**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-K**

 

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

 

**For the fiscal year ended December 31, 2007**

 

**OR**

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

 

**For theTransition period from             to            **

 

**Commission File Number:  001-31569**

 

**CANTERBURY PARK HOLDING CORPORATION**

(Exact Name of Registrant as Specified in Its Charter)

 

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

 

**1100Canterbury RoadShakopee, MN 55379**

(Address ofprincipal 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** | ** ** | **American  Stock Exchange**          |
|-----------------------------------|------------|---------------------------------------|
| 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 filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe 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, or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).

 
|   | 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 ExchangeAct Rule 12b-2).

 
|   | 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, 2007, the last businessday of the registrant’s most recently completed second fiscal quarter wasapproximately $31,410,000.

 

On March 14, 2008,the Company had 4,122,285 shares of common stock, $.01 par value, outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’sdefinitive Proxy Statement for its 2008 Annual Meeting of Shareholders, to beheld on June 5, 2008, 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, 2007

 

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                                                                                                   | 15       |
| 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                                                                                            | 18       |
| ITEM 7.        | Management’s  Discussion and Analysis of Financial Condition and Results of Operation                          | 19       |
| ITEM 7A.       | Quantitative  and Qualitative Disclosures about Market Risk                                                         | 28       |
| ITEM 8.        | Financial  Statements and Supplementary Data                                                                        | 29       |
| ITEM 9.        | Changes In  and Disagreements With Accountants on Accounting and Financial Disclosure                               | 47       |
| ITEM 9A(T).    | Controls and  Procedures                                                                                            | 47       |
| ITEM 9B.       | Other Information                                                                                                   | 47       |
|           |                                                                                                                |
| PART III  |                                                                                                                |
|           |                                                                                                                |
| ITEM 10.       | Directors,  Executive Officers and Corporate Governance                                                             | 47       |
| ITEM 11.       | Executive  Compensation                                                                                             | 48       |
| ITEM 12.       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    | 48       |
| ITEM 13.       | Certain  Relationships, Related Transactions and Director Independence                                              | 48       |
| ITEM 14.       | Principal  Accounting Fees and Services                                                                             | 48       |
|           |                                                                                                                |     |
| PART IV   |
|           |                                                                                                                |     |
| ITEM 15.       | Exhibits and  Financial Statement Schedules                                                                         | 48       |
|           |                                                                                                                |     |
| SIGNATURES     |                                                                                                                | 49       |
|           |                                                                                                                |     |
| EXHIBIT INDEX  |                                                                                                                | 50       |
|           |                                                                                                                |     |
| CERTIFICATIONS |                                                                                                                |     |

 

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**Item1.****          ****BUSINESS**

 

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

#### * *

Canterbury Park Holding Corporation (the “Company”)conducts pari-mutuel wagering operations and hosts “unbanked” card games at itsCanterbury Park Racetrack and Card Club facility (the “Racetrack”) in Shakopee,Minnesota.  The Company’s pari-mutuelwagering operations include both wagering on live thoroughbred and quarterhorse races at the Racetrack and wagering on races held at out-of-stateracetracks that are televised 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, launchedlive horse racing and related pari-mutuel wagering on a seasonal basis,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 by law) in2001.  The ownership and operation of theRacetrack and the Card Club are significantly regulated by the Minnesota RacingCommission (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(and any amendments to these reports) are available free of charge on ourwebsite.

 

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

 

TheCompany divides its business into three segments: horse racing, card club andconcessions. The horse racing segment represents simulcast and live racingoperations.  The card club segmentrepresents operations of the Card Club, and the concessions segment representsfood and beverage services for simulcast and live racing, the Card Club andduring special events. Further information regarding the Company’s businesssegments is set forth in Note 11 of the Notes to Consolidated FinancialStatements under Item 8 of this Form 10-K, and such information isincorporated herein by reference.

 

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

 

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

 

The Company’s horse racing operations consist ofyear-round pari-mutuel wagering on simulcast horse races (“simulcasting”) andlive thoroughbred and quarter horse races (“live meets”) held on a seasonalbasis beginning in May and concluding in September.

 

*Live Racing.*

 

In 2007, the Racetrack hosted 68 days of live racingbeginning May 5th and concluding September 3rd.  The meet included 45 days of mixedthoroughbred and quarter horse racing and 23****daysof thoroughbred only racing.  The 2006live meet was also 68 days long, beginning May 6th and ending September 4th,and consisted of 44 days of mixed thoroughbred and quarter horse racing and 24days of thoroughbred only racing.

 

Currently, Minnesota lawrequires the Racetrack to schedule a minimum of 125 days of live racingannually, unless the Minnesota Horsemen’s Benevolent and Protective Association(the “MHBPA”) agrees to a lesser number of live racing days.  Since 1995, the MHBPA has agreed to waive the125-day requirement and has allowed the Company to run a live meet of at least50 days each year.  After 2008, noassurance can be given that the MHBPA will agree to a shorter live meet thanthe 125-day statutory minimum.  If theMHBPA does not agree to a live meet shorter than 125 days, the Company’soperations could be adversely impacted by a decrease in the daily purses,potential reduction in quality of horses, lower attendance, lower overallhandle and increased operating expenses.

 

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*Simulcasting.*

 

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

 

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

 

Under applicable provisions of federal and state law,the Racetrack must obtain the consent of the state’s regulatory authority andthe organization which represents the majority of the owners and trainers ofthe horses who race at the Racetrack with respect to simulcast operations bothas a host and guest track.  In Minnesota,such consent must be obtained from the MHBPA and the MRC.

 

**(ii)****                               ****Card Club Operations**

 

The Card Club is open 24hours per day, seven days per week, offering two variations of unbanked cardgames: Poker and Casino Games.

 

Poker games, includingTexas Hold ‘Em, 7-Card Stud and Omaha, with betting limits ranging between $2and $60, are currently offered on a maximum of 34 tables in the pokerroom.  A dealer, employed by the Company,regulates the play of the game at each table and deals the cards but does notparticipate in play.  In poker games, theCompany is allowed to deduct a percentage from the accumulated wagers andimpose other charges for hosting the activity but does not have an interest inthe outcome of a game.  The Company mayadd additional prizes, awards or money to any game for promotionalpurposes.  The Company collects a “rake”of 10% of each addition to the “pot”, up to a maximum of $5.00 per hand, as itscollection revenue.  In addition, pokergames offer progressive jackpots for most games.  In order to fund the jackpot pool, the dealerwithholds $1.00 from each final pot in excess of the $15 minimum.

 

Casino Games, including Pai Gow Poker, Blackjack,Caribbean Stud, Let-It-Ride, Three Card Poker and Four Card Poker, arecurrently offered at 16 of the 50 tables in the Card Club.  The Company’s Casino Games are required bylaw to be “unbanked.”  “Unbanked” refersto a wagering system or game where wagers lost or won in card games areaccumulated into a player pool liability for purposes of enhancing the totalamount paid back to winning players. The Company may only serve as custodian ofthe player pool, may not have an active interest in any card game and does notrecognize amounts that dealers “win” or “lose” during the course of play asrevenue.  The Company also takes a “rake”of $.50 to $3.00 per wager, depending on the game and size of wager, for theCompany’s collection revenue.  The onlycasino game to offer a progressive jackpot is Caribbean Stud.  The player has the option of playing thejackpot and has the opportunity to win some or all of the jackpot amount,depending upon his hand.

 

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

 

While pari-mutuel horse racing and Card Club operationsare the Company’s principal businesses, the Company’s facilities are capable ofbeing used for multiple purposes.  In aneffort to more fully utilize the property and to generate additional revenues,the Company has increasingly used its grandstand, grounds and parking lot forspecial events and rentals.  While theuse of the Company’s facilities for particular special events and purposesvaries from year to year, the following are among the types of events andpurposes for which the 

 

4

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Company’s facilities havebeen used: snowmobile races, major arts and crafts shows, trade shows,concerts, fundraisers, automobile shows and competitions, vehicle and boatstorage and private parties.

 

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

 

*General.*

 

The Company’s revenues are principally derived fromCard Club operations, wagering on live and simulcast horse races and concessionsales.  For the fiscal year ended December 31,2007, revenues from Card Club operations represented 53.8% of total revenues,wagering on horse races generated 28.7% of total revenues and concessionsrevenue represented 11.4% 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, although byagreement with the MHBPA, the Company paid 15% of Card Club collection revenuesinto the purse fund in 2007 and 2006.  Offunds allocated for purses, the Company pays 10% of the purse monies to theState of Minnesota Breeders’ Fund, with the remaining 90% of purse moniesdivided between thoroughbred (90%), quarter horse (9%) and standard bred (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 Horse Racing Act(the “Racing Act”) specifies the maximum percentage, referred to as the “takeout,”which may be withheld by the Racetrack, with the balance returned to thewinning bettors.  The takeout constitutesone of the Racetrack’s primary sources of operating revenue.  From the takeout, funds are set aside forpurses and paid to the State of Minnesota for pari-mutuel taxes and theMinnesota Breeders’ Fund (the “Breeders’ Fund”), which is a fund apportioned bythe MRC among various purposes related to Minnesota’s horse breeding and horseracing industries.  The balance of thetakeout remaining after these deductions is commonly referred to as the “retainage.”

 

The various forms of pari-mutuel wagering can bedivided into two categories: straight wagering pools and multiple wageringpools, which are also referred to as “exotic” wagering pools.  Examples of straight wagers include: “win” (awager on one specific horse to finish first); “place” (a wager on one specifichorse to finish first or second); and “show” (a wager on one specific horse tofinish first, second or third).  Examplesof exotic wagers include: “daily double” (a wager in which the bettor selectsthe horses that will win two consecutive races);  “exacta” (a wager in which the bettor selectsthe horses that will finish first and second, in order); “trifecta” (a wager inwhich the bettor selects the horses that will finish first, second and third,in order); and “pick six” (a wager in which the bettor selects the horses thatwill finish first in six consecutive races).

 

The amount of takeout earned by the Company depends onwhere the race is run and the form of wager (straight or exotic).  Net revenues from pari-mutuel wagering onlive races run at the Racetrack consist of the total amount wagered, less theamounts paid (i) to winning patrons, (ii) for purses, (iii) tothe Breeders’ Fund and (iv) for pari-mutuel taxes to the State ofMinnesota.  Net revenues from pari-mutuelwagering on races being run at out-of-state racetracks and simulcast to theRacetrack have similar expenses but also include a host fee payment to the hosttrack.  The host fee, which is calculatedas a percentage of monies wagered (generally 2.50% to 4.50%), is negotiatedwith the host track and must comply with state laws governing the host track.

 

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*Wagering on Live Races.*

 

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

 

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

 

The following table sets forth the percentagedistribution of each dollar wagered on live races at the Racetrack, asestablished by the Racing Act, and the Racetrack’s retainage for the yearsended December 31, 2007 and 2006:

 
| ** **                       | ** ** | **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 isa minimum.  The actual percentage, ifany, above the minimum is determined between the Racetrack and the MHBPA.  Any additional amounts paid for pursesdecrease the Racetrack’s retainage.

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

 

*Wageringon Simulcast Races.*

 

The amount of takeout from simulcast wagering isdetermined by the laws of the state in which the host track is located.  In addition, the Racing Act establishes aminimum that must be set aside from simulcasting for purse payments on racingwithin Minnesota.  Different amounts arededucted for purses from the takeout depending on whether simulcasting occursduring the “Racing Season,” a statutorily defined 25-week period beginning inearly May each year, or outside of the Racing Season.  If simulcasting occurs during the RacingSeason, the amount set aside for purses further depends on whether thesimulcasting is part of a full racing card that occurs during the part of theday that live races are conducted at the Racetrack.  For races that are part of a full simulcastracing card that takes place within the time of live races at the Racetrack,the amount reserved for purse payout is 8.4%. For simulcasting conducted during the Racing Season that does not occurwithin the time period of live races, the purse is equal to 50% of the takeoutremaining after deductions for pari-mutuel taxes, payments to the Breeders’Fund and payments to the host racetrack for host track fees.  For simulcasting conducted outside of theRacing Season, the amount that must be contributed to the purses is 25% of thetakeout after deducting pari-mutuel taxes, payments to the Minnesota 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, 2007 and 2006:

 
| ** **                       | ** ** | **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                                    |       |   |   | 1.70 |   |   |   |
| Host Track Fees  (4)             |       | 3.50                                     |       |                                              |       | 3.50                                    |       |   |   | 3.50 |   |   |   |
| Racetrack  Retainage (3)         |       | 6.41                                     |       |                                              |       | 7.32                                    |       |   |   | 13.01 |   |   |   |
| Total Takeout                    |       |                                     |       | 19.50                                             |       |                                    |       | 19.50 |   |   |   | 19.50 |   |
|                             |       |                                     |       |                                              |       |                                    |       |   |   |   |   |   |   |
| Total Handle                     |       |                                     |       | 100.00                                            | %          |                                    |       | 100.00 | % |   |   | 100.00 | % |

 

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(1)                                  This amount will depend upon the 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, 2006, the MHBPA allowed a 3.7% expense deduction, andin 2007, the expense deduction allowed was 2.1%.  In 2008, the expense deduction is estimatedto be 2.1%.

(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.*

##### * *

The Company earns revenuefrom food and beverage sales in its restaurant, group catering areas andnumerous concession stands located throughout the facility.  Food and beverage sales are offered duringlive and simulcast racing in the Card Club and during special events.

 

##### *OtherRevenue.*

##### * *

The Company generates cash revenues from the receiptof admission and reserved seating charges, preferred and valet parking and thesales of various daily pari-mutuel publications.  Additional revenues are derived from the operationof an RV Park during the summer months and the use of the facility year roundfor special events such as concerts, trade and craft shows, snowmobile racing,business meetings, private parties, horse expositions and sales, boat andautomobile storage and community events. The Company also generates revenue from providing advertising signagespace, similar to that appearing at many sports stadiums, and leases excessparking lot space for various automotive activities and vehicle storage.

 

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

 

From 1994 through 2004, the Company was the onlyracetrack licensed to operate in the State of Minnesota.  On January 20, 2005, the MRC granted alicense to the North Metro Harness Initiative, LLC (“NMHI”) to construct andoperate a harness racetrack in Columbus Township, Anoka County, MN.  Columbus Township is approximately 50 milesfrom Canterbury Park.  This licenseauthorizes NMHI to engage in pari-mutuel wagering on live and simulcast racingfor standardbred (harness) horses.  NMHIhas stated they intend to commence operations in April 2008.  Current Minnesota state law permits licensedracetracks to operate a card room with up to 50 tables subject to completion ofa 50-day live race meet and regulatory approval of a card room plan ofoperation.  NMHI has publicly stated itsintentions to obtain a license to operate a card room at the completion of theminimum 50 live race days.  Currently,NMHI has also proposed a bill to allow pari-

 

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mutuel simulcast racingof all breeds at its racetrack.  As ofthe date of this report, this bill had passed the floor of the Senate in theMinnesota Legislature but had yet to be voted on by the House ofRepresentatives.

 

The Company competes with other forms of gaming,principally casino-style gambling including slots and blackjack offered atnumerous tribal casinos located throughout the State of Minnesota, including alarge casino located approximately four miles from the Racetrack.  More recently, unbanked card games have alsobecome available at some tribal casinos. In addition, the Company competes against charitable gambling (bingo andpull tabs) and various state lottery products. 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.

 

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

 

The Company competes withracetracks located throughout the United States in securing horses to run atthe Racetrack.  Attracting owners andtrainers is largely dependent on the ability to offer large purses.  The Company experiences significantcompetition for horses from racetracks located near Des Moines, Iowa andChicago, Illinois, both of which offer substantially larger purses than theCompany.  This competition is expected tocontinue for the foreseeable future.

