** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-KSB**

 

| **(Mark  One)** |   |
|-----------------|--------|

 

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

 

**For thefiscal year ended December 31, 2001**

** **

**OR**

 

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

 

**For theTransition period from           to          **

 

**CommissionFile Number:  0-24554**

 

**CANTERBURY PARK HOLDING CORPORATION**

(Nameof small business issuer in its charter)

 

| **Minnesota**                                                                      |   | **41-1775532**                        |
|------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization)                    |   | (I.R.S. Employer  Identification No.) |
|                                                                               |   |                                  |
| **1100  Canterbury Road**

**Shakopee,  MN  55379**                           |
| (Address of principal  executive offices and zip code)                             |
|                                                                               |   |                                  |
| Registrant’s telephone  number, including area code:  **(952) 445-7223** |

 

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

 

Securities registered pursuant to Section 12(g) of the Act:          Common Stock, $.01 par value

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

YES  ý  NO  o

 

Check if there is no disclosure of delinquent filers in response toItem 405 of Regulation S-B in this form, and no disclosure will be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-KSB or anyamendment to this Form 10-KSB.          ý

 

The Company’s operating revenues for its most recent fiscal year were$39,492,037.

 

On March 19, 2002, the Company had 3,540,124 shares of common stock,$.01 par value, outstanding.

 

The aggregate market value of the shares of voting stock held bynon-affiliates of the Company (persons other than directors and officers)computed at the NASDAQ closing price of $8.69 per share on March 19, 2002 wasapproximately $13,770,000.

 

DOCUMENTS INCORPORATED BYREFERENCE

 

The Company’s Proxy Statement for its 2002 Annual Meeting ofShareholders, to be held on June 6, 2002, is incorporated by reference intoPart III of this Form 10-KSB.

 

 

CANTERBURY PARK HOLDINGCORPORATION

FORM 10-KSB ANNUAL REPORT

FOR THE YEAR ENDEDDECEMBER 31, 2001

 

TABLE OF CONTENTS

 
| PART I        |
|---------------|
|          |   |
| ITEM 1.       | Description of Business |
| ITEM 2.       | Description of Property |
| ITEM 3.       | Legal Proceedings |
| ITEM  4.      | Submission  of Matters to a Vote of Security Holders |
|          |   |
| PART II       |
|          |   |
| ITEM  5.      | Market  for Common Equity and Related Stockholder Matters |
| ITEM 6.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
| ITEM 7.       | Financial Statements |
| ITEM  8.      | Changes  In and Disagreements With Accountants on Accounting and Financial Disclosure |
|          |   |
| PART III      |
|          |   |
| ITEM  9.      | Directors,  Executive Officers, Promoