | $          | 2,425,000  |       | $          | 1,807,000  |       | $ | 1,680,000 |   |

 

Seenotes to consolidated financial statements.

 

30

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**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARY**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**YEARS ENDEDDECEMBER 31, 2004, 2003 AND 2002**

 

1.                                       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

*Business* - Canterbury Park Holding Corporation (theCompany) was incorporated on March 24, 1994.  On March 29, 1994 the Company acquiredall the outstanding securities of Jacobs Realty, Inc. (JRI) from Irwin Jacobsand IMR Fund, L.P. (an investment fund for various pension plans andtrusts).   JRI was merged into theCompany and the acquisition was accounted for under the purchase method ofaccounting whereby the acquired assets and liabilities have been recorded atthe Company’s cost.  The primary asset ofJRI was Canterbury Downs Racetrack and the 325 acres of surrounding land.

 

On May 20, 1994, the Company adopted a plan ofReorganization pursuant to which the sole shareholder of Canterbury ParkConcessions, Inc. (CPC), and majority shareholder of the Company, agreed toexchange his shares of CPC stock for 198,888 shares of the Company’s commonstock concurrent with the closing of a public offering.  Pursuant to the Plan of Reorganization, CPCbecame a wholly owned subsidiary of the Company in August 1994 when theCompany completed the initial public offering of its common stock.  This reorganization was treated in a mannersimilar to a pooling of interests.  Netproceeds received by the Company from the public offering were approximately$4,847,000, which along with additional borrowings under the Company’s line ofcredit with the majority shareholder, were used to pay off the remaining notespayable from the acquisition of JRI.

 

The consolidated financial statements include theaccounts of the Company, CPC and Shakopee Valley RV Park Acquisition Company,LLC after elimination of intercompany accounts and transactions.

 

*Operations  -*The Company’s revenues are derived primarily from the operations of aCard Club and pari-mutuel wagering on simulcast and live horse races.

 

*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.

 

*Reclassifications* – Certain prior year numbers have beenreclassified to be consistent with current period presentation.  These reclassifications had no effect on netearnings or stockholders’ equity.

 

*Uncashed Winning Tickets  - *Pari-mutuel tickets which are not cashedwithin one year of the end of the respective race meet become the property ofthe Company.  The Company records revenueassociated with the uncashed winning tickets at the time that, based onhistorical experience, management can reasonably estimate the amount ofadditional winning tickets from a race meet that will be presented for payment.

 

*Pari-mutuel Taxes  -*The first $12 million of pari-mutuel revenue is exempt from the 6%pari-mutuel tax.  Pari-mutuel taxes areestimated for each 12-month period from July 1 through June 30, andan estimated annual effective tax rate is applied to all pari-mutuel commissionrevenues.

 

*Restricted Cash* – Restricted cash represents refundabledeposits and amounts due to horsemen for purses, stakes and awards, and amountsaccumulated in the Player Pool to be used to repay card players in the form ofpromotions, giveaways, prizes, or by other means.

 

31

----

 

*Advance from the Minnesota Horsemen’sBenevolent and Protective Association, Inc. (the “MHBPA”)* - The Minnesota Pari-Mutuel Horse Racing Actspecifies that the Company is required to segregate a portion of funds(recorded as statutory purses in the statements of operations), received fromwagering on simulcast and live horse races, for future payment as purses forlive horse races or other uses of the horsepersons’ associations.  Pursuant to an agreement with the MHBPA, theCompany has transferred into a trust account or paid directly to the MHBPA,approximately $7,601,000, $6,770,000 and $6,110,000 for the years ended December 31,2004, 2003 and 2002, respectively, related to thoroughbred races.  Amounts due to the MHBPA, are guaranteed bythe Chairman of the Board.  MinnesotaStatutes specify that amounts transferred into the trust account are theproperty of the trust and not of the Company. The interest rates on any statutory purses accrued but not transferredinto the trust were 5.25%, 4.00% and 4.25% at December 31, 2004, 2003 and2002, respectively.

 

*Impairment of Long-Lived Assets -*Management of the Company periodicallyreviews the carrying value of property and equipment for potential impairmentby comparing the carrying value of these assets with their related expectedfuture net cash flows.  Should the sum ofthe related expected future net cash flows be less than the carrying value,management will determine whether an impairment loss should be recognized.  An impairment loss would be measured by theamount by which the carrying value of the asset exceeds the fair value of theasset.  To date, management hasdetermined that no impairment of these assets exists.

 

*Depreciation* - Buildings and equipment are depreciated ona straight-line basis over the estimated useful lives of the assets, generally5 to 39 years.

 

# *Card Club Accruals –*Minnesota law allows the Company to collectamounts from patrons to fund progressive jackpot pools in the Card Club.  These amounts, along with amounts earned bythe player pool, promotional pools and the outstanding chip liability, areaccrued as short-term liabilities at each balance sheet date.

#  

*Borrowings* - The weighted average interest rates onshort-term borrowings at December 31, 2004, 2003 and 2002 were 5.25%,4.00% and 4.25%, respectively.  Theweighted average rates for short-term borrowings for the years ended December 31,2004, 2003 and 2002 were 4.23%, 4.17% and 4.50%, respectively.

 

*Income Taxes* - Income taxes are accounted for under theasset and liability method.  Deferred taxassets and liabilities are recognized for the estimated future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measuredusing enacted tax rates in effect for the year in which those temporarydifferences are expected to reverse.

 

*Net Income Per Share* - Basic net income per common share is basedon the weighted average number of common shares outstanding during each year.  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.