 

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

 

*General.*

 

The ownership and operation of the Racetrack inMinnesota is subject to significant regulation by the MRC under the Racing Actand the rules adopted by the MRC. The Racing Act provides for the allocation of each wagering pool towinning bettors, the Racetrack, purses, pari-mutuel taxes and the Breeders’Fund and empowers the MRC to license and regulate substantially all aspects ofhorse racing in the State.  The MRC,among other things, grants operating licenses to racetracks after anapplication process and public hearings, licenses all employees of a racetrack,jockeys, trainers, veterinarians and other participants, regulates the transferof ownership interests in licenses, allocates live race days and simulcast-onlyrace days, approves race programs, regulates the conduct of races, setsspecifications for the racing ovals, animal facilities, employee quarters andpublic areas of racetracks, regulates the types of wagers on horse races, andapproves significant contractual arrangements with racetracks, includingmanagement agreements, simulcast arrangements, totalizator contracts andconcessionaire agreements.

 

A federal statute, theInterstate Horse Racing Act of 1978, also provides that a racetrack must obtainthe consent of the group representing the horsepersons (owners and trainers)racing the breed of horses that race a majority of the time at the racetrack,and the consent of the state agency regulating the racetrack, in order totransmit simulcast signals of its live races or to receive and use simulcastsignals from other racetracks.  TheCompany has obtained the consent of the MHBPA and MRC for receiving and sendingsimulcast signals.

 

*Issuance of Class A, and Class B Licensesto the Company.*

 

The Company holds a Class A License, issued bythe MRC, which allows the Company to own and operate the Racetrack.  The Class A License is effective untilrevoked, suspended by the MRC or relinquished by the licensee.  Currently, the fee for a Class A Licenseis $253,000 per fiscal year.

 

The Company also holds a Class B License, issuedby the MRC, that allows the Company to sponsor and manage horse racing on whichpari-mutuel wagering is conducted at its Class A licensed racetrack and onother horse races run at 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.

 

8

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*Limitation on the Number of Class A, and Class BLicenses.*

 

Pursuant to the Racing Act, so long as the Racetrackmaintains its Class A License, no other Class A License may be issuedto operate a racetrack in the seven county metropolitan area (the counties ofHennepin, Ramsey, Washington, Scott, Dakota, Anoka and Carver), except the MRCmay issue an additional Class A License within the seven countymetropolitan area, provided that the additional license may only be issued fora facility which, among other conditions, is located more than 20 miles fromthe Racetrack, contains a track no larger than five-eighths of a mile incircumference, and is used 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.

 

*Limitation on Ownership and Management of anEntity, which holds a Class A License and/or Class B License.*

 

The Racing Act requires prior MRC approval of allofficers, directors, 5% shareholders or other persons having a present orfuture direct or indirect financial or management interest in any personapplying for a Class A and Class B license, and if a change ofownership of more than 5% of the licensee’s shares is made after an applicationis filed or the license issued, the applicant or licensee must notify the MRCof the changes within five days of this occurrence and provide the informationrequired 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, 2007, and 2006, the Company paid $128,000and $120,000, 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.

 

*Local Regulation.*

 

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

 

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

 

The Company did not propose or support any legislationduring the 2007 biannual session of the Minnesota Legislature to pursue ourRacino proposal that has been discussed in our previous flings with the 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.

 

In May 2007, a billpassed in the Minnesota Legislature severely restricting smoking in all publicplaces in Minnesota, including at the Racetrack, effective October 1,2007.  Tribal casinos located inMinnesota are not covered by this legislation and will continue to offervarious gaming alternatives, including card games, in an environment thatallows smoking.  Since October 1,2007, this legislation has had, and may continue to have, a

 

9

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significant adverseeffect on the Company’s revenues and profits. The Company believes that simulcast customers who smoke and have leftour facilities are wagering on the Internet. The Company also believes card club customers who smoke are nowpatronizing tribal casinos where smoking is permitted.

 

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

 

The Company’s primary market is the seven-countyMinneapolis-Saint Paul metropolitan area plus the two counties to the south ofthe Racetrack. Current demographic information indicates that approximately 2.2million adults age 18 and older reside within the primary market.  The City of Shakopee, located in thesouthwestern portion of the metropolitan area, is one of the fastest growingcommunities in the region and Scott County is one of the fastest growingcounties in the country.  Between 2005and 2010, the population of adults age 18 and older in the primary market isexpected to increase by an estimated 6.7%.

 

To support its pari-mutuel horse racing and Card Clubbusinesses, the Company conducts year-round marketing efforts to maintain theloyalty of live racing and simulcast patrons and attract new racing and CardClub customers.  The Company utilizesnewspapers and television advertising, the Internet, other print media, radioand direct mail.  Often, the Companycombines its marketing efforts to communicate the excitement of both wageringon horse racing and card playing.  Inaddition to its regular advertising program, the Company conducts numerousspecial promotions and handicapping contests to increase simulcast patronageand maintains successful pari-mutuel player and Casino Games 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.

 

Because wagering on horse racing and playing poker andcasino style card games are more complex than many other forms of gaming, suchas slot machines or various lottery products, the Company continues to developand conduct various educational programs, such as complimentary poker andcasino games lessons, tours of the Racetrack, wagering and handicapping classesand contests that it believes will make pari-mutuel wagering on horse racingand card playing more understandable to the general public.

 

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

 

At March 24, 2008, the Company had 381 full-timeemployees and 273 part-time employees. On a seasonal basis, the Company adds approximately 120 full-time and250 part-time employees for live racing operations from early May untilearly September.  The Company’smanagement believes its employee relations are good.

 

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

 

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

 
| **Name**           | ** ** | **Age** | ** ** | **Position with Company**                    |
|--------------------|------------|---------|------------|--------------------------------------------------------|
|               |       |    |       |                                                   |
| Randall D. Sampson |       | 49      |       | President, CEO and  General Manager                    |
|               |       |    |       |                                                   |
| David C. Hansen    |       | 51      |       | Vice President of  Finance, CFO and Secretary          |
|               |       |    |       |                                                   |
| Mark A. Erickson   |       | 51      |       | Vice President of  Facilities                          |
|               |       |    |       |                                                   |
| Jerrold J. Fuller  |       | 63      |       | Vice President of Card  Club Operations                |
|               |       |    |       |                                                   |
| Michael J. Garin   |       | 52      |       | Vice President of  Hospitality and Assistant Secretary |
|               |       |    |       |                                                   |
| Eric A. Halstrom   |       | 39      |       | Vice President of  Racing and Simulcasting             |
|               |       |    |       |                                                   |
| John R. Harty      |       | 63      |       | Vice President of  Marketing                           |

 

10

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Randall D. Sampson hasbeen President and Chief Executive Officer since the formation of the Companyin March 1994 and General Manager since September 1995.  He has been active in horse industryassociations, currently serving on the Board of Directors of the ThoroughbredRacetracks of America and is past President of the Minnesota ThoroughbredAssociation.  Mr. Sampson alsocurrently serves as a director of Communications Systems, Inc. (AMEX: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 22% 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 nations 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 Executive 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.

 

Jerrold J. Fuller has been Vice President of Card ClubOperations since June of 2005.  Hepreviously worked in various capacities for the Company including most recentlyas the Executive Director of Card Club Operations.  He joined the Company in February 2000as a Poker Shift Manager and played a significant role in the opening of theCard Club in April of that year.  Mr. Fullerhas been employed in the gaming industry since 1968 in California, Montana, andLouisiana and is currently a member of the Poker Tournament DirectorsAssociation of America.

 

Michael J. Garin has beenVice President of Hospitality since May of 1997. He had served asPresident of Canterbury Park Concessions, 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.

 

Eric A. Halstrom has beenVice President of Racing and Simulcasting since June of 2005.  Employed at Canterbury Park since 1997, Mr. Halstromhas worked in various capacities for the Company including most recently as theExecutive Director of Teleracing Operations. Prior to his employment with Canterbury Park, Mr. Halstrom workedfor Churchill Downs Management Company from 1994 to 1997 and was their Directorof Off-Track Betting Operations in Indiana. Mr. Halstrom serves on the Board of Directors of the North StarProblem Gambling Alliance and the Minnesota affiliate of the National Councilon Problem Gambling.

 

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

 

**Item1A.  RISK FACTORS**

 

The Company is subject to risk factors that may affectour operating results.  Such risk factorsinclude, but are not limited to, the matters discussed below as well as theadditional risks discussed under Forward Looking Statements on page 28 ofthis Form 10-K for additional risks to which the Company is exposed.

 

11

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

 

We face intense competition in our market,particularly competition from tribal casinos. Such facilities have the advantage of being exempt from certain stateand federal taxes.  We also compete withInternet wagering on horse races, other forms of gambling, other forms ofentertainment and other racetracks throughout the country as previouslydiscussed under *Competition*above.

 

In addition, anotherracetrack will begin competing with the Company.  In early 2005, the MRC granted a license toNMHI to construct and operate a harness racetrack in Columbus Township, AnokaCounty, MN, which is approximately 50 miles from the Racetrack.  This license authorizes NMHI to engage inpari-mutuel wagering on live and simulcast racing for standardbred (harness)horses.  In addition, Minnesota lawpermits licensed racetracks to operate a card room with up to 50 tables aftercompleting a 50-day live race meet and regulatory approval of a card room planof operation.  NMHI has publicly statedits intentions to obtain a license to operate a card room at the completion ofthe minimum 50 live race days. Currently, NMHI has also proposed a bill to allow pari-mutuel simulcastracing of all breeds at its racetrack. As of the date of this report, this bill had passed the floor of theSenate in the Minnesota Legislature but had yet to be voted on by the House ofRepresentatives.

 

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 certaintythe effects of existing and future competition on our operating results.

 

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

 

The ownership and operation of our Racetrack and CardClub are subject to significant regulation by the MRC under the Racing Act andthe rules adopted by the MRC.  TheMRC has the authority to impose increases in the Class A and Class Blicense fees.  In addition, State lawrequires that we reimburse the MRC for its actual costs of regulating the CardClub, including personnel costs. Increases in these licensing and regulatory costs could adversely affectour results of operations.

 

Decisions by the MRC in regard to any one or more ofthe following matters could also adversely affect the Company’soperations:  the granting of operatinglicenses to Canterbury Park and other racetracks after an application processand public hearings; 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.*

 

Our operations and oversight by the MRC are ultimatelysubject to the laws of Minnesota and there exists the risk that these laws maybe amended in ways adverse to our operations. In particular, we are required to pay taxes and fees in addition tonormal federal, state and local income taxes, and such taxes and fees aresubject to increase at any time.  Fromtime to time, state and local legislators and officials have proposed changes intax laws, or in the administration of laws affecting our industry, such as theallocation of each wagering pool to winning bettors, the Racetrack, purses andthe Breeders’ Fund.  In addition, pooreconomic conditions could intensify the efforts of state and local governmentsto raise revenues through increases in gaming taxes.  It is not possible to determine withcertainty the likelihood of changes in tax laws or in the administration ofsuch laws.  Such changes, if adopted,could have a material adverse effect on our operations.

 

We are also subject to laws in Minnesota that affectbusinesses generally.  It is possible, as a result of the legislativeprocess, that legislation directly or indirectly adverse to the Company may beenacted into law.  As

 

12

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previously discussed under *Legislation* above, in May 2007, a bill passed in theMinnesota Legislature severely restricting smoking in all public places inMinnesota, including at the Racetrack, effective October 1, 2007.  Tribal casinos located in Minnesota are notcovered by this legislation and will continue to offer various gamingalternatives, including card games, in an environment that allows smoking.  Since October 1, 2007, this legislationhas had, and may continue to have, a significant adverse effect on the Company’srevenues and profits.  The Companybelieves that simulcast customers who smoke and have left our facilities arewagering on the Internet.  The Companyalso believes card club customers who smoke are now patronizing tribal casinoswhere 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.

 

*Adownturn in general economic conditions may adversely affect our results ofoperations.*

 

Our business is subject to changes in national andlocal economic conditions, including changes in the economy related tothreatened or actual terrorist attacks and related to the war with Iraq.  A recession or downturn in the general orregional economy could result in fewer customers visiting our facility,adversely affecting our results of operations.

 

**Item1B.  UNRESOLVED STAFF COMMENTS**

 

*NotApplicable.*

 

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

 

*General.*

 

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

 

The Racetrack is located approximately 25 milessouthwest of downtown Minneapolis.  Thearea immediately surrounding the Racetrack consists of commercial andindustrial buildings, farmland and residential areas.  The Racetrack is in reasonable proximity to anumber of major entertainment destinations including:  Valleyfair, an amusement park about two milesfrom the Racetrack which annually attracts approximately more than one millionvisitors during the spring and summer; the Renaissance Festival, aseven-weekend late summer annual event attracting approximately 300,000visitors, located about five miles from the Racetrack; and Mystic Lake Casino,located about four miles from the Racetrack, which draws approximately 5.2million patrons annually.  The Mall ofAmerica, the largest enclosed shopping mall in the United States, whichattracts more than 40 million visitors per year, is approximately 17 miles fromthe Racetrack.

 

*Racing Surfaces.*

 

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

 

13

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*Grandstand.*

 

The grandstand is a modern, air-conditioned enclosedstructure of approximately 275,000 square feet with a variety of facilities onsix levels.  The lower level containsspace for support functions such as jockey quarters, administrative offices,Racing Commission offices, 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 mezzaninelevel contains 1,320 fixed seats in a glass-enclosed, air-conditioned area andan additional 3,000 seats located outside. In addition to the seats, the mezzanine Level contains pari-mutuelwindows, restrooms, concession stands and other guest facilities. A portion ofthe mezzanine level is currently being used as a simulcast center during liveracing, and for banquets and other events during the off-season.  The kitchen level is an intermediate levellocated between the mezzanine and clubhouse floors.  It contains a full-service kitchen whichsupports a full dining menu for the track-side dining terraces on the clubhouselevel 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.

 

*Barn and Backside Facilities.*

 

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

 

*Parking.*

 

Approximately 7,500 paved parking spaces are availablefor patron and employee automobiles at the Racetrack, including parking spacesthat are reserved for handicapped patrons. The Racetrack also has unpaved areas available for overflow parking forapproximately 5,000 additional automobiles. Areas are also reserved for bus parking.

 

*RVPark.*

 

The Company owns and operates a recreational vehicle(RV) park, located two miles from the Racetrack in Shakopee, Minnesota onapproximately 29 acres adjacent to the Minnesota River.  The RV Park has 68 independent sites and 40dependent sites, an indoor swimming pool, laundry facilities, game room andmini store.  The sites are rented tohorsemen participating in Canterbury’s racing operations, seasonal employeesand the general public.

 

*UndevelopedLand.*

 

Approximately 100 acres of the 380 acres owned by theCompany are not necessary for current operations.  This property could be sold in whole or inpart, depending upon future opportunities. The Company regularly evaluates other business activities anddevelopment opportunities that would maximize the use of the real estatesurrounding the Racetrack and which would complement the Company’s primarybusinesses of horse racing and card club operations.  In 2007, the Company conducted planning andresearch to develop a portion of our land into a unique retail andentertainment destination.

 

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

 

There are no material legal proceedings pendingagainst the Company.  From time to time,the Company is party to ordinary and routine litigation incidental to ourbusiness.  We do not expect the outcomeof any such pending litigation to have a material adverse effect on ourconsolidated financial position or results of operations.

 

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

 

Not Applicable.

 

**PART II**

 

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

 

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

 

The Company’s Common Stock trades on the AmericanStock Exchange under the symbol ECP.  Thetable set forth below indicates the high and low sale prices for the CommonStock in the quarterly periods ending December 31, 2007 and 2006.

 
| ** **     | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| ** **     | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
|           |       |     |       |     |       |   |   |   |   |
| Common Stock   |       |     |       |     |       |   |   |   |   |
|           |       |     |       |     |       |   |   |   |   |
| First Quarter  |       | $        | 14.51      |     | $          | 13.06 |   | $ | 15.00 |   | $ | 13.60 |   |
| Second Quarter |       | 14.69    |       | 11.00    |       | 14.50 |   | 13.35 |   |
| Third Quarter  |       | 13.55    |       | 11.45    |       | 13.80 |   | 12.50 |   |
| Fourth Quarter |       | 12.94    |       | 10.01    |       | 13.69 |   | 12.60 |   |
|                |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

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

 

At March 14, 2008, the Company had 768 holders ofrecord of its common stock.  In addition,on that date, a depository company held approximately 2,617,000 shares asnominee for an estimated 1,733 beneficial holders.

