**Table ofContents**

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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-K**

 

 (Mark One)

| **x** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------------|

 

| **For the  fiscal year ended December 31, 2008** |
|-------------------------------------------------------|
|                                                  |
| **OR**                                                |

 

| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|---------------------------------------------------------------------------------------------------------|

 

**For the Transition period from          to**

 

**Commission File Number:  001-31569**

 

**CANTERBURY PARK HOLDINGCORPORATION**

(Exact Name of Registrant as Specified in Its Charter)

 

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

 

**1100Canterbury Road****Shakopee, MN 55379**(Address of principal executive offices and zip code)

 

Registrant’stelephone number, including area code: ** (952) 445-7223**

 

Securities registered pursuant to Section 12(b) of the Act:

 

| Common Stock, $.01 par  value |   | The NASDAQ Stock Market  LLC          |
|-------------------------------|--------|---------------------------------------|
| Title of Each Class           |   | Name of Exchange on  which Registered |

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.

YES  o   NO  x

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.

YES  o   NO  x

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

YES  x  NO  o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Rule 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See the definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act.
| Large accelerated filer | o | Non-accelerated filer     | o |
|-------------------------|---|---------------------------|---|
| Accelerated filer       | o | Smaller reporting company | x |

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Act).

YES  o   NO  x

The aggregate marketvalue of the shares of voting and non-voting common equity held bynon-affiliates based on the price at which the Company’s common stock was lastsold on the American Stock Exchange, on June 30, 2008, the last businessday of the registrant’s most recently completed second fiscal quarter wasapproximately $20,367,000.

 

On March 18, 2009,the Company had 3,990,352 shares of common stock, $.01 par value, outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’sdefinitive Proxy Statement for its 2009 Annual Meeting of Shareholders, to beheld on June 4, 2009, are incorporated by reference into Part III ofthis Form 10-K.

 

 

 

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CANTERBURY PARK HOLDING CORPORATION

FORM 10-K ANNUAL REPORT

FOR THE YEAR ENDED DECEMBER 31, 2008

 

TABLE OF CONTENTS

 
| ** **     | ** **                                                                                                          | **Page**   |
|----------------|---------------------------------------------------------------------------------------------------------------------|------------|
|           |                                                                                                                | ** ** |
| PART I    |
|           |                                                                                                                |       |
| ITEM 1.        | Business                                                                                                            | 3          |
|           |                                                                                                                |       |
| ITEM 1A.       | Risk  Factors                                                                                                       | 11         |
|           |                                                                                                                |       |
| ITEM 1B.       | Unresolved Staff Comments                                                                                           | 13         |
|           |                                                                                                                |       |
| ITEM 2.        | Properties                                                                                                          | 13         |
|           |                                                                                                                |       |
| ITEM  3.       | Legal  Proceedings                                                                                                  | 14         |
|           |                                                                                                                |       |
| ITEM 4.        | Submission of  Matters to a Vote of Security Holders                                                                | 15         |
|           |                                                                                                                |       |
| PART II   |
|           |                                                                                                                |       |
| ITEM 5.        | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities | 15         |
|           |                                                                                                                |       |
| ITEM 6.        | Selected Financial  Data                                                                                            | 17         |
|           |                                                                                                                |       |
| ITEM 7.        | Management’s  Discussion and Analysis of Financial Condition and Results of Operation                          | 18         |
|           |                                                                                                                |       |
| ITEM 7A.       | Quantitative and Qualitative Disclosures about Market  Risk                                                         | 27         |
|           |                                                                                                                |       |
| ITEM 8.        | Financial Statements and Supplementary Data                                                                         | 28         |
|           |                                                                                                                |       |
| ITEM 9.        | Changes In and Disagreements With Accountants on  Accounting and Financial Disclosure                               | 48         |
|           |                                                                                                                |       |
| ITEM 9A(T).    | Controls and Procedures                                                                                             | 48         |
|           |                                                                                                                |       |
| ITEM  9B.      | Other  Information                                                                                                  | 48         |
|           |                                                                                                                |       |
| PART III  |
|           |                                                                                                                |       |
| ITEM 10.       | Directors, Executive Officers and Corporate Governance                                                              | 48         |
|           |                                                                                                                |       |
| ITEM 11.       | Executive Compensation                                                                                              | 49         |
|           |                                                                                                                |       |
| ITEM  12.      | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    | 49         |
|           |                                                                                                                |       |
| ITEM  13.      | Certain  Relationships, Related Transactions and Director Independence                                              | 49         |
|           |                                                                                                                |       |
| ITEM 14.       | Principal Accounting Fees and Services                                                                              | 49         |
|           |                                                                                                                |       |
| PART IV   |
|           |                                                                                                                |       |
| ITEM 15.       | Exhibits  and Financial Statement Schedules                                                                         | 49         |
|           |                                                                                                                |       |
| SIGNATURES     |                                                                                                                | 51         |
|           |                                                                                                                |       |
| EXHIBIT INDEX  |                                                                                                                | 52         |
|           |                                                                                                                |       |
| CERTIFICATIONS |                                                                                                                | 55         |

 

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**Item 1.    BUSINESS**

 

#### ***(a) GeneralDevelopment of the Business***

#### * *

CanterburyPark Holding Corporation (the “Company”) conducts pari-mutuel wageringoperations and hosts “unbanked” card games at its Canterbury Park Racetrack andCard Club facility (the “Racetrack”) in Shakopee, Minnesota.  The Company’s pari-mutuel wagering operationsinclude both wagering on live thoroughbred and quarter horse races at theRacetrack and wagering on races held at out-of-state racetracks that aretelevised simultaneously at the Racetrack (“simulcasting”).  Unbanked card games, in which patrons competeagainst each other, are hosted in the Card Club at the Racetrack.  The Company also derives revenues fromrelated services and activities, such as concessions, parking, advertising,admissions, programs, a recreational vehicle park and from other entertainmentevents held at the Racetrack.

 

TheCompany was incorporated under the laws of Minnesota on March 24, 1994,acquired the Racetrack on March 29, 1994, commenced seven day a weeksimulcast operations on May 6, 1994, and, beginning in May 1995,launched live horse racing and related pari-mutuel wagering on a seasonalbasis, generally from early May to early September.  The Company opened the Card Club on April 19,2000 with 43 tables and expanded to 50 tables (the maximum permitted bylaw) in 2001.  The ownership andoperation of the Racetrack and the Card Club are significantly regulated by theMinnesota Racing Commission (the “MRC”).

 

TheCompany maintains a website at www.canterburypark.com.  Our annual reports on Form 10-K, ourquarterly reports on Form 10-Q and our periodic reports on Form 8-K (andany amendments to these reports) are available free of charge on our website.

 

***(b) Financial Information About Segments***

 

TheCompany divides its business into three segments: horse racing, card club andconcessions.  The horse racing segmentrepresents simulcast and live racing operations.  The card club segment represents operationsof the Card Club, and the concessions segment represents food and beverageservices for simulcast and live racing, the Card Club and during specialevents.  Further information regardingthe Company’s business segments is set forth in Note 12 of the Notes toConsolidated Financial Statements under Item 8 of this Form 10-K, and suchinformation is incorporated herein by reference.

 

***(c) Narrative Description of Business***

 

**(i)****                                   ****Horse Racing Operations**

 

TheCompany’s horse racing operations consist of year-round pari-mutuel wagering onsimulcast horse races (“simulcasting”) and live thoroughbred and quarter horseraces (“live meets”) held on a seasonal basis beginning in May andconcluding in September.

 

*LiveRacing.*

 

In2008, the Racetrack hosted 67 days of live racing beginning May 3rd andconcluding September 1st.  The meetincluded 43 days of mixed thoroughbred and quarter horse racing and 24****days of thoroughbred only racing.  The 2007 live meet was 68 days long,beginning May 5th and ending September 3rd, and consisted of 45 daysof mixed thoroughbred and quarter horse racing and 23 days of thoroughbred onlyracing.

 

Currently,Minnesota law requires the Racetrack to schedule a minimum of 125 days of liveracing annually, unless the Minnesota Horsemen’s Benevolent and ProtectiveAssociation (the “MHBPA”) agrees to a lesser number of live racingdays.  Since 1995, the MHBPA has agreedto waive the 125-day requirement and has allowed the Company to run a live meetof at least 50 days each year.  After2009, no assurance can be given that the MHBPA will agree to a shorter livemeet than the 125-day statutory minimum. If the MHBPA does not agree to a live meet shorter than 125 days, theCompany’s operations could be adversely impacted by a decrease in the dailypurses, potential reduction in quality of horses, lower attendance, loweroverall handle and increased operating expenses.

 

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*Simulcasting.*

 

Simulcastingis the process by which live horse races held at one facility (the “hosttrack”) are transmitted simultaneously to other locations that allow patrons ateach receiving location (the “guest track”) to place wagers on racestransmitted from the host track.  Moniesare collected at the guest track and the information with respect to the totalamount wagered is electronically transmitted to the host track.  All of the amounts wagered at guest tracksare combined into the appropriate pools at the host track with the final oddsand payouts based upon all the monies in the respective pools.

 

TheCompany offers “full card” simulcast racing (broadcasting of anotherracetrack’s entire daily live racing program) from up to 20 racetracks per day,seven days a week, 364 days per year, including Churchill Downs, HollywoodPark, Santa Anita, Gulfstream Park, Belmont Park and Saratoga Racecourse.  In addition, races of national interest, suchas the Kentucky Derby, the Preakness Stakes, the Belmont Stakes, and theBreeders’ Cup, supplement the regular simulcast program.  The Company regularly evaluates itsagreements with other racetracks in order to offer the most popular simulcastsignals of live horse racing that are feasible.

 

Underapplicable provisions of federal and state law, the Racetrack must obtain theconsent of the state’s regulatory authority and the organization whichrepresents the majority of the owners and trainers of the horses who race atthe Racetrack with respect to simulcast operations both as a host and guesttrack.  In Minnesota, such consent mustbe obtained from the MHBPA and the MRC.

 

**(ii)           Card Club Operations**

 

TheCard Club is open 24 hours per day, seven days per week, offering twovariations of unbanked card games: Poker and Casino Games.

 

Pokergames, including Texas Hold ‘Em, 7-Card Stud and Omaha, with betting limitsranging between $2 and $60, are currently offered on a maximum of 34 tables inthe poker room.  A dealer, employed bythe Company, regulates the play of the game at each table and deals the cardsbut does not participate in play.  Inpoker games, 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.  TheCompany may add additional prizes, awards or money to any game for promotionalpurposes.  The Company collects a “rake”of 10% or 5%, depending on the limit of the game, of each addition to the “pot”,up to a maximum of $5.00 per hand, as its collection revenue.  In addition, poker games offer progressivejackpots for most games.  In order tofund the jackpot pool, the dealer withholds $1.00 from each final pot in excessof the $15 minimum.

 

CasinoGames, including Pai Gow Poker, Blackjack, Let-It-Ride, Three and Four CardPoker, and Ultimate Texas Hold ‘Em, are currently offered at 16 of the 50tables in the Card Club.  The Company’sCasino Games are required by law to be “unbanked.”  “Unbanked” refers to a wagering system orgame where wagers lost or won in card games are accumulated into a player poolliability for purposes of enhancing the total amount paid back to winningplayers.  The Company may only serve ascustodian of the player pool, may not have an active interest in any card gameand does not recognize amounts that dealers “win” or “lose” during the courseof play as revenue.  In addition, severalcasino games offer a progressive jackpot. The player has the option of playing the jackpot and has the opportunityto win some or all of the jackpot amount, depending upon their hand.

 

**(iii)         Special Events**

 

Whilepari-mutuel horse racing and Card Club operations are the Company’s principalbusinesses, the Company’s facilities are capable of being used for multiplepurposes.  In an effort to more fullyutilize the property and to generate additional revenues, the Company hasincreasingly used its grandstand, grounds and parking lot for special eventsand rentals.  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, fundraisers, automobile shows and competitions, vehicle andboat storage and private parties.

 

 

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** **

**(iv)          Sources of Revenue**

 

*General.*

 

TheCompany’s revenues are principally derived from Card Club operations, wageringon live and simulcast horse races and concession sales.  For the fiscal year ended December 31,2008, revenues from Card Club operations represented 52.3% of total revenues,wagering on horse races generated 28.8% of total revenues and concessionsrevenue represented 12.9% of total revenues.

 

*Card ClubOperations.*

 

TheCompany receives revenue from its Card Club, which operates 24 hours per day,seven days per week.  The Companycurrently receives collection revenue from 34 poker tables and 16 tablesoffering casino games.  Under Minnesotalaw, the Company is required to pay 10% of the first $6 million of gross CardClub revenues towards purses for live horse racing at the Racetrack.  After meeting the $6 million threshold, theCompany must pay 14% of gross Card Club revenues as purse monies.  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%), quarterhorse (9%) and standardbred (1%) purse funds.

 

*Pari-mutuel wagering — General.*

 

In pari-mutuel wagering,bettors wager against each other in a pool, rather than against the operator ofthe facility or with preset odds.  Fromthe total amount wagered (“handle”), the Minnesota Pari-Mutuel HorseRacing Act (the “Racing Act”) specifies the maximum percentage, referredto as the “takeout,” which may be withheld by the Racetrack, with the balancereturned to the winning bettors.  Thetakeout constitutes one of the Racetrack’s primary sources of operatingrevenue.  From the takeout, funds are setaside for purses and paid to the State of Minnesota for pari-mutuel taxes and theMinnesota Breeders’ Fund (the “Breeders’ Fund”), which is a fundapportioned by the MRC among various purposes related to Minnesota’s horsebreeding and horse racing industries. The balance of the takeout remaining after these deductions is commonlyreferred to as the “retainage.”

 

Thevarious forms of pari-mutuel wagering can be divided into two categories:straight wagering pools and multiple wagering pools, which are also referred toas “exotic” wagering pools.  Examples ofstraight wagers include: “win” (a wager on one specific horse to finishfirst); “place” (a wager on one specific horse to finish first or 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 horsesthat will win two consecutive races); “exacta” (a wager in which thebettor selects the horses that will finish first and second in a race, inorder); “trifecta” (a wager in which the bettor selects the horses that willfinish first, second and third in a race, in order); and “pick six” (awager in which the bettor selects the horses that will finish first in sixconsecutive races).

 

Theamount of takeout earned by the Company depends on where the race is run andthe form of wager (straight or exotic). Net revenues from pari-mutuel wagering on live races run at theRacetrack consist of the total amount wagered, less the amounts paid (i) towinning 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 negotiatedwith the host track and must comply with state laws governing the host track.

 

*Wageringon Live Races.*

 

TheRacing Act establishes the maximum takeout that may be deducted from thehandle.  The takeout percentage on liveraces depends on the type of wager.  Thetotal maximum takeouts are 17% from straight wagering pools and 23% from exoticwagering pools.  From this takeout,Minnesota law requires deductions for purses, pari-mutuel taxes and theBreeders’ Fund.

 

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

 

Thefollowing table sets forth the percentage distribution of each dollar wageredon live races at the Racetrack, as established by the Racing Act, and theRacetrack’s retainage for the years ended December 31, 2008 and 2007:

 
| ** **                            | ** ** | **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%purse payment 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 structureexempts the first $12 million of takeout during a statutorily mandatedtwelve-month period.  The totalpari-mutuel tax liability for a twelve-month period will depend upon the totaltakeout during that period.

 

*Wageringon Simulcast Races.*

 

Theamount of takeout from simulcast wagering is determined by the laws of thestate in which the host track is located. In addition, the Racing Act establishes a minimum that must be set asidefrom simulcasting for purse payments on racing within Minnesota.  Different amounts are deducted for pursesfrom the takeout depending on whether simulcasting occurs during the “RacingSeason,” a statutorily defined 25-week period beginning in early May eachyear, or outside of the Racing Season. If simulcasting occurs during the Racing Season, the amount set asidefor purses further depends on whether the simulcasting is part of a full racingcard that occurs during the part of the day that live races are conducted atthe Racetrack.  For races that are part ofa full simulcast racing card that takes place within the time of live races atthe Racetrack, the amount reserved for purse payout is 8.4%.  For simulcasting conducted during the RacingSeason that does not occur within the time period of live races, the purse isequal to 50% of the takeout remaining after deductions for pari-mutuel taxes,payments to the Breeders’ Fund and payments to the host racetrack for hosttrack fees.  For simulcasting conductedoutside of the Racing Season, the amount that must be contributed to the pursesis 25% of the takeout after deducting pari-mutuel taxes, payments to theMinnesota Breeders’ Fund and host fee payments to the host racetrack.

 

 

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Thefollowing table sets forth the approximate percentage distribution of eachdollar wagered for races simulcast at the Racetrack and the Racetrack’sretainage for the years ended December 31, 2008 and 2007:

 
| ** **                            | ** ** | **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                           |       |                                |       | 1.00                           |       |   |   | 1.10 |   |   |   |
| Minnesota  Pari-Mutuel Taxes (2) |       | .19                            |       |                                |       | .19                            |       |   |   | .19 |   |   |   |
| Purse (3)                        |       | 8.40                           |       |                                |       | 7.49                           |       |   |   | 4.31 |   |   |   |
| Host Track  Fees (4)             |       | 3.50                           |       |                                |       | 3.50                           |       |   |   | 3.50 |   |   |   |
| Racetrack  Retainage (3)         |       | 6.41                           |       |                                |       | 7.32                           |       |   |   | 10.40 |   |   |   |
| 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 takeoutat the host racetrack. This percentage is determined by local and state lawapplicable to the host track and ranges from 75.0% to 85.0%.

 

(2)                                  The current pari-mutuel tax structureexempts the first $12 million of takeout during a statutorily mandatedtwelve-month period.  The totalpari-mutuel tax liability for a twelve-month period will depend upon the totaltakeout during that period.

 

(3)                                  Although Minnesota law specifies pursepercentages, the actual percentage is determined by agreement between theRacetrack and the MHBPA.  For the yearended December 31, 2007, the MHBPA allowed a 2.1% expense deduction, andin 2008, the expense deduction allowed was 1.3%.  In 2009, the expense deduction is estimatedto be 1.5%.

 

(4)                                  Payments to the host track generallyrange from 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%.