 

*Comprehensive Income –*Statement of Financial Accounting Standards(SFAS) No. 130, *Reporting ComprehensiveIncome,*establishes standards for reporting and display ofcomprehensive income and its components in a full set of financialstatements.  Comprehensive incomeincludes all changes in stockholders’ equity except those resulting frominvestments by and distributions to owners. SFAS No. 130 is not currently applicable for the Company because theCompany did not have any items of other comprehensive income in any of the periodspresented.

 

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

 

32

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*Statement of Financial AccountingStandards No. 123 (SFAS 123) -*In 1996, the Company adopted SFAS 123, “Accounting for Stock-BasedCompensation”, as amended by SFAS No. 148, “Accounting for Stock-BasedCompensation – Transition and Disclosure”. As permitted by SFAS 123, the Company has elected to continue followingthe guidance of APB 25 for measurement and recognition of stock-basedtransactions with employees.  No compensationcost has been recognized for stock options issued under the Stock Option Planbecause the exercise price of all options granted was at least equal to thefair value of the common stock at the date of grant.  If compensation cost for the Company’s StockPlan and Employee Stock Purchase Plan had been determined based on the fairvalue at the grant dates, consistent with the method provided in SFAS 123, theCompany’s net income and earnings per share would have been as follows:

 

 
| ** **                   | ** ** | **2004**  | ** ** | **2003**  | ** ** | **2002**  | ** ** |
|------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Net Income:                  |       |      |       |      |       |      |       |
| As reported                  |       | $         | 3,862,308  |      | $          | 2,870,130 |       | $ | 2,276,595 |   |
| Pro forma                    |       | 3,414,243 |       | 2,450,141 |       | 2,061,359 |       |
|                         |       |      |       |      |       |      |       |
| Basic  Earnings Per Share:   |       |      |       |      |       |      |       |
| As reported                  |       | $         | 1.02       |      | $          | .78       |       | $ | .64 |   |
| Pro forma                    |       | .90       |       | .67       |       | .58       |       |
|                         |       |      |       |      |       |      |       |
| Diluted  Earnings Per Share: |       |      |       |      |       |      |       |
| As reported                  |       | $         | .92        |      | $          | .70       |       | $ | .57 |   |
| Pro forma                    |       | .82       |       | .60       |       | .52       |       |

 

The fair value of options granted under the Planduring 2004, 2003 and 2002 were estimated on the date of grant using theBlack-Scholes option-pricing model with the following weighted average assumptionsand results: 

 
| ** **                           | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Dividend  yield                      |       | None     |       | None     |       | None     |       |
| Expected  volatility                 |       | 46       | %          | 37       | %          | 37       | %          |
| Risk-free  interest rate             |       | 3.28     | %          | 2.99     | %          | 4.41     | %          |
| Expected  life of option             |       | 71 mo.   |       | 71 mo.   |       | 69 mo.   |       |
| Fair value  of options on grant date |       | $        | 840,000    |     | $          | 837,000  |       | $ | 363,000 |   |
|                                      |            |          |            |          |            |          |            |  |  |  |

 

*Accounting Pronouncements* - In December 2004, the FASB revisedSFAS No. 123, Share Based Payment (SFAS No. 123R).  This Statement supercedes AccountingPrinciples Board (APB) Opinion No. 25, Accounting for Stock Issued toEmployees, which resulted in no stock-based employee compensation cost relatedto stock options if the options granted had an exercise price equal to themarket value of the underlying common stock on the date of grant.  SFAS No. 123R requires recognition ofemployee services provided in exchange for a share-based payment based on thegrant date fair market value.  TheCompany is required to adopt SFAS No. 123R as of July 1, 2005.  As of the effective date, this Statementapplies to all new awards issued as well as awards modified, repurchased, orcancelled.  Additionally, for stock-basedawards issued prior to the effective date, compensation cost attributable tofuture services will be recognized as the remaining service is rendered.  The Company may also elect to restate priorperiods by applying a modified retrospective method to periods prior to theeffective date.  The Company is in theprocess of determining which method of adoption it will elect as well as the potentialimpact on its consolidated financial statements upon adoption.

 

33

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2.                                       LAND, BUILDINGS AND EQUIPMENT

 

Land, buildings and equipment consists of thefollowing at December 31:

 
| ** **                           | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|
|                                 |       |       |       |       |       |
| Land                                 |       | $          | 6,645,701  |       | $          | 6,637,027 |   |
| Buildings  and building improvements |       | 12,683,492 |       | 9,232,778  |       |
| Furniture  and equipment             |       | 10,978,532 |       | 9,968,428  |       |
|                                 |       | 30,307,725 |       | 25,838,233 |       |
| Accumulated  depreciation            |       | (9,869,193 | )          | (8,725,300 | )          |
|                                 |       | $          | 20,438,532 |       | $          | 17,112,933 |   |

 

3.                                       INCOME TAXES

 

A reconciliation between income taxes computed atthe statutory federal income tax rate and the effective tax rate is as follows:

 
| ** **                                      | ** ** | **2004** | ** ** | **2003** | ** ** | **2002**  | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
|                                            |       |     |       |     |       |      |       |
| Federal tax  expense computed at statutory rate |       | $        | 2,312,000  |     | $          | 1,802,000 |       | $ | 1,303,000 |   |
| Nondeductible  lobbying expense                 |       | 163,000  |       | 197,000  |       | 23,000    |       |
| State  expense, net of federal impact           |       | 471,000  |       | 381,000  |       | 253,000   |       |
| Other                                           |       | (7,584   | )          | 48,651   |       | (24,791   | )          |
|                                            |       | $        | 2,938,416  |     | $          | 2,428,651 |       | $ | 1,554,209 |   |

 