 

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

 

The Company paid special cash dividends on its commonstock of $.25 per share on July 13, 2007 and $.25 per share on July 14,2006.  The Company has not adopted anypolicy regarding the payment of dividends and further dividend payments, ifany, would require Board of Director approval.

 

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

 

Thefollowing table sets forth information as of December 31, 2007 regardingour equity compensation plans.

 

Securities Authorized for Issuance Under EquityCompensation 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                                                  |       | 605,900                                                                                                                                                                          |       | $                                                                                                                | 11.00      |                                                                                                                                                                                                                  | 173,500    |   |
| 1995 Employee  Stock Purchase Plan                               |       | —                                                                                                                                                                           |       | —                                                                                                           |       | 121,395                                                                                                                                                                                                               |       |
|                                                             |       |                                                                                                                                                                             |       |                                                                                                             |       |                                                                                                                                                                                                                  |       |
| Equity  compensation plans not approved by security holders:     |       |                                                                                                                                                                             |       |                                                                                                             |       |                                                                                                                                                                                                                  |       |
| Stock Option  Plan for Non-Employee Consultants and Advisors (2) |       | —                                                                                                                                                                           |       | —                                                                                                           |       | 172,500                                                                                                                                                                                                               |       |
|                                                             |       |                                                                                                                                                                             |       |                                                                                                             |       |                                                                                                                                                                                                                  |       |
| Total                                                            |       | 605,900                                                                                                                                                                          |       |                                                                                                             |       | 467,395                                                                                                                                                                                                               |       |
|                                                                  |            |                                                                                                                                                                                  |            |                                                                                                                  |            |                                                                                                                                                                                                                       |            |  |

 

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(1) The Company does not have individual compensation arrangementsinvolving the granting of options, warrants, rights or restricted stock.

 

(2) Adoptedby the Company’s Board of Directors in 1997, the purpose of the Stock OptionPlan for Non-Employee Consultants and Advisors is to attract and retain theservices of experienced and knowledgeable non-employee consultants and advisorsto assist in projects having strategic significance for the Company, to providean alternative form of cash compensation to such persons and to provide such personswith the opportunity to participate in the Company’s long term progress andsuccess.

 

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

 

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

 

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

 

Not applicable.

 

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

 

As reflected inthe following table, on November 2, 2006 the Company announced that itsBoard of Directors authorized the repurchase of up to 100,000 shares of theCompany’s common stock.  On December 6,2006, the Company repurchased 53,050 shares of common stock at a price of$13.10 per share for an aggregate purchase price of $694,955.  During 2007, the Company repurchased theremaining 46,950 shares at an average price of $11.59 per share for a total of$544,110.  A month-by-month breakdown ofpurchases is included in the following table.

 
| **Period**                       | ** ** | **Total Number of  Shares  Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plan** | ** ** | **Maximum Number  of Shares that May  Yet Be Purchased  Under the Plan** | ** ** |
|----------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|
| Nov 1 to Nov 30,  2006           |       | —                                           |       | —                                           |       | —                                                                                                        |       | 100,000                                                                                                          |       |
| Dec 1 to Dec 31,  2006           |       | 53,050                                           |       | $                                                | 13.10      |                                                                                                          | 53,050     |                                                                                                             | 46,950     |   |
| Jan 1 to Jan 31,  2007           |       | —                                           |       | —                                           |       | —                                                                                                        |       | 46,950                                                                                                           |       |
| Feb 1 to Feb 28,  2007           |       | —                                           |       | —                                           |       | —                                                                                                        |       | 46,950                                                                                                           |       |
| Mar 1 to Mar 31,  2007           |       | —                                           |       | —                                           |       | —                                                                                                        |       | 46,950                                                                                                           |       |
| Apr 1 to Apr 30,  2007           |       | —                                           |       | —                                           |       | —                                                                                                        |       | 46,950                                                                                                           |       |
| May 1 to  May 31, 2007 |       | —                                           |       | —                                           |       | —                                                                                                        |       | 46,950                                                                                                           |       |
| Jun 1 to Jun 30,  2007           |       | —                                           |       | —                                           |       | —                                                                                                        |       | 46,950                                                                                                           |       |
| Jul 1 to Jul 31,  2007           |       | —                                           |       | —                                           |       | —                                                                                                        |       | 46,950                                                                                                           |       |
| Aug 1 to Aug 31,  2007           |       | 3,555                                            |       | $                                                | 12.54      |                                                                                                          | 56,605     |                                                                                                             | 43,395     |   |
| Sept 1 to Sept  30, 2007         |       | 826                                              |       | $                                                | 12.56      |                                                                                                          | 57,431     |                                                                                                             | 42,569     |   |
| Oct 1 to Oct 31,  2007           |       | 16,925                                           |       | $                                                | 12.02      |                                                                                                          | 74,356     |                                                                                                             | 25,644     |   |
| Nov 1 to Nov 30,  2007           |       | 20,602                                           |       | $                                                | 11.12      |                                                                                                          | 94,958     |                                                                                                             | 5,042      |   |
| Dec 1 to Dec 31,  2007           |       | 5,042                                            |       | $                                                | 11.25      |                                                                                                          | 100,000    |                                                                                                             | 0          |   |
| Total                            |       | 100,000                                          |       |                                             |       | 100,000                                                                                                       |       | 0                                                                                                                |       |

 

17

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

 

(In thousands except forper share amounts)

 
| ** **                        | ** ** | **Year Ended December 31** | ** ** |
|-----------------------------------|------------|-------------------------------------------|------------|
| ** **                        | ** ** | **2007**                                  | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| **OPERATING  DATA**               |       |                                      |       |   |   |   |   |   |   |   |   |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Net Revenues                      |       | $                                         | 52,880     |   | $ | 55,840 |   | $ | 54,920 |   | $ | 54,428 |   | $ | 47,471 |   |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Operating  expenses               |       | 48,723                                    |       | 50,660 |   | 49,474 |   | 47,661 |   | 42,212 |   |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Income Before  Income Tax Expense |       | 4,486                                     |       | 5,459 |   | 5,565 |   | 6,801 |   | 5,299 |   |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Income Tax  Expense               |       | (1,865                                    | )          | (2,334 | ) | (2,512 | ) | (2,939 | ) | (2,429 | ) |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Net Income                        |       | $                                         | 2,621      |   | $ | 3,125 |   | $ | 3,053 |   | $ | 3,862 |   | $ | 2,870 |   |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Basic Net Income  per Share       |       | $                                         | .65        |   | $ | .78 |   | $ | .78 |   | $ | 1.02 |   | $ | .78 |   |
| Diluted Net  Income per Share     |       | .62                                       |       | .74 |   | .73 |   | .92 |   | .70 |   |
| Dividends per  Share              |       | .25                                       |       | .25 |   | .25 |   | .25 |   | .15 |   |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Cash Flow from  Operations        |       | $                                         | 4,608      |   | $ | 5,973 |   | $ | 4,714 |   | $ | 6,336 |   | $ | 4,702 |   |

 
| ** **                                       | ** ** | **At December 31** | ** ** |
|--------------------------------------------------|------------|------------------------------|------------|
| ** **                                       | ** ** | **2007**                     | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                       | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **BALANCE  SHEET DATA**                          | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land,  Buildings & Equipment            |       | $                            | 25,038     |   | $ | 24,904 |   | $ | 22,694 |   | $ | 20,439 |   | $ | 17,113 |   |
|                                             |       |                         |       |   |   |   |   |   |   |   |   |
| Total Assets                                     |       | 36,106                       |       | 34,351 |   | 31,440 |   | 28,223 |   | 22,418 |   |
|                                             |       |                         |       |   |   |   |   |   |   |   |   |
| Stockholders’  Equity                       |       | 28,578                       |       | 26,860 |   | 24,358 |   | 20,996 |   | 16,826 |   |
|                                             |       |                         |       |   |   |   |   |   |   |   |   |
| Book Value per  Share                            |       | $                            | 7.00       |   | $ | 6.63 |   | $ | 6.15 |   | $ | 5.47 |   | $ | 4.53 |   |
|                                             |       |                         |       |   |   |   |   |   |   |   |   |
| Number of Common  Shares Outstanding at Year End |       | 4,084                        |       | 4,051 |   | 3,960 |   | 3,836 |   | 3,714 |   |

 

18

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I**tem 7.****         ****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

 

The following Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (“MD&A”) is intended to helpthe reader understand Canterbury Park Holding Corporation, our operations andour present business environment.  ThisMD&A is provided as a supplement to – and should be read in conjunctionwith – our consolidated financial statements and the accompanying notes to thefinancial statements (the “Notes”).

 

**STRATEGICOVERVIEW**

 

Canterbury Park Holding Corporation (the “Company”)was incorporated under the laws of Minnesota and acquired land and buildings toconduct pari-mutuel horse racing operations (the “Racetrack”) 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 early May until Labor Day.  Weearn additional pari-mutuel revenue by televising our live racing toout-of-state Racetracks around the country. We also derive revenues from related services and activities, such as advertising,admissions, parking and publication sales and from other entertainment eventsand activities held at the Racetrack.

 

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

 

Our three largestsources of revenues, Card Club operations, pari-mutuel operations andconcessions sales, generate cash revenues. Consequently, the Company is highly liquid and has not utilized its lineof credit in over five years.

 
| **Financial Performance Summary** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                        |       |     |       |     |       |     |       |     |       |     |       |
| Net Revenues                                |       | $        | 52,880     |     | $          | 55,840   |       | $        | 54,920     |     | $          | 54,428 |   | $ | 47,471 |   |
|                                        |       |     |       |     |       |     |       |     |       |     |       |
| Operating  Expenses                         |       | 48,723   |       | 50,660   |       | 49,474   |       | 47,661   |       | 42,212   |       |
|                                        |       |     |       |     |       |     |       |     |       |     |       |
| Income Before  Income Tax Expense           |       | 4,486    |       | 5,459    |       | 5,565    |       | 6,801    |       | 5,299    |       |
|                                        |       |     |       |     |       |     |       |     |       |     |       |
| Income Tax  Expense                         |       | (1,865   | )          | (2,334   | )          | (2,512   | )          | (2,939   | )          | (2,429   | )          |
|                                        |       |     |       |     |       |     |       |     |       |     |       |
| Net Income                                  |       | $        | 2,621      |     | $          | 3,125    |       | $        | 3,053      |     | $          | 3,862 |   | $ | 2,870 |   |

 

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 has begun the processof conducting research to determine the highest and best potential uses of ourunderutilized land.  Our long-termstrategic direction is to enhance the character of our property as a uniquegaming and entertainment destination.

 

19

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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 have also increased live racing attendanceduring a time when the industry trend has generally been downward.

 

Currently,we are the only facility offering live and simulcast racing in our market,although we do have competition in the simulcast market from Internet horseracing sites.  While a number of tribalcasinos located in Minnesota operate the same unbanked card games offered atCanterbury Park, we are currently the only non-tribal operator, and we have theonly non-tribal Poker room operating within the seven-county Twin Citiesmetropolitan area.  However, in January 2005,the Minnesota Racing Commission (“MRC”) granted a second license for theconstruction and operation of a harness racetrack in Columbus Township, AnokaCounty, MN.  Under current law, this licenseewould be allowed to offer live and simulcast wagering only on harnessraces.  The harness racetrack isscheduled to begin live racing in mid-April. Current law also permits the licensee to receive a license to hostunbanked card games in a card room similar to the Company’s Card Club after itconducts a 50-day live harness racing meet. The harness racetrack has submitted their plan of operation and receivedapproval from the MRC and expects to open their card room in July.

 

We continue tobelieve that our best option for long-term growth is to gain authority underMinnesota law to offer additionalgaming options, which would enhance horse racing with increased purses, providegrowth and development opportunities and produce significant new tax revenuesfor state and local governments.  Theeffort to obtain legislative authority for these initiatives has required, andwill continue to require, substantial expenditures.  Due to the inherent uncertainty of theoutcome of legislative activities, there can be no assurance that any billsfavorable to the Company’s interests will be enacted into law, and it ispossible, as a result of the legislative process, that legislation directly orindirectly adverse to the Company 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 and judgments on historical experience, current trends and otherfactors that management believes to be relevant at the time the consolidatedfinancial statements are prepared.  On aregular basis, management reviews the accounting policies, assumptions, estimatesand judgments to ensure that our financial statements are presented fairly andin accordance 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 the following critical accounting policiesaffect our more significant judgments and estimates used in the preparation ofour consolidated financial statements.

 

*Propertyand Equipment -*Wehave significant capital invested in our property and equipment, whichrepresents approximately 69.3% of our total assets at December 31, 2007.We utilize our judgment in various ways including: determining whether anexpenditure is considered a maintenance expense or a capital asset; determiningthe estimated useful lives of assets; and determining if or when an asset hasbeen impaired.  Management periodicallyreviews the carrying value of property and equipment for potential impairmentby comparing the carrying value of these assets with their related expectedfuture net cash flows.  Should the sum ofthe related expected future net cash flows be less than the carrying value, wewill determine whether an impairment loss should be recognized.  An impairment loss would be measured by theamount by which the carrying value of the asset exceeds the fair value of theasset.  To date, we have determined thatno impairment of these assets exists.

 

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*StockBased Employee Compensation* - In December 2004, theFinancial Accounting Standards Board (FASB) revised SFAS No.123, Share BasedPayment (SFAS No. 123R).  ThisStatement supercedes APB Opinion No. 25, which resulted in no stock-basedemployee compensation cost related to stock options if the options granted hadan exercise price equal to the market value of the underlying common stock onthe date of grant.  SFAS No. 123Rrequires recognition of employee services provided in exchange for ashare-based payment based on the grant date fair market value.  The Company adopted SFAS No. 123R as of January 1,2006.  As of the effective date, thisStatement applies to all new awards issued as well as awards modified,repurchased or cancelled.  Additionally,for stock-based awards issued prior to the effective date, compensation costattributable to future services will be recognized as the remaining service isrendered.  The Company elected to applythe modified prospective method of adoption of SFAS No.123R.

 

*Regulation-*Ourbusiness can be materially impacted both positively and negatively bylegislative and regulatory changes, such as those previously described.  Significant negative changes resulting fromthese activities could result in an impairment of our property and equipment inaccordance with generally accepted accounting principles.  Additional information regarding how ourbusiness can be impacted by regulatory and legislative changes are included inItem 1 (vi) and Item 1 (vii), respectively, in this Form 10-K.

 

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

##### * *

In 2006, the FASB issued Interpretation No. 48, *“Accounting for Uncertainty in Income Taxes*(“FIN 48”),which clarifies the accounting for uncertainty in income taxes recognized in acompany’s financial statements in accordance with FASB Statement No. 109, *“Accounting for Income Taxes.”*FIN 48describes when an uncertain tax item should be recorded in the financialstatements and for how much, provides guidance on recording interest andpenalties and accounting and reporting for income taxes in interim periods.FIN 48 was effective for the Company’s year beginning January 1,2007.  The adoption of FIN 48 had noeffect on the amounts previously recognized for income taxes.  See Note 3 of notes to consolidated financialstatements for further discussion on income taxes.

 

In September 2006,the FASB issued SFAS No. 157, *FairValue Measurements,* which defines fair value, establishes aframework for measuring fair value, and expands disclosures about fair valuemeasurements. The provisions of SFAS No. 157 are effective for fiscalyears beginning after November 15, 2007. The Company is evaluating the impact the adoption of SFAS No. 157will have on its consolidated results of operations and financial condition.