 

##### *ConcessionsRevenue.*

##### * *

TheCompany earns revenue from food and beverage sales in its restaurant, groupcatering areas and numerous concession stands located throughout thefacility.  Food and beverage sales areoffered during live and simulcast racing in the Card Club and during specialevents.

 

##### *OtherRevenue.*

##### * *

TheCompany generates cash revenues from the receipt of admission and reservedseating charges, preferred and valet parking and the sales of various dailypari-mutuel publications.  Additionalrevenues are derived from the operation of an RV Park during the summer monthsand the use of the facility year-round for special events such as concerts,trade and craft shows, snowmobile racing, business meetings, private parties,horse expositions and sales, boat and automobile storage and community events.  The Company also generates revenue fromproviding advertising signage space, similar to that appearing at many sportsstadiums, and leasing excess parking lot space for various automotiveactivities and vehicle storage.

 

**(v)            Competition**

 

From1994 through 2004, the Company was the only racetrack licensed to operate inthe State of Minnesota.  On January 20,2005, the MRC granted a license to the North Metro Harness Initiative,LLC (“NMHI”) to construct and operate a harness racetrack in ColumbusTownship, Anoka County, MN.  ColumbusTownship is approximately 50 miles from Canterbury Park.  This license authorized NMHI to engage inpari-mutuel wagering on live and simulcast racing forstandardbred (harness) horses.  NMHIcommenced operations in April 2008. Additionally, NMHI obtained a license to operate a card room at thecompletion of the minimum 50 live race days and began card room operations in June 2008.

 

 

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TheCompany competes with other forms of gaming, principally casino-style gamblingincluding slots and blackjack offered at numerous tribal casinos located throughoutthe State of Minnesota, including a large casino located approximately fourmiles from the Racetrack.  More recently,unbanked card games have also become available at some tribal casinos.  In addition, the Company competes againstcharitable gambling (bingo and pull tabs) and various state lotteryproducts.  The Company also facesincreasing competition from offshore and out-of-state simulcast operationsoffering Internet and telephone account home wagering systems to Minnesotaresidents, although Minnesota regulatory authorities consider such wagering tobe illegal.

 

TheCompany also competes with other forms of entertainment in theMinneapolis-Saint Paul metropolitan area, including a wide range of live andtelevised 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.

 

TheCompany competes with racetracks located throughout the United States insecuring horses to run at the Racetrack. Attracting owners and trainers is largely dependent on the ability tooffer large purses.  The Companyexperiences significant competition for horses from racetracks located near DesMoines, Iowa and Chicago, Illinois, both of which offer substantially largerpurses than the Company.  Thiscompetition is expected to continue for the foreseeable future.

 

**(vi)****                              ****Regulation**

 

*General.*

 

Theownership and operation of the Racetrack in Minnesota is subject to significantregulation by the MRC under the Racing Act and the rules adopted by theMRC.  The Racing Act provides for theallocation of each wagering pool to winning bettors, the Racetrack, purses,pari-mutuel taxes and the Breeders’ Fund and empowers the MRC to license andregulate substantially all aspects of horse racing in the State.  The MRC, among other things, grants operatinglicenses to racetracks after an application process and public hearings,licenses all employees of a racetrack, jockeys, trainers, veterinarians and otherparticipants, regulates the transfer of ownership interests in licenses,allocates live race days and simulcast-only race days, approves race programs,regulates the conduct of races, sets specifications for the racing ovals,animal facilities, employee quarters and public areas of racetracks, regulatesthe types of wagers on horse races, and approves significant contractualarrangements with racetracks, including management agreements, simulcastarrangements, totalizator contracts and concessionaire agreements.

 

Afederal statute, the Interstate Horse Racing Act of 1978, also provides that aracetrack must obtain the consent of the group representing thehorsepersons (owners and trainers) racing the breed of horses that race amajority of the time at the racetrack, and the consent of the state agencyregulating the racetrack, in order to transmit simulcast signals of its liveraces or to receive and use simulcast signals from other racetracks.  The Company has obtained the consent of theMHBPA and MRC for receiving and sending simulcast signals.

 

*Issuanceof Class A and Class B Licenses to the Company.*

 

TheCompany holds a Class A License, issued by the MRC, which allows theCompany to own and operate the Racetrack. The Class A License is effective until revoked, suspended by theMRC or relinquished by the licensee. Currently, the fee for a Class A License is $253,000 per fiscalyear.

 

TheCompany also holds a Class B License, issued by the MRC, that allows theCompany to sponsor and manage horse racing on which pari-mutuel wagering isconducted at its Class A licensed racetrack and on other horse races runat out-of-state locations as authorized by the MRC.  The Class B License is renewable eachyear by the MRC after a public hearing (if required by the MRC).  Currently, the fee for the Class BLicense is $500 for each assigned race day on which live racing is actuallyconducted and $100 for each day on which simulcasting is authorized andactually takes place.

 

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*Limitationon the Number of Class A and Class B Licenses.*

 

Pursuantto the Racing Act, so long as the Racetrack maintains its Class A License,no other Class A License may be issued to operate a racetrack in theseven-county metropolitan area (the counties of Hennepin, Ramsey,Washington, Scott, Dakota, Anoka and Carver), except the MRC may issue anadditional Class A License within the seven-county metropolitan area,provided that the additional license may only be issued for a facility which,among other conditions, is located more than 20 miles from the Racetrack,contains a track no larger than five-eighths of a mile in circumference, and isused exclusively for standardbred (harness) racing.  An additional Class A license was issuedto NMHI on January 20, 2005 (see “Competition” above).  However, as long as the Company holds its Class ALicense, only the Company may own and operate a racetrack in the seven countymetropolitan area where thoroughbred horses and quarter horses may be raced.

 

*Limitationon Ownership and Management of an Entity, which holds a Class A Licenseand/or Class B License.*

 

TheRacing Act requires prior MRC approval of all officers, directors, 5%shareholders or other persons having a present or future direct or indirectfinancial or management interest in any person applying for a Class A and Class Blicense, and if a change of ownership of more than 5% of the licensee’s sharesis made after an application is filed or the license issued, the applicant orlicensee must notify the MRC of the changes within five days of this occurrenceand provide the information required by the Racing Act.

 

*Card ClubRegulation.*

 

TheMRC is authorized by law to regulate Card Club operations, and the law requiresthat the Company reimburse the MRC for its actual costs, including personnelcosts, of regulating the Card Club.  Forfiscal years ended December 31, 2008, and 2007, the Company paid $116,000 and$128,000, respectively, to the MRC as reimbursement for costs of regulatingcard club operations.

 

TheMRC issued an additional Class B License to the Company on January 19,2000 that authorizes the Company to host unbanked card games.  The Class B License is renewable eachyear by the MRC after a public hearing (if required by the MRC).  Currently, the Class B License Fee of$10,000 per calendar year is included in the Class A License Fee of$253,000 per calendar year.

 

*LocalRegulation.*

 

TheCompany’s operations are subject to state and local laws, regulations,ordinances and other provisions affecting zoning and other matters which mayhave the effect of restricting the uses to which the Company’s land and otherassets may be used.  Also, any developmentof the Racetrack site is, among other things, subject to applicable zoningordinances and requires approval by the City of Shakopee and other authorities,and there can be no assurance such approvals would be obtained if anydevelopment was undertaken.

 

**(vii)****                          ****Legislation**

 

TheCompany did not propose or support any legislation during the 2008 biannualsession of the Minnesota Legislature to pursue our Racino proposal that hasbeen discussed in our previous flings with the Securities and Exchange Commission (“SEC”),mainly because the composition of the Minnesota Legislature following the November 2006elections was viewed as unlikely to favorably entertain our Racinoproposal.  Based on the success ofseveral Racinos in other states, we continue to believe that if a Racino wasauthorized at the Racetrack, it would enhance horseracing with increasedpurses, provide growth and development opportunities for the Company andprovide significant new tax revenues for state and local governments.

 

InMay 2007, a bill passed in the Minnesota Legislature severely restrictingsmoking in all public places in Minnesota, including at the Racetrack,effective October 1, 2007.  Tribalcasinos located in Minnesota are not covered by this legislation and willcontinue to offer various gaming alternatives, including card games, in anenvironment that allows smoking.  Since October 1,2007, this legislation has had, and may continue to have, a 

 

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significantadverse effect on the Company’s revenues and profits.  The Company believes that simulcast customerswho smoke and no longer (or less frequently) visit our facility arewagering on the Internet.  The Companyalso believes card club customers who smoke are now patronizing tribal casinoswhere smoking is permitted.

 

**(viii)****                      ****Marketing**

 

TheCompany’s primary market is the seven-county Minneapolis-Saint Paulmetropolitan area plus the two counties to the south of the Racetrack.  Current demographic information indicatesthat approximately 2.2 million adults age 18 and older reside within theprimary market.  The City of Shakopee,located in the southwestern portion of the metropolitan area, is one of thefastest growing communities in the region, and Scott County is one of thefastest growing counties in the country. Between 2005 and 2010, the population of adults age 18 and older in theprimary market is expected to increase by an estimated 6.7%.

 

Tosupport its pari-mutuel horse racing and Card Club businesses, the Companyconducts year-round marketing efforts to maintain the loyalty of live racingand simulcast patrons and attract new racing and Card Club customers.  The Company utilizes newspapers andtelevision advertising, 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 Card Club player rewardsprograms.  In addition, the developmentand maintenance of a customer database over the past several years has enabledthe Company to effectively utilize direct mail advertising.

 

Becausewagering on horse racing and playing poker and casino style card games are morecomplex than many other forms of gaming, such as slot machines or variouslottery products, the Company continues to develop and conduct variouseducational programs, such as complimentary poker and casino games lessons,tours of the Racetrack, wagering and handicapping classes and contests that it believeswill make pari-mutuel wagering on horse racing and card playing moreunderstandable to the general public.

 

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

 

AtMarch 23, 2009, the Company had 298 full-time employees and 251 part-timeemployees.  On a seasonal basis, theCompany adds approximately 120 full-time and 250 part-time employees for liveracing operations from early May until early September.  The Company’s management believes itsemployee relations are good.

 

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

 

Theexecutive officers of the Company, their ages and their positions with theCompany are as follows:

 
| **Name**           | ** ** | **Age** | ** ** | **Position with Company**                              |
|--------------------|------------|---------|------------|--------------------------------------------------------|
|               |       |    |       |                                                   |
| Randall D. Sampson |       | 50      |       | President, CEO and  General Manager                    |
|               |       |    |       |                                                   |
| David C. Hansen    |       | 52      |       | Vice President of  Finance, CFO and Secretary          |
|               |       |    |       |                                                   |
| Mark A. Erickson   |       | 52      |       | Vice President of  Facilities                          |
|               |       |    |       |                                                   |
| Jerrold J. Fuller  |       | 64      |       | Vice President of Card  Club Operations                |
|               |       |    |       |                                                   |
| Michael J. Garin   |       | 53      |       | Vice President of  Hospitality and Assistant Secretary |
|               |       |    |       |                                                   |
| John R. Harty      |       | 64      |       | Vice President of  Marketing                           |

 

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RandallD. Sampson has been President and Chief Executive Officer since the formationof the Company in March 1994 and General Manager since September 1995.  He has been active in horse industryassociations, currently serving as Vice President and Director of theThoroughbred Racetracks of America and is a past President of the MinnesotaThoroughbred Association.  Mr. Sampsonalso currently serves as a director of Communications Systems, Inc. (NASDAQ:JCS),a manufacturer of telecommunications and data communications products based inHector, Minnesota.  Mr. Sampson isthe son of Curtis A. Sampson, the Company’s Chairman of the Board and thebeneficial owner of approximately 23% of the Company’s common stock.

 

DavidC. Hansen joined the Company in July 2001 as Vice President of Finance andChief Financial Officer.  From 2000 to2001, Mr. Hansen served as Director of Accounting for Prairie MeadowsRacetrack and Casino in Altoona, IA, one of the nation’s first Racinooperations.  He served as Controller andlater Director of Finance at Treasure Island Resort & Casino, in RedWing, MN, from 1993 until 2000.  Mr. Hansenearned his CPA certification in 1983.  Mr. Hansenis a member of the Minnesota Society of Certified Public Accountants, theHospitality Financial and Technology Professionals Association, and theFinancial Executives International.

 

Mark A. Erickson has beenVice President of Facilities since May 1997, serving as the Racetrack’sDirector of Facilities since April 1994. From 1992 to 1994, Mr. Erickson served as Maintenance Supervisorfor the Mall of America, supervising the interior maintenance for one of thelargest shopping malls in North America. Mr. Erickson was Master Electrician for Canterbury Downs from 1986to 1992, supervising the installation and maintenance of all electricalequipment.

 

JerroldJ. Fuller has been Vice President of Card Club Operations since June of2005.  He previously worked in variouscapacities for the Company including most recently as the Executive Director ofCard Club Operations.  He joined theCompany in January 2000 as a Card Club Shift Manager and played asignificant role in the opening of the Card Club in April of thatyear.  Mr. Fuller has been employedin the gaming industry since 1968 in California, Montana, and Louisiana and iscurrently a member of the Poker Tournament Directors Association of America.

 

Michael J. Garin has beenVice President of Hospitality since May of 1997.  He had served as President of Canterbury ParkConcessions, Inc. since September 1995.  From 1993 to 1994, Mr. Garin served asFood & Beverage Supervisor for Little Six, Inc., one of thelargest tribal casino operations in the country.  Mr. Garin was President of MMR Vending, Inc.,a regional vending company, from 1988 to 1992. Prior to 1988, he was a Regional Director at General Mills RestaurantGroup overseeing seven restaurants in three states.  Since 2007, Mr. Garin has served on theBoard of Directors for the Minnesota Restaurant Association.

 

JohnR. Harty joined the Company in February 2000 as Vice President ofMarketing.  From 1996 to 1999, Mr. Hartyserved as President of Minneapolis based Sun Products, a manufacturer ofsporting goods and pet products.  Heserved that company as Vice President of Sales and Marketing from 1992 to1996.  From 1977 to 1991, Mr. Hartyworked for Genesco, a billion dollar footwear company.  He served as Executive Vice President incharge of Sales and Marketing for its Hosiery Divisions located in New YorkCity.  Mr. Harty currently serves onthe Board and is Chairman of the Shakopee Area Chamber of Commerce.

 

**Item1A.  RISK FACTORS**

 

TheCompany is subject to risk factors that may affect our operating results.  Such risk factors include, but are notlimited to, the matters discussed below as well as the additional risksdiscussed under Forward Looking Statements on page 26 of this Form 10-Kfor additional risks to which the Company is exposed.

 

*We facesignificant competition from other gaming operations that could have a materialadverse effect on our operations.*

 

Weface intense competition in our market, particularly competition from tribalcasinos.  Such facilities have theadvantage of being exempt from certain state and federal taxes and stateregulation of indoor smoking.  We alsocompete with illegal Internet wagering on horse races, other forms of gambling,other forms of entertainment and other racetracks throughout the country aspreviously discussed under *Competition*above.

 

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In early 2005, the MRCgranted a license to NMHI to construct and operate a harness racetrack inColumbus Township, Anoka County, MN, which is approximately 50 miles from theRacetrack.  This license authorized NMHIto engage in pari-mutuel wagering on live and simulcast racing forstandardbred (harness) horses.  Thisracetrack opened in April of 2008. In addition, NMHI began card room operations in June of 2008.

 

We expect competition forour existing and future operations to increase both from NMHI and as existingtribal casinos expand their operations. In addition, several of our tribal gaming competitors have substantiallylarger marketing and financial resources than we do.  We are unable to predict with any certainty theeffects of existing and future competition on our operating results.

 

*A downturnin general economic conditions can adversely affect our results of operations.*

 

Consumer demand forentertainment is particularly sensitive to downturns in the economy and thecorresponding impact on discretionary spending on leisure activities.  Changes in discretionary consumer spending orconsumer preferences could be driven by factors such as perceived or actualgeneral economic conditions; the current housing crisis and the credit crisis;high energy, fuel and food costs; the increased cost of travel; the potentialfor bank failures; the weakening job market; perceived or actual disposableconsumer income and wealth; fears of recession and changes in consumerconfidence in the economy; or fears of war and future acts of terrorism.  These factors could reduce consumer demandfor the leisure activities we offer, thus imposing practical limits on pricingand harming our operations.

 

*We aresubject to extensive regulation from gaming authorities that could adverselyaffect us.*

 

Theownership and operation of our Racetrack and Card Club are subject tosignificant regulation by the MRC under the Racing Act and the rules adoptedby the MRC.  The MRC has the authority toimpose increases in the Class A and Class B license fees.  In addition, State law requires that wereimburse the MRC for its actual costs of regulating the Card Club, includingpersonnel costs.  Increases in theselicensing and regulatory costs could adversely affect our results ofoperations.

 

Decisionsby the MRC in regard to any one or more of the following matters could alsoadversely affect the Company’s operations: the granting of operating licensesto Canterbury Park and other racetracks after an application process and publichearings; the licensing of all employees of a racetrack, jockeys, trainers,veterinarians and other participants; regulating the transfer of ownershipinterests in licenses; allocating live race days and simulcast-only race days;approving race programs; regulating the conduct of races; settingspecifications for the racing ovals, animal facilities, employee quarters andpublic areas of racetracks; changes to the types of wagers on horse races; andapproval of significant contractual agreements.

 

*We aresubject to changes in the laws that govern our business, including thepossibility of an increase in gaming taxes, which would increase our costs, andchanges in other laws may adversely affect our ability to compete.*

 

Ouroperations and oversight by the MRC are ultimately subject to the laws ofMinnesota and there exists the risk that these laws may be amended in waysadverse to our operations.  Inparticular, we are required to pay taxes and fees in addition to normalfederal, state and local income taxes, and such taxes and fees are subject toincrease at any time.  From time to time,state and local legislators and officials have proposed changes in tax laws, orin the administration of laws affecting our industry, such as the allocation ofeach wagering pool to winning bettors, the Racetrack, purses and the Breeders’Fund.  In addition, poor economicconditions could intensify the efforts of state and local governments to raiserevenues through increases in gaming taxes. It is not possible to determine with certainty the likelihood of changesin tax laws or in the administration of such laws.  Such changes, if adopted, could have amaterial adverse effect on our operations.