Income tax expense for the years ended December 31,2004, 2003 and 2002 consists of the following:

 
| ** **                   | ** ** | **2004**  | ** ** | **2003**  | ** ** | **2002**  | ** ** |
|------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Current                      |       |      |       |      |       |      |       |
| Federal                      |       | $         | 2,081,616  |      | $          | 1,822,351 |       | $ | 1,054,309 |   |
| State                        |       | 632,800   |       | 563,300   |       | 321,900   |       |
|                         |       | 2,714,416 |       | 2,385,651 |       | 1,376,209 |       |
| Deferred,  primarily Federal |       | 224,000   |       | 43,000    |       | 178,000   |       |
|                         |       | $         | 2,938,416  |      | $          | 2,428,651 |       | $ | 1,554,209 |   |

 

Current and long term temporary differences and taxcarryforwards at December 31 are as follows:

 
| ** **                      | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Current                         |       |     |       |     |       |
| Vacation  accrual               |       | 64,000   |       | 98,000   |       |
| Other                           |       | 39,000   |       | 23,000   |       |
| Net current  deferred tax asset |       | $        | 103,000    |     | $          | 121,000 |   |
|                                 |            |          |            |          |            |  |  |

 
| ** **                                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
| Long-Term                                        |       |     |       |     |       |
| Tax  depreciation greater than book depreciation |       | $        | (740,000   | )        | $          | (474,000 | ) |
| Deferred  gain on sale of land                   |       | (104,000 | )          | (104,000 | )          |
| Other                                            |       | 128,000  |       | 68,000   |       |
| Net  long-term deferred tax liability            |       | $        | (716,000   | )        | $          | (510,000 | ) |

 

34

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4.                                       STOCKHOLDERS’ EQUITY

 

*Stock Options:*

 

The Company’s 1994 Stock Plan (the Plan) providesfor the granting of awards in the form of stock options, restricted stock,stock appreciation rights, and deferred stock to key employees andnon-employees, including directors of and consultants to the Company and anysubsidiary, to purchase up to a maximum of 1,450,000 shares of common stock.  Options that are granted under the Plan maybe either options that qualify as “incentive stock options” within the meaningof Section 422 of the Internal Revenue Code of 1986, as amended (IncentiveStock Options), or those that do not qualify as Incentive Stock Options(Non-Qualified Stock Options).  The Planis administered by the Board of Directors, or a committee designated by theBoard, which determines the persons who are to receive awards under the Plan,the type of award to be granted, the number of shares subject to each awardand, if an option, the exercise price of each option.  The Plan also provides for formula grants ofNon-Qualified Stock Options to non-employee directors of the Company.

 

Stock option activity related to the Plan during theyears ended December 31, 2004, 2003 and 2002 is summarized below:

 
| ** **                          | ** ** | **2004**   | ** ** | **2003**                               | ** ** | **2002**   | ** ** |
|-------------------------------------|------------|------------|------------|----------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise   Price** | ** ** | **Shares** | ** ** | **Weighted  Average   Exercise Price** | ** ** |
|                                |       |       |       |                                   |       |       |       |   |   |   |   |   |   |
| Outstanding  at beginning of year   |       | 692,200    |       | $                                      | 5.42       |       | 639,700    |   | $ | 4.79 |   | 633,800 |   | $ | 4.39 |   |
|                                |       |       |       |                                   |       |       |       |   |   |   |   |   |   |
| Granted                             |       | 94,500     |       | 16.67                                  |       | 96,000     |       | 15.13 |   | 86,500 |   | 7.49 |   |
| Exercised                           |       | (77,850    | )          | 3.78                                   |       | (43,500    | )          | 4.48 |   | (76,850 | ) | 4.49 |   |
| Canceled                            |       |       |       |                                   |       |       |       |   |   | (3,750 | ) | 6.63 |   |
|                                |       |       |       |                                   |       |       |       |   |   |   |   |   |   |
| Outstanding  at end of year         |       | 708,850    |       | $                                      | 7.90       |       | 692,200    |   | $ | 6.24 |   | 639,700 |   | $ | 4.79 |   |
|                                |       |       |       |                                   |       |       |       |   |   |   |   |   |   |
| Options  exercisable at end of year |       | 631,850    |       | $                                      | 6.88       |       | 616,200    |   | $ | 5.42 |   | 590,367 |   | $ | 4.56 |   |

 

The following table summarizes informationconcerning all options outstanding and options exercisable as of December 31,2004:

 

 
| **Range of  Exercise Price** | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average   Remaining  Contractual  Life in Years** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Options  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|------------------------------|------------|--------------------------|------------|---------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------|------------|----------------------------------------|------------|
| $1.75 – 2.50            |       | 140,050                  |       | 2.0                                                           |       | $                                      | 2.18       |                     | 140,050    |                                   | $          | 2.18 |   |
| 2.50 – 5.00             |       | 100,400                  |       | 3.6                                                           |       | 3.87                                   |       | 100,400                  |       | 3.87                                   |       |
| 5.00 – 7.50             |       | 258,400                  |       | 4.9                                                           |       | 6.52                                   |       | 258,400                  |       | 6.52                                   |       |
| 7.50 – 17.25            |       | 210,000                  |       | 4.7                                                           |       | 15.35                                  |       | 133,000                  |       | 14.82                                  |       |
|                              |            |                          |            |                                                               |            |                                        |            |                          |            |                                        |            |  |  |

 

The Plan provides that payment of the exercise pricemay be made in the form of unrestricted shares of common stock already owned bythe optionee.  The Company calculates thefair market value of unrestricted shares as the average of the high and lowsales prices on the date of exercise.  During 2004, the Company purchased and retired 752 shares valued at$14,364.