 

In February 2007,the FASB issued SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities – Including anamendment of FASB Statement No. 115*. SFAS No. 159 permitsentities to choose to measure eligible items at fair value at specified electiondates and report unrealized gains and losses on items for which the fair valueoption has been elected in earnings at each subsequent reporting date. SFAS No. 159is effective for fiscal years beginning after November 15, 2007. TheCompany is evaluating the impact the adoption of SFAS No. 159 will have onits consolidated results of operations and financial condition.

 

In December 2007,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 141(revised) “Business Combinations.”Statement No. 141(R) applies to all business combinations. Under SFASNo. 141(R) an entity is required to recognize the assets acquired,liabilities assumed, contractual contingencies, and contingent consideration attheir fair values on the acquisition date. We are required to adopt thisstatement starting in 2009 and it is to be applied to business combinationsoccurring in 2009 and after. Early adoption of this statement is prohibited.  The Company is evaluating the impact theadoption of SFAS No. 141 (R) will have on its consolidated results ofoperations and financial condition.

 

In December 2007,the FASB issued SFAS No. 160 “Noncontrolling Interests in ConsolidatedFinancial Statements.” Statement No. 160 applies to the accounting fornoncontrolling interests and transactions with noncontrolling interest holdersin consolidated financial statements. SFAS No. 160 changes the accountingand reporting for minority interests, which will be recharacterized asnoncontrolling interests and classified as a component of equity. We arerequired to adopt this statement beginning in 2009. Early adoption of this

 

21

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statementis prohibited and we are currently in the process of evaluating the effect thatthis statement will have on our consolidated results of operations andfinancial condition.

 

**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 the State ofMinnesota and (ii) we begin to conduct off-track betting with respect toor in connection with its operations, we will be required to pay to the IMRFund, L.P. the greater of $700,000 per operating year as defined, or 20% of thenet pretax profit as defined, for each of five operating years.  At this time, we believe that the likelihoodthat these two conditions will be met and that we will be required to pay theseamounts is remote.  At the date (if any)that these two conditions are met, the five minimum payments will be discountedback to their present value and the sum of those discounted payments will becapitalized as part of the purchase price in accordance with generally acceptedaccounting principles.  The purchaseprice will be further increased if payments become due under the “20% of NetPretax Profit” calculation.  The firstpayment is to be made 90 days after the end of the third operating year inwhich off-track betting is conducted by us. Remaining payments would be made within 90 days of the end of each ofthe next four operating years.

 

TheCompany is periodically involved in various legal actions arising in the normalcourse of business.  At December 31,2007, management believes that the resolution of any legal actions outstandingwill not have a material impact on the consolidated financial statements.

 

**OPERATIONS REVIEW**

 

###### ***YEARENDED DECEMBER 31, 2007 COMPARED TO YEAR ENDED DECEMBER 31, 2006***

 

**OPERATING REVENUES**

 

Total net operatingrevenues for the year ended December 31, 2007 were $52.9 million, adecrease of  $2,960,000, or 5.3%,compared to total operating revenues of $55.8 million for the year ended December 31,2006.  Total Card Club revenues decreased5.1%, pari-mutuel revenues decreased 7.2% and concession revenues remainedrelatively unchanged in fiscal 2007 compared to fiscal 2006.   Discussions of pari-mutuel and Card Clubrevenues follow.

 

**SUMMARY OF PARI-MUTUEL OPERATING DATA:**

 
| ** **                              | ** ** | **Year Ended  12/31/07** | ** ** | **Year Ended  12/31/06** | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| **Racing  Days**                        | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Simulcast only  days                    |       | 296                           |       | 296                           |       |
| Live and  simulcast days                |       | 68                            |       | 68                            |       |
| **Total  Racing Days**                  |       | 364                           |       | 364                           |       |
| **On-Track  Handle**                    |       |                          |       |                          |       |
| Simulcast handle  on non-live race days |       | $                             | 37,906,000 |                          | $          | 41,291,000 |   |
|                                    |       |                          |       |                          |       |
| Simulcast handle  on live race days     |       | 15,912,000                    |       | 16,772,000                    |       |
| Total simulcast  handle                 |       | 53,818,000                    |       | 58,063,000                    |       |
|                                    |       |                          |       |                          |       |
| Live racing  handle                     |       | 15,375,000                    |       | 16,877,000                    |       |
| **Total  On-Track Handle**              |       | 69,193,000                    |       | 74,940,000                    |       |
|                                    |       |                          |       |                          |       |
| **Out-of-state  Live Handle**           |       | 19,572,000                    |       | 19,246,000                    |       |
| **Total  Handle**                       |       | $                             | 88,765,000 |                          | $          | 94,186,000 |   |
| **On-Track  Average Daily Handle**      |       |                          |       |                          |       |
| Simulcast only  days                    |       | $                             | 128,000    |                          | $          | 139,500 |   |
| Live and  simulcast days                |       | 460,000                       |       | 495,000                       |       |

 

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Pari-mutuel revenues include commission and breakagerevenues on live on-track and simulcast racing, fees received from out-of-stateracetracks for wagering on our live races and proceeds from uncashed winningtickets.  Pari-mutuel revenues decreasedto $15.2 million from $16.4 million in 2006, primarily reflecting a decrease inon-track live racing and simulcast handle in 2007 compared to 2006.

 

Total handle wagered on simulcast races in 2007decreased $4,245,000, or 7.3%, compared to 2006.  Lower patron wagering can be partiallyattributed to growing competition from Internet wagering considered to beillegal in the state of Minnesota.  Also,the general downturn in economic conditions during 2007 and the unfavorablelegislation severely restricting smoking in all public places in Minnesota,which became effective October 1, 2007, has resulted in lower handle.

 

On-track live handle decreased by $1,502,000, or 8.9%,for the 2007 live meet compared to the live meet in 2006 due partly to the factthat in 2007, the Company offered 30 fewer races to achieve the desired pursestructure.  Also, in 2007, CanterburyPark did not hold the Claiming Crown event, which resulted in less on-trackhandle being recorded compared to the same weekend in 2006 in which theClaiming Crown was held.

 

Wagering at out-of-state tracks on races conducted atthe Racetrack during the 2007 live meet increased $326,000, or 1.7%, comparedto the 2006 meet primarily due to increased wagering at certain out-of-statelocations.

 

Revenues recognized onproceeds from winning pari-mutuel tickets which were not presented for paymentwithin one year of the end of the respective race meets decreased approximately$25,000 in 2007 compared to 2006, primarily due to reduced amounts wagered onsimulcast horse races.

 

**SUMMARY OF CARD CLUB REVENUES:**

 
| ** **                | ** ** | **Year Ended  12/31/07** | ** ** | **Year Ended  12/31/06** | ** ** |
|---------------------------|------------|-------------------------------|------------|-------------------------------|------------|
|                      |       |                          |       |                          |       |
| Poker Games               |       | $                             | 17,753,000 |                          | $          | 18,281,000 |   |
| Casino Games              |       | 9,740,000                     |       | 10,948,000                    |       |
| Total Collection  Revenue |       | 27,493,000                    |       | 29,229,000                    |       |
|                      |       |                          |       |                          |       |
| Other Revenue             |       | 1,126,000                     |       | 939,000                       |       |
|                      |       |                          |       |                          |       |
| Total Card Club  Revenue  |       | $                             | 28,619,000 |                          | $          | 30,168,000 |   |
|                      |       |                          |       |                          |       |
| Number of Days  Offered   |       | 364                           |       | 364                           |       |
| Average Revenue  per Day  |       | $                             | 78,600     |                          | $          | 82,900 |   |

 

The primary source of Card Club revenue is apercentage of the wagers received from the players as compensation forproviding the Card Club facility and services, referred to as “collectionrevenue”.  Other Revenue presented aboveincludes fees collected for the administration of tournaments and amountsearned as reimbursement for the administrative costs of maintaining the jackpotfunds.

 

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.  Since December 2005, there have been atotal of 34 tables in the poker area and 16 tables in the casino games area.

 

Total Card Club revenuedecreased $1,549,000, or 5.1%, compared to 2006.  The decrease in Card Club revenue is dueprimarily to the decrease in casino games revenue of $1,208,000, or 11.0%, in2007 over 2006.  Casino games revenue hasdecreased as a result of the unfavorable smoking legislation that went intoeffect on October 1, 2007.  Tribalcasinos located in Minnesota are not bound by this legislation and willcontinue

 

23

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tooffer various gaming alternatives in an environment that allows smoking.  Revenue in the poker room also decreased$528,000, or 2.8%, in 2007 over 2006 primarily as a result of this legislation.

 

Card Club revenues represent 54.1% and 54.0% of netrevenues for 2007 and 2006, respectively.

 

We expect that competition from Internet wagering andtribal casinos will continue to put pressure on Card Club operating revenues infuture periods.  Also, the Companyanticipates an unfavorable impact due to new competition in the card club andcasino games industry with the opening of the harness racetrack.  As a result, we continue to search foropportunities to make Canterbury Park the most attractive alternative when ourcustomers want to wager on card games.

 

Concession revenues remained relatively stable in2007, $6,077,000 compared to $6,049,000 in 2006.

 

The Company experienced an increase in admission andparking revenues due to fewer days of free admission being offered.  Publication sales revenues slightly decreaseddue to the decrease in the amount of pari-mutuel wagering.

 

Other operating revenuedecreased $293,000, or 12.7%, to $2,019,000 in fiscal year 2007 compared to2006.  The decrease in 2007 was dueprimarily to a decrease in the corporate sponsorships and advertising revenuesof $97,000, a decrease in the gain on sale of assets of $85,000, and a decreasein cash services fees of $51,000 resulting from decreased patronage in the CardClub. Promotional allowances remained relatively stable year-over-year butincreased as a percentage in total net revenues due to the addition of a playertracking system that allows the Company to now offer promotional awards toplayers in the poker room in addition to those already being offered in thecasino games room.

 

**OPERATINGEXPENSES**

 

Total operating expenses decreased approximately$1,937,000, or 3.8%, to $48,723,000 in 2007, from $50,660,000 in 2006 primarilydue to decreases in statutory purses, salaries, wages and benefit costs,advertising and marketing and insurance. See below for a detailedquantification of each of these items. Total operating expenses as a percentage of net revenues increased to92.1% from 90.7% in 2006. We experienced a decrease in pari-mutuel and cardclub revenues in 2007.  As a result,despite decreases in variable pari-mutuel expenses, salaries and benefits, andpurse expenses, operating expenses became a larger percentage of totalrevenues.

 

Total purse expensedecreased $467,000, or 5.3%, in 2007 compared to 2006 as presented in the tablebelow.  Minnesota law requires us toallocate a portion of funds received from betting in the Card Club and wageringon simulcast and live horse races for future payment as purses for live horseraces or other uses of Minnesota’s horsepersons’ associations.  Purse expense relates to card club, simulcast,and live racing.  A description of howthe purse expense is calculated for these three expenses is given below.  The decline in Card Club revenues in 2007compared to 2006 resulted in the decreases in Card Club purse and MBF expenseshown in the table below.  Total purseexpense associated with simulcast racing decreased in 2007 compared to 2006 dueto lower wagering levels.  We experienceda decrease in live racing purse expense, which is attributable to loweron-track wagering.

 
| ** **       | ** ** | **Purse Expense** | ** ** | **Minnesota Breeders’ Fund  Expense** | ** ** |
|------------------|------------|------------------------|------------|------------------------------------------------------|------------|
| ** **       | ** ** | **2007**               | ** ** | **2006**                                             | ** ** | **2007** | ** ** | **2006** | ** ** |
|             |       |                   |       |                                                 |       |   |   |   |   |
| Card Club        |       | $                      | 3,864,000  |                                                 | $          | 4,073,000 |   | $ | 429,000 |   | $ | 453,000 |   |
|             |       |                   |       |                                                 |       |   |   |   |   |
| Simulcast Racing |       | 2,976,000              |       | 3,043,000                                            |       | 600,000 |   | 646,000 |   |
|             |       |                   |       |                                                 |       |   |   |   |   |
| Live Racing      |       | 1,505,000              |       | 1,696,000                                            |       | 154,000 |   | 169,000 |   |
|             |       |                   |       |                                                 |       |   |   |   |   |
| Total            |       | $                      | 8,345,000  |                                                 | $          | 8,812,000 |   | $ | 1,183,000 |   | $ | 1,268,000 |   |

 

24

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While we are obligatedby state law to pay up to 14% of Card Club revenues to the purse fund and MBF, pursuantto an agreement with the MHBPA, we paid a total of 15% of total Card Clubrevenues to these funds in 2007 and 2006. The amounts paid are allocated 90% to the purse funds and 10% to theMBF.

 

The amounts paid to thepurse fund for simulcast racing differ depending upon whether the simulcastwagering occurs during the “Racing Season,” a statutorily defined 25-weekperiod beginning in early May each year, or outside of the RacingSeason.  We paid an average of 5.53% ofhandle to the purse fund in 2007, compared to 5.24% in 2006.  We pay 5.50% of pari-mutuel simulcastcommission revenues to the MBF; consequently, lower revenues result in lowerMBF expense.

 

Minnesota law generallyprovides that a minimum of 8.4% of the on-track live racing handle be paid tothe purse fund.  The amount paid to thepurse 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.

 

We also experienced areduction in host fees of $117,000, or 5.4%, in 2007 compared to 2006 due tolower wagering experienced in 2007 compared to 2006.

 

Salary and benefitexpenses decreased by $888,000, or 4.0%, for the twelve months ended December 31,2007 compared to the twelve months ended December 31, 2006.  The decrease in salaries and benefits expenseis primarily attributable to a reduction in force initiative that wasimplemented during 2007.  Wages directlyrelated to non full-time employees decreased $447,000 due to general efforts tocontrol labor costs in that area.  Inaddition, the cost of providing health and medical benefits to our employeesdecreased by $170,000 in 2007 compared to 2006 as a result of this initiative.

 

Depreciation expense increased $165,000, or 9.0%, in2007 compared to 2006 and reflects significant investments in our facilitiesduring the past several years.  Beginningin late 2004, we have continually added improvements to the stable area andtraining facilities.  We have madevarious other investments in building improvements and furniture, fixtures andequipment in both 2007 and 2006.

 

Utilities expense increased $166,000, or 12.0%, in2007 primarily due to higher energy costs for electricity and natural gascompared to 2006.

 

The Company experienceddecreases in repair and maintenance of $87,000 and a decrease in advertisingand marketing expenses of $251,000 primarily due to focused efforts on expensereduction in 2007 compared to 2006.

 

Insurance expensedecreased $165,000, or 14.7%, in 2007 compared to 2006.  The decrease is attributable to ratedecreases, lower volumes of business activity and a decrease in labor costs forthe company in 2007.

 

Net other incomeincreased $50,000, or 17.9%, in 2007 compared to 2006.  This increase is primarily attributable to a$45,000 increase in interest income on our primary bank account balance during2007.  The average balance in our primarycash account increased throughout 2007 compared to 2006, although the interestrate earned on those balances decreased from 4.39% at the end of 2006 to 3.29%at the end of 2007.

 

Income tax expenseas a percentage of pre-tax income decreased to 41.6% for the year ended December 31,2007 from 42.8% for the year ended December 31, 2006. The decrease isprimarily attributable to a reduced level of non-deductible lobbying expensesin 2007 compared to 2006.

 

As a result of allof the above, net income decreased $504,000, or 16.1%, to $2,621,000 for theyear ended December 31, 2006 compared to $3,125,000 for the year ended December 31,2006.

 

25

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**LIQUIDITYAND CAPITAL RESOURCES**

 

At December 31, 2007, we had cash and cashequivalents of $7.0 million compared to $5.7 million at December 31,2006.  This $1,300,000 increase consistsof $4.6 million net cash provided by operating activities, offset by $2.1million net cash used in investing activities and $1.2 million net cash used infinancing activities.  In addition, as ofDecember 31, 2007, we had $2.25 million of capacity under a commercialrevolving credit line as part of a general credit and security agreement withBremer Bank.  In April 2007, thisagreement was renewed for an additional one-year term.  We had no borrowings under the credit line in2007 or 2006.