 

Weare also subject to laws in Minnesota that affect businesses generally.  It ispossible, as a result of the legislative process, that legislation directly orindirectly adverse to the Company may be enacted into law.  As previously discussed under *Legislation* above, in May 2007,a bill passed in the Minnesota Legislature severely 

 

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restrictingsmoking in all public places in Minnesota, including at the Racetrack,effective October 1, 2007.  Tribalcasinos located in Minnesota are not covered by this legislation and willcontinue to offer various gaming alternatives, including card games, in anenvironment that allows smoking.  Since October 1,2007, this legislation has had, and may continue to have, a significant adverseeffect on the Company’s revenues and profits. The Company believes that simulcast customers who smoke and nolonger (or less frequently) are wagering on the Internet.  The Company also believes card club customerswho smoke are now patronizing tribal casinos where smoking is permitted.

 

*Energyand fuel price increases may adversely affect our costs of operations and ourrevenues.*

 

Ourfacility uses significant amounts of electricity, natural gas and other formsof energy.  Increases in the cost ofelectricity or natural gas negatively affect our results of operations.  In addition, energy and fuel price increasescould negatively impact our operations by reducing disposable income ofpotential customers and decreasing visitation to our facility.

 

**Item1B.  UNRESOLVED STAFF COMMENTS**

 

*Not Applicable.*

 

**Item 2.  PROPERTIES**

 

*General.*

 

TheCompany’s facilities, which are operated under the name “Canterbury Park,” area modern complex of buildings and grounds, generally comparable to other majorracetracks located throughout the country. The Racetrack’s grandstand has a patron capacity of approximately 10,000within enclosed areas and a maximum patron capacity of over 30,000 includingoutside areas around the grandstand.  Thegrandstand and most public outdoor areas contain numerous pari-mutuel windows,odds information boards, video monitors, concessions stands and otheramenities.  The audio/visual systemincludes over 600 television monitors with most areas providing multi-screenviewing of the races.

 

TheRacetrack is located approximately 25 miles southwest of downtownMinneapolis.  The area immediatelysurrounding the Racetrack consists of commercial and industrial buildings,farmland and residential areas.  The Racetrackis in reasonable proximity to a number of major entertainment destinationsincluding:  Valleyfair, an amusement parkabout two miles from the Racetrack which annually attracts approximately morethan one million visitors during the spring and summer; the RenaissanceFestival, a seven-weekend late summer annual event attracting approximately300,000 visitors, located about five miles from the Racetrack; and Mystic LakeCasino, located about four miles from the Racetrack, which draws approximately5.2 million patrons annually.  The Mallof America, the largest enclosed shopping mall in the United States, whichattracts more than 40 million visitors per year, is approximately 17 miles fromthe Racetrack.

 

*RacingSurfaces.*

 

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

 

*Grandstand.*

 

Thegrandstand is a modern, air-conditioned enclosed structure of approximately275,000 square feet with a variety of facilities on six levels.  The lower level contains space for supportfunctions such as jockey quarters, administrative offices, Racing Commissionoffices, first aid, mechanical and electrical rooms.  The track level includes pari-mutuel windows,restrooms, a variety of concession stands and other services as well as theCard Club, which occupies 27,000 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 

 

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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.  The kitchenlevel is an intermediate level located between the mezzanine and clubhousefloors.  It contains a full-servicekitchen which supports a full dining menu for the track-side dining terraces onthe clubhouse level and food preparation for the other concession areas.  The clubhouse level is a multi-purpose areaserving as a simulcast center during wagering sessions on televised races, aswell 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 press box andofficials’ level is located in the roof trusses over the clubhouse and containswork areas for the press, racing officials, closed-circuit television, photofinish 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.

 

*Barnand Backside Facilities.*

 

Thestable area consists of 33 barns with a total of approximately 1,650stalls.  In the stable area, there are216 dormitory rooms for the grooms and others working at the Racetrack.  The stable area also contains a combinationracing office and cafeteria/recreation building for stable personnel, twoblacksmith buildings and a one half-mile training track.

 

*Parking.*

 

Approximately7,500 paved parking spaces are available for patron and employee automobiles atthe Racetrack, including parking spaces that are reserved for handicappedpatrons.  The Racetrack also has unpavedareas available for overflow parking for approximately 5,000 additionalautomobiles.  Areas are also reserved forbus parking.

 

*RV Park.*

 

TheCompany owns and operates a recreational vehicle (RV) park, located twomiles from the Racetrack in Shakopee, Minnesota on approximately 29 acresadjacent to the Minnesota River.  The RVPark has 68 independent sites and 40 dependent sites, an indoor swimming pool,laundry facilities, game room and mini store. The sites are rented to horsemen participating in Canterbury’s racingoperations, seasonal employees and the general public.

 

*UndevelopedLand.*

 

Approximately100 acres of the 380 acres owned by the Company are not necessary for currentoperations.  This property could be soldin 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.  In June 2008, the Company announcedthat it has entered into a letter of intent with RED Development, LLC, a KansasCity based retail developer, to be its exclusive partner in a proposed retailand entertainment development on part of the Company’s property.

 

**Item 3.  LEGAL PROCEEDINGS**

 

There are no materiallegal proceedings pending against the Company. From time to time, the Company is party to ordinary and routinelitigation incidental to our business. We do not expect the outcome of any such litigation pending at this timeto have a material adverse effect on our consolidated financial position orresults of operations.

 

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

 

NotApplicable.

 

**PART II**

 
| **Item 5.** | **MARKET  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER  PURCHASES OF EQUITY SECURITIES** |
|-------------|-------------------------------------------------------------------------------------------------------------------------|

 

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

 

TheCompany’s common stock trades on the NASDAQ Stock Exchange under the symbolCPHC.  Prior to August 26, 2008, ittraded on the American Stock Exchange under the symbol ECP.  The table set forth below indicates the highand low sale prices for the Common Stock in the quarterly periods ending December 31,2008 and 2007.

 
| ** **     | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| ** **     | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
|           |       |     |       |     |       |   |   |   |   |
| Common Stock   |       |     |       |     |       |   |   |   |   |
|           |       |     |       |     |       |   |   |   |   |
| First Quarter  |       | $        | 12.05      |     | $          | 9.35 |   | $ | 14.51 |   | $ | 13.06 |   |
| Second Quarter |       | 11.20    |       | 8.10     |       | 14.69 |   | 11.00 |   |
| Third Quarter  |       | 10.35    |       | 8.00     |       | 13.55 |   | 11.45 |   |
| Fourth Quarter |       | 8.99     |       | 5.75     |       | 12.94 |   | 10.01 |   |
|                |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

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

 

AtMarch 18, 2009, the Company had 776 holders of record of its commonstock.  In addition, on that date, adepository company held approximately 2,539,000 shares as nominee for anestimated 1,622 beneficial holders.

 

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

 

TheCompany paid special cash dividends on its common stock of $.25 per share on July 11,2008 and $.25 per share on July 13, 2007. The Company has not adopted any policy regarding the payment ofdividends and further dividend payments, if any, would require Board ofDirector approval.

 

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**(d)****                                 ****INFORMATION REGARDING EQUITY COMPENSATION PLANS**

 

Thefollowing table sets forth information as of December 31, 2008 regardingour equity compensation plans.

 

Securities Authorized 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                                                       |       | 470,000                                                                                                              |       | $                                                                                       | 11.12      |                                                                                                                                                           | 241,000    |   |
| 1995 Employee  Stock Purchase Plan                                    |       | —                                                                                                               |       | —                                                                                  |       | 115,516                                                                                                                                                        |       |
|                                                                  |       |                                                                                                                 |       |                                                                                    |       |                                                                                                                                                           |       |
| Equity  compensation plans not approved by security holders:          |       |                                                                                                                 |       |                                                                                    |       |                                                                                                                                                           |       |
| Stock Option  Plan for Non-Employee Consultants and Advisors (2) |       | —                                                                                                               |       | —                                                                                  |       | 172,500                                                                                                                                                        |       |
|                                                                  |       |                                                                                                                 |       |                                                                                    |       |                                                                                                                                                           |       |
| Total                                                                 |       | 470,000                                                                                                              |       |                                                                                    |       | 529,016                                                                                                                                                        |       |
|                                                                       |            |                                                                                                                      |            |                                                                                         |            |                                                                                                                                                                |            |  |

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(1) The Company doesnot have individual compensation arrangements involving the granting ofoptions, warrants, rights or restricted stock.

 

(2) Adopted by theCompany’s Board of Directors in 1997, the purpose of the Stock Option Plan forNon-Employee Consultants and Advisors is to attract and retain the services ofexperienced and knowledgeable non-employee consultants and advisors to assistin projects having strategic significance for the Company, to provide analternative form of cash compensation to such persons and to provide suchpersons with the opportunity to participate in the Company’s long term progressand success.

 

**(e)****                                 ****INFORMATION REQUIRED BY ITEM 201(e) OF REGULATION S-K**

 

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

 

**(f)****                                   ****INFORMATION REQUIRED BY ITEM 701OF REGULATION S-K**

 

Notapplicable.

 

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**(g)****                                ****INFORMATION REQUIRED BY ITEM 703OF REGULATION S-K**

 

On January 16,2008, the Company announced that its Board of Directors had authorized aprogram to repurchase up to an additional 250,000 shares of the Company’scommon stock pursuant to Exchange Act Rule 12b-18 in open markettransactions, block purchases of privately negotiated transactions.  During the fourth quarter of 2008, theCompany repurchased 54,678 shares of common stock at an average price of $7.46for an aggregate purchase price of $407,849 pursuant to thisauthorization.  A month-by-monthbreakdown of purchases for the fourth quarter is included in the followingtable:

 
| **Period**                         | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plan** | ** ** | **Maximum Number  of Shares that May  Yet Be Purchased  Under the Plan** | ** ** |
|------------------------------------|------------|---------------------------------------|------------|-----------------------------------|------------|---------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| Oct. 1 to  Oct. 31, 2008 |       | 53,000                                |       | $                                 | 7.50       |                                                                            | 53,000     |                                                                     | 35,135     |   |
| Nov. 1 to  Nov. 30, 2008 |       | —                                |       | —                            |       | —                                                                          |       | 35,135                                                                   |       |
| Dec. 1 to  Dec. 31, 2008 |       | 1,678                                 |       | $                                 | 6.17       |                                                                            | 1,678      |                                                                     | 33,457     |   |
| Total                              |       | 54,678                                |       |                              |       | 54,678                                                                          |       | 33,457                                                                   |       |

 

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

 

(In thousands except forper share amounts)

 
| ** **                        | ** ** | **Year Ended December 31** | ** ** |
|-----------------------------------|------------|---------------------------------|------------|
| ** **                        | ** ** | **2008**                        | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ***OPERATING  DATA***             |       |                            |       |   |   |   |   |   |   |   |   |
|                              |       |                            |       |   |   |   |   |   |   |   |   |
| Net Revenues                      |       | $                               | 46,025     |   | $ | 52,880 |   | $ | 55,840 |   | $ | 54,920 |   | $ | 54,428 |   |
|                              |       |                            |       |   |   |   |   |   |   |   |   |
| Operating  Expenses               |       | 45,310                          |       | 48,723 |   | 50,660 |   | 49,474 |   | 47,661 |   |
|                              |       |                            |       |   |   |   |   |   |   |   |   |
| Income Before  Income Tax Expense |       | 823                             |       | 4,486 |   | 5,459 |   | 5,565 |   | 6,801 |   |
|                              |       |                            |       |   |   |   |   |   |   |   |   |
| Income Tax  Expense               |       | (385                            | )          | (1,865 | ) | (2,334 | ) | (2,512 | ) | (2,939 | ) |
|                              |       |                            |       |   |   |   |   |   |   |   |   |
| Net Income                        |       | $                               | 438        |   | $ | 2,621 |   | $ | 3,125 |   | $ | 3,053 |   | $ | 3,862 |   |
|                              |       |                            |       |   |   |   |   |   |   |   |   |
| Basic Net Income  per Share       |       | $                               | .11        |   | $ | .65 |   | $ | .78 |   | $ | .78 |   | $ | 1.02 |   |
| Diluted Net  Income per Share     |       | .11                             |       | .62 |   | .74 |   | .73 |   | .92 |   |
| Dividends per  Share              |       | .25                             |       | .25 |   | .25 |   | .25 |   | .25 |   |
|                              |       |                            |       |   |   |   |   |   |   |   |   |
| Cash Flow from  Operations        |       | $                               | 1,649      |   | $ | 4,608 |   | $ | 5,973 |   | $ | 4,714 |   | $ | 6,336 |   |

 
| ** **                                       | ** **   | **At December 31** | ** **   |
|--------------------------------------------------|--------------|-------------------------|--------------|
| ** **                                       | ** **   | **2008**                | ** **   | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ***BALANCE  SHEET DATA***                        | *** *** | *** ***            | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** |
| *** ***                                     | *** *** | *** ***            | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** |
| Land,  Buildings & Equipment, Net       |         | $                       | 24,932       |   | $ | 25,038 |   | $ | 24,904 |   | $ | 22,694 |   | $ | 20,439 |   |
|                                             |         |                    |         |   |   |   |   |   |   |   |   |
| Total Assets                                     |         | 32,244                  |         | 36,106 |   | 34,351 |   | 31,440 |   | 28,223 |   |
|                                             |         |                    |         |   |   |   |   |   |   |   |   |
| Stockholders’  Equity                       |         | 26,681                  |         | 28,578 |   | 26,860 |   | 24,358 |   | 20,996 |   |
|                                             |         |                    |         |   |   |   |   |   |   |   |   |
| Book Value per  Share                            |         | $                       | 6.78         |   | $ | 7.00 |   | $ | 6.63 |   | $ | 6.15 |   | $ | 5.47 |   |
|                                             |         |                    |         |   |   |   |   |   |   |   |   |
| Number of Common  Shares Outstanding at Year End |         | 3,938                   |         | 4,084 |   | 4,051 |   | 3,960 |   | 3,836 |   |

 

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| **Item****7.** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|----------------|-------------------------------------------------------------------------------------------------|

 

Thefollowing Management’s Discussion and Analysis of Financial Condition andResults of Operations (“MD&A”) is intended to help the readerunderstand Canterbury Park Holding Corporation, our operations and our presentbusiness environment.  This MD&A isprovided as a supplement to — and should be read in conjunction with — ourconsolidated financial statements and the accompanying notes to the financialstatements (the “Notes”).

 

**STRATEGICOVERVIEW**

 

CanterburyPark Holding Corporation was incorporated under the laws of Minnesota andacquired land and buildings to conduct pari-mutuel horse racing operations in March 1994.  The Racetrack is located in Shakopee,Minnesota, approximately 25 miles southwest of downtown Minneapolis.  In May 1994, we commenced year-roundhorse racing simulcast operations and hosted the first annual live race meetduring the summer of 1995.  Our liveracing operations are a seasonal business as we host live race meets each yearfrom  May until late summer.  We earn additional pari-mutuel revenue bytelevising our live racing to out-of-state racetracks around the country.  We also derive revenues from related servicesand activities, such as advertising, admissions, parking and publication salesand from other entertainment events and activities held at the Racetrack.

 

InApril 2000, we opened Canterbury Park’s Card Club (the “Card Club”).  The Card Club operates 24 hours a day, sevendays a week and is limited by Minnesota State law to a maximum of 50tables.  The Card Club currently offers34 tables of Poker Games and 16 tables of Casino Games.

 

Ourthree largest sources of revenues, Card Club operations, pari-mutuel operationsand concessions sales, generate cash revenues. Consequently, the Company is highly liquid and has not utilized its lineof credit in over five years.

 
| ** **                           | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| ***Financial  Performance Summary*** |       |     |       |     |       |     |       |     |       |     |       |
|                                 |       |     |       |     |       |     |       |     |       |     |       |
| Net Revenues                         |       | $        | 46,025     |     | $          | 52,880   |       | $        | 55,840     |     | $          | 54,920 |   | $ | 54,428 |   |
|                                 |       |     |       |     |       |     |       |     |       |     |       |
| Operating  Expenses                  |       | 45,310   |       | 48,723   |       | 50,660   |       | 49,474   |       | 47,661   |       |
|                                 |       |     |       |     |       |     |       |     |       |     |       |
| Income Before  Income Tax Expense    |       | 823      |       | 4,486    |       | 5,459    |       | 5,565    |       | 6,801    |       |
|                                 |       |     |       |     |       |     |       |     |       |     |       |
| Income Tax  Expense                  |       | (385     | )          | (1,865   | )          | (2,334   | )          | (2,512   | )          | (2,939   | )          |
|                                 |       |     |       |     |       |     |       |     |       |     |       |
| Net Income                           |       | $        | 438        |     | $          | 2,621    |       | $        | 3,125      |     | $          | 3,053 |   | $ | 3,862 |   |

 

The primary strengths ofCanterbury Park are our dedicated and capable staff, our first-class facilitiesand 380-acre property and the legal authority to offer our unique gamingproducts in our market area.

 

Our managementteam has extensive knowledge of the horse racing and card businesses and ourstaff has demonstrated a commitment to our customers.  We continue to implement improvements to our comprehensive customer satisfactionmeasurement and enhancement program.  Our management team has a good relationshipwith our workforce and is able to retain qualified personnel as demonstrated byour low turnover rate.

 

Our facilities are modernby racetrack industry standards, and we have invested heavily in the past fewyears to update and upgrade them to meet the needs of our customers andhorsemen.  Our 380-acre property with aprime location in one of the fastest-growing counties in Minnesota provides uswith great long-term growth and development opportunities.  Our Board of Directors is engaged in anevaluation of the highest and best potential uses of our underutilizedland.  Our long-term strategic directionis to enhance the character of our property as a unique gaming and entertainmentdestination.

 

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We have a strongcommitment to live racing and have been particularly successful in attractingnew customers and providing a quality live racing experience for our horseracing fans as well as the horsemen who participate in the live racing atCanterbury Park.  The success of the CardClub has greatly enhanced our ability to offer a more competitive pursestructure for live racing and has allowed us to make significant improvementsto our Grandstand and the backside stabling and training facilities.  As a result, we have been near capacity forhorses stabled at Canterbury Park during our recent live race meets.