 

*Employee Stock Purchase Plan:*

 

On April 3, 1995, the Board of Directorsadopted the 1995 Employee Stock Purchase Plan. The plan, which is open to all employees of the Company working morethan 15 hours per week, commenced on April 15, 1995 and will continue for10 years.  The plan consists of one-yearphases.  The phases commence on October 1of each year.  Under the terms of theplan, employees may set aside a portion of their payroll earnings to purchaseshares of the Company’s common stock at the lower of 85% of the fair marketvalue of the shares on the commencement date of each phase or 85% of the fairmarket value on 

 

35

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the termination date of each phase.  The plan provides for the sale of up to250,000 shares.  The plan issued 29,202,32,396 and 27,299 shares in 2004, 2003 and 2002, respectively.

 

*401(k) Plan:*

 

On June 1, 1998 the Company established adefined contribution savings plan for employees who had completed one year ofservice, as defined in the Plan document. The defined contribution savings plan allows for employee compensationdeferral contributions under Section 401(k) of the Internal Revenue Codeand discretionary contributions by the Company. Employer contributions charged to operations in 2004, 2003 and 2002 wereapproximately $113,000, $108,000 and $88,000, respectively.

 

*Employee Stock Ownership Plan:*

 

In December 2004, the Company’s Board of Directorsapproved an Employee Stock Ownership Plan effective for the calendar yearbeginning January 1, 2004.  Alleligible employees of the Company participate in the ESOP Plan after completingone full calendar year of service. Contributions to the plan are determined by the Board of Directors andcan be made in cash or shares of the Company’s common stock.  Annual contributions are allocated to eachparticipant based on compensation and vest in accordance with a seven yeargraded vesting schedule.  On December 17,2004, the Company committed to contribute 15,000 shares of the Company’s commonstock valued at $252,000.  Shares will beissued and allocated to the accounts of eligible employees based upon their2004 compensation on or before April 15, 2005.

 

5.                                       EARNINGS PER SHARE COMPUTATIONS

 

The following is a reconciliation of the numeratorand denominator of the earnings per common share computations:        

 
| ** **                                                                               | ** ** | **2004**  | ** ** | **2003**  | ** ** | **2002**  | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
|                                                                                     |       |      |       |      |       |      |       |
| Net income  (numerator) amounts used for basic and fully diluted per share computations: |       | $         | 3,862,308  |      | $          | 2,870,130 |       | $ | 2,276,595 |   |
|                                                                                     |       |      |       |      |       |      |       |
| Weighted  average shares (denominator) of common stock outstanding:                      |       |      |       |      |       |      |       |
| Basic                                                                                    |       | 3,775,375 |       | 3,675,919 |       | 3,581,546 |       |
| Plus  dilutive effect of stock options                                                   |       | 408,243   |       | 401,621   |       | 381,982   |       |
| Diluted                                                                                  |       | 4,183,618 |       | 4,077,540 |       | 3,963,528 |       |
|                                                                                     |       |      |       |      |       |      |       |
| Net income  per common share:                                                            |       |      |       |      |       |      |       |
| Basic                                                                                    |       | $         | 1.02       |      | $          | .78       |       | $ | .64 |   |
| Diluted                                                                                  |       | .92       |       | .70       |       | .57       |       |

 

6.                                       LINES OF CREDIT

 

The Company has a general credit and securityagreement with Bremer Bank, N.A. Borrowings under the credit agreement include a commercial revolvingcredit line, which provides for maximum advances of $2,250,000 with interest atthe prime rate until April 20, 2005. The Company had no borrowings under the credit line during the year2004.  The credit agreement containscovenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements as of December 31, 2004. 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 during2005.

 

7.                                       OPERATING LEASES AND COMMITMENTS

 

In January 1999 the Company entered into afive-year totalizator services agreement with Autotote Systems, Inc.(Autotote).  This five-year contract wasrenewed for an additional five-year term in January 2004.  Pursuant to the agreement, Autotote providestotalizator equipment and computer programs which record and process all wagersand calculate the odds and payoffs. Amounts charged to operations under 

 

36

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this agreement for the years ended December 31,2004, 2003 and 2002 were approximately $370,000, $390,000 and $383,000,respectively.  During annual live racemeets, Autotote provides uplink services, which enables the Company tosimulcast horse races held at Canterbury Park to out-of-state racetracks.  These services resulted in amounts charged tooperations in 2004, 2003 and 2002 of approximately $135,500, $126,000 and$124,000, respectively.

 

8.                                       CONTINGENCIES

 

In connection with the purchase of the Racetrack(Note 1), the Company entered into an Earn Out Promissory Note dated March 29,1994. In accordance with the Earn Out Note, if (i) off-track betting becomeslegally permissible in the State of Minnesota and (ii) the Company begins toconduct off-track betting with respect to or in connection with 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 net pretax profit, asdefined for each of five operating years. At this time, management believes that the likelihood that these twoconditions will be met, and that the Company will be required to pay theseamounts is remote.  At the date (if any)that these two conditions are met, the five minimum payments will be discountedback to their present value and the sum of those discounted payments will becapitalized as part of the purchase price in accordance with generally acceptedaccounting principles.  The purchaseprice will be further increased if payments become due under the “20% of NetPretax Profit” calculation.  The firstpayment is to be made 90 days after the end of the third operating year inwhich 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 is periodically involved in variouslegal actions arising in the normal course of business.  At December 31, 2004, managementbelieves that the resolution of any legal actions outstanding will not have amaterial impact on the consolidated financial statements.

 

9.                                       RELATED-PARTY TRANSACTIONS

 

The president/director and two other directors haveguaranteed performance by the Company under a $500,000 bond issued to theMinnesota Racing Commission.

 

The Company paid $74,000 in 2002 to a former memberof the Board of Directors for advertising and marketing services provided tothe Company.