 

Our three largest sources of revenue, pari-mutuelwagering, card club operations and concessions, are all based on cashtransactions.  Consequently, we havesignificant inflows of cash on a daily basis. We designate cash balances which will be required to satisfy certain short-termliabilities such as progressive jackpots, the player pool and amounts duehorsemen for purses and awards as “restricted.”

 

The Company’s Casino Games are required by law to be “unbanked”.   “Unbanked” refers to a wagering system orgame where wagers “lost” or “won” by the host are accumulated into a playerpool liability for purposes of enhancing the total amount paid back to playersin any other card game.  The Company mayonly serve as custodian of the player pool. It may not have an active interest in any card game and does notrecognize net “wins” or “losses” as revenue. The Company is required to return accumulated player pool funds to theplayers through giveaways, promotional items, prizes or by other means.  The player pool liability was approximately$833,000 at December 31, 2007 compared to $137,000 at December 31,2006.

 

The Card Club offers progressive jackpots for Pokergames.  Amounts collected for thesejackpot funds are accrued as liabilities until paid to winners.  At December 31, 2007, accrued jackpotfunds totaled approximately $742,000 compared to $897,000 at December 31,2006.   The MRC regulates the operationof the player pool and progressive jackpot pools.  These liabilities have the potential forsignificant fluctuation on a daily basis.

 

All games in the Card Club are played usingchips.  The value of chips issued andoutstanding, referred to as the “outstanding chip liability,” was approximately$248,000 at December 31, 2007, compared to $226,000 at December 31,2006. This liability has the potential for significant fluctuation on a dailybasis depending upon the demand for chip redemptions and sales.

 

Our second largestoperating expense item is purse expense. Pursuant to an agreement with the MHBPA, we transferred into a trustaccount or paid directly to the MHBPA approximately $7,575,000 and $7,825,000in purse funds for the years ended December 31, 2007 and 2006,respectively.  Minnesota Statutes specifythat amounts transferred into trust are the property of the trust and not theCompany.  Unpaid purse fund obligationsdue the MHBPA were $56,951 and $140,281 at December 31, 2007 and 2006,respectively.  The weighted averageinterest rates on any purses accrued but not transferred into the trust were7.25% and 8.25% at December 31, 2007 and 2006, respectively.

 

Unrestricted cashbalances at December 31, 2007 were $7,050,389 compared to $5,745,556 at December 31,2006. The Company believes that the funds available in its cash accounts,amounts available under the general credit and security agreement, along withfunds generated from operations, will be sufficient to satisfy its liquidityand capital resource requirements for regular operations for the foreseeablefuture.

 

*CASH FLOWS FROM OPERATING ACTIVITIES*

 

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.

 

Net cash provided by operations during the year ended December 31,2006 was $5,973,305, which resulted primarily from net income of $3,125,043,depreciation of $1,834,012, an increase in accounts payable

 

26

----

 

and accrued wages and payroll taxes of $498,704, an increase instock-based compensation expense of $239,428 and a decrease in restricted cashof $73,925.  The increase in accountspayable and accrued wages and payroll taxes includes an increase of $320,478 inaccrued wages and payroll taxes and an increase of $178,226 in accounts payableand accruals.  Year-end payroll accrualsincreased $331,000 due to an increase in the number of days payable as ofyear-end 2006.  The increase in accountspayable is primarily due to increases in payables to other racetracks for feesand settlements of $100,000 and to an increase in trade payables and expenseaccruals of $47,000, and an increase of $28,196 representing the net effect ofnon-cash investing activities for additions to land, buildings and equipmentfunded through accounts payable during the year ended December 31,2006.  The decrease in restricted cashresults primarily from a decrease of $305,000 in the player pool, attributableto an increase in promotions and giveaways to patrons during the fourth quarterof 2006, partially offset by an increase in the progressive jackpot pools of$218,000.

 

*CASH FLOWS FROM INVESTING ACTIVITIES*

 

Cash used in investing activities for the year ended December 31,2007 totaled $2,138,871 and primarily reflects capital improvements tobuildings and land, including the backside barns and a mutuel island remodel,and additions to furniture and equipment, including new boilers, digital videoequipment and a player tracking system in the Card Club.

 

Cash used in investing activities for the year ended December 31,2006 totaled $4,000,467 and primarily reflects capital improvements tobuildings and land, including a new Card Club lounge area and backside barns,and additions to furniture and equipment, including a video messaging displayfor the racetrack infield.

 

*CASH FLOWS FROM FINANCING ACTIVITIES*

 

Net cash used infinancing activities was $1,164,321 for the year ended December 31, 2007compared to cash used in financing activities of $1,066,648 for the year ended December 31,2006. The 2007 net cash outflows resulted primarily from a $.25 per share cashdividend 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.

 

Cash used in financingactivities was $1,066,648 for the year ended December 31, 2006 compared tocash used in financing activities of $200,762 for the year ended December 31,2005. The 2006 net cash outflows resulted primarily from a $.25 per share cashdividend totaling $1,010,796 paid in July 2006.  In addition, on December 6, 2006,pursuant to a Stock Repurchase Plan approved in November 2006, the Companyrepurchased 53,050 shares of common stock at a price of $13.10 per share for atotal price of $694,955. These outflows were partially offset by proceeds of$532,956 received upon the issuance of common stock due to the exercise ofstock options and shares of common stock purchased by employees pursuant to ourEmployee Stock Purchase Plan and the related excess tax benefit of $106,147.

 

**OFF-BALANCE SHEET ARRANGEMENTS**

 

The Company currentlyhas no off-balance sheet arrangements and has no intent to enter into any suchagreements in the near future.

 

**COMMITMENTS AND CONTRACTUALOBLIGATIONS**

 

InJanuary 2004, the Company entered into a five-year totalizator servicesagreement with Scientific Games Inc. (formerly Autotote Systems, Inc.).  Pursuant to the agreement, Scientific Gamesprovides totalizator equipment and computer programs which record and processall wagers and calculate odds and payoffs. Amounts charged to operations under this agreement for the years ended December 31,2007 and 2006 were approximately $315,000 and $342,000, respectively.  During annual live race meets, ScientificGames provides uplink services, which enables the Company to simulcast horseraces held at Canterbury Park to out-of-state

 

27

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racetracks.  These services resulted in amounts charged tooperations in 2007 and 2006 of approximately $136,000 and $138,000,respectively.  Effective March 1,2008, the company renegotiated its totalizator services agreement withScientific Games and entered into a six-year agreement with Scientific Games,whereby the performance of Scientific Games remains consistent with what isdescribed above.

 

We have entered into operating leases for rentalof office equipment and equipment to print certain publications.  Amounts charged to operations under theseagreements for the years ended December 31, 2007, and December 31,2006 were approximately $94,000 and $96,000, respectively.  All such leases expire on or before April 30,2010.

 

Since December 31, 2007, there have been nomaterial changes outside the ordinary course of business to our contractualobligations as set forth above.   As of December 31,2007, we had no borrowings pursuant to our line of credit and were not party tocapital lease obligations, significant purchase obligations or other long-termobligations.

 

**FORWARD-LOOKING STATEMENTS**

 

Fromtime to time, in reports filed with the Securities and Exchange Commission, inpress releases, and in other communications to shareholders or the investingpublic, we may make forward-looking statements concerning possible oranticipated future financial performance, prospective business activities orplans which are typically preceded by words such as “believes,” “expects,” “anticipates,”“intends” or similar expressions.  Forsuch forward-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 resultsto differ 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 in compensationand employee benefit costs; increases in the percentage of revenues allocatedfor purse fund payments; higher than expected expense related to new marketinginitiatives; the impact of wagering products and technologies introduced bycompetitors; legislative and regulatory decisions and changes; the generalhealth of the gaming sector; and other factors that are beyond our ability tocontrol or predict.

 

**Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

Canterbury Park is not required to provide theinformation requested by this Item as it qualifies as a smaller reportingcompany.

 

28

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**Item 8.****           FINANCIAL STATEMENTSAND SUPPLEMENTARY DATA**

 

(a)                                  Financial Statements

 

The following financialstatements of the Company are set forth on pages 30 through 46 of the Form 10-K:

 
| ** **                                                                                                            | **Page** |
|-----------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                  |     |
| Management’s  Report on Company’s Internal Control over Financial Reporting                                 | 30       |
|                                                                                                                  |     |
| Report of  Independent Registered Public Accounting Firm                                                              | 31       |
|                                                                                                                  |     |
| Consolidated Balance  Sheets as of December 31, 2007 and 2006                                                    | 32       |
|                                                                                                                  |     |
| Consolidated  Statements of Operations for the years ended December 31, 2007 and 2006                            | 33       |
|                                                                                                                  |     |
| Consolidated  Statements of Changes in Stockholders’ Equity for the years ended  December 31, 2007 and 2006 | 34       |
|                                                                                                                  |     |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2007 and 2006                            | 35       |
|                                                                                                                  |     |
| Notes to  Consolidated Financial Statements for the years ended December 31, 2007  and 2006                      | 36       |

 

29

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**MANAGEMENT’SREPORT ON COMPANY’S INTERNAL CONTROL OVER FINANCIAL REPORTING**

 

Management is responsiblefor establishing and maintaining an adequate system of internal control overfinancial reporting of the Company. This system is designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withaccounting principles generally accepted in the United States of America.

 

The Company’s internal controlover financial reporting includes those policies and procedures that (i) pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the Company; (ii) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the Company arebeing made only in accordance with authorizations of management and directorsof the Company; (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 its inherentlimitations, internal control over financial reporting can only providereasonable assurance and may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

Management conducted anevaluation of the effectiveness of the system of internal control overfinancial reporting as of December 31, 2007. In making this evaluation,management used the criteria set forth by the Committee of SponsoringOrganizations of the Treadway Commission (COSO) in *Internal Control — Integrated Framework.*Based on management’sevaluation and those criteria, management concluded that the Company’s systemof internal control over financial reporting was effective as of December 31,2007.

 

This annual report doesnot include an attestation report of the company’s registered public accountingfirm regarding internal control over financial reporting. Management’s reportwas not subject to attestation by the Company’s registered public accountingfirm pursuant to temporary rules of the Securities and Exchange Commissionthat permit the company to provide only management’s report in this annualreport.

 
| Date: March 31, 2008 | /s/ Randall D. Sampson     |   |
|---------------------------|----------------------------|--------|
|                      | Randall D. Sampson         |   |
|                      | *President  and*           |   |
|                      | *Chief  Executive Officer* |   |

 

 
| Date: March 31, 2008 | /s/ David C. Hansen        |   |
|---------------------------|----------------------------|--------|
|                      | David C. Hansen            |   |
|                      | *Vice  President and*      |   |
|                      | *Chief  Financial Officer* |   |

 

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

 

30

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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, 2007 and 2006, and therelated consolidated statements of operations, stockholders’ equity, and cashflows for each of the two years in the period ended December 31, 2007. Theseconsolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on the financialstatements based on our audits.

 

We conducted our auditsin accordance with standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. The Company is not required to have, nor were we engagedto perform, an audit of its internal control over financial reporting. Ouraudits included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. 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. We believethat our audits provide a reasonable basis for our opinion.

 

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of Canterbury Park Holding Corporation and subsidiaries asof December 31, 2007 and 2006 and the results of their operations andtheir cash flows for each of the two years in the period ended December 31,2007, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

Deloitte &Touche LLP

 

 

March 27, 2008

Minneapolis, Minnesota

 

31

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**CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATED BALANCE SHEETS**

DECEMBER 31, 2007 AND2006

 
| ** **                                                                                                                         | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                                                                               |       |       |       |       |       |
| **ASSETS**                                                                                                                         |       |       |       |       |       |
|                                                                                                                               |       |       |       |       |       |
| CURRENT ASSETS                                                                                                                     |       |       |       |       |       |
| Cash                                                                                                                               |       | $          | 7,050,389  |       | $          | 5,745,556 |   |
| Restricted cash                                                                                                                    |       | 2,032,632  |       | 1,915,057  |       |
| Short-term  investments                                                                                                            |       | 80,688     |       | 78,231     |       |
| Accounts  receivable, net of allowance of $46,400 and $38,600, respectively                                                        |       | 749,782    |       | 559,146    |       |
| Inventory                                                                                                                          |       | 169,801    |       | 159,918    |       |
| Prepaid expenses                                                                                                                   |       | 453,350    |       | 733,979    |       |
| Income taxes  receivable                                                                                                           |       | 215,594    |       |       |       |
| Deferred income  taxes (Note 3)                                                                                                    |       | 295,900    |       | 235,200    |       |
| Total current  assets                                                                                                              |       | 11,048,136 |       | 9,427,087  |       |
|                                                                                                                               |       |       |       |       |       |
| LONG-TERM ASSETS                                                                                                                   |       |       |       |       |       |
| Deposits                                                                                                                           |       | 20,000     |       | 20,000     |       |
| Land, buildings  and equipment, net (Note 2)                                                                                       |       | 25,037,636 |       | 24,903,946 |       |
|                                                                                                                               |       |       |       |       |       |
|                                                                                                                               |       | $          | 36,105,772 |       | $          | 34,351,033 |   |
|                                                                                                                               |       |       |       |       |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                     |       |       |       |       |       |
|                                                                                                                               |       |       |       |       |       |
| CURRENT  LIABILITIES                                                                                                               |       |       |       |       |       |
| Accounts payable                                                                                                                   |       | $          | 2,209,639  |       | $          | 2,032,953 |   |
| Card club  accruals                                                                                                                |       | 2,413,796  |       | 2,073,363  |       |
| Accrued wages  and payroll taxes                                                                                                   |       | 1,851,140  |       | 1,866,633  |       |
| Accrued interest  payable                                                                                                          |       | 5,196      |       | 7,303      |       |
| Due to MHBPA  (Note 1)                                                                                                             |       | 56,951     |       | 140,281    |       |
| Accrued property  taxes                                                                                                            |       | 491,630    |       | 457,331    |       |
| Income taxes  payable                                                                                                              |       |       |       | 105,918    |       |
| Payable to  horsepersons                                                                                                           |       | 162,931    |       | 346,779    |       |
| Total current  liabilities                                                                                                         |       | 7,191,283  |       | 7,030,561  |       |
|                                                                                                                               |       |       |       |       |       |
| DEFERRED INCOME  TAXES (Note 3)                                                                                                    |       | 336,400    |       | 460,900    |       |
|                                                                                                                               |       |       |       |       |       |
| COMMITMENTS AND  CONTINGENCIES (Notes 8 and 9)                                                                                     |       |       |       |       |       |
|                                                                                                                               |       |       |       |       |       |
| STOCKHOLDERS’  EQUITY (Notes 4 and 5)                                                                                         |       |       |       |       |       |
| Common stock,  $.01 par value, 10,000,000 shares authorized, 4,084,087 and 4,050,782,  respectively, shares issued and outstanding |       | 40,841     |       | 40,508     |       |
| Additional  paid-in capital                                                                                                        |       | 15,395,778 |       | 14,914,328 |       |
| Accumulated  earnings                                                                                                              |       | 13,141,470 |       | 11,904,736 |       |
| Total  stockholders’ equity                                                                                                   |       | 28,578,089 |       | 26,859,572 |       |
|                                                                                                                               |       |       |       |       |       |
|                                                                                                                               |       | $          | 36,105,772 |       | $          | 34,351,033 |   |

 

See notes to consolidatedfinancial statements.

 

32

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**CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OFOPERATIONS**

YEARS ENDED DECEMBER 31,2007 AND 2006

 
| ** **                                            | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                  |       |       |       |       |       |
| OPERATING  REVENUES:                                  |       |       |       |       |       |
| Pari-mutuel                                           |       | $          | 15,240,131 |       | $          | 16,432,014 |   |
| Card Club                                             |       | 28,619,331 |       | 30,168,349 |       |
| Concessions                                           |       | 6,077,176  |       | 6,049,334  |       |
| Admissions and  parking                               |       | 726,941    |       | 668,235    |       |
| Publications                                          |       | 466,267    |       | 475,886    |       |
| Other operating  revenue                              |       | 2,018,571  |       | 2,311,716  |       |
| Total Revenues                                        |       | 53,148,417 |       | 56,105,534 |       |
| Less Promotional  allowances                          |       | (268,861   | )          | (265,837   | )          |
| Net Revenues                                          |       | 52,879,556 |       | 55,839,697 |       |
|                                                  |       |       |       |       |       |
| OPERATING  EXPENSES:                                  |       |       |       |       |       |
| Purses                                                |       | 8,344,707  |       | 8,811,943  |       |
| Minnesota  Breeders’ Fund                        |       | 1,183,487  |       | 1,267,656  |       |
| Host track fees                                       |       | 2,041,139  |       | 2,158,267  |       |
| Pari-mutuel  taxes                                    |       | 128,564    |       | 210,886    |       |
| Salaries and  benefits                                |       | 21,526,015 |       | 22,414,363 |       |
| Cost of  concessions and publication sales            |       | 3,455,449  |       | 3,438,597  |       |
| Depreciation                                          |       | 1,999,006  |       | 1,834,012  |       |
| Utilities                                             |       | 1,548,273  |       | 1,382,356  |       |
| Repairs,  maintenance and supplies                    |       | 1,213,330  |       | 1,300,566  |       |
| License fees and  property taxes                      |       | 810,018    |       | 786,153    |       |
| Advertising and  marketing                            |       | 1,592,930  |       | 1,843,832  |       |
| Insurance                                             |       | 957,075    |       | 1,122,266  |       |
| Other operating  expenses                             |       | 3,923,325  |       | 4,089,266  |       |
| Total Operating  Expenses                             |       | 48,723,318 |       | 50,660,163 |       |
|                                                  |       |       |       |       |       |
| OTHER (EXPENSE)  INCOME:                              |       |       |       |       |       |
| Interest expense  (Note 7)                            |       | (3,863     | )          | (1,521     | )          |
| Interest income                                       |       | 333,066    |       | 280,729    |       |
| Net Other Income                                      |       | 329,203    |       | 279,208    |       |
|                                                  |       |       |       |       |       |
| INCOME BEFORE  INCOME TAX EXPENSE                     |       | 4,485,441  |       | 5,458,742  |       |
|                                                  |       |       |       |       |       |
| Income tax  expense (Note 3)                          |       | (1,864,701 | )          | (2,333,699 | )          |
|                                                  |       |       |       |       |       |
| NET INCOME                                            |       | $          | 2,620,740  |       | $          | 3,125,043 |   |
|                                                  |       |       |       |       |       |
| WEIGHTED AVERAGE  NUMBER OF COMMON SHARES OUTSTANDING |       | 4,062,866  |       | 4,000,505  |       |
|                                                  |       |       |       |       |       |
| BASIC NET INCOME  PER COMMON SHARE (Note 6)           |       | $          | .65        |       | $          | .78 |   |
|                                                  |       |       |       |       |       |
| DILUTED NET  INCOME PER COMMON SHARE (Note 6)         |       | $          | .62        |       | $          | .74 |   |

 

See notes to consolidatedfinancial statements.

 

33

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**CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

**YEARS ENDED DECEMBER 31, 2007 AND2006**

 
| ** **                                                                    | ** **   | **Number  of Shares** | ** **   | **Common  Stock** | ** **   | **Additional  Paid-in  Capital** | ** **   | **Accumulated  Earnings** | ** **   | **Total**    | ** **   |
|-------------------------------------------------------------------------------|--------------|----------------------------|--------------|-------------------|--------------|----------------------------------|--------------|---------------------------|--------------|--------------|--------------|
|                                                                          |         |                       |         |              |         |                             |         |                      |         |         |         |
| ***Balance  at December 31, 2005***                                      |         | 3,959,885                  |         | $                 | 39,599       |                             | $            | 14,045,248                |         | $            | 10,273,244   |   | $ | 24,358,091 |   |
| *** ***                                                                  | *** *** | *** ***               | *** *** | *** ***      | *** *** | *** ***                     | *** *** | *** ***              | *** *** | *** *** | *** *** |
| Cash dividend  paid                                                           |         |                       |         |              |         |                             |         | (1,010,796                | )            | (1,010,796   | )            |
| Exercise of  stock options and issuance of restricted stock and stock options |         | 126,400                    |         | 1,264             |         | 680,808                          |         |                      |         | 682,072      |         |
| Tax benefit of  stock option exercises                                        |         |                       |         |              |         | 177,199                          |         |                      |         | 177,199      |         |
| Common stock  repurchase                                                      |         | (53,050                    | )            | (530              | )            | (211,670                         | )            | (482,755                  | )            | (694,955     | )            |
| Shares issued  under Employee Stock Purchase Plan                             |         | 7,501                      |         | 75                |         | 90,237                           |         |                      |         | 90,312       |         |
| Shares issued  under Employee Stock Ownership Plan                            |         | 10,046                     |         | 100               |         | 132,506                          |         |                      |         | 132,606      |         |
| Net income                                                                    |         |                       |         |              |         |                             |         | 3,125,043                 |         | 3,125,043    |         |
| ***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 |   |

 

See notes to consolidatedfinancial statements.

 

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**CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

YEARS ENDED DECEMBER 31,2007 AND 2006

 
| ** **                                                                  | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Operating  Activities:**                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                  |       | $          | 2,620,740  |       | $          | 3,125,043 |   |
| Adjustments to  reconcile net income to net cash provided by operations:    |       |       |       |       |       |
| Depreciation                                                                |       | 1,999,006  |       | 1,834,012  |       |
| Stock–based  compensation expense                                      |       | 227,281    |       | 239,428    |       |
| Excess tax  benefit from exercise of stock options                          |       | (68,551    | )          | (106,147   | )          |
| Loss (gain) on  sale of land, buildings & equipment                |       | 10,526     |       | (74,480    | )          |
| Contribution of  common stock to ESOP                                       |       |       |       | 132,606    |       |
| (Decrease)  increase in deferred income taxes                               |       | (81,787    | )          | 13,199     |       |
| (Increase)  decrease in accounts receivable                                 |       | (190,636   | )          | 137,711    |       |
| (Increase)  decrease in restricted cash                                     |       | (117,575   | )          | 73,925     |       |
| Decrease in  other current assets                                           |       | 270,746    |       | 28,549     |       |
| (Decrease)  increase in income taxes payable                                |       | (321,512   | )          | 39,810     |       |
| Increase in  accounts payable and accrued wages & payroll taxes    |       | 154,340    |       | 498,704    |       |
| Increase  (decrease) in card club accruals                                  |       | 340,433    |       | (48,970    | )          |
| Decrease in  accrued interest                                               |       | (2,107     | )          |       |       |
| Increase in  accrued property taxes                                         |       | 34,299     |       | 53,974     |       |
| Decrease in  payable to horsepersons                                        |       | (183,848   | )          | (19,487    | )          |
| (Decrease)  increase in due to MHBPA                                        |       | (83,330    | )          | 45,428     |       |
| Net cash  provided by operations                                            |       | 4,608,025  |       | 5,973,305  |       |
|                                                                        |       |       |       |       |       |
| **Investing  Activities:**                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Additions to  land, buildings and equipment                                 |       | (2,144,144 | )          | (4,071,716 | )          |
| Proceeds from  sale of equipment                                            |       | 7,730      |       | 74,480     |       |
| Increase in  short-term investments                                         |       | (2,457     | )          | (3,231     | )          |
| Net cash used in  investing activities                                      |       | (2,138,871 | )          | (4,000,467 | )          |
|                                                                        |       |       |       |       |       |
| **Financing  Activities:**                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Proceeds from  issuance of common stock                                     |       | 338,934    |       | 532,956    |       |
| Common stock  repurchase                                                    |       | (544,110   | )          | (694,955   | )          |
| Cash dividend to  shareholders                                              |       | (1,027,696 | )          | (1,010,796 | )          |
| Excess tax  benefit from exercise of stock options                          |       | 68,551     |       | 106,147    |       |
| Net cash used in  financing activities                                      |       | (1,164,321 | )          | (1,066,648 | )          |
|                                                                        |       |       |       |       |       |
| Net increase in  cash                                                       |       | 1,304,833  |       | 906,190    |       |
|                                                                        |       |       |       |       |       |
| Cash at  beginning of year                                                  |       | 5,745,556  |       | 4,839,366  |       |
|                                                                        |       |       |       |       |       |
| Cash at end of  year                                                        |       | $          | 7,050,389  |       | $          | 5,745,556 |   |
|                                                                        |       |       |       |       |       |
| **Supplemental  disclosure of non-cash investing activities:**              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Additions to  land, buildings and equipment funded through accounts payable |       | $          | 94,198     |       | $          | 87,345 |   |
|                                                                        |       |       |       |       |       |
| **Supplemental  disclosure of cash flow information:**                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income taxes  paid, net of refunds                                          |       | $          | 2,268,000  |       | $          | 2,225,000 |   |

 

See notes to consolidatedfinancial statements.

 

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**CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**YEARS ENDED DECEMBER 31, 2007 AND2006**

 

1.               SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

 

*Business*- Canterbury Park Holding Corporation (the Company) was incorporated on March 24,1994. On March 29, 1994 the Company acquired all the outstandingsecurities of Jacobs Realty, Inc. (JRI) from Irwin Jacobs and IMR Fund,L.P. (an investment fund for various pension plans and trusts). JRI was mergedinto the Company and the acquisition was accounted for under the purchasemethod of accounting whereby the acquired assets and liabilities have beenrecorded at the Company’s cost. The primary asset of JRI was Canterbury DownsRacetrack 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 of Reorganization, CPC became a whollyowned subsidiary of the Company in August 1994 when the Company completedthe initial public offering of its common stock. This reorganization wastreated in a manner similar to a pooling of interests. Net proceeds received bythe Company from the public offering were approximately $4,847,000, which alongwith additional borrowings under the Company’s line of credit with the majorityshareholder, were used to pay off the remaining notes payable from theacquisition of JRI.

 

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

 

*RevenueRecognition -*Ourrevenues are derived primarily from the operations of a Card Club, pari-mutuelwagering on simulcast and live horse races, concession sales and relatedactivities. Collection revenue from Card Club operations and pari-mutuelcommission and fee revenues are recognized at the time that the wageringprocess 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* - Thepreparation of the consolidated financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the consolidated financial statements and thereported amounts of revenues and expenses during the reporting period. Actualresults could differ from these estimates.

 

*RestrictedCash* – Restricted cash represents refundable deposits andamounts due to horsemen for purses, stakes and awards, and amounts accumulatedin card game progressive jackpot pools, the Player Pool and Poker PromotionalFund to be used to repay card players in the form of promotions, giveaways,prizes, or by other means.

 

*UncashedWinning Tickets –*Pari-mutuel tickets which are not cashedwithin one year of the end of the respective race meet become the property ofthe Company. The Company records revenue associated with the uncashed winningtickets at the time that, based on historical experience, management canreasonably estimate the amount of additional winning tickets from a race meetthat will be presented for payment.

 

*Promotional Allowances –*The Company offers certain promotionalallowances at no charge to patrons who participate in our player rewardsprogram. The retail value of these promotional items is shown as a deduction fromtotal revenues on the Company’s consolidated statements of operations.

 

*Pari-mutuelTaxes –*Thefirst $12 million of pari-mutuel revenue is exempt from the 6% pari-mutuel tax.Pari-mutuel taxes are estimated for each 12-month period from July 1through June 30, and an estimated annual effective tax rate is applied toall pari-mutuel commission revenues.

 

*Due toMinnesota Horsemen’s Benevolent and Protective Association, Inc. (“MHBPA”)*- The Minnesota Pari-Mutuel Horse Racing Act specifies that the Company isrequired to segregate a portion of funds (recorded as purse expense in thestatements of operations), received from card club operations and

 

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wagering onsimulcast and live horse races, for future payment as purses for live horseraces or other uses of the horsepersons’ associations. Pursuant to an agreementwith the MHBPA, the Company has transferred into a trust account or paiddirectly to the MHBPA, approximately $7,575,000 and $7,825,000 for the yearsended December 31, 2007 and 2006, respectively, related to thoroughbredraces. Minnesota Statutes specify that amounts transferred into the trustaccount are the property of the trust and not of the Company. The interestrates on any purses accrued but not transferred into the trust were 7.25% and8.25% at December 31, 2007 and 2006, respectively.

 

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

 

*Depreciation*- Buildings and equipment are depreciated on a straight-line basis over theestimated useful lives of the assets, 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, along with amounts earned by the player pool,promotional pools and the outstanding chip liability, are accrued as short-termliabilities at each balance sheet date.

# * *

*IncomeTaxes* - Income taxes are accounted for under the asset andliability method. Deferred tax assets and liabilities are recognized for theestimated future tax consequences attributable to differences between thefinancial statement carrying amounts of existing assets and liabilities andtheir respective tax bases. Deferred tax assets and liabilities are measuredusing enacted tax rates in effect for the year in which those temporarydifferences are expected to reverse.

 

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 accounting for uncertainty in income taxesrecognized in an enterprise’s financial statements in accordance with FASBStatement 109, *Accounting for Income Taxes,*andprescribes a recognition threshold and measurement process for financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. FIN 48 also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure and transition. Interest and penalties associated with uncertainincome tax positions are presented in income tax expense. The Company has notrecorded any significant income tax related interest or penalties during any ofthe periods presented. Upon implementation, we determined all recorded benefitsand income tax positions were more-likely-than-not. Therefore, no cumulativeeffect relating to the adoption of FIN 48 was recorded. See Note 3 ofnotes to consolidated financial statements for further discussion on incometaxes.

 

*NetIncome Per Share* - Basic net income per common share is basedon the weighted average number of common shares outstanding during each year. Dilutednet income per common share takes into effect the dilutive effect of potentialcommon shares outstanding. The Company’s only potential common sharesoutstanding are stock options and shares of unvested restricted stock.

 

*ComprehensiveIncome –*Statement of Financial Accounting Standards (SFAS) No. 130,*Reporting Comprehensive Income,*establishesstandards for reporting and display of comprehensive income and its componentsin a full set of financial statements. Comprehensive income includes allchanges in stockholders’ equity except those resulting from investments by anddistributions to owners. SFAS No. 130 is not currently applicable for theCompany because the Company did not have any items of other comprehensiveincome in any of the periods presented.

 

*Fair**Values of Financial Instruments –*Due to the current classification of all financial instruments of the Companyand given the short-term nature of the related account balances, carryingamounts reported in the consolidated balance sheets approximate fair value.

 

*StockBased Employee Compensation* - In December 2004, theFinancial Accounting Standards Board (FASB) revised SFAS No.123, Share BasedPayment (SFAS No. 123R). This Statement supercedes APB Opinion No. 25,which resulted in no stock-based employee compensation cost related to stockoptions if

 

37

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the optionsgranted had an exercise price equal to the market value of the underlyingcommon stock on the date of grant. SFAS No. 123R requires recognition ofemployee services provided in exchange for a share-based payment based on thegrant date fair market value. In April 2005 the effective date of SFAS No. 123Rwas deferred to the fiscal year beginning after June 15, 2005. Consequently,the Company adopted SFAS No. 123R as of 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-basedawards issued prior to the effective date, compensation cost attributable tofuture services will be recognized as the remaining service is rendered. TheCompany elected to apply the modified prospective method of adoption of SFASNo.123R.

 

SFAS 123(R) requires the use of a fair value based measurementmethod when granting stock options. The Company selected theBlack-Scholes method to measure the compensation cost for stock options. TheBlack-Scholes method requires the use of significant assumptions to estimatethe fair value of the stock option awards. The expected term of the board ofdirector options is equivalent to the historical exercise experience for theseoptions. The expected term of the key employee options was the term of theoption as the individuals have exhibited a pattern of exercising options at ornear the expiration date. The expected volatility was calculated primarily withreliance on historical volatility rates. The Company has no reason to believethat future volatility of the share price over the expected option term is likely todiffer from its past. The Company assumed a dividend yield equivalent tohistorical dividend rates over the vesting period. The risk-free rate utilizedin the Black-Scholes calculations was the U.S. Constant Maturity TreasurySecurity for the period equivalent to the term of the option.

 

The fair value ofoptions granted under the 1994 Stock Plan during 2007 and 2006 were estimatedon the date of grant using the Black-Scholes option-pricing model with thefollowing weighted average assumptions and results:

 
| ** **                           | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
| Dividend yield                       |       | 1.82     | %          | 1.74     | %          |
| Expected volatility                  |       | 22       | %          | 25       | %          |
| Risk-free  interest rate             |       | 4.86     | %          | 4.50     | %          |
| Expected term of  options in years   |       | 7.2      |       | 8.6      |       |
| Fair value of  options on grant date |       | $        | 58,400     |     | $          | 135,300 |   |
|                                      |            |          |            |          |            |  |  |

 

For moreinformation on our stock-based compensation plans, see Note 5.

 

*NewAccounting Pronouncements* – In 2006, the FASB issuedInterpretation No. 48, *“Accounting forUncertainty in Income Taxes*(“FIN 48”), which clarifies theaccounting for uncertainty in income taxes recognized in a company’s financialstatements in accordance with FASB Statement No. 109, *“Accounting for Income Taxes.”*FIN 48describes when an uncertain tax item should be recorded in the financialstatements and for how much, provides guidance on recording interest andpenalties and accounting and reporting for income taxes in interim periods.FIN 48 was effective for the Company’s year beginning January 1,2007. Upon implementation, we determined our positions would bemore-likely-than-not sustained if challenged. Therefore, no cumulative effectrelating to the adoption of FIN 48 resulted. See Note 3 of notes toconsolidated financial statements for further discussion on income taxes.

 

In September 2006, the FASB issuedSFAS No. 157, *Fair Value Measurements,*which defines fair value, establishes a framework for measuring fair value, andexpands disclosures about fair value measurements. The provisions of SFAS No. 157are effective for fiscal years beginning after November 15, 2007. TheCompany is evaluating the impact the adoption of SFAS No. 157 will have onits consolidated results of operations and financial condition.

 

In February 2007, the FASB issuedSFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities – Including an amendment of FASBStatement No. 115*. SFAS No. 159 permits entities to chooseto measure eligible items at fair value at specified election dates and reportunrealized gains and losses on items for which the fair value option has beenelected in earnings at each subsequent reporting date. SFAS No. 159 iseffective for fiscal years beginning after November 15, 2007. The Companyis evaluating the impact the adoption of SFAS No. 159 will have on itsconsolidated results of operations and financial condition.

 

In December 2007, the FinancialAccounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards (“SFAS”) No. 141(revised) “Business Combinations.” Statement No. 141(R) appliesto all business combinations. Under SFAS No. 141(R) an entity isrequired to recognize the assets acquired,

 

38

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liabilities assumed, contractualcontingencies, and contingent consideration at their fair values on theacquisition date. We are required to adopt this statement starting in 2009 andit is to be applied to business combinations occurring in 2009 and after. Earlyadoption of this statement is prohibited. The Company is evaluating the impactthe adoption of SFAS No. 141 (R) will have on its consolidatedresults of operations and financial condition.

 

In December 2007,the FASB issued SFAS No. 160 “Noncontrolling Interests in ConsolidatedFinancial Statements.” Statement No. 160 applies to the accounting fornoncontrolling interests and transactions with noncontrolling interest holdersin consolidated financial statements. SFAS No. 160 changes the accountingand reporting for minority interests, which will be recharacterized asnoncontrolling interests and classified as a component of equity. We arerequired to adopt this statement beginning in 2009. Early adoption of thisstatement is prohibited.

 

2.               LAND, BUILDINGS ANDEQUIPMENT

 

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

 
| ** **                           | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|
|                                 |       |        |       |        |       |
| Land                                 |       | $           | 6,673,076  |        | $          | 6,673,076 |   |
| Buildings and  building improvements |       | 18,174,151  |       | 18,238,651  |       |
| Furniture and  equipment             |       | 14,783,606  |       | 13,074,400  |       |
|                                 |       | 39,630,833  |       | 37,986,127  |       |
| Accumulated  depreciation            |       | (14,593,197 | )          | (13,082,181 | )          |
|                                 |       | $           | 25,037,636 |        | $          | 24,903,946 |   |

 

3.               INCOME TAXES

 

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

 
| ** **                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|
|                                            |       |     |       |     |       |
| Federal tax  expense computed at statutory rate |       | $        | 1,525,000  |     | $          | 1,856,000 |   |
| Nondeductible  lobbying expense                 |       | 33,400   |       | 65,700   |       |
| State expense,  net of federal impact           |       | 298,000  |       | 368,000  |       |
| Other                                           |       | 8,301    |       | 43,999   |       |
|                                            |       | $        | 1,864,701  |     | $          | 2,333,699 |   |

 

Income tax expense forthe years ended December 31, 2007 and 2006 consists of the following:

 
| ** **                   | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|------------------------------|------------|-----------|------------|-----------|------------|
| Current                      |       |      |       |      |       |
| Federal                      |       | $         | 1,585,500  |      | $          | 1,930,600 |   |
| State                        |       | 464,401   |       | 567,100   |       |
|                         |       | 2,049,901 |       | 2,497,700 |       |
| Deferred,  primarily Federal |       | (185,200  | )          | (164,001  | )          |
|                         |       | $         | 1,864,701  |      | $          | 2,333,699 |   |

 

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

 
| ** **                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Current                         |       |     |       |     |       |
| Vacation accrual                |       | $        | 128,400    |     | $          | 125,700 |   |
| Player rewards  program accrual |       | 126,400  |       | 83,200   |       |
| Other                           |       | 41,100   |       | 26,300   |       |
| Net current  deferred tax asset |       | $        | 295,900    |     | $          | 235,200 |   |

 
| ** **                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
| Long-Term                                        |       |     |       |     |       |
| Tax depreciation  greater than book depreciation |       | $        | (423,400   | )        | $          | (483,700 | ) |
| Deferred gain on  sale of land                   |       | (104,000 | )          | (104,000 | )          |
| Stock options                                    |       | 162,600  |       | 79,400   |       |
| Other                                            |       | 28,400   |       | 47,400   |       |
| Net long-term  deferred tax liability            |       | $        | (336,400   | )        | $          | (460,900 | ) |

 

Weadopted the provisions of FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes*,on January 1, 2007. FIN 48 clarifies the accounting for uncertainty inincome taxes recognized in an enterprise’s financial statements in accordancewith FASB Statement No. 109, *Accountingfor Income Taxes*. FIN 48 also prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. Additionally,FIN 48 provides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosure and transition. FIN 48 waseffective for the Company beginning January 1, 2007. The adoption of FIN48 had no effect on the amounts previously recognized for income taxes.

 

Interest and penalties associated with uncertain income tax positionsare presented in income tax expense. During the twelve months ended December 31,2007, we have not recognized expense for interest and penalties, and, do nothave any amounts accrued at December 31, 2007 and December 31, 2006respectively, for the payment of interest and penalties.

 

TheCompany is subject to U.S. and Minnesota taxation. The Company’s tax years for2004, 2005, and 2006 are subject to examination by the tax authorities. Withfew exceptions, the Company is no longer subject to US federal, state, local orforeign examinations by tax authorities for years before 2004.

 

4.               STOCKHOLDERS’EQUITY

 

*StockOptions:*

 

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 are granted under the Plan may be either optionsthat qualify as “incentive stock options” within the meaning of Section 422of the Internal Revenue Code of 1986, as amended (Incentive Stock Options), orthose that do not qualify as Incentive Stock Options (Non-Qualified StockOptions). The Plan is administered by the Board of Directors, or a committeedesignated by the Board, which determines the persons who are to receive awardsunder the Plan, the type of award to be granted, the number of shares subjectto each award and, if an option, the exercise price of each option. The Planalso provides for formula grants of Non-Qualified Stock Options to non-employeedirectors of the Company.

 

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. TheCompany calculates the fair market value of unrestricted shares as the averageof the high and low sales prices on the date of exercise.

 

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*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 5,105and 7,501 shares in 2007 and 2006, respectively.  The ESPP has issued a total of 228,605 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 2007 and 2006 were approximately $292,000 and $376,000, respectively.

 

*EmployeeStock Ownership Plan:*

 

In December 2004,the Company’s Board of Directors approved an Employee Stock Ownership Plan (the“ESOP”) effective for calendar years beginning January 1, 2004.  All eligible employees of the Companyparticipate 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 theCompany’s common stock.  Annualcontributions are allocated to each participant based on compensation and vestin accordance with a seven year graded vesting schedule.  Compensation expense for the ESOP isdetermined based on the average fair value of shares on the date the Companycommits to the contribution to the ESOP. For the purposes of earnings per share, ESOP shares are included inweighted-average common shares outstanding at year-end as the shares arecommitted to be contributed on that date. On February 12, 2008, the Company committed to contribute 10,000shares of the Company’s common stock valued at $109,000.  The shares were issued in March 2008 andwill be allocated to the accounts of eligible employees based upon their 2007compensation during the first quarter of 2008. For calendar year 2006, the Company committed to contribute 10,000shares of the Company’s common stock valued at $132,000.  The shares were issued in February 2007and were allocated to the accounts of eligible employees based upon their 2006compensation during the first quarter of 2007. During 2006, the Company contributed an additional 46 shares valued at$606 for calendar year 2005.

 

*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.  On December 6, 2006 the Companyrepurchased 53,050 shares of common stock at a price of $13.10 per share for atotal of $694,955.  During 2007, theCompany repurchased the remaining 46,950 shares at an average price of $11.59per share for a total of $544,110.

 

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.  No repurchases under thisplan have been made as of the date of this filing.

 

5.     STOCK-BASED COMPENSATION

 

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 and consultantsto the Company and any subsidiary, for up to a maximum of 1,450,000 shares ofcommon stock.  During the first quarterof 2007, the Company issued non-qualified options to the members of the Boardof Directors.

 

41

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Stock optionactivity related to the Plan during the years ended December 31, 2007 and2006 is summarized below:

 
| ** **                          | ** ** | **2007**   | ** ** | **2006**                               | ** ** |
|-------------------------------------|------------|------------|------------|----------------------------------------|------------|
| ** **                          | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|                                |       |       |       |                                   |       |   |   |   |   |
| Outstanding at  beginning of year   |       | 666,550    |       | $                                      | 10.12      |   | 721,950 |   | $ | 9.35 |   |
|                                |       |       |       |                                   |       |   |   |   |   |
| Granted                             |       | 15,000     |       | 13.67                                  |       | 30,000 |   | 14.43 |   |
| Exercised                           |       | (75,650    | )          | 3.70                                   |       | (85,400 | ) | 5.18 |   |
|                                |       |       |       |                                   |       |   |   |   |   |
| Outstanding at  end of year         |       | 605,900    |       | $                                      | 11.00      |   | 666,550 |   | $ | 10.12 |   |
|                                |       |       |       |                                   |       |   |   |   |   |
| Options  exercisable at end of year |       | 594,650    |       | $                                      | 10.94      |   | 651,550 |   | $ | 10.01 |   |

 

The grant-datefair value of options outstanding and exercisable at December 31, 2007 is$3,193,000 and $3,137,000, respectively. The weighted average remaining contractual term of these options is 2.4and 2.3 years, respectively.  The Companyestimates no forfeitures related to these options.

 

Theweighted-average grant-date fair value of options granted during the years 2007and 2006 was $58,350 and $135,300, respectively.  The total intrinsic value of optionsexercised during the years ended December 31, 2007 and 2006 was $182,000and $204,000, respectively.

 

The followingtable summarizes information concerning all options outstanding and optionsexercisable as of December 31, 2007:

 
| **Range of Exercise Price** | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Remaining  Contractual  Life in Years** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Options  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|--------------------------------------------|------------|--------------------------|------------|------------------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------|------------|----------------------------------------|------------|
|                                       | $          | 1.75 – 2.50         |       |                                                                   | 28,000     |                                   | .1         |                     | $          | 2.50                                   |       | 28,000 |   | $ | 2.50 |   |
|                                       |       | 2.50 – 5.00         |       |                                                                   | 75,400     |                                   | 1.1        |                     | 4.07       |                                   | 75,400     |   | 4.07 |   |
|                                       |       | 5.00 – 7.50         |       |                                                                   | 167,500    |                                   | 2.6        |                     | 6.17       |                                   | 167,500    |   | 6.17 |   |
|                                       |       | 7.50 – 17.25        |       |                                                                   | 335,000    |                                   | 2.9        |                     | 15.69      |                                   | 323,750    |   | 15.73 |   |
|                                       |       | Total                    |       |                                                                   | 605,900    |                                   | 2.4        |                     | $          | 11.00                                  |       | 594,650 |   | $ | 10.94 |   |

 

*2007Grants*

 

Each member of theBoard of Directors receives an annual recurring grant of 3,000 non-qualifiedstock options.  On February 1, 2007,15,000 options were granted to the five board members with an exercise priceequal to the market price on the date of grant of $13.76.  The stock options vest over a six-monthperiod and expire in ten years.

 

The compensation cost associated with theBoard of Director options is $58,400 to be recognized as expense over thesix-month vesting period.  Thecompensation cost associated with the employee stock option grant in 2006 isbeing recognized ratably over the four-year vesting period.  In accordance with the modified prospective method,the compensation cost related to these employee option awards included insalaries and benefits expense for 2007 was $21,600.  As of December 31, 2007, there was$17,100 of total unrecognized compensation cost related to stock options whichis expected to be recognized over 2.1 years. The total income tax benefit recognized in the income statement forstock-based compensation arrangements was $103,000 and $177,000 for 2007 and2006, respectively.

 

42

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A summary of thestatus of the Company’s restricted stock as of December 31, 2007, andchanges during the year then ended are presented below:

 
| **Restricted Stock**      | ** ** | **Shares** | ** ** | **Weighted  Average  Grant-Date  Fair Value** | ** ** |
|--------------------------------|------------|------------|------------|----------------------------------------------------|------------|
|                           |       |       |       |                                               |       |
| Unvested at  beginning of year |       | 41,000     |       | $                                                  | 14.55      |   |
|                           |       |       |       |                                               |       |
| Granted                        |       | 0          |       | 0.00                                               |       |
| Vested                         |       | 0          |       | 0.00                                               |       |
| Forfeited                      |       | (500       | )          | 14.55                                              |       |
| Unvested at end  of year       |       | 40,500     |       | $                                                  | 14.55      |   |

 

The compensationcost associated with the restricted stock grant was calculated as the marketprice on the date of grant of $14.55 for the 41,000 shares (reduced byestimated forfeitures) of $589,275.  Inaccordance with the modified prospective method, the compensation cost relatedto these awards included in salaries and benefits expense for the year ended December 31,2007 and 2006 was $147,319 and $135,042, respectively.  As of December 31, 2007, there was $306,914of total unrecognized compensation cost related to restricted stockcompensation arrangements granted under the Plan which is expected to berecognized over a period of 2.1 years.

 

6.     EARNINGS PER SHARE COMPUTATIONS

 

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

 
| ** **                                                                         | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
|                                                                               |       |      |       |      |       |
| Net income  (numerator) amounts used for basic and diluted per share computations: |       | $         | 2,620,740  |      | $          | 3,125,043 |   |
|                                                                               |       |      |       |      |       |
| Weighted average  shares (denominator) of common stock outstanding:                |       |      |       |      |       |
| Basic                                                                              |       | 4,062,866 |       | 4,000,505 |       |
| Plus dilutive  effect of stock options                                             |       | 178,036   |       | 230,743   |       |
| Diluted                                                                            |       | 4,240,902 |       | 4,231,248 |       |
|                                                                               |       |      |       |      |       |
| Net income per  common share:                                                      |       |      |       |      |       |
| Basic                                                                              |       | $         | .65        |      | $          | .78 |   |
| Diluted                                                                            |       | .62       |       | .74       |       |

 

Options to purchase309,250 shares of common stock at an average of $16.01 per share wereoutstanding at December 31, 2007 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 2.9 years.