 

We continue to believethat our best option for long-term growth is to gain authority under Minnesotalaw to offer additional gaming options,which would enhance horse racing with increased purses, provide growth anddevelopment opportunities and produce significant new tax revenues for stateand local governments.  The effort toobtain legislative authority for these initiatives has required, and willcontinue to require, substantial expenditures. Due to the inherent uncertainty of the outcome of legislativeactivities, there can be no assurance that any bills favorable to the Company’sinterests will be enacted into law, and it is possible, as a result of thelegislative process, that legislation directly or indirectly adverse to theCompany may be enacted into law.

 

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

 

Thepreparation of consolidated financial statements in conformity with generallyaccepted accounting principles in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the consolidated financial statements and the reported amountsof revenues and expenses during the reporting period.  We base our assumptions, estimates andjudgments on historical experience, current trends and other factors thatmanagement believes to be relevant at the time the consolidated financialstatements are prepared.  On a regularbasis, management reviews the accounting policies, assumptions, estimates andjudgments to ensure that our financial statements are presented fairly and inaccordance with generally accepted accounting principles.  However, because future events and theireffects cannot be determined with certainty, actual results could differ fromour assumptions and estimates, and such differences could be material.

 

Oursignificant accounting policies are included in Note 1 to our consolidatedfinancial statements.  We believe thefollowing critical accounting policies affect our more significant judgmentsand estimates used in the preparation of our consolidated financial statements:

 

*Propertyand Equipment -*Wehave significant capital invested in our property and equipment, whichrepresents approximately 77.3% of our total assets at December 31,2008.  We utilize our judgment in variousways including: determining whether an expenditure is considered a maintenanceexpense or a capital asset; determining the estimated useful lives of assets;and determining if or when an asset has been impaired.  Management periodically reviews the carryingvalue of property and equipment for potential impairment by comparing thecarrying value of these assets with their related expected future net cashflows.  Should the sum of the relatedexpected future net cash flows be less than the carrying value, we willdetermine 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, we have determined thatno impairment of these assets exists.

 

*StockBased Employee Compensation* - In December 2004, the Financial AccountingStandards Board (“FASB”) revised SFAS No.123, *Share Based Payment* (“SFAS 123(R)”).  This Statement superceded APB Opinion No. 25,which resulted in no stock-based employee compensation cost related to stockoptions if the options granted had an exercise price equal to the market valueof the underlying common stock on the date of grant.  SFAS 123(R) requires recognition ofemployee services provided in exchange for a share-based payment based on thegrant date fair market value.  TheCompany adopted SFAS 123(R) as of January 1, 2006.  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 elected to apply the modifiedprospective method of adoption of SFAS 123(R).

 

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*Regulation -*Our business can be materially impactedboth positively and negatively by legislative and regulatory changes, such asthose previously described.  Significantnegative changes resulting from these activities could result in an impairmentof our property and equipment in accordance with generally accepted accountingprinciples.  Additional informationregarding how our business can be impacted by regulatory and legislativechanges are included in Item 1 (vi) and Item 1 (vii),respectively, in this Form 10-K.

 

##### ***NEW ACCOUNTING PRONOUNCEMENTS***

##### * *

InSeptember 2006, the Financial Accounting Standards Board (“FASB”)issued Statement of Financial Accounting Standards (“SFAS”) No. 157 (“SFAS157”), *Fair Value Measurements,*which defines fair value, establishes a framework for measuring fair value, andexpands disclosures about fair value measurements.  SFAS 157 for financial assets and liabilitiesis effective for fiscal years beginning after November 15, 2007, and theCompany has adopted the standard for those assets and liabilities as of January 1,2008 and the impact of adoption had no impact on our financial position orresults of operation.  See Note 3 forfurther discussion.

 

InFebruary 2007, the FASB issued SFAS No. 159 (“SFAS 159”), *The Fair Value Option for Financial Assets andFinancial Liabilities* including an amendment of FASB Statement No. 115.  SFAS 159 provides companies with an option toreport selected financial assets and financial liabilities at fairvalue.  Unrealized gains and losses on items for which the fair valueoption has been elected are reported in earnings at each subsequent reportingdate. SFAS 159 becameeffective for fiscal years beginning after November 15, 2007.  We have elected not to implement the fairvalue option with respect to any existing assets or liabilities; therefore, theadoption of SFAS 159 had no impact on our financial position or results ofoperations.

 

InDecember 2007, the FASB issued SFAS No. 141(revised) (“SFAS141(R)”), *Business Combinations*.  SFAS 141(R) applies to all businesscombinations. Under SFAS 141(R), an entity is required to recognize the assetsacquired, liabilities assumed, contractual contingencies, and contingentconsideration at their fair values on the acquisition date. We are required toadopt this statement starting in 2009 and it is to be applied to businesscombinations occurring in 2009 and after. Early adoption of this statement isprohibited.  The Company will evaluatethe impact the adoption of SFAS No. 141 (R) will have on anyfuture business combinations.

 

**CONTINGENCIES**

 

Inconnection with the purchase of the Racetrack, the Company entered into an EarnOut Promissory Note dated March 29, 1994. In accordance with the Earn OutNote, if (i) off-track betting becomes legally permissible in theState of Minnesota and (ii) we begin to conduct off-track bettingwith respect to or in connection with its operations, we will be required topay to the IMR Fund, L.P. the greater of $700,000 per operating year asdefined, or 20% of the net pretax profit as defined, for each of five operatingyears.  At this time, we believe that thelikelihood that these two conditions will be met and that we will be requiredto pay these amounts is remote.  At thedate (if any) that these two conditions are met, the five minimum paymentswill be discounted back to their present value and the sum of those discountedpayments will be capitalized as part of the purchase price in accordance withgenerally accepted accounting principles. The purchase price will be further increased if payments become dueunder 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 byus.  Remaining payments would be made within90 days of the end of each of the next four operating years.

 

TheCompany is periodically involved in various claims and legal actions arising inthe normal course of business. Management believes that the resolution of any pending claims and legalactions at December 31, 2008 and as of the date of this report will nothave a material impact on the consolidated financial statements.

 

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**OPERATIONSREVIEW**

 

###### ***YEARENDED DECEMBER 31, 2008 COMPARED TO YEAR ENDED DECEMBER 31, 2007***

###### * *

**OPERATINGREVENUES**

 

Totalnet operating revenues for the year ended December 31, 2008 were $46.0million, a decrease of $6,854,149, or 13.0%, compared to total operatingrevenues of $52.9 million for the year ended December 31, 2007.  Total Card Club revenues decreased 15.4%,pari-mutuel revenues decreased 12.5% and concession revenues remainedrelatively unchanged in fiscal 2008 compared to fiscal 2007.   Discussions of pari-mutuel and Card Clubrevenues follow.

 
| ** **                                  | ** ** | **Year Ended  12/31/08** | ** ** | **Year Ended  12/31/07** | ** ** |
|---------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| **SUMMARY  OF PARI-MUTUEL OPERATING DATA:** | ** ** | ** **               | ** ** | ** **               | ** ** |
| ** **                                  | ** ** | ** **               | ** ** | ** **               | ** ** |
| **Racing  Days**                            | ** ** | ** **               | ** ** | ** **               | ** ** |
| Simulcast only  days                        |       | 297                      |       | 296                      |       |
| Live and  simulcast days                    |       | 67                       |       | 68                       |       |
| **Total  Racing Days**                      |       | 364                      |       | 364                      |       |
| **On-Track  Handle**                        | ** ** | ** **               | ** ** | ** **               | ** ** |
| Simulcast handle  on non-live race days     |       | $                        | 31,924,000 |                     | $          | 37,906,000 |   |
|                                        |       |                     |       |                     |       |
| Simulcast handle  on live race days         |       | 14,001,000               |       | 15,912,000               |       |
| Total simulcast  handle                     |       | 45,925,000               |       | 53,818,000               |       |
|                                        |       |                     |       |                     |       |
| Live racing  handle                         |       | 13,848,000               |       | 15,375,000               |       |
| **Total  On-Track Handle**                  |       | 59,773,000               |       | 69,193,000               |       |
|                                        |       |                     |       |                     |       |
| **Out-of-state  Live Handle**               |       | 19,790,000               |       | 19,572,000               |       |
| **Total  Handle**                           |       | $                        | 79,563,000 |                     | $          | 88,765,000 |   |
| **On-Track  Average Daily Handle**          | ** ** | ** **               | ** ** | ** **               | ** ** |
| Simulcast only  days                        |       | $                        | 107,000    |                     | $          | 128,000 |   |
| Live and  simulcast days                    |       | 416,000                  |       | 460,000                  |       |

 

Pari-mutuelrevenues include commission and breakage revenues on live on-track andsimulcast racing, fees received from out-of-state racetracks for wagering onour live races and proceeds from uncashed winning tickets.  Pari-mutuel revenues decreased to $13.3million from $15.2 million in 2007, primarily reflecting a decrease insimulcast and on-track live racing handle in 2008 compared to 2007.

 

Total handle wagered onsimulcast races in 2008 decreased $7,893,000, or 14.6%, compared to 2007.  Lower patron wagering can be partiallyattributed to the financial crisis and economic downturn that occurred in2008.  In addition, growing competitionfrom illegal Internet wagering in the state of Minnesota, and the opening ofNMHI’s racetrack and simulcasting facility in April of 2008 has resultedin lower handle.  Finally, handlecontinued to decline as a result of the legislation that went into effect inMinnesota on October 1, 2007 that prohibited indoor smoking in publicplaces such as Canterbury Park.

 

On-track live handledecreased by $1,527,000, or 9.9%, for the 2008 live meet compared to the livemeet in 2007.  Lower patron wagering canbe attributed to the financial crisis and economic downturn that occurred in2008.  Also, the decrease in on-tracklive handle was a result of the Company offering 15 fewer races to achieve thedesired purse structure.

 

Wagering at out-of-statetracks on races conducted at the Racetrack during the 2008 live meet increased$218,000, or 1.1%, compared to the 2007 meet primarily due to the return of theClaiming Crown in 2008.

 

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Revenuesrecognized on proceeds from winning pari-mutuel tickets which were notpresented for payment within one year of the end of the respective race meetsdecreased approximately $34,000 in 2008 compared to 2007, primarily due toreduced amounts wagered on simulcast horse races.

 
| **SUMMARY OF CARD CLUB REVENUES:** | ** ** | **Year Ended  12/31/08** | ** ** | **Year Ended  12/31/07** | ** ** |
|------------------------------------|------------|--------------------------|------------|--------------------------|------------|
|                               |       |                     |       |                     |       |
| Poker Games                        |       | $                        | 15,610,000 |                     | $          | 17,753,000 |   |
| Casino Games                       |       | 7,459,000                |       | 9,740,000                |       |
| Total Collection  Revenue          |       | 23,069,000               |       | 27,493,000               |       |
|                               |       |                     |       |                     |       |
| Other Revenue                      |       | 1,134,000                |       | 1,126,000                |       |
| Total Card Club  Revenue           |       | $                        | 24,203,000 |                     | $          | 28,619,000 |   |
|                               |       |                     |       |                     |       |
| Number of Days  Offered            |       | 364                      |       | 364                      |       |
| Average Revenue  per Day           |       | $                        | 66,500     |                     | $          | 78,600 |   |

 

The primary source ofCard Club revenue is a percentage of the wagers received from the players ascompensation for providing the Card Club facility and services, referred to as “collectionrevenue”.  Other Revenue presented aboveincludes fees collected for the administration of tournaments and amountsearned as reimbursement for the administrative costs of maintaining the jackpotfunds.  Card Club revenues represent52.5% and 54.0% of net revenues for 2008 and 2007, respectively.

 

TheCard Club is divided into two areas, the poker area and the casino gamesarea.  The average daily collectionamount per game is dependent upon the number of tables utilized to offer thegame.  Patron demand determines thenumber of tables to be used for a specific game.

 

TotalCard Club revenue decreased $4,416,000, or 15.4%, compared to 2007.  The decrease in Card Club revenue is duepartially to the decrease in casino games revenue of $2,281,000, or 23.4%, in2008 over 2007.  Casino games revenue hasdecreased as a result of the financial crisis and economic downturn thatoccurred in 2008.  Additionally, thedecrease can be partially attributed to the opening of NMHI’s card room in June of2008.  Finally, casino games revenue hascontinued to decline as a result of the legislation that went into effect inMinnesota on October 1, 2007 that prohibited indoor smoking in publicplaces such as Canterbury Park.  Inaddition, poker revenue decreased $2,143,000, or 12.0%, in 2008 over 2007.  The decrease in poker games revenue can alsobe attributed to the economic downturn that occurred in 2008.  In addition, the opening of NMHI’s card roomhas contributed to this decrease.

 

We expect thatcompetition from NMHI’s harness racetrack, illegal Internet wagering, andtribal casinos will continue to put pressure on Card Club operating revenues infuture periods.  As a result, we continueto search for opportunities to make Canterbury Park the most attractivealternative when our customers want to wager on card games.

 

Concession revenuesremained relatively stable in 2008, $5,968,000 compared to $6,077,000 in 2007,due to slight price increases and increased group sale revenue, offset bydecreased patronage, and related sales, to our Card Club.

 

The Company experienced adecrease in admission and parking revenues due to more race day promotionsfeaturing discounted admission being offered. Additionally, parking revenues declined due to decreased patronage toour card room.  Publication salesrevenues decreased due to the decrease in the amount of pari-mutuel wagering.

 

Otheroperating revenue decreased $273,000, or 13.5%, to $1,745,000 in fiscal year2008 compared to 2007.  The decrease in2008 was due primarily to a decrease in the corporate sponsorships andadvertising revenues of $94,000 and a decrease in cash services fees of$109,000 resulting from decreased patronage in 

 

 

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theCard Club.  Promotional allowancesdecreased $40,000, or 14.8%, to $229,000 in 2008, also as a result of decreasedpatronage to Card Club.

 

**OPERATING EXPENSES**

 

Total operating expensesdecreased approximately $3,413,000, or 7.0%, to $45,310,000 in 2008, from $48,723,000in 2007 primarily due to decreases in purses, salaries and benefit costs,advertising and marketing and insurance. Many of these decreases resulted from a cost reduction strategyimplemented in 2008.  See below for adetailed quantification of each of these items. Total operating expenses as a percentage of net revenues increased to98.4% from 92.1% in 2007.  We experienceda considerable decrease in pari-mutuel and card club revenues in 2008.  As a result, despite decreases in variablepari-mutuel expenses, salaries and benefits, and purse expenses, operatingexpenses became a larger percentage of total revenues.

 

Totalpurse expense decreased $1,073,000, or 12.8%, in 2008 compared to 2007 aspresented in the table below.  Minnesotalaw requires us to allocate a portion of funds received from betting in theCard Club and wagering on simulcast and live horse races for future payment aspurses for live horse races or other uses of Minnesota’s horsepersons’associations.  Purse expense relates tocard club, simulcast, and live racing.  Adescription of how the purse expense is calculated for these three expenses isgiven below.  The decline in Card Clubrevenues in 2008 compared to 2007 resulted in the decreases in Card Club purseand MBF expense shown in the table below. Total purse expense associated with simulcast racing decreased in 2008compared to 2007 due to lower wagering levels. We experienced a slight increase in live racing purse expense, which isattributable to the return of the Claiming Crown in 2008.

 
| ** **       | ** ** | **Purse Expense** | ** ** | **Minnesota Breeders’ Fund Expense** | ** ** |
|------------------|------------|-------------------|------------|-------------------------------------------|------------|
| ** **       | ** ** | **2008**          | ** ** | **2007**                                  | ** ** | **2008** | ** ** | **2007** | ** ** |
| Card Club        |       | $                 | 3,168,000  |                                      | $          | 3,864,000 |   | $ | 360,000 |   | $ | 429,000 |   |
|             |       |              |       |                                      |       |   |   |   |   |
| Simulcast Racing |       | 2,578,000         |       | 2,976,000                                 |       | 510,000 |   | 600,000 |   |
|             |       |              |       |                                      |       |   |   |   |   |
| Live Racing      |       | 1,526,000         |       | 1,505,000                                 |       | 138,000 |   | 154,000 |   |
| Total            |       | $                 | 7,272,000  |                                      | $          | 8,345,000 |   | $ | 1,008,000 |   | $ | 1,183,000 |   |

 

UnderMinnesota law, the Company is required to pay 10% of the first $6 million ofgross Card Club revenues towards purses for live horse racing at the Racetrack.  After meeting the $6 million threshold, theCompany must pay 14% of gross Card Club revenues as purse monies.  Of funds allocated for purses, the amountspaid are allocated 90% to the purse funds and 10% to the MBF.

 

Theamounts paid to the purse fund for simulcast racing differ depending uponwhether the simulcast wagering occurs during the “Racing Season,” a statutorilydefined 25-week period beginning in early May each year, or outside of theRacing Season.  We paid an average of5.61% of handle to the purse fund in 2008, compared to 5.53% in 2007.  We pay 5.50% of pari-mutuel simulcastcommission revenues to the MBF; consequently, lower revenues result in lowerMBF expense.

 

Minnesotalaw provides that a minimum of 8.4% of the on-track live racing handle be paidto the purse fund.  The amount paid tothe purse fund for wagers at out-of-state racetracks is 50% of the net of feescollected less costs incurred to provide the uplink signal.  We pay 1.0% of on-track live handle to theMBF.

 

Wealso experienced a reduction in host fees of $230,000, or 11.2%, in 2008compared to 2007 due to lower wagering experienced in 2008 compared to 2007.

 

Salaryand benefit expenses decreased by $1,460,000, or 6.7%, for the twelve monthsended December 31, 2008 compared to the twelve months ended December 31,2007.  The decrease in salaries andbenefits expense is primarily attributable to a reduction-in-force initiativethat was implemented during 2008. 

 

 

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Wagesdirectly related to full-time and non full-time employees decreased $388,000due to general efforts to control labor costs in that area.  In addition, the cost of providing health andmedical benefits to our employees decreased by $200,000 in 2008 compared to2007 as a result of this initiative.