 

The Company paid a total of $50,052 in 2004 and$62,000 in 2003 to the Chair and Vice Chair of the Company in consideration forthe services they provided pursuant to consulting agreements.  In addition, another non-employee Boardmember received $32,000 in 2004, $61,000 in 2003 and $13,000 in 2002 forservices related to building grass roots support for proposed legislation toprovide expanded gaming authority to the Company.

 

10.                                 OPERATING SEGMENTS

 

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

 

The accounting policies of the operating segmentsare the same as those described in the summary of significant accountingpolicies.  In addition, the 2002 horseracing segment reflects the $258,074 gain on sale of five acres of real estate.

 

Depreciation, interest expense and income taxes areallocated to the segments but no allocation is made to concessions for sharedfacilities.  The concessions segment paidapproximately 25% of gross revenues on live racing and special event days tothe horse racing segment for use of the facilities in 2004, 2003 and 2002.

 

37

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The following tables provide information about theCompany’s operating segments:

 
| ** **                          | ** ** | **Twelve Months Ended December 31,  2004** | ** ** |
|-------------------------------------|------------|-------------------------------------------------|------------|
| ** **                          | ** ** | **Horse Racing**                                | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
| Revenues  from external customers   |       | $                                               | 20,944     |   | $ | 28,433 |   | $ | 5,522 |   | $ | 54,899 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Intersegment  revenues              |       | 357                                             |       |   |   | 1,872 |   | 2,229 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Net interest  income (expense)      |       | 33                                              |       |   |   |   |   | 33 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Depreciation  and amortization      |       | 784                                             |       | 527 |   |   |   | 1,311 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Segment  income before income taxes |       | 588                                             |       | 6,165 |   | 1,238 |   | 7,991 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Segment  Assets                     |       | $                                               | 24,397     |   | $ | 3,688 |   | $ | 3,164 |   | $ | 31,249 |   |

 
| ** **                          | ** ** | **Twelve Months Ended December 31,  2003** | ** ** |
|-------------------------------------|------------|-------------------------------------------------|------------|
| ** **                          | ** ** | **Horse Racing**                                | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
| Revenues  from external customers   |       | $                                               | 20,061     |   | $ | 22,954 |   | $ | 4,831 |   | $ | 47,846 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Intersegment  revenues              |       | 362                                             |       |   |   | 1,586 |   | 1,948 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Net interest  income (expense)      |       | 40                                              |       |   |   |   |   | 40 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Depreciation  and amortization      |       | 695                                             |       | 463 |   |   |   | 1,158 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Segment  income before income taxes |       | 693                                             |       | 4,621 |   | 998 |   | 6,312 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Segment  Assets                     |       | $                                               | 18,459     |   | $ | 3,727 |   | $ | 1,905 |   | $ | 24,092 |   |

 
| ** **                          | ** ** | **Twelve Months Ended December 31,  2002** | ** ** |
|-------------------------------------|------------|-------------------------------------------------|------------|
| ** **                          | ** ** | **Horse Racing**                                | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
| Revenues  from external customers   |       | $                                               | 19,194     |   | $ | 18,154 |   | $ | 4,353 |   | $ | 41,701 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Intersegment  revenues              |       | 395                                             |       |   |   | 1,215 |   | 1,610 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Net interest  income (expense)      |       | 29                                              |       |   |   |   |   | 29 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Depreciation  and amortization      |       | 596                                             |       | 556 |   |   |   | 1,152 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Segment  income before income taxes |       | 541                                             |       | 3,290 |   | 639 |   | 4,470 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Segment  Assets                     |       | $                                               | 14,883     |   | $ | 4,003 |   | $ | 1,116 |   | $ | 20,003 |   |

 

Included in horse racing segment revenues for theyears ended December 31, 2004, 2003 and 2002 is approximately $288,000,$212,000 and $228,000, respectively, for rental of the racing facility forspecial events and storage.

 

38

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The following are reconciliations of reportablesegment revenue, income before income taxes, and assets, to the Company’sconsolidated totals:

 
| ** **                                              | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Revenues                                                |       |     |       |     |       |     |       |
| Total  revenue for reportable segments                  |       | $        | 57,128     |     | $          | 49,794   |       | $ | 43,311 |   |
| Elimination  of intersegment revenues                   |       | (2,229   | )          | (1,948   | )          | (1,610   | )          |
| Total  consolidated revenues                            |       | $        | 54,899     |     | $          | 47,846   |       | $ | 41,701 |   |
| Income before income taxes                              |       |     |       |     |       |     |       |
| Total  segment income before income taxes               |       | $        | 7,991      |     | $          | 6,312    |       | $ | 4,470 |   |
| Elimination  of intersegment income before income taxes |       | (1,190   | )          | (1,013   | )          | (639     | )          |
| Total  consolidated income before income taxes          |       | $        | 6,801      |     | $          | 5,299    |       | $ | 3,831 |   |

 
| ** **                               | ** ** | **December 31,  2004** | ** ** | **December 31, 2003** | ** ** | **December 31,   2002** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------------------|------------|
| Assets                                   |       |                        |       |                            |       |                         |       |
| Total assets  for reportable segments    |       | $                           | 31,249     |                            | $          | 24,213                       |       | $ | 20,003 |   |
| Elimination  of intercompany receivables |       | (3,026                      | )          | (1,795                          | )          | (973                         | )          |
| Total consolidated assets                |       | $                           | 28,223     |                            | $          | 22,418                       |       | $ | 19,030 |   |

 

11.**                                **SUPPLEMENTARY FINANCIAL INFORMATION(UNAUDITED)

 
| ** **                  | ** ** | **2004 Quarter Ended:** | ** ** |
|-----------------------------|------------|-------------------------|------------|
| ** **                  | ** ** | **March 31**       | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| Operating  revenues         |       | $                       | 11,385,965 |   | $ | 14,422,649 |   | $ | 17,279,804 |   | $ | 11,810,874 |   |
|                        |       |                    |       |   |   |   |   |   |   |
| Operating  expenses         |       | 9,105,737               |       | 13,394,712 |   | 15,393,116 |   | 10,238,482 |   |
|                        |       |                    |       |   |   |   |   |   |   |
| Net income                  |       | 1,260,178               |       | 580,860 |   | 1,064,204 |   | 957,066 |   |
|                        |       |                    |       |   |   |   |   |   |   |
| Basic earnings  per share   |       | .34                     |       | .15 |   | .28 |   | .25 |   |
|                        |       |                    |       |   |   |   |   |   |   |
| Diluted  earnings per share |       | .30                     |       | .14 |   | .26 |   | .23 |   |
|                             |            |                         |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                  | ** ** | **2003 Quarter Ended:** | ** ** |
|-----------------------------|------------|-------------------------|------------|
| ** **                  | ** ** | **March 31**       | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| Operating  revenues         |       | $                       | 9,229,250  |   | $ | 13,128,383 |   | $ | 14,981,550 |   | $ | 10,506,556 |   |
|                        |       |                    |       |   |   |   |   |   |   |
| Operating  expenses         |       | 7,771,922               |       | 12,105,109 |   | 13,716,910 |   | 8,992,738 |   |
|                        |       |                    |       |   |   |   |   |   |   |
| Net income                  |       | 839,087                 |       | 593,552 |   | 575,547 |   | 861,944 |   |
|                        |       |                    |       |   |   |   |   |   |   |
| Basic  earnings per share   |       | .23                     |       | .16 |   | .16 |   | .23 |   |
|                        |       |                    |       |   |   |   |   |   |   |
| Diluted  earnings per share |       | .21                     |       | .15 |   | .14 |   | .21 |   |
|                             |            |                         |            |  |  |  |  |  |  |  |  |  |  |

 

39

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**Item 9****.****                      ****CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE**

 

Not Applicable.

 

**Item 9A****.     CONTROLS AND PROCEDURES**

 

(a)                                              Evaluation of Disclosure Controls andProcedures:

 

The Company’s Chief Executive Officer, Randall D.Sampson, and Chief Financial Officer, David C. Hansen, have evaluated theCompany’s disclosure controls and procedures as of the end of the periodcovered by this report.  Based upon thatreview, they have concluded that these controls and procedures are effective inensuring that material information related to the Company is made known to themby others within the Company.

 

(b)                                             Changes in Internal Control Over FinancialReporting:

 

There have been no significant changes in internalcontrol over financial reporting that occurred during the fiscal quartercovered by this report that have materially affected, or are reasonably likelyto materially affect, the registrant’s internal control over financialreporting.

 

**Item 9B****.     OTHER INFORMATION**

 

Not Applicable.

 

**PART III**

 

**Item 10.****               ****DIRECTORS AND EXECUTIVEOFFICERS OF THE REGISTRANT**

 

Information required under Item 402 of RegulationsS-K to the extent applicable with respect to the directors will be set forth ina section captioned “Election of Directors” in the Company’s ProxyStatement for the Annual Meeting of Shareholders to be held on June 2,2005 (the “2005 Proxy Statement”), a definitive copy of which will be filedwith the Commission within 120 days of the close of the 2004 fiscal year, whichinformation is incorporated herein by reference.  Information regarding executive officers ispresented under Item 1(c)(x) herein.

 

Code of Ethics

 

The Company has adopted a code of Ethics applicableto all officers of the Company as well as certain other key accountingpersonnel.  A copy of the Code of Ethicscan be obtained free of charge upon written request directed to the Company’sSecretary at the executive offices of the Company.

 

**Item 11.****               ****EXECUTIVE COMPENSATION**

 

Information required under Item 402 of RegulationS-K will be set forth in a section entitled “Executive Compensation andOther Information” in the Company’s 2005 Proxy Statement which information isincorporated herein by reference.

 

**Item 12.****               ****SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

Information required under Item 403 of RegulationS-K will be set forth in a section entitled “Security Ownership of CertainBeneficial Owners” and “Election of Directors” in the Company’s 2005 ProxyStatement which information is incorporated herein by reference.

 

40

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INFORMATION REGARDING EQUITY COMPENSATION PLANS

 

The following table sets forth information as of December 31,2004 regarding our equity compensation plans.

 

**SecuritiesAuthorized for Issuance Under Equity Compensation Plans**

 
| **Plan Category (1)**                                              | ** ** | **(a)   Number of shares   of common stock to  be issued upon exercise of  outstanding   options, warrants   and rights** | ** ** | **(b)  Weighted-average   exercise price of  outstanding   options, warrants   and rights** | ** ** | **(c)  Number of shares of  common stock  remaining available for  future issuance under  equity compensation  plans (excluding   shares in column (a))** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Equity  compensation plans approved by security holders:**       |       |                                                                                                                           |       |                                                                                             |       |                                                                                                                                                      |       |
| 1994 Stock  Plan                                                   |       | 708,850                                                                                                                        |       | $                                                                                                | 7.90       |                                                                                                                                                      | 351,000    |   |
| 1995  Employee Stock Purchase Plan                                 |       | 0                                                                                                                              |       | 0                                                                                                |       | 65,175                                                                                                                                                    |       |
|                                                               |       |                                                                                                                           |       |                                                                                             |       |                                                                                                                                                      |       |
| **Equity  compensation plans not approved by security holders:**   |       |                                                                                                                           |       |                                                                                             |       |                                                                                                                                                      |       |
| Stock Option  Plan for Non - Employee Consultants and Advisors (2) |       | 0                                                                                                                              |       | 0                                                                                                |       | 172,500                                                                                                                                                   |       |
|                                                               |       |                                                                                                                           |       |                                                                                             |       |                                                                                                                                                      |       |
| **Total**                                                          | ** ** | **708,850**                                                                                                                    | ** ** | **0**                                                                                            | ** ** | **588,675**                                                                                                                                               | ** ** |
|                                                                    |            |                                                                                                                                |            |                                                                                                  |            |                                                                                                                                                           |            |  |