 

Options to purchase290,500 shares of common stock at an average of $16.15 per share wereoutstanding at December 31, 2006 but were not included in the computationof diluted EPS because the options’ exercise price was greater than the averagemarket price of the common shares.

 

7.     LINES OF CREDIT

 

The Company has ageneral credit and security agreement with Bremer Bank, N.A.  Borrowings under the credit agreement includea commercial revolving credit line, which provides for maximum advances of$2,250,000 with interest at the prime rate until April 30, 2008.  The Company had no borrowings under thecredit line during the year 2007.  Thecredit agreement contains covenants requiring the Company to maintain certainfinancial ratios.  The Company was incompliance with these requirements as of December 31, 2007.

 

43

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8.     OPERATING LEASES AND COMMITMENTS

 

In January 2004the Company entered into a five-year totalizator services agreement withScientific Games Inc. (formerly Autotote Systems, Inc.).  Pursuant to the agreement, Scientific Gamesprovides totalizator equipment and computer programs which record and processall wagers and calculate the odds and payoffs. Amounts charged to operations under this agreement for the years ended December 31,2007 and 2006 were approximately $315,000 and $342,000, respectively.  During annual live race meets, Autototeprovides uplink services, which enables the Company to simulcast horse racesheld at Canterbury Park to out-of-state racetracks.  These services resulted in amounts charged tooperations in 2007 and 2006 of approximately $136,000 and $138,000,respectively.  Effective March 1, 2008,the company renegotiated its totalizator services agreement with ScientificGames and entered into a six-year agreement with Scientific Games, whereby theperformance of Scientific Games remains consistent with what is describedabove.

 

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 31,2007 and 2006 were approximately $94,000 and $96,000, respectively.  All such leases expire on or before April 30,2010.  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, 2007:

 
| ** **                               | ** ** | **Payments Due by Period** | ** ** |
|------------------------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligation (1)** | ** ** | **TOTAL**                                 | ** ** | **Less than  1 year** | ** ** | **1 – 3  years** | ** ** | **3 – 5  years** | ** ** | **More  than  5 years** | ** ** |
|                                     |       |                                      |       |   |   |   |   |   |   |   |   |
| Operating Lease  Obligations (2)         |       | $                                         | 129,200    |   | $ | 80,700 |   | $ | 48,500 |   | $ | 0 |   | $ | 0 |   |
|                                          |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)  Totalizatorlease obligations as discussed above are excluded from the table as the expenseis entirely dependent upon wagering levels.

(2)  Includes operating lease obligationsfor general office and printing equipment rental.

 

Since December 31,2007, there have been no material changes outside the ordinary course ofbusiness to our contractual obligations as set forth above.   As of December 31, 2007, we had noborrowings pursuant to our line of credit and were not party to capital leaseobligations, significant purchase obligations or other long-term obligations.

 

9.     CONTINGENCIES

 

In connection withthe purchase of the Racetrack (Note 1), the Company entered into an Earn OutPromissory Note dated March 29, 1994. In accordance with the Earn OutNote, if (i) off-track betting becomes legally permissible in the State ofMinnesota and (ii) the Company begins to conduct off-track betting withrespect to or in connection with its operations, the Company will be requiredto pay 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, management believesthat the likelihood that these two conditions will be met, and that the Companywill be required to pay these amounts is remote.  At the date (if any) that these twoconditions are met, the five minimum payments will be discounted back to theirpresent value and the sum of those discounted payments will be capitalized aspart of the purchase price in accordance with generally accepted accountingprinciples.  The purchase price will befurther increased if payments become due under the “20% of Net Pretax Profit”calculation.  The first payment is to bemade 90 days after the end of the third operating year in which off-trackbetting is conducted by the Company. Remaining payments would be made within 90 days of the end of each ofthe next four operating years.

 

The Company isperiodically involved in various legal actions arising in the normal course ofbusiness.  At December 31, 2007,management believes that the resolution of any legal actions outstanding willnot have a material impact on the consolidated financial statements.

 

44

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

 

10.   RELATED-PARTY TRANSACTIONS

 

The Company paid atotal of $50,100 in 2007 and $50,100 in 2006 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 2007 and $0 in 2006 for servicesregarding the Company’s strategic planning matters.

 

11.   OPERATING SEGMENTS

 

The Company hasthree reportable operating segments: horse racing, card club, and concessions.  The horse racing segment includes simulcastand live horse racing operations, the card club segment includes operations ofCanterbury Park’s Card Club, and the concessions segment provides concessionsduring simulcast and live racing, in the card club and during specialevents.  The Company’s reportableoperating segments are strategic business units that offer different productsand services.  They are managed separatelybecause the segments differ in the nature of the products and servicesprovided, as well as processes to produce those products and services.  The horse racing and card club segments areregulated by the Minnesota Racing Commission.

 

The accounting policiesof the operating segments are the same as those described in the summary ofsignificant 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 2007 and 2006.

 

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

 
| ** **                            | ** ** | **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 |   |

 
| ** **                            | ** ** | **Twelve Months Ended December 31, 2006** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                                              | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Net revenues  from external customers |       | $                                                                  | 19,556     |   | $ | 30,168 |   | $ | 6,116 |   | $ | 55,840 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 373                                                                |       |   |   | 2,231 |   | 2,604 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Net interest  income (expense)        |       | 279                                                                |       |   |   |   |   | 279 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Depreciation                          |       | 1,124                                                              |       | 584 |   | 126 |   | 1,834 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Segment income  before income taxes   |       | (621                                                               | )          | 6,032 |   | 1,397 |   | 6,808 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Segment Assets                        |       | $                                                                  | 29,867     |   | $ | 3,676 |   | $ | 6,258 |   | $ | 39,801 |   |

 

45

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Included in horseracing segment revenues for the years ended December 31, 2007 and 2006 isapproximately $253,000 and $271,000, respectively, for rental of the racingfacility for special events and storage.

 

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

 
| ** **                                              | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|
| Revenues                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net revenues for  reportable segments                   |       | $          | 55,660     |       | $          | 58,444 |   |
| Elimination of  intersegment revenues                   |       | (2,780     | )          | (2,604     | )          |
| Total  consolidated net revenues                        |       | $          | 52,880     |       | $          | 55,840 |   |
| Income before  income taxes                             |       |       |       |       |       |
| Total segment  income before income taxes               |       | $          | 5,954      |       | $          | 6,808 |   |
| Elimination of  intersegment income before income taxes |       | (1,469     | )          | (1,349     | )          |
| Total  consolidated income before income taxes          |       | $          | 4,485      |       | $          | 5,459 |   |

 
| ** **                               | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Assets                                   |       |                        |       |                        |       |
| Total asset for  reportable segments     |       | $                           | 43,011     |                        | $          | 39,801 |   |
| Elimination of  intercompany receivables |       | (6,905                      | )          | (5,450                      | )          |
| Total  consolidated assets               |       | $                           | 36,106     |                        | $          | 34,351 |   |

 

12.**  **SUPPLEMENTARYFINANCIAL INFORMATION (UNAUDITED)

 
| ** **                  | ** ** | **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 |   |
|                             |            |                                   |            |  |  |  |  |  |  |  |  |  |  |

** **
| ** **                  | ** ** | **2006 Quarter Ended:** | ** ** |
|-----------------------------|------------|-----------------------------------|------------|
| ** **                  | ** ** | **March 31**                 | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                  | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net revenues                |       | $                                 | 12,096,377 |   | $ | 14,845,784 |   | $ | 16,313,694 |   | $ | 12,583,842 |   |
|                        |       |                              |       |   |   |   |   |   |   |
| Operating  expenses         |       | 10,110,314                        |       | 14,308,164 |   | 15,492,843 |   | 10,748,842 |   |
|                        |       |                              |       |   |   |   |   |   |   |
| Net income                  |       | 1,162,647                         |       | 345,358 |   | 524,433 |   | 1,092,605 |   |
|                        |       |                              |       |   |   |   |   |   |   |
| Basic earnings  per share   |       | .29                               |       | .08 |   | .13 |   | .27 |   |
|                        |       |                              |       |   |   |   |   |   |   |
| Diluted earnings  per share |       | .26                               |       | .08 |   | .12 |   | .26 |   |
|                             |            |                                   |            |  |  |  |  |  |  |  |  |  |  |

 

46

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**Item 9.    CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING 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 reviewedthe Company’s disclosure 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’sannual report on internal control over financial reporting:

 

The Company’s internal control report isincluded in this report after Item 8, under the caption “Management’sReport on Company’s Internal Control over Financial Reporting.”

 

(c)                                              Changes in Internal Control OverFinancial Reporting:

 

There has been no change in our internal control overfinancial reporting (as defined in Rules 13a-15(f) under theSecurities Exchange Act of 1934) that occurred during our fiscal quarter ended December 31,2007, that have materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**Item9B.  OTHER INFORMATION**

 

Not Applicable.

 

**PART III**

** **

**Item 10.****               ****DIRECTORS, EXECUTIVE OFFICERS ANDCORPORATE 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 5, 2008 (the “2008Proxy Statement”), a definitive copy of which will be filed with the Commissionwithin 120 days of the close of the 2007 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 compliance to the extent required will be setforth in a section titled “Section 16a Beneficial Ownership Reporting Compliance”in the 2008 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.

 

47

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**Item 11.    EXECUTIVECOMPENSATION**

 

Informationrequired under Item 402 of Regulation S-K will be set forth in a sectionentitled “Executive Compensation and Other Information” in the Company’s 2008Proxy Statement which information is incorporated herein by reference.

 

**Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS 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 2008 Proxy Statement which information isincorporated herein by reference.

 

**Item 13.    CERTAINRELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR 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 2008 Proxy Statement which information is incorporated hereinby reference.

 

**Item 14.    PRINCIPALACCOUNTING 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 2008 Proxy statement which information isincorporated herein by reference.

 

**PART IV**

 

**Item15.****  ****EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

 
| (a).   |   | The following Consolidated Financial  Statements of Canterbury Park Holding Corporation and subsidiaries are  included in Part II, Item 8 pages 30-46:       |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                   |
|   |   | Management’s Report on Company’s  Internal Control over Financial Reporting                                                                                  |
|   |   |                                                                                                                                                                   |
|   |   | Report of Independent Registered Public  Accounting Firm                                                                                                               |
|   |   |                                                                                                                                                                   |
|   |   | Consolidated Balance Sheets as of  December 31, 2007 and 2006                                                                                                     |
|   |   |                                                                                                                                                                   |
|   |   | Consolidated Statements Of Operations  for the years ended December 31, 2007 and 2006                                                                             |
|   |   |                                                                                                                                                                   |
|   |   | Consolidated Statements of Changes in  Stockholders’ Equity for the years ended December 31, 2007 and 2006                                                   |
|   |   |                                                                                                                                                                   |
|   |   | Consolidated Statements of Cash Flows  for the years ended December 31, 2007 and 2006                                                                             |
|   |   |                                                                                                                                                                   |
|   |   | Notes to Consolidated Financial  statements                                                                                                                            |
|   |   |                                                                                                                                                                   |
| (b).   |   | The exhibits listed on the “Exhibits  Index” on pages 50 & 51 are filed with this Form 10-K or  incorporated by reference in this report. |
|   |   |                                                                                                                                                                   |
| (c).   |   | No financial statement schedules are  required by Item 8 and Item 15(c) of Form 10-K.                                                                        |

 

48

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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,  2008 | 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, 2008 |
|   Curtis A. Sampson      |       |                                |       |                |
|                          |       |                                |       |                |
|   /s/ Dale H. Schenian   |       | Director; Vice Chairman             |       | March 31, 2008 |
|   Dale H. Schenian       |       |                                |       |                |
|                          |       |                                |       |                |
|   /s/ Randall D. Sampson |       | Chief Executive Officer, President, |       | March 31, 2008 |
|   Randall D. Sampson     |       | General Manager, Treasurer and      |       |                |
|                          |       | Director                            |       |                |
|                          |       |                                |       |                |
|   /s/ David C. Hansen    |       | Chief Financial Officer*            |       | March 31, 2008 |
|   David C. Hansen        |       |                                |       |                |
|                          |       |                                |       |                |
|   /s/ Patrick R. Cruzen  |       | Director                            |       | March 31, 2008 |
|   Patrick R. Cruzen      |       |                                |       |                |
|                          |       |                                |       |                |
|   /s/ Carin J. Offerman  |       | Director                            |       | March 31, 2008 |
|   Carin J. Offerman      |       |                                |       |                |
|                          |       |                                |       |                |
|   /s/ Burton F. Dahlberg |       | Director                            |       | March 31, 2008 |
|   Burton F. Dahlberg     |       |                                |       |                |

 

----

* PrincipalAccounting Officer

 

49

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY

 

Exhibit Index To

Form 10-K for the Year Ended December 31,2007

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

 

----

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

 

50

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| **Regulation S-B  Exhibit Table  Reference** | ** ** | **Title of Document**                                                                                                                                                                                                                                                              | ** ** | **Location in Consecutive Numbering  System as Filed with the Securities  and Exchange Commission**                                   |
|--------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                   |       |                                                                                                                                                                                                                                                                                         |       |                                                                                                                                                                                    |
| 10.7                                                   |       | Curtis A. Sampson Guaranty to HRA                                                                                                                                                                                                                                                            |       | Filed as Exhibit 10.7 to the SB-2 Registration  Statement and incorporated herein by reference.                                                                                    |
|                                                   |       |                                                                                                                                                                                                                                                                                         |       |                                                                                                                                                                                    |
| 10.10                                                  |       | General Credit and Security Agreement dated as of  June 3, 1998 between Canterbury Park Holding Corporation and Bremer Bank  N.A. (previously First American Bank, N.A.) This exhibit 10.10 replaces  exhibit 10.10 filed previously as an exhibit to the SB-2 Registration  Statement. |       | Filed as Exhibit 10.10 to the Form 10-KSB  for the fiscal year ended December 31, 1998.                                                                                  |
|                                                   |       |                                                                                                                                                                                                                                                                                         |       |                                                                                                                                                                                    |
| 10.11                                                  |       | Stock Purchase Savings Plan                                                                                                                                                                                                                                                                  |       | Filed as Exhibit 10.11 to Form  10-KSB for  the fiscal year ended December 31, 1997 and incorporated herein by  reference.                                               |
|                                                   |       |                                                                                                                                                                                                                                                                                         |       |                                                                                                                                                                                    |
| 10.13                                                  |       | Stock Option Plan for Non-Employee Consultants and  Advisors                                                                                                                                                                                                                                 |       | Filed as Exhibit 4.3 to the Registration  Statement on Form S-8 of the Company filed on August 28, 1997 (File  No. 333-34509) and incorporated herein by reference. |
|                                                   |       |                                                                                                                                                                                                                                                                                         |       |                                                                                                                                                                                    |
| 21                                                     |       | Subsidiaries of the Registrant                                                                                                                                                                                                                                                               |       | Filed herewith.                                                                                                                                                                         |
|                                                   |       |                                                                                                                                                                                                                                                                                         |       |                                                                                                                                                                                    |
| 23                                                     |       | Consent of Independent Registered Public Accounting  Firm                                                                                                                                                                                                                                    |       | Filed herewith.                                                                                                                                                                         |
|                                                   |       |                                                                                                                                                                                                                                                                                         |       |                                                                                                                                                                                    |
| 24                                                     |       | Power of Attorney                                                                                                                                                                                                                                                                            |       | Included in signature page at page 49.                                                                                                                                        |
|                                                   |       |                                                                                                                                                                                                                                                                                         |       |                                                                                                                                                                                    |
| 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.                                                                                                                                                                         |

 

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.

 

51

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