 

Depreciation expenseincreased $142,000, or 7.1%, in 2008 compared to 2007 and reflects significantinvestments in our facilities during the past several years.  Beginning in late 2004, we have continuallyadded improvements to the stable area and training facilities.  We have made various other investments inbuilding improvements and furniture, fixtures and equipment in both 2008 and2007.

 

Utilities expensedecreased $135,000, or 8.7%, in 2008 primarily due to savings related to thepurchase of a building management system in 2008.

 

TheCompany experienced a decrease in advertising and marketing expenses of$100,000 primarily due to focused efforts on expense reduction in 2008 comparedto 2007.

 

Insuranceexpense decreased $321,000, or 33.5%, in 2008 compared to 2007.  The decrease is attributable to ratedecreases, lower volumes of business activity and a decrease in labor costs forthe Company in 2008.

 

Net other incomedecreased $221,000, or 67.2%, in 2008 compared to 2007.  This decrease is primarily attributable to a$213,000 decrease in interest income on our primary bank account balance during2008.  The average balance in our primarycash account decreased throughout 2008 compared to 2007 and the interest rateearned on those balances decreased from 3.29% at the end of 2007 to 0.15% atthe end of 2008.

 

Income tax expense as apercentage of pre-tax income increased to 46.8% for the year ended December 31,2008 from 41.6% for the year ended December 31, 2007.  The increase is primarily attributable to areduced level of income before taxes while non-deductible lobbying expenses in2008 remained relatively consistent with 2007.

 

As a result of all of theabove, net income decreased $2,183,000, or 83.2%, to $438,000 for the yearended December 31, 2008 compared to $2,621,000 for the year ended December 31,2007.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

At December 31,2008, we had cash and cash equivalents of $3.7 million compared to $7.0 millionat December 31, 2007.  This$3,300,000 decrease consists of $1.6 million net cash provided by operatingactivities, offset by $2.3 million net cash used in investing activities and$2.6 million net cash used in financing activities.  In addition, as of December 31, 2008, wehad $5.0 million of capacity under a commercial revolving credit line as partof a general credit and security agreement with Bremer Bank that will expire onJune 30, 2009.  We had no borrowingsunder the credit line in 2008 or 2007.

 

Our three largest sourcesof revenue, pari-mutuel wagering, card club operations and concessions, are allbased on cash transactions. Consequently, we have significant inflows of cash on a daily basis.  We designate cash balances which will berequired to satisfy certain short-term liabilities such as progressivejackpots, the player pool and amounts due horsemen for purses and awards as “restricted.”

 

The Company’s CasinoGames are required by law to be “unbanked”. “Unbanked” refers to a wagering system or game where wagers “lost” or “won”by the host are accumulated into a player pool liability for purposes ofenhancing the total amount paid back to players in any other card game.  The Company may only serve as custodian ofthe player pool.  It may not have anactive interest in any card game and does not recognize net “wins” or “losses”as revenue.  The Company is required toreturn accumulated player pool funds to the players through giveaways,promotional items, prizes or by other means. The player pool liability was approximately $294,000 at December 31,2008 compared to $833,000 at December 31, 2007.

 

The Card Club offersprogressive jackpots for Poker games. Amounts collected for these jackpot funds are accrued as liabilitiesuntil paid to winners.  At December 31,2008, accrued jackpot funds totaled 

 

 

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approximately $636,000compared to $742,000 at December 31, 2007. The MRC regulates the operation of the player pool and progressivejackpot pools.  These liabilities havethe potential for significant fluctuation on a daily basis.

 

All games in the CardClub are played using chips.  The valueof chips issued and outstanding, referred to as the “outstanding chipliability,” was approximately $189,000 at December 31, 2008, compared to$248,000 at December 31, 2007.  Thisliability has the potential for significant fluctuation on a daily basisdepending upon the demand for chip redemptions and sales.

 

Oursecond largest operating expense item is purse expense.  Pursuant to an agreement with the MHBPA, wetransferred into a trust account or paid directly to the MHBPA approximately$6,534,000 and $7,575,000 in purse funds for the years ended December 31,2008 and 2007, respectively.  MinnesotaStatutes specify that amounts transferred into trust are the property of thetrust and not the Company.  Unpaid pursefund obligations due the MHBPA were $48,251 and $56,951 at December 31,2008 and 2007, respectively.  Theweighted average interest rates on any purses accrued but not transferred intothe trust were 4.50% and 7.25% at December 31, 2008 and 2007, respectively.

 

Unrestrictedcash balances at December 31, 2008 were $3,745,731 compared to $7,050,389at December 31, 2007.  The Companybelieves that the funds available in its cash accounts, amounts available underthe general credit and security agreement, along with funds generated fromoperations, will be sufficient to satisfy its liquidity and capital resourcerequirements for regular operations for the foreseeable future.

 

*CASHFLOWS FROM OPERATING ACTIVITIES*

 

Netcash provided by operations during the year ended December 31, 2008 was$1,648,538, which resulted primarily from net income of $438,180, depreciationof $2,141,023, and a decrease in restricted cash of $771,340, offset by adecrease in accounts payable and accrued wages and payroll taxes of $846,969and a decrease in card club accruals of $724,583.  The decrease in restricted cash and card clubaccruals was primarily as a result of an increase in player promotions thatwere offered in 2008.

 

Net cash provided byoperations during the year ended December 31, 2007 was $4,608,025, whichresulted primarily from net income of $2,620,740, depreciation of $1,999,006,and an increase in card club accruals of $340,433, offset by a decrease inincome taxes payable of $321,512.  Cardclub accruals increased primarily due to a reduction in promotions that wereoffered in 2007.  The decrease in incometaxes payable was a result of the Company having decreased net income in 2007,resulting in overpayments of income tax.

 

#### *CASH FLOWS FROMINVESTING ACTIVITIES*

#### * *

Cash used in investingactivities for the year ended December 31, 2008 of $2,332,048 resultedprimarily from the purchase of a building management system and upgrades to thegrandstand building and Card Club.  Inaddition, in 2008, the Company purchased short-term investments of $200,000that will mature at various dates in 2009.

 

Cash used in investingactivities for the year ended December 31, 2007 totaled $2,138,871 andprimarily reflected capital improvements to buildings and land, including thebackside barns and a mutuel island remodel, and additions to furniture andequipment, including new boilers, digital video equipment and a player trackingsystem in the Card Club.

 

###### *CASH FLOWS FROM FINANCING ACTIVITIES*

###### * *

Cashused in financing activities was $2,621,148 for the year ended December 31,2008 compared to cash used in financing activities of $1,164,321 for the yearended December 31, 2007. The 2008 net cash outflows resulted primarilyfrom a $.25 per share cash dividend totaling $1,007,173 paid in July 2008.  In addition, throughout 2008 and pursuant toa Stock Repurchase Plan approved in January 2008, the Company repurchased216,543 shares of common stock at an average price of $8.71 per share for atotal cost of $1,886,034.  These outflowswere partially offset by proceeds of $250,324 received upon the issuance of 

 

 

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commonstock due to the exercise of stock options and shares of common stock purchasedby employees pursuant to our Employee Stock Purchase Plan and the relatedexcess tax benefit of $21,735.

 

Netcash used in financing activities was $1,164,321 for the year ended December 31,2007 compared to cash used in financing activities of $1,066,648 for the yearended December 31, 2006. The 2007 net cash outflows resulted primarilyfrom a $.25 per share cash dividend totaling $1,027,696 paid in July 2007.  In addition, during the second half of 2007and pursuant to a Stock Repurchase Plan approved in November 2006, theCompany repurchased 46,950 shares of common stock at an average price of $11.59per share for a total price of $544,110. These outflows were partially offset by proceeds of $338,934 receivedupon the issuance of common stock due to the exercise of stock options andshares of common stock purchased by employees pursuant to our Employee StockPurchase Plan and the related excess tax benefit of $68,551.

 

**OFF-BALANCE SHEET ARRANGEMENTS**

 

TheCompany currently has no off-balance sheet arrangements and has no intent toenter into any such agreements in the near future.

 

**COMMITMENTSAND CONTRACTUAL OBLIGATIONS**

 

In March 2008, theCompany entered into a six-year totalizator service agreement with Scientific GamesInc.  Pursuant to the agreement,Scientific Games provides totalizator equipment and computer programs whichrecord and process all wagers and calculate odds and payoffs.  In October 2008, the Company enteredinto a four-year service agreement to outsource its informationtechnology (IT) function.  Amountscharged to operations under these agreements for the years ended December 31,2008 and 2007 were approximately $377,000 and $315,000, respectively.

 

TheCompany has entered into operating leases for rental of office equipment andequipment to print certain publications. Amounts charged to operations under these agreements for the years endedDecember 31, 2008 and 2007 were approximately $85,000 and $94,000,respectively.  All such leases expire onor before April 30, 2011.

 

Since December 31,2008, there have been no material changes outside the ordinary course ofbusiness to our contractual obligations as set forth above.   As of December 31, 2008, we had noborrowings pursuant to our line of credit and were not party to capital leaseobligations, significant purchase obligations or other long-term obligations.

 

**FORWARD-LOOKINGSTATEMENTS**

 

From time to time, inreports filed with the Securities and Exchange Commission, in press releases,and in other communications to shareholders or the investing public, we maymake forward-looking statements concerning possible or anticipated futurefinancial performance, prospective business activities or plans which aretypically preceded by words such as “believes,” “expects,” “anticipates,” “intends”or similar expressions.  For suchforward-looking statements, we claim 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 affect our actual results and cause actual results todiffer materially 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, or other forms of wagering, competition fromother sports and entertainment options, costs associated with our efforts toobtain legislative authority for additional gaming options, increases incompensation and employee benefit costs, increases in the percentage ofrevenues allocated for purse fund payments, higher than expected expenserelated to new marketing initiatives, the impact of wagering products andtechnologies introduced by competitors, legislative and regulatory decisionsand changes, the general health of the gaming sector, and other factors thatare beyond our ability to control or predict.

 

 

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**Item7A.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

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

 

 

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**Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

(a)           Financial Statements

 

Thefollowing financial statements of the Company are set forth on pages 29through 47 of the Form 10-K:

 
| ** **                                                                                                            | **Page** |
|-----------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                  |     |
| Management’s  Report on Company’s Internal Control over Financial Reporting                                 | 29       |
|                                                                                                                  |     |
| Report of Independent  Registered Public Accounting Firm                                                              | 30       |
|                                                                                                                  |     |
| Consolidated Balance  Sheets as of December 31, 2008 and 2007                                                    | 31       |
|                                                                                                                  |     |
| Consolidated  Statements of Operations for the years ended December 31, 2008 and 2007                            | 32       |
|                                                                                                                  |     |
| Consolidated  Statements of Changes in Stockholders’ Equity for the years ended  December 31, 2008 and 2007 | 33       |
|                                                                                                                  |     |
| Consolidated Statements of  Cash Flows for the years ended December 31, 2008 and 2007                            | 34       |
|                                                                                                                  |     |
| Notes to  Consolidated Financial Statements for the years ended December 31, 2008  and 2007                      | 35       |

 

 

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**MANAGEMENT’S REPORT ON COMPANY’S INTERNAL CONTROL OVERFINANCIAL REPORTING**

 

Management isresponsible for establishing and maintaining an adequate system of internalcontrol over financial reporting of the Company.  This system is designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with accountingprinciples generally accepted in the United States of America.

 

The Company’sinternal control over financial reporting includes those policies andprocedures that (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the Company; (ii) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the Company are being madeonly in accordance with authorizations of management and directors of theCompany; (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of theCompany’s assets that could have a material effect on the financial statements.

 

Because of itsinherent limitations, internal control over financial reporting can onlyprovide reasonable assurance and may not prevent or detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

Managementconducted an evaluation of the effectiveness of the system of internal controlover financial reporting as of December 31, 2008.  In making this evaluation, management usedthe criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission (COSO) in *InternalControl — Integrated Framework. *Basedon management’s evaluation and those criteria, management concluded that theCompany’s system of internal control over financial reporting was effective asof December 31, 2008.

 

This annual reportdoes not include an attestation report of the company’s registered publicaccounting firm regarding internal control over financial reporting.  Management’s report was not subject toattestation by the Company’s registered public accounting firm pursuant to rules ofthe Securities and Exchange Commission that permit the Company to provide onlymanagement’s report in this annual report.

 

| Date: March 31,  2009 |   | /s/ Randall D. Sampson                      |
|----------------------------|--------|---------------------------------------------|
|                       |   | Randall D. Sampson                          |
|                       |   | President and Chief  Executive Officer      |
|                       |   | Canterbury Park Holding  Corporation        |
|                       |   |                                        |
|                       |   |                                        |
| Date: March 31,  2009 |   | /s/ David C. Hansen                         |
|                       |   | David C. Hansen                             |
|                       |   | Vice President and  Chief Financial Officer |
|                       |   | Canterbury Park Holding  Corporation        |

 

Further discussionof the Company’s internal controls and procedures is included in Item 9A(T) ofthis report, under the caption “Controls and Procedures.”

 

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Board of Directorsand Stockholders of

Canterbury Park HoldingCorporation

Shakopee, Minnesota

 

We have audited theaccompanying consolidated balance sheets of Canterbury Park Holding Corporationand subsidiaries (the “Company”) as of December 31, 2008 and 2007,and the related consolidated statements of operations, stockholders’ equity,and cash flows for each of the two years in the period ended December 31,2008.  These consolidated financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon the consolidated financial statements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement.  The Companyis not required to have, nor were we engaged to perform, an audit of itsinternal control over financial reporting.  Our audits includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’s internalcontrol over financial reporting.  Accordingly, we express no suchopinion.  An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In ouropinion, such consolidated financial statements present fairly, in all materialrespects, the financial position of Canterbury Park Holding Corporation andsubsidiaries as of December 31, 2008 and 2007, and the results of theiroperations and their cash flows for each of the two years in the period ended December 31,2008, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

Deloitte &Touche LLP

 

 

Minneapolis, Minnesota

March 31, 2009

 

 

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** **

**CANTERBURYPARK HOLDING CORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATEDBALANCE SHEETS**

**DECEMBER****31, 2008 AND 2007**

 
| ** **                                                                                                                         | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                                                                               |       |       |       |       |       |
| **ASSETS**                                                                                                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                                                                               |       |       |       |       |       |
| CURRENT ASSETS                                                                                                                     |       |       |       |       |       |
| Cash                                                                                                                               |       | $          | 3,745,731  |       | $          | 7,050,389 |   |
| Restricted cash                                                                                                                    |       | 1,261,292  |       | 2,032,632  |       |
| Short-term  investments (Note 3)                                                                                              |       | 312,995    |       | 80,688     |       |
| Accounts  receivable, net of allowance of $10,000 and $46,400, respectively                                                        |       | 475,576    |       | 749,782    |       |
| Inventory                                                                                                                          |       | 213,682    |       | 169,801    |       |
| Prepaid expenses                                                                                                                   |       | 429,859    |       | 453,350    |       |
| Income taxes  receivable                                                                                                           |       | 566,436    |       | 215,594    |       |
| Deferred income  taxes (Note 4)                                                                                               |       | 286,200    |       | 295,900    |       |
| Total current  assets                                                                                                              |       | 7,291,771  |       | 11,048,136 |       |
|                                                                                                                               |       |       |       |       |       |
| LONG-TERM ASSETS                                                                                                                   |       |       |       |       |       |
| Deposits                                                                                                                           |       | 20,000     |       | 20,000     |       |
| Land, buildings  and equipment, net  (Note 2)                                                                                 |       | 24,931,900 |       | 25,037,636 |       |
|                                                                                                                               |       |       |       |       |       |
|                                                                                                                               |       | $          | 32,243,671 |       | $          | 36,105,772 |   |
|                                                                                                                               |       |       |       |       |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                                                                               |       |       |       |       |       |
| CURRENT  LIABILITIES                                                                                                               |       |       |       |       |       |
| Accounts payable                                                                                                                   |       | $          | 1,852,253  |       | $          | 2,209,639 |   |
| Card club  accruals                                                                                                                |       | 1,689,213  |       | 2,413,796  |       |
| Accrued wages  and payroll taxes                                                                                                   |       | 1,189,088  |       | 1,851,140  |       |
| Accrued interest  payable                                                                                                          |       |       |       | 5,196      |       |
| Due to  MHBPA (Note 1)                                                                                                        |       | 48,251     |       | 56,951     |       |
| Accrued property  taxes                                                                                                            |       | 513,816    |       | 491,630    |       |
| Payable to  horsepersons                                                                                                           |       | 95,217     |       | 162,931    |       |
| Total current  liabilities                                                                                                         |       | 5,387,838  |       | 7,191,283  |       |
|                                                                                                                               |       |       |       |       |       |
| DEFERRED INCOME  TAXES (Note 4)                                                                                               |       | 174,400    |       | 336,400    |       |
|                                                                                                                               |       |       |       |       |       |
| COMMITMENTS AND  CONTINGENCIES (Notes 9 and 10)                                                                               |       |       |       |       |       |
|                                                                                                                               |       |       |       |       |       |
| STOCKHOLDERS’  EQUITY (Notes 5 and 6)                                                                                    |       |       |       |       |       |
| Common stock,  $.01 par value, 10,000,000 shares authorized, 3,938,021 and 4,084,087,  respectively, shares issued and outstanding |       | 39,380     |       | 40,841     |       |
| Additional  paid-in capital                                                                                                        |       | 15,089,438 |       | 15,395,778 |       |
| Accumulated  earnings                                                                                                              |       | 11,552,615 |       | 13,141,470 |       |
| Total  stockholders’ equity                                                                                                   |       | 26,681,433 |       | 28,578,089 |       |
|                                                                                                                               |       |       |       |       |       |
|                                                                                                                               |       | $          | 32,243,671 |       | $          | 36,105,772 |   |

 

See notes to consolidatedfinancial statements.

 

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**CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**YEARS ENDED DECEMBER 31, 2008 AND2007**

 
| ** **                                            | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                  |       |       |       |       |       |
| OPERATING  REVENUES:                                  |       |       |       |       |       |
| Pari-mutuel                                           |       | $          | 13,342,050 |       | $          | 15,240,131 |   |
| Card Club                                             |       | 24,202,920 |       | 28,619,331 |       |
| Concessions                                           |       | 5,968,317  |       | 6,077,176  |       |
| Admissions and  parking                               |       | 602,972    |       | 726,941    |       |
| Publications                                          |       | 392,806    |       | 466,267    |       |
| Other operating  revenue                              |       | 1,745,198  |       | 2,018,571  |       |
| Total Revenues                                        |       | 46,254,263 |       | 53,148,417 |       |
| Less Promotional  allowances                          |       | (228,856   | )          | (268,861   | )          |
| Net Revenues                                          |       | 46,025,407 |       | 52,879,556 |       |
|                                                  |       |       |       |       |       |
| OPERATING  EXPENSES:                                  |       |       |       |       |       |
| Purses                                                |       | 7,271,833  |       | 8,344,707  |       |
| Minnesota  Breeders’ Fund                        |       | 1,008,396  |       | 1,183,487  |       |
| Host track fees                                       |       | 1,811,020  |       | 2,041,139  |       |
| Pari-mutuel  taxes                                    |       | 14,235     |       | 128,564    |       |
| Salaries and  benefits                                |       | 20,065,914 |       | 21,526,015 |       |
| Cost of  concessions and publication sales            |       | 3,318,263  |       | 3,455,449  |       |
| Depreciation                                          |       | 2,141,023  |       | 1,999,006  |       |
| Utilities                                             |       | 1,413,165  |       | 1,548,273  |       |
| Repairs,  maintenance and supplies                    |       | 1,167,958  |       | 1,213,330  |       |
| License fees and  property taxes                      |       | 833,981    |       | 810,018    |       |
| Advertising and  marketing                            |       | 1,493,401  |       | 1,592,930  |       |
| Insurance                                             |       | 636,068    |       | 957,075    |       |
| Other operating  expenses                             |       | 4,135,043  |       | 3,923,325  |       |
| Total Operating  Expenses                             |       | 45,310,300 |       | 48,723,318 |       |
|                                                  |       |       |       |       |       |
| OTHER (EXPENSE)  INCOME:                         |       |       |       |       |       |
| Interest expense                                      |       | (12,389    | )          | (3,863     | )          |
| Interest income                                       |       | 120,162    |       | 333,066    |       |
| Net Other Income                                      |       | 107,773    |       | 329,203    |       |
|                                                  |       |       |       |       |       |
| INCOME BEFORE  INCOME TAX EXPENSE                     |       | 822,880    |       | 4,485,441  |       |
|                                                  |       |       |       |       |       |
| Income tax  expense  (Note 4)                    |       | (384,700   | )          | (1,864,701 | )          |
|                                                  |       |       |       |       |       |
| NET INCOME                                            |       | $          | 438,180    |       | $          | 2,620,740 |   |
|                                                  |       |       |       |       |       |
| WEIGHTED AVERAGE  NUMBER OF COMMON SHARES OUTSTANDING |       | 3,983,359  |       | 4,062,866  |       |
|                                                  |       |       |       |       |       |
| BASIC NET INCOME  PER COMMON SHARE (Note 7)      |       | $          | .11        |       | $          | .65 |   |
|                                                  |       |       |       |       |       |
| DILUTED NET  INCOME PER COMMON SHARE (Note 7)    |       | $          | .11        |       | $          | .62 |   |

 

See notes to consolidatedfinancial statements.

 

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**CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

**YEARS ENDED DECEMBER 31, 2008 AND2007**

 
| ** **                                                                    | ** **   | **Number  of Shares** | ** **   | **Common  Stock** | ** **   | **Additional   Paid-in   Capital** | ** **   | **Accumulated Earnings** | ** **   | **Total**    | ** **   |
|-------------------------------------------------------------------------------|--------------|-----------------------|--------------|-------------------|--------------|------------------------------------|--------------|--------------------------|--------------|--------------|--------------|
| ***Balance  at December 31, 2006***                                      |         | 4,050,782             |         | $                 | 40,508       |                               | $            | 14,914,328               |         | $            | 11,904,736   |   | $ | 26,859,572 |   |
| *** ***                                                                  | *** *** | *** ***          | *** *** | *** ***      | *** *** | *** ***                       | *** *** | *** ***             | *** *** | *** *** | *** *** |
| Cash dividend  paid                                                           |         |                  |         |              |         |                               |         | (1,027,696               | )            | (1,027,696   | )            |
| Exercise of  stock options and issuance of restricted stock and stock options |         | 75,650                |         | 756               |         | 506,717                            |         |                     |         | 507,473      |         |
| Tax benefit of  stock option exercises                                        |         |                  |         |              |         | 103,413                            |         |                     |         | 103,413      |         |
| Common stock  repurchase                                                      |         | (46,950               | )            | (469              | )            | (187,331                           | )            | (356,310                 | )            | (544,110     | )            |
| Shares issued  under Employee Stock Purchase Plan                             |         | 5,105                 |         | 51                |         | 58,656                             |         |                     |         | 58,707       |         |
| Forfeited  restricted shares                                                  |         | (500                  | )            | (5                | )            | (5                                 | )            |                     |         | (10          | )            |
| Net income                                                                    |         |                  |         |              |         |                               |         | 2,620,740                |         | 2,620,740    |         |
|                                                                          |         |                  |         |              |         |                               |         |                     |         |         |         |
| ***Balance  at December 31, 2007***                                      |         | 4,084,087             |         | $                 | 40,841       |                               | $            | 15,395,778               |         | $            | 13,141,470   |   | $ | 28,578,089 |   |
|                                                                          |         |                  |         |              |         |                               |         |                     |         |         |         |
| Cash dividend  paid                                                           |         |                  |         |              |         |                               |         | (1,007,173               | )            | (1,007,173   | )            |
| Exercise of  stock options and issuance of restricted stock and stock options |         | 60,098                |         | 601               |         | 346,527                            |         |                     |         | 347,128      |         |
| Tax benefit of  stock option exercises                                        |         |                  |         |              |         | 52,506                             |         |                     |         | 52,506       |         |
| Common stock  repurchase                                                      |         | (216,543              | )            | (2,166            | )            | (864,006                           | )            | (1,019,862               | )            | (1,886,034   | )            |
| Shares issued  under Employee Stock Purchase Plan                             |         | 5,879                 |         | 59                |         | 48,678                             |         |                     |         | 48,737       |         |
| Shares issued  under Employee Stock Ownership Plan                            |         | 10,000                |         | 100               |         | 109,900                            |         |                     |         | 110,000      |         |
| Forfeited  restricted shares                                                  |         | (5,500                | )            | (55               | )            | 55                                 |         |                     |         |         |         |
| Net income                                                                    |         |                  |         |              |         |                               |         | 438,180                  |         | 438,180      |         |
|                                                                          |         |                  |         |              |         |                               |         |                     |         |         |         |
| ***Balance  at December 31, 2008***                                      |         | 3,938,021             |         | $                 | 39,380       |                               | $            | 15,089,438               |         | $            | 11,552,615   |   | $ | 26,681,433 |   |

 

See notes to consolidatedfinancial statements.

 

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**CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**YEARSENDED DECEMBER 31, 2008 AND 2007**

 
| ** **                                                                          | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Operating  Activities:**                                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                          |       | $          | 438,180    |       | $          | 2,620,740 |   |
| Adjustments to  reconcile net income tonet cash provided by operations:             |       |       |       |       |       |
| Depreciation                                                                        |       | 2,141,023  |       | 1,999,006  |       |
| Stock-based  compensation expense                                                   |       | 145,541    |       | 227,281    |       |
| Excess tax  benefit from exercise of stock options                                  |       | (21,735    | )          | (68,551    | )          |
| Loss on sale of  land, buildings & equipment                               |       | 1,986      |       | 10,526     |       |
| Decrease in  deferred income taxes                                                  |       | (99,795    | )          | (81,787    | )          |
| Decrease (increase)  in accounts receivable                                    |       | 274,206    |       | (190,636   | )          |
| Decrease (increase)  in restricted cash                                        |       | 771,340    |       | (117,575   | )          |
| (Increase)  decrease in other current assets                                        |       | (20,390    | )          | 270,746    |       |
| Increase in  income taxes receivable                                                |       | (350,842   | )          | (321,512   | )          |
| (Decrease)  increase in accounts payable and accrued wages & payroll taxes |       | (846,969   | )          | 154,340    |       |
| (Decrease)  increase in card club accruals                                          |       | (724,583   | )          | 340,433    |       |
| Decrease in  accrued interest                                                       |       | (5,196     | )          | (2,107     | )          |
| Increase in  accrued property taxes                                                 |       | 22,186     |       | 34,299     |       |
| Decrease in  payable to horsepersons                                                |       | (67,714    | )          | (183,848   | )          |
| Decrease in due  to MHBPA                                                           |       | (8,700     | )          | (83,330    | )          |
| Net cash  provided by operations                                                    |       | 1,648,538  |       | 4,608,025  |       |
|                                                                                |       |       |       |       |       |
| **Investing  Activities:**                                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Additions to  land, buildings and equipment                                         |       | (2,103,977 | )          | (2,144,144 | )          |
| Proceeds from  sale of equipment                                                    |       | 4,236      |       | 7,730      |       |
| Increase in  short-term investments                                                 |       | (232,307   | )          | (2,457     | )          |
| Net cash used in  investing activities                                              |       | (2,332,048 | )          | (2,138,871 | )          |
|                                                                                |       |       |       |       |       |
| **Financing  Activities:**                                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Proceeds from  issuance of common stock                                             |       | 250,324    |       | 338,934    |       |
| Common stock  repurchase                                                            |       | (1,886,034 | )          | (544,110   | )          |
| Cash dividend to  shareholders                                                      |       | (1,007,173 | )          | (1,027,696 | )          |
| Excess tax  benefit from exercise of stock options                                  |       | 21,735     |       | 68,551     |       |
| Net cash used in  financing activities                                              |       | (2,621,148 | )          | (1,164,321 | )          |
|                                                                                |       |       |       |       |       |
| Net (decrease)  increase in cash                                               |       | (3,304,658 | )          | 1,304,833  |       |
|                                                                                |       |       |       |       |       |
| Cash at  beginning of year                                                          |       | 7,050,389  |       | 5,745,556  |       |
|                                                                                |       |       |       |       |       |
| Cash at end of  year                                                                |       | $          | 3,745,731  |       | $          | 7,050,389 |   |
|                                                                                |       |       |       |       |       |
| **Supplemental  disclosure of non-cash investing activities:**                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Additions to  land, buildings and equipment fundedthrough accounts payable          |       | $          | 31,729     |       | $          | 94,198 |   |
|                                                                                |       |       |       |       |       |
| **Supplemental  disclosure of cash flow information:**                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income taxes  paid, net of refunds                                                  |       | $          | 775,000    |       | $          | 2,268,000 |   |

 

See notes to consolidatedfinancial statements.

 

 

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**CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

** **

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**YEARS ENDED DECEMBER 31, 2008 AND2007**

 

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

*Business* - Canterbury Park Holding Corporationwas incorporated on March 24, 1994. On March 29, 1994, the Company acquired all the outstandingsecurities of Jacobs Realty, Inc. (JRI) from Irwin Jacobs and IMRFund, L.P. (an investment fund for various pension plans and trusts).  JRI was merged into the Company, and theacquisition was accounted for under the purchase method of accounting wherebythe acquired assets and liabilities have been recorded at the Company’scost.  The primary asset of JRI wasCanterbury Downs Racetrack and the 325 acres of surrounding land.

 

On May 20,1994, the Company adopted a plan of Reorganization pursuant to which the soleshareholder of Canterbury Park Concessions, Inc. (CPC), and majorityshareholder of the Company, agreed to exchange his shares of CPC stock for198,888 shares of the Company’s common stock concurrent with the closing of apublic offering.  Pursuant to the Plan ofReorganization, CPC became a wholly owned subsidiary of the Company in August 1994when the Company completed the initial public offering of its commonstock.  This reorganization was treatedin a manner similar to a pooling of interests. Net proceeds received by the Company from the public offering wereapproximately $4,847,000, which along with additional borrowings under theCompany’s line of credit with the majority shareholder, were used to pay offthe remaining notes payable from the acquisition of JRI.

 

The consolidatedfinancial statements include the accounts of the Company, CPC and ShakopeeValley RV Park Acquisition Company, LLC after elimination of intercompanyaccounts and transactions.

 

*RevenueRecognition -*Our revenues are derived primarily from the operations ofa Card Club, pari-mutuel wagering on simulcast and live horse races, concessionsales and related activities.  Collectionrevenue from Card Club operations and pari-mutuel commission and fee revenuesare recognized at the time that the wagering process is complete.  Revenues related to wagering activities includingconcession and publication sales, and parking and admission fees are recognizedas revenue when the service has been performed or the product has beendelivered.

 

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

 

*RestrictedCash* — Restrictedcash represents refundable deposits and amounts due to horsemen for purses,stakes and awards, and amounts accumulated in card game progressive jackpotpools, the Player Pool and Poker Promotional Fund to be used to repay cardplayers in the form of promotions, giveaways, prizes, or by other means.

 

*UncashedWinning Tickets —*Pari-mutueltickets which are not cashed within one year of the end of the respective racemeet become the property of the Company. The Company records revenue associated with the uncashed winning ticketsat the time that, based on historical experience, management can reasonablyestimate the amount of additional winning tickets from a race meet that will bepresented for payment.

 

*Promotional Allowances —*The Companyoffers certain promotional allowances at no charge to patrons who participatein our player rewards program.  Theretail value of these promotional items is shown as a deduction from totalrevenues on the Company’s consolidated statements of operations.

 

 

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*Pari-mutuelTaxes —*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.

 

*Due toMinnesota Horsemen’s Benevolent and Protective Association, Inc. (“MHBPA”)* - The Minnesota Pari-Mutuel Horse RacingAct specifies that the Company is required to segregate a portion offunds (recorded as purse expense in the statements of operations),received from card club operations and wagering on simulcast and live horseraces, for future payment as purses for live horse races or other uses of thehorsepersons’ associations.  Pursuant toan agreement with the MHBPA, the Company has transferred into a trust accountor paid directly to the MHBPA, approximately $6,534,091 and $7,575,000 for theyears ended December 31, 2008 and 2007, respectively, related tothoroughbred races.  Minnesota Statutesspecify that amounts transferred into the trust account are the property of thetrust and not of the Company.  Theinterest rates on any purses accrued but not transferred into the trust were4.50% and 7.25% at December 31, 2008 and 2007, respectively.

 

*Impairmentof Long-Lived Assets -*Management of the Company periodically reviews the carrying value ofproperty and equipment for potential impairment by comparing the carrying valueof these assets with their related expected future net cash flows.  Should the sum of the related expected futurenet cash flows be less than the carrying value, management will determinewhether 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 aredepreciated on a straight-line basis over the estimated useful lives of theassets, generally 5 to 39 years.

 

# *CardClub Accruals —*Minnesota law allowsthe Company to collect amounts from patrons to fund progressive jackpot poolsin the Card Club.  These amounts, alongwith amounts earned by the player pool, promotional pools and the outstandingchip liability, are accrued as short-term liabilities at each balance sheetdate.

# * *

*IncomeTaxes* - Incometaxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities arerecognized for the estimated future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax ratesin effect for the year in which those temporary differences are expected toreverse.

 

The Companyadopted the provisions of FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes — aninterpretation of FASB No. 109, (*“FIN 48”), on January 1,2007.  FIN 48 clarifies the accountingfor uncertainty in income taxes recognized in an enterprise’s financialstatements in accordance with FASB Statement 109, *Accounting for Income Taxes,*and prescribes a recognitionthreshold and measurement process for financial statement recognition andmeasurement of a tax position taken or expected to be taken in a taxreturn.  FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition. Interest and penalties associated with uncertain income tax positionsare presented in income tax expense. The Company has not recorded anysignificant income tax related interest or penalties during any of the periodspresented.  Upon implementation, wedetermined all recorded benefits and income tax positions weremore-likely-than-not.  Therefore, nocumulative effect relating to the adoption of FIN 48 was recorded.  See Note 4 of notes to consolidatedfinancial statements for further discussion on income taxes.

 

*NetIncome Per Share*- Basic net income per common share is based on the weighted average number ofcommon shares outstanding during each year. Diluted net income per common share 

 

 

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takes into effectthe dilutive effect of potential common shares outstanding.  The Company’s only potential common sharesoutstanding are stock options and shares of unvested restricted stock.

 

*ComprehensiveIncome —*Statementof Financial Accounting Standards (“SFAS”) No. 130, *Reporting Comprehensive Income,*establishes standards forreporting and display of comprehensive income and its components in a full setof financial statements.  Comprehensiveincome includes all changes in stockholders’ equity except those resulting frominvestments by and distributions to owners. SFAS No. 130 is not currently applicable for the Company becausethe Company did not have any items of other comprehensive income in any of theperiods presented.

 

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

 

*StockBased Employee Compensation* - In December 2004, the Financial AccountingStandards Board (FASB) revised SFAS No.123, *Share Based Payment* (“SFAS 123(R)”).  This Statement superceded APB Opinion No. 25,which resulted in no stock-based employee compensation cost related to stockoptions if the options granted had an exercise price equal to the market valueof the underlying common stock on the date of grant.  SFAS 123(R) requires recognition ofemployee services provided in exchange for a share-based payment based on thegrant date fair market value.  In April 2005the effective date of SFAS 123(R) was deferred to the fiscal yearbeginning after June 15, 2005.  Consequently, the Company adopted SFAS 123(R) asof January 1, 2006.  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 elected to apply the modified prospective method of adoption of SFAS123(R).

 

SFAS 123(R) requires the use of a fair value based measurementmethod when granting stock options.  The Company selected the Black-Scholesmethod to measure the compensation cost for stock options.  The Black-Scholes method requires the use ofsignificant assumptions to estimate the fair value of the stock optionawards.  The expected term of the boardof director options is equivalent to the historical exercise experience forthese options.  The expected term of thekey employee options was the term of the option as the individuals haveexhibited a pattern of exercising options at or near the expiration date.  The expected volatility was calculatedprimarily with reliance on historical volatility rates.  TheCompany assumed a dividend yield equivalent to historical dividend rates overthe vesting period.  The risk-free rateutilized in the Black-Scholes calculations was the U.S. Constant MaturityTreasury Security for the period equivalent to the term of the option.

 

The fair value ofoptions granted under the 1994 Stock Plan during 2008 and 2007 was estimated onthe date of grant using the Black-Scholes option-pricing model with thefollowing weighted average assumptions and results:

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

 

For moreinformation on our stock-based compensation plans, see Note 6.

 

*NewAccounting Pronouncements* — In September 2006, the FinancialAccounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 157 (“SFAS 157”), *Fair Value Measurements,* which definesfair value, establishes a framework for measuring fair value, and expandsdisclosures about fair value measurements. SFAS 157 for financial assets and liabilities is effective for fiscalyears beginning after November 15, 2007, and the Company has adopted the 

 

 

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standard for those assets and liabilitiesas of January 1, 2008 and the impact of adoption had no impact on ourfinancial position or results of operation. See Note 3 for further discussion.

 

In February 2007, the FASB issuedSFAS No. 159 (“SFAS 159”), *TheFair Value Option for Financial Assets and Financial Liabilities*including an amendment of FASB Statement No. 115.  SFAS 159 provides companies with an option toreport selected financial assets and financial liabilities at fairvalue.  Unrealized gains and losses on items for which the fair valueoption has been elected are reported in earnings at each subsequent reportingdate. SFAS 159 becameeffective for fiscal years beginning after November 15, 2007.  We have elected not to implement the fairvalue option with respect to any existing assets or liabilities; therefore, theadoption of SFAS 159 had no impact on our financial position or results ofoperations.

 

In December 2007, the FASB issuedSFAS No. 141(revised) (“SFAS 141(R)”), *Business Combinations*. SFAS 141(R) applies to all business combinations. Under SFAS141(R), an entity is required to recognize the assets acquired, liabilitiesassumed, contractual contingencies, and contingent consideration at their fairvalues on the acquisition date. We are required to adopt this statementstarting in 2009 and it is to be applied to business combinations occurring in2009 and after. Early adoption of this statement is prohibited.  The Company will evaluate the impact theadoption of SFAS No. 141 (R) will have on any future businesscombinations.

 

2.               LAND, BUILDINGS AND EQUIPMENT

 

Land, buildingsand equipment consists of the following at December 31:

 
| ** **                           | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|
|                                 |       |        |       |        |       |
| Land                                 |       | $           | 6,673,076  |        | $          | 6,673,076 |   |
| Buildings and  building improvements |       | 19,668,994  |       | 18,174,151  |       |
| Furniture and  equipment             |       | 15,206,430  |       | 14,783,606  |       |
|                                 |       | 41,548,500  |       | 39,630,833  |       |
| Accumulated  depreciation            |       | (16,616,600 | )          | (14,593,197 | )          |
|                                 |       | $           | 24,931,900 |        | $          | 25,037,636 |   |

 

3.               FAIR VALUE

 

SFAS 157 definesfair value as the exchange price that would be received for an asset or paid totransfer a liability (an exit price) in the principal or most advantageousmarket for the asset or liability in an orderly transaction between marketparticipants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires anentity to maximize the use of observable inputs and minimize the use ofunobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used tomeasure fair value:

 

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

 

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

 

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

 

The Company utilizes themarket approach to measure fair value for its financial assets andliabilities.  The market approach uses prices and other relevantinformation generated by market transactions involving identical or comparableassets or liabilities.

 

 

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

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

 

4.     INCOME TAXES

 

A reconciliationbetween income taxes computed at the statutory federal income tax rate and theeffective tax rate is as follows:

 
| ** **                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|
|                                            |       |     |       |     |       |
| Federal tax  expense computed at statutory rate |       | $        | 279,800    |     | $          | 1,525,000 |   |
| Nondeductible  lobbying expense                 |       | 34,900   |       | 33,400   |       |
| State expense,  net of federal impact           |       | 61,500   |       | 298,000  |       |
| Other                                           |       | 8,500    |       | 8,301    |       |
|                                            |       | $        | 384,700    |     | $          | 1,864,701 |   |

 

Income tax expensefor the years ended December 31, 2008 and 2007 consists of the following:

 
| ** **                   | ** ** | **2008** | ** ** | **2007**  | ** ** |
|------------------------------|------------|----------|------------|-----------|------------|
| Current                      |       |     |       |      |       |
| Federal                      |       | $        | 418,500    |      | $          | 1,585,500 |   |
| State                        |       | 118,500  |       | 464,401   |       |
|                         |       | 537,000  |       | 2,049,901 |       |
| Deferred,  primarily Federal |       | (152,300 | )          | (185,200  | )          |
|                         |       | $        | 384,700    |      | $          | 1,864,701 |   |

 

Current and longterm temporary differences and tax carryforwards at December 31 are asfollows:

 
| ** **                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Current                         |       |     |       |     |       |
| Vacation accrual                |       | $        | 105,400    |     | $          | 128,400 |   |
| Player rewards  program accrual |       | 157,800  |       | 126,400  |       |
| Other                           |       | 23,000   |       | 41,100   |       |
| Net current  deferred tax asset |       | $        | 286,200    |     | $          | 295,900 |   |

 
| ** **                                       | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
| Long-Term                                        |       |     |       |     |       |
| Tax depreciation  greater than book depreciation |       | $        | (313,100   | )        | $          | (423,400 | ) |
| Deferred gain on  sale of land                   |       | (104,000 | )          | (104,000 | )          |
| Stock options                                    |       | 216,900  |       | 162,600  |       |
| Other                                            |       | 25,800   |       | 28,400   |       |
| Net long-term  deferred tax liability            |       | $        | (174,400   | )        | $          | (336,400 | ) |

 

We adopted theprovisions of FASB Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes*, on January 1, 2007.  FIN 48 clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with FASB Statement No. 109, *Accounting for Income Taxes*. FIN 48 also prescribes a recognition threshold and measurement attributefor the 

 

 

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financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return. Additionally, FIN 48 provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure and transition.  FIN 48 waseffective for the Company beginning January 1, 2007.  The adoption of FIN 48 had no effect on theamounts previously recognized for income taxes.

 

Interestand penalties associated with uncertain income tax positions are presented inincome tax expense. During the twelve monthsended December 31, 2008, we have not recognized expense for interest andpenalties and do not have any amounts accrued at December 31, 2008 and December 31,2007 respectively, for the payment of interest and penalties.

 

The Company is subjectto U.S. and Minnesota taxation.  TheCompany’s tax year for 2007 is subject to examination by the taxauthorities.  With few exceptions, theCompany is no longer subject to US federal, state, local or foreignexaminations by tax authorities for years before 2007.

 

5.     STOCKHOLDERS’ EQUITY

 

        *Stock Options:*

 

The Company’s 1994Stock Plan (the “Plan”) provides for the granting of awards in the form ofstock options, restricted stock, stock appreciation rights, and deferred stockto key employees and non-employees, including directors of and consultants tothe Company and any subsidiary, to purchase up to a maximum of 1,450,000 sharesof common stock.  Options that aregranted under the Plan may be either options that qualify as “incentive stockoptions” within the meaning of Section 422 of the Internal Revenue Code of1986, as amended (Incentive Stock Options), or those that do not qualifyas Incentive Stock Options (Non-Qualified Stock Options).  The Plan is administered by the Board ofDirectors, or a committee designated by the Board, which determines the personswho are to receive awards under the Plan, the type of award to be granted, thenumber of shares subject to each award and, if an option, the exercise price ofeach option.  The Plan also provides forformula grants of Non-Qualified Stock Options to non-employee directors of theCompany.

 

The Plan provides that payment of the exercise price may be made in theform of unrestricted shares of common stock already owned by the optionee.  The Company calculates the fair market valueof unrestricted shares as the average of the high and low sales prices on thedate of exercise.  See Note 6 below forfurther information regarding options granted under the Plan.

 

*EmployeeStock Purchase Plan:*

 

On April 3,1995, the Board of Directors adopted an Employee Stock Purchase Plan (the “ESPP”).  The ESPP is open to all employees of theCompany working more than 15 hours per week. The ESPP consists of one-year phases. The phases commence on October 1 of each year and under the termsof the plan, employees are allowed to set aside a portion of their payrollearnings to purchase shares of the Company’s common stock.  The purchase price is 95% of the fair marketvalue of the shares on the termination date of the phase.  The plan provides for the sale of up to350,000 shares.  The plan issued 5,879and 5,105 shares in 2008 and 2007, respectively.  The ESPP has issued a total of 234,484 sharessince the inception of the ESPP.

 

*401(k) Plan:*

 

On June 1,1998 the Company established a defined contribution savings plan for employeeswho had completed one year of service, as defined in the Plan document.  The defined contribution savings plan allowsfor employee compensation deferral contributions under Section 401(k) ofthe Internal Revenue Code and discretionary contributions by the Company.  Employer contributions charged to operationsin 2008 and 2007 were approximately $275,000 and $292,000, respectively.  In January 2009, the Company announcedit had suspended its employer contributions for fiscal 2009.

 

 

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*EmployeeStock Ownership Plan:*

 

In December 2004,the Company’s Board of Directors approved an Employee Stock OwnershipPlan (the “ESOP”) effective for calendar years beginning January 1,2004.  All eligible employees of theCompany participate in the ESOP after completing one full calendar year ofservice.  Contributions to the ESOP aredetermined by the Board of Directors and can be made in cash or shares of the Company’scommon stock.  Annual contributions areallocated to each participant based on compensation and vest in accordance witha seven year graded vesting schedule. Compensation expense for the ESOP is determined based on the averagefair value of shares on the date the Company commits to the contribution to theESOP.  For the purposes of earnings pershare, ESOP shares are included in weighted-average common shares outstandingat year-end as the shares are committed to be contributed on that date.  On February 12, 2008, the Companycommitted to contribute 10,000 shares of the Company’s common stock valued at$109,000.  The shares were issued in March 2008and were allocated to the accounts of eligible employees based upon their 2007compensation during the first quarter of 2008. On October 24, 2008, the Company announced it had suspended itsESOP contribution for fiscal 2008.  As ofthe date of this filing, the Company had taken no further action regardingpossible re-introduction of the contribution.

 

*StockRepurchase Plan:*

 

On November 2,2006 the Company announced that its Board of Directors had authorized a programto repurchase up to 100,000 shares of the Company’s common stock pursuant toExchange Act Rule 12b-18.  On December 6,2006 the Company repurchased 53,050 shares of common stock at a price of $13.10per share for a total of $694,955. During 2007, the Company repurchased the remaining 46,950 shares at anaverage price of $11.59 per share for a total of $544,110.

 

On January 16,2008, the Company announced that its Board of Directors had authorized therepurchase of up to an additional 250,000 shares of the Company’s common stockpursuant to Exchange Act Rule 12b-18. During 2008, the Company repurchased 216,543 shares of common stock atan average price of $8.71 for an aggregate purchase price of $1,886,034.

 

6.               STOCK-BASEDCOMPENSATION

 

The Plan, anequity based compensation plan, provides for the granting of awards in the formof stock options, restricted stock, stock appreciation rights, and deferredstock to key employees and non-employees, including directors of andconsultants to the Company and any subsidiary, for up to a maximum of 1,450,000shares of common stock.  During the firstquarter of 2008, the Company issued non-qualified options to the members of theBoard of Directors.

 

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Stock optionactivity related to the Plan during the years ended December 31, 2008 and2007 is summarized below:

 
| ** **                          | ** ** | **2008**   | ** ** | **2007**                               | ** ** |
|-------------------------------------|------------|------------|------------|----------------------------------------|------------|
| ** **                          | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|                                |       |       |       |                                   |       |   |   |   |   |
| Outstanding at  beginning of year   |       | 605,900    |       | $                                      | 11.00      |   | 666,550 |   | $ | 10.12 |   |
|                                |       |       |       |                                   |       |   |   |   |   |
| Granted                             |       | 15,000     |       | 11.35                                  |       | 15,000 |   | 13.67 |   |
| Exercised                           |       | (61,900    | )          | 3.58                                   |       | (75,650 | ) | 3.70 |   |
| Expired/Forfeited                   |       | (89,000    | )          | 15.71                                  |       |   |   |   |   |
|                                |       |       |       |                                   |       |   |   |   |   |
| Outstanding at  end of year         |       | 470,000    |       | $                                      | 11.12      |   | 605,900 |   | $ | 11.00 |   |
|                                |       |       |       |                                   |       |   |   |   |   |
| Options  exercisable at end of year |       | 462,500    |       | $                                      | 11.07      |   | 594,650 |   | $ | 10.94 |   |

 

The grant-datefair value of options outstanding and exercisable at December 31, 2008 and2007 was $2,508,000 and $3,193,000, respectively.  The weighted average remaining contractualterm of these options is 2.2 and 2.4 years, respectively.

 

Theweighted-average grant-date fair value of options granted during the years 2008and 2007 was $29,700 and $58,400, respectively. The total fair value of options exercised during the years ended December 31,2008 and 2007 was $155,000 and $182,000, respectively.

 

The followingtable summarizes information concerning all options outstanding and optionsexercisable as of December 31, 2008:

 
| **Range of Exercise Price** | ** **        | **Options  Outstanding** | ** ** | **Weighted  Average  Remaining Contractual  Life in Years** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Options  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|-----------------------------|-------------------|--------------------------|------------|-------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------|------------|----------------------------------------|------------|
| $                           | 2.50 – 5.00  |                     | 48,000     |                                                        | .1         |                                   | $          | 4.13                     |       | 48,000                                 |       | $ | 4.13 |   |
|                        | 5.00 – 7.50  |                     | 161,000    |                                                        | 1.7        |                                   | 6.20       |                     | 161,000    |                                   | 6.20       |   |
|                        | 7.50 – 17.25 |                     | 261,000    |                                                        | 3.1        |                                   | 15.44      |                     | 253,500    |                                   | 15.47      |   |
| Total                       |              | 470,000                  |       | 2.3                                                         |       | $                                      | 11.12      |                     | 462,500    |                                   | $          | 11.07 |   |

 

*Boardof Director Grants*

 

Each member of theBoard of Directors receives an annual recurring grant of 3,000 non-qualifiedstock options.  On February 1, 2008and February 1, 2007, 15,000 options were granted to the five board memberswith an exercise price equal to the market price on the date of grant of $11.35and $13.76, respectively.  The stockoptions vest over a six-month period and expire in ten years.   Thecompensation cost associated with the Board of Director options of $29,700 and$58,400 was recognized as expense over the six-month vesting period in 2008 and2007, respectively.

 

*2006 Grants*

 

The compensation cost associated with theemployee stock option grant in 2006 is being recognized ratably over thefour-year vesting period.  The compensation cost related to theseemployee option awards included in salaries and benefits expense for 2008 and2007 was $11,578 and $21,600, respectively. As of December 31, 2008, there was $5,532 of total unrecognizedcompensation cost related to these stock options which is expected to berecognized over 1.1 years.  The totalincome 

 

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tax benefitrecognized in the income statement for stock-based compensation arrangementswas $53,000 and $103,000 for 2008 and 2007, respectively.

 

A summary of thestatus of the Company’s restricted stock as of December 31, 2008, andchanges during the year then ended are presented below:

 
| **Restricted Stock**           | ** **   | **Shares**   | ** **   | **Weighted  Average  Grant-Date  Fair Value** | ** **   |
|--------------------------------|--------------|--------------|--------------|-----------------------------------------------|--------------|
| *** ***                   | *** *** | *** *** | *** *** | *** ***                                  | *** *** |
| Unvested at  beginning of year |         | 40,500       |         | $                                             | 14.55        |   |
|                           |         |         |         |                                          |         |
| Granted                        |         | 0            |         | 0.00                                          |         |
| Vested                         |         | 0            |         | 0.00                                          |         |
| Forfeited                      |         | (5,500       | )            | 14.55                                         |         |
| Unvested at end  of year       |         | 35,000       |         | $                                             | 14.55        |   |

 

Upon granting,compensation cost associated with the restricted stock grant was calculated asthe market price on the date of grant of $14.55 for the 41,000shares (reduced by estimated forfeitures) of $589,275.  In 2008, as forfeited shares had exceededoriginal estimated forfeitures, a new forfeiture rate was calculated.  As a result of this new calculation, thetotal estimated compensation cost for the restricted stock grant is $487,425.  In accordance with the modified prospectivemethod, the compensation cost related to these awards included in salaries andbenefits expense for the year ended December 31, 2008 and 2007 was$104,263 and $147,319, respectively.  Asof December 31, 2008, there was $100,801 of total unrecognizedcompensation cost related to restricted stock compensation arrangements grantedunder the Plan which is expected to be recognized over a period of 1.1 years.

 

7.               EARNINGS PER SHARECOMPUTATIONS

 

The following is areconciliation of the numerator and denominator of the earnings per commonshare computations:

 
| ** **                                                                               | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
|                                                                                     |       |      |       |      |       |
| Net  income (numerator) amounts used for basic and diluted per share  computations: |       | $         | 438,180    |      | $          | 2,620,740 |   |
|                                                                                     |       |      |       |      |       |
| Weighted average  shares (denominator) of common stock outstanding:                 |       |      |       |      |       |
| Basic                                                                                    |       | 3,983,359 |       | 4,062,866 |       |
| Plus dilutive  effect of stock options                                                   |       | 62,748    |       | 178,036   |       |
| Diluted                                                                                  |       | 4,046,107 |       | 4,240,902 |       |
|                                                                                     |       |      |       |      |       |
| Net income per  common share:                                                            |       |      |       |      |       |
| Basic                                                                                    |       | $         | .11        |      | $          | .65 |   |
| Diluted                                                                                  |       | .11       |       | .62       |       |

 

Options to purchase337,500 shares of common stock at an average of $13.29 per share wereoutstanding at December 31, 2008 but were not included in the computationof diluted EPS because the options’ exercise price was greater than the averagemarket price of the common shares.  Theoptions expire in an average of 2.8 years.

 

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Options to purchase309,250 shares of common stock at an average of $16.01 per share were outstandingat December 31, 2007 but were not included in the computation of dilutedEPS because the options’ exercise price was greater than the average marketprice of the common shares.