 

----

(1) The Company does not have individualcompensation arrangements involving the granting of options, warrants andrights

 

(2) Adopted by the Company’s Board of Directors in1997, the purpose of the Stock Option Plan for Non-Employee Consultants andAdvisors is to attract and retain the services of experienced and knowledgeablenon-employee consultants and advisors to assist in projects having strategicsignificance for the Company, to provide an alternative form of cashcompensation to such persons and to provide such persons with the opportunityto participate in the Company’s long term progress and success.

 

**Item 13.****               ****CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS**

 

Information, if any, required by Item 404 ofRegulation S-K will be set forth in a section entitled “CertainTransactions” in the Company’s 2005 Proxy Statement which information isincorporated herein by reference.

 

**Item 14.****               ****PRINCIPAL ACCOUNTING FEESAND SERVICES**

 

Information required by Item 14 of this Form 10-Kand Item 9(e) of Schedule 14A will be set forth in a section entitled“The Company’s Auditors” in the Company’s 2005 Proxy statement whichinformation is incorporated herein by reference.

 

41

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**PART IV**

 

**Item 15.****               ****EXHIBITS AND FINANCIALSTATEMENT SCHEDULES**

 

(a)1.                   The following Consolidated FinancialStatements of Canterbury Park Holding Corporation and subsidiaries are includedin Part II, Item 8 pages 29 - 43:

 

Report of Independent Registered Public AccountingFirm

 

Consolidated Balance Sheets as of December 31,2004 and 2003

 

Consolidated Statements Of Operations for the yearsended December 31, 2004, 2003, and 2002

 

Consolidated Statements of Changes in Stockholders’Equity for the years ended December 31, 2004, 2003, and 2002

 

Consolidated Statements of Cash Flows for the yearsended December 31, 2004, 2003, and 2002

 

Notes to Consolidated Financial statements

 

2.                                 No financial statement schedules are requiredby Item 8 and Item 15(e) of Form 10-K.

 

3.                                 The exhibits listed on the “Exhibits Index”on pages 47 & 48 are filed with this Form 10-K or incorporated by referencein this report.

 

42

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
| Dated:  March 29, 2005 |   | CANTERBURY PARK HOLDING CORPORATION   |
|----------------------------------|--------|---------------------------------------|
|                             |   |                                  |
|                             | By     | /s/ Randall D. Sampson                |   |
|                             |   | Randall D. Sampson                    |
|                             |   | President and Chief Executive Officer |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the following persons on behalf of the Registrant and inthe capacities and the dates indicated have signed this report below.

 

**Power ofAttorney**

 

Each person whose signature appears belowconstitutes and appoints CURTIS A. SAMPSON, DALE H. SCHENIAN and RANDALL D.SAMPSON as his true and lawful attorneys-in-fact and agents, each acting alone,with full power of substitution and resubstitution, for him and in his name,place and stead, in any and all capacities, to sign any of all amendments tothis Annual Report on Form 10-K and to file the same, with all exhibitsthereto, and other documents in connection therewith, with the Securities andExchange Commission, granting unto said attorneys-in-fact and agents, eachacting alone, full power and authority to do and perform each and every act andthing requisite and necessary to be done in and about the premises, as fully toall intents and purposes as he might or could do in person, hereby ratifyingand confirming all said attorneys-in-fact and agents, each acting alone, or hissubstitute or substitutes, may lawfully do or cause to be done by virtuethereof.

 

 
| **Signature**          | ** ** | **Title**                           | ** ** | **Date**            |
|------------------------|------------|-------------------------------------|------------|---------------------|
|                   |       |                                |       |                |
| /s/ Curtis A. Sampson  |       | Chairman of the Board               |       | March 29, 2005 |
| Curtis A. Sampson      |       |                                |       |                |
|                   |       |                                |       |                |
|                   |       |                                |       |                |
| /s/ Dale H. Schenian   |       | Director; Vice Chairman             |       | March 29, 2005 |
| Dale H. Schenian       |       |                                |       |                |
|                   |       |                                |       |                |
|                   |       |                                |       |                |
| /s/ Randall D. Sampson |       | Chief Executive Officer, President, |       | March 29, 2005 |
| Randall D. Sampson     |       | General Manager, Treasurer and      |       |                |
|                   |       | Director                            |       |                |
|                   |       |                                |       |                |
| /s/ David C. Hansen    |       | Chief Financial Officer*            |       | March 29, 2005 |
| David C. Hansen        |       |                                |       |                |
|                   |       |                                |       |                |
|                   |       |                                |       |                |
| /s/ Patrick R. Cruzen  |       | Director                            |       | March 29, 2005 |
| Patrick R. Cruzen      |       |                                |       |                |
|                   |       |                                |       |                |
|                   |       |                                |       |                |
| /s/ Carin J. Offerman  |       | Director                            |       | March 29, 2005 |
| Carin J. Offerman      |       |                                |       |                |
|                   |       |                                |       |                |
|                   |       |                                |       |                |
| /s/ Burton F. Dahlberg |       | Director                            |       | March 29, 2005 |
| Burton F. Dahlberg     |       |                                |       |                |

 

----

*Principal Accounting Officer

 

43

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CANTERBURY PARK HOLDING CORPORATION ANDSUBSIDIARY

 