 

8.               LINES OFCREDIT

 

The Company has ageneral credit and security agreement with Bremer Bank, N.A.  Borrowings under the Company’s creditagreement with Bremer Bank include a commercial revolving credit line, whichprovides for maximum advances of $5,000,000 until June 30, 2009 withinterest at the prime rate but not less than 4.5% per annum.  The Company had no borrowings under thiscredit line at December 31, 2008 and December 31, 2007.  The credit agreement contains certaincovenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements as of December 31, 2008.

 

9.               OPERATING LEASESAND COMMITMENTS

 

*Purchase Obligations*

# * *

In March 2008, theCompany entered into a six-year totalizator service agreement with ScientificGames Inc.  Pursuant to the agreement,Scientific Games provides totalizator equipment and computer programs whichrecord and process all wagers and calculate odds and payoffs.  In October 2008, the Company enteredinto a four-year service agreement to outsource its informationtechnology (IT) function.  Amountscharged to operations under these agreements for the years ended December 31, 2008 and 2007 wereapproximately $377,000 and $315,000, respectively.  Future obligations under these leases areprovided in the contractual obligations table below.

 

*OperatingLease Obligations*

 

The Company hasentered into operating leases for rental of office equipment and equipment toprint certain publications.  Amountscharged to operations under these agreements for the years ended December 31,2008 and 2007 were approximately $85,000 and $94,000, respectively.  All such leases expire on or before April 30,2011.  Future lease payment obligationsunder these leases are provided in the contractual obligations table below.

 

*CONTRACTUALOBLIGATIONS TABLE*

 

The following table reflects ourcontractual obligations as of December 31, 2008:

 
| ** **                            | ** ** | **Payments Due by Period** | ** ** |
|---------------------------------------|------------|----------------------------|------------|
| **Contractual Obligation**            | ** ** | **TOTAL**                  | ** ** | **Less than  1 year** | ** ** | **1 – 3  years** | ** ** | **3 – 5  years** | ** ** | **More than  5 years** | ** ** |
|                                  |       |                       |       |   |   |   |   |   |   |   |   |
| Purchase  Obligations (1)        |       | $                          | 2,875,200  |   | $ | 637,000 |   | $ | 1,274,000 |   | $ | 910,000 |   | $ | 54,200 |   |
| Operating Lease  Obligations (2) |       | $                          | 160,400    |   | $ | 84,500 |   | $ | 75,900 |   | $ | 0 |   | $ | 0 |   |

----

(1)          Purchaseobligations include the IT outsourcing obligation and the totalizator leaseobligation. The totalizator lease obligation is dependent on the amount ofmonies wagered but has a minimum yearly obligation of $325,000.

 

(2)          Includesoperating lease obligations for general office and printing equipment rental.

 

Since December 31,2008, there have been no material changes outside the ordinary course ofbusiness to our contractual obligations as set forth above.   As of December 31, 2008, we had noborrowings pursuant to our line of credit and were not party to capital leaseobligations, other significant purchase obligations or other long-term obligations.

 

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10.         CONTINGENCIES

 

In connection withthe purchase of the Racetrack (Note 1), the Company entered into an EarnOut Promissory Note dated March 29, 1994. In accordance with the Earn Out Note, if (i) off-track bettingbecomes legally permissible in the State of Minnesota and (ii) theCompany begins to conduct off-track betting with respect to or in connectionwith its operations, the Company will be required to pay to the IMR Fund, L.P.the greater of $700,000 per operating year, as defined, or 20% of the netpretax profit, as defined for each of five operating years.  At this time, management believes that thelikelihood that these two conditions will be met, and that the Company will berequired to pay these amounts is remote. At the date (if any) that these two conditions are met, the fiveminimum payments will be discounted back to their present value and the sum ofthose discounted payments will be capitalized as part of the purchase price inaccordance with generally accepted accounting principles.  The purchase price will be further increasedif payments become due under the “20% of Net Pretax Profit” calculation.  The first payment is to be made 90 days afterthe end of the third operating year in which off-track betting is conducted bythe Company.  Remaining payments would bemade within 90 days of the end of each of the next four operating years.

 

The Company isperiodically involved in various claims and legal actions arising in the normalcourse of business.  Management believesthat the resolution of any pending claims and legal actions at December 31,2008 and as of the date of this report will not have a material impact on theconsolidated financial statements.

 

The Companyguarantees payment of statutory distributions under a $500,000 bond issued tothe Minnesota Racing Commission.

 

11.         RELATED-PARTYTRANSACTIONS

 

The Company paid atotal of $50,100 in both 2008 and 2007 to the Chair and Vice Chair of theCompany in consideration for the services they provided pursuant to consultingagreements.  In addition, anothernon-employee Board member received $12,000 in 2008 and $12,000 in 2007 for servicesregarding the Company’s strategic planning matters.

 

12.         OPERATING SEGMENTS

 

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

 

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

 

Depreciation,interest expense and income taxes are allocated to the segments but noallocation is made to concessions for shared facilities.  The concessions segment paid approximately25% of gross revenues on live racing and special event days to the horse racingsegment for use of the facilities in 2008 and 2007.

 

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The following tablesprovide information about the Company’s operating segments (in 000’s):

 
| ** **                            | ** ** | **Twelve Months Ended December 31, 2008** | ** ** |
|---------------------------------------|------------|------------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                               | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
| Net revenues  from external customers |       | $                                              | 15,830     |   | $ | 24,203 |   | $ | 5,992 |   | $ | 46,025 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 703                                            |       |   |   | 1,745 |   | 2,448 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Net interest  income (expense)   |       | 108                                            |       |   |   |   |   | 108 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Depreciation                          |       | 1,389                                          |       | 591 |   | 161 |   | 2,141 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Segment income  before income taxes   |       | (1,401                                         | )          | 2,196 |   | 1,112 |   | 1,907 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Segment Assets                        |       | $                                              | 28,050     |   | $ | 3,346 |   | $ | 8,710 |   | $ | 40,106 |   |

 
| ** **                            | ** ** | **Twelve Months Ended December 31, 2007** | ** ** |
|---------------------------------------|------------|------------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                               | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
| Net revenues  from external customers |       | $                                              | 18,141     |   | $ | 28,619 |   | $ | 6,120 |   | $ | 52,880 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 733                                            |       |   |   | 2,047 |   | 2,780 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Net interest  income (expense)   |       | 329                                            |       |   |   |   |   | 329 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Depreciation                          |       | 1,259                                          |       | 596 |   | 144 |   | 1,999 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Segment income  before income taxes   |       | (381                                           | )          | 4,850 |   | 1,485 |   | 5,954 |   |
|                                  |       |                                           |       |   |   |   |   |   |   |
| Segment Assets                        |       | $                                              | 31,431     |   | $ | 3,857 |   | $ | 7,723 |   | $ | 43,011 |   |

 

Included in horseracing segment revenues for the years ended December 31, 2008 and 2007 isapproximately $277,000 and $253,000, respectively, for rental of the racingfacility for special events and storage.

 

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

 
| ** **                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|
| Revenues                                               |       |     |       |     |       |
| Net revenues for  reportable segments                  |       | $        | 48,473     |     | $          | 55,660 |   |
| Elimination of  intersegment revenues                  |       | (2,448   | )          | (2,780   | )          |
| Total  consolidated net revenues                       |       | $        | 46,025     |     | $          | 52,880 |   |
|                                                   |       |     |       |     |       |
| Income before  income taxes                            |       |     |       |     |       |
| Total segment  income before income taxes              |       | $        | 1,907      |     | $          | 5,954 |   |
| Elimination of  intersegment income beforeincome taxes |       | (1,084   | )          | (1,469   | )          |
| Total  consolidated income beforeincome taxes          |       | $        | 823        |     | $          | 4,485 |   |

 
|                                     |   | **December 31,    2008** | ** ** | **December 31,    2007** |   |
|------------------------------------------|--------|-------------------------------|------------|-------------------------------|--------|
| Assets                                   |   |                          |       |                          |   |
| Total asset for  reportable segments     |   | $                             | 40,106     |                          | $      | 43,011 |   |
| Elimination of  intercompany receivables |   | (7,862                        | )          | (6,905                        | )      |
| Total  consolidated assets               |   | $                             | 32,244     |                          | $      | 36,106 |   |

 

13.**  **SUPPLEMENTARYFINANCIAL INFORMATION (UNAUDITED)

 
| ** **                              | ** ** | **2008 Quarter Ended:** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|
| ** **                              | ** ** | **March 31**       | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                              | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net revenues                            |       | $                       | 10,200,063 |   | $ | 13,804,893 |   | $ | 13,236,420 |   | $ | 8,784,031 |   |
|                                    |       |                    |       |   |   |   |   |   |   |
| Operating  expenses                     |       | 9,389,870               |       | 13,880,334 |   | 13,280,862 |   | 8,759,234 |   |
|                                    |       |                    |       |   |   |   |   |   |   |
| Net  income (loss)                 |       | 498,880                 |       | (35,419 | ) | (40,795 | ) | 15,514 |   |
|                                    |       |                    |       |   |   |   |   |   |   |
| Basic  earnings (loss) per share   |       | .12                     |       | (.01 | ) | (.01 | ) | .00 |   |
|                                    |       |                    |       |   |   |   |   |   |   |
| Diluted  earnings (loss) per share |       | .12                     |       | (.01 | ) | (.01 | ) | .00 |   |
|                                         |            |                         |            |  |  |  |  |  |  |  |  |  |  |

** **
| ** **                  | ** ** | **2007 Quarter Ended:** | ** ** |
|-----------------------------|------------|-------------------------|------------|
| ** **                  | ** ** | **March 31**       | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                  | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net revenues                |       | $                       | 11,468,589 |   | $ | 14,626,023 |   | $ | 15,522,631 |   | $ | 11,262,313 |   |
|                        |       |                    |       |   |   |   |   |   |   |
| Operating  expenses         |       | 10,017,588              |       | 13,823,606 |   | 14,633,716 |   | 10,248,408 |   |
|                        |       |                    |       |   |   |   |   |   |   |
| Net income                  |       | 892,377                 |       | 502,993 |   | 589,992 |   | 635,378 |   |
|                        |       |                    |       |   |   |   |   |   |   |
| Basic earnings  per share   |       | .22                     |       | .12 |   | .14 |   | .16 |   |
|                        |       |                    |       |   |   |   |   |   |   |
| Diluted earnings  per share |       | .21                     |       | .12 |   | .14 |   | .15 |   |
|                             |            |                         |            |  |  |  |  |  |  |  |  |  |  |

 

 

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

 

Not Applicable.

 

**Item9A(T). CONTROLS AND PROCEDURES**

 

(a)               Evaluation of Disclosure Controlsand Procedures:

 

The Company’s Chief Executive Officer, Randall D.Sampson, and Chief Financial Officer, David C. Hansen, have reviewed the Company’sdisclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) asof the end of the period covered by this report.  Based upon this review, these officers haveconcluded that the Company’s disclosure controls and procedures are effectiveto ensure that information required to be disclosed in the reports that theCompany files under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the rules and forms of theSEC and that the disclosure controls are also effective to ensure thatinformation required to be disclosed in the Company’s Exchange Act reports isaccumulated and communicated to management, including the chief executiveofficer and chief financial officer, to allow timely decisions regardingrequired disclosure.

 

(b)               Management’s annual report oninternal control over financial reporting:

 

The Company’s internal control report is included inthis report under Item 8, following the caption “Management’s Report onCompany’s Internal Control over Financial Reporting.”  This annual report does not include anattestation report of the Company’s registered public accounting firm regardinginternal control over financial reporting. Management’s report was not subject to attestation by the Company’sregistered public accounting firm pursuant to temporary rules of theSecurities and Exchange Commission that permit the Company to provide onlymanagement’s report in this annual report.

 

(c)            Changes in Internal Control Over Financial Reporting:

 

Therehas been no change in our internal control over financial reporting (asdefined in Rules 13a-15(f) under the Securities Exchange Act of 1934)that occurred during our fiscal quarter ended December 31, 2008, that havematerially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

**Item 9B.  OTHER INFORMATION**

 

Not Applicable.

 

**PART III**

** **

**Item 10.****               ****DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

 

Information Incorporated by Reference.

 

Information required under Item 402 of Regulation S-Kto the extent applicable with respect to the directors will be set forth in asection captioned “Election of Directors” in the Company’s Proxy Statement forthe Annual Meeting of Shareholders to be held on June 4, 2009 (the “2009Proxy Statement”), a definitive copy of which will be filed with the Commissionwithin 120 days of the close of the 2008 fiscal year, which information isincorporated herein by reference. Information required under Item 402 of Regulation S-K regardingexecutive officers is presented under Item 1(c)(x) herein.  Information required under Item 405 regardingExchange Act Section 16a 

 

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compliance to the extent required will be set forth ina section titled “Section 16a Beneficial Ownership Reporting Compliance”in the 2009 Proxy statement.

 

Code of Ethics

 

The Company has adopted a code of ethics applicable toall employees of and consultants to the Company.  A copy of the Code of Conduct can be obtainedfree of charge upon written request directed to the Company’s Secretary at theexecutive offices of the Company.

 

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

 

Information required under Item 402 of Regulation S-Kwill be set forth in a section entitled “Executive Compensation and OtherInformation” in the Company’s 2009 Proxy Statement which information isincorporated herein by reference.

 
| **Item  12.** | **SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL  OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS** |
|---------------|------------------------------------------------------------------------------------------------------|

 

Informationrequired under Item 403 of Regulation S-K will be set forth in a sectionentitled “Security Ownership of Certain Beneficial Owners” and “Election ofDirectors” in the Company’s 2009 Proxy Statement which information isincorporated herein by reference.

 

**Item 13.****               ****CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, ANDDIRECTOR INDEPENDENCE**

 

Information, if any, required by Item 404 ofRegulation S-K will be set forth in a section entitled “Certain Transactions”in the Company’s 2009 Proxy Statement which information is incorporated hereinby reference.

 

**Item 14.****               ****PRINCIPAL ACCOUNTING FEES AND 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 “TheCompany’s Auditors” in the Company’s 2009 Proxy statement which information isincorporated herein by reference.

 

**PART IV**

 

**Item 15.****               ****EXHIBITS AND FINANCIAL STATEMENTSCHEDULES**

 

(a).                         Thefollowing Consolidated Financial Statements of Canterbury Park HoldingCorporation and subsidiaries are included in Part II, Item 8 pages 29-47:

 

Management’s Report onCompany’s Internal Control over Financial Reporting

 

Report of IndependentRegistered Public Accounting Firm

 

Consolidated BalanceSheets as of December 31, 2008 and 2007

 

Consolidated Statementsof Operations for the years ended December 31, 2008 and 2007

 

Consolidated Statementsof Changes in Stockholders’ Equity for the years ended December 31, 2008and 2007

 

Consolidated Statementsof Cash Flows for the years ended December 31, 2008 and 2007

 

 

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Notes to ConsolidatedFinancial statements

 

(b).                   The exhibitslisted on the “Exhibits Index” on pages 52 & 53 are filed withthis Form 10-K or incorporated by reference in this report.

 

(c).                    No financialstatement schedules are required by Item 8 and Item 15(c) of Form 10-K.

 

 

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
| Dated: March 31,  2009 |   | CANTERBURY PARK HOLDING  CORPORATION   |
|-----------------------------|--------|----------------------------------------|
|                        |   |                                   |
|                        | By     | /s/ Randall D. Sampson                 |
|                        |   | Randall D. Sampson                     |
|                        |   | President and Chief  Executive Officer |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the following persons onbehalf of the Registrant and in the capacities and the dates indicated havesigned this report below.

 

**Power of Attorney**

 

Each person whosesignature appears below constitutes and appoints CURTIS A. SAMPSON, DALE H.SCHENIAN and RANDALL D. SAMPSON as his true and lawful attorneys-in-fact andagents, 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 signany of all amendments to this Annual Report on Form 10-K and to file thesame, with all exhibits thereto, and other documents in connection therewith,with the Securities and Exchange Commission, granting unto saidattorneys-in-fact and agents, each acting alone, full power and authority to doand perform each and every act and thing requisite and necessary to be done inand about the premises, as fully to all intents and purposes as he might orcould do in person, hereby ratifying and confirming all said attorneys-in-factand agents, each acting alone, or his substitute or substitutes, may lawfullydo or cause to be done by virtue thereof.

 
| **Signature**          | ** ** | **Title**                                | ** ** | **Date**             |
|------------------------|------------|------------------------------------------|------------|----------------------|
|                   |       |                                     |       |                 |
| /s/ Curtis A. Sampson  |       | Chairman of the Board                    |       | March 31,  2009 |
| Curtis A. Sampson      |       |                                     |       |                 |
|                   |       |                                     |       |                 |
| /s/ Dale H. Schenian   |       | Director; Vice Chairman                  |       | March 31,  2009 |
| Dale H. Schenian       |       |                                     |       |                 |
|                   |       |                                     |       |                 |
| /s/ Randall D. Sampson |       | Chief Executive  Officer, President,     |       | March 31,  2009 |
| Randall D. Sampson     |       | General Manager,  Treasurer and Director |       |                 |
|                   |       |                                     |       |                 |
| /s/ David C. Hansen    |       | Chief Financial  Officer*                |       | March 31,  2009 |
| David C. Hansen        |       |                                     |       |                 |
|                   |       |                                     |       |                 |
| /s/ Patrick R. Cruzen  |       | Director                                 |       | March 31,  2009 |
| Patrick R. Cruzen      |       |                                     |       |                 |
|                   |       |                                     |       |                 |
| /s/ Carin J. Offerman  |       | Director                                 |       | March 31,  2009 |
| Carin J. Offerman      |       |                                     |       |                 |
|                   |       |                                     |       |                 |
| /s/ Burton F. Dahlberg |       | Director                                 |       | March 31,  2009 |
| Burton F. Dahlberg     |       |                                     |       |                 |

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* PrincipalAccounting Officer

 

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Table of Contents

 

 

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY

 

Exhibit Index To

Form 10-K for the Year Ended December 31,2008

 
| **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.                                                                                                   |

 

52

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Table of Contents

 

 
| 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 51.                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                                                          |
| 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.                                                                                                                                                                               |

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

 

 

The exhibitsreferred to in this Exhibit will be supplied to a shareholder at a chargeof $.25 per page upon written request directed to Canterbury Park HoldingCorporation at the executive offices of the Company.

 

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