Exhibit IndexTo

Form 10-K for the Year Ended December 31,2004

 
| **Regulation S-B  Exhibit Table   Reference** | ** ** | **Title  of Document**                                                                                                                                                         | ** ** | **Location  in Consecutive Numbering   System as Filed with the Securities   and Exchange Commission**                                                                                  |
|-----------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                          |       |                                                                                                                                                                           |       |                                                                                                                                                                                    |
| 3.1                                           |       | Articles of Incorporation, as amended.                                                                                                                                         |       | Filed as Exhibit 3.1 to the Forms SB-2 Registration Statement of the  Company, File No. 33-81262C, (the “SB-2 Registration Statement”) and  incorporated herein by reference. |
|                                          |       |                                                                                                                                                                           |       |                                                                                                                                                                                    |
| 3.2                                           |       | Bylaws, as amended                                                                                                                                                             |       | Filed as Exhibit 3.2 to the SB-2 Registration Statement and  incorporated herein by reference.                                                                                          |
|                                          |       |                                                                                                                                                                           |       |                                                                                                                                                                                    |
| 10.1                                          |       | Plan of Reorganization dated as of May 20, 1994 between Canterbury  Park Holding Corporation and Canterbury Park Concessions, Inc.                                             |       | Filed as Exhibit 10.1 to the SB-2 Registration Statement and  incorporated herein by reference.                                                                                         |
|                                          |       |                                                                                                                                                                           |       |                                                                                                                                                                                    |
| 10.2                                          |       | Restated Stock Purchase Agreement                                                                                                                                              |       | Filed as Exhibit 10.2 to the SB-2 Registration Statement and  incorporated herein by reference.                                                                                         |
|                                          |       |                                                                                                                                                                           |       |                                                                                                                                                                                    |
| 10.3                                          |       | Letter dated April 4, 1994 from the Minnesota Horsemen’s  Benevolent and Protective Association, Inc. to Minnesota Racing Commission  waiving 125 day racing minimum |       | Filed as Exhibit 10.3 to the SB-2 Registration Statement and  incorporated herein by reference.                                                                                         |
|                                          |       |                                                                                                                                                                           |       |                                                                                                                                                                                    |
| 10.5                                          |       | Stock Option Plan, as amended*                                                                                                                                                 |       | Filed as Exhibit 4.1 to the Registration Statement on Form S-8 of the  Company filed on August 28, 1997 (File No. 333-34509) and incorporated  herein by reference.                |
|                                          |       |                                                                                                                                                                           |       |                                                                                                                                                                                    |
| 10.6                                          |       | Form of Non-qualified Stock Option Agreement                                                                                                                                   |       | Filed as Exhibit 10.6 to the SB-2 Registration Statement and  incorporated herein by reference.                                                                                         |

 

----

*  Denotes an exhibit that covers managementcontracts or compensatory plans or arrangements.

 

44

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| **Regulation S-B Exhibit Table Reference** | ** ** | **Title of Document**                                                                                                                                                                                                                                                                              | ** ** | **Location  in Consecutive Numbering System as Filed with the Securities and Exchange  Commission**                                                                      |
|--------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                       |       |                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                     |
| 10.7                                       |       | Curtis A. Sampson Guaranty to HRA                                                                                                                                                                                                                                                                  |       | Filed as Exhibit 10.7 to the SB-2 Registration Statement and  incorporated herein by reference.                                                                          |
|                                       |       |                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                     |
| 10.10                                      |       | General Credit and Security Agreement dated as of June 3, 1998  between Canterbury Park Holding Corporation and Bremer Bank N.A. (previously  First American Bank, N.A.)  This  exhibit 10.10 replaces exhibit 10.10 filed previously as an exhibit to the SB-2  Registration Statement. |       | Filed as Exhibit 10.10 to the Form 10-KSB for the fiscal year ended December 31,  1998.                                                                             |
|                                       |       |                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                     |
| 10.11                                      |       | Stock Purchase Savings Plan                                                                                                                                                                                                                                                                        |       | Filed as Exhibit 10.11 to Form 10-KSB for the fiscal year ended December 31,  1997 and incorporated herein by reference.                                            |
|                                       |       |                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                     |
| 10.13                                      |       | Stock Option Plan for Non-Employee Consultants and Advisors                                                                                                                                                                                                                                        |       | Filed as Exhibit 4.3 to the Registration Statement on Form S-8 of the  Company filed on August 28, 1997 (File No. 333-34509) and incorporated  herein by reference. |
|                                       |       |                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                     |
| 21                                         |       | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                     |       | Filed herewith.                                                                                                                                                          |
|                                       |       |                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                     |
| 23                                         |       | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                           |       | Filed herewith.                                                                                                                                                          |
|                                       |       |                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                     |
| 24                                         |       | Power of Attorney                                                                                                                                                                                                                                                                                  |       | Included in signature page at page 43.                                                                                                                                   |
|                                       |       |                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                     |
| 31.1                                       |       | Certification of the Chief Executive Officer pursuant to Section 302  of the Sarbanes-Oxley Act 0f 2002                                                                                                                                                                                       |       | Filed herewith                                                                                                                                                           |
|                                       |       |                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                     |
| 31.2                                       |       | Certification of the Chief Financial Officer pursuant to Section 302  of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                       |       | Filed herewith                                                                                                                                                           |
|                                       |       |                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                     |
| 32                                         |       | Certification pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002                                                                                                                                                                                                                      |       | Filed herewith.                                                                                                                                                          |

 

Theexhibits referred to in this Exhibit will be supplied to a shareholder at acharge of $.25 per page upon written request directed to Canterbury ParkHolding Corporation at the executive offices of the Company.

 

45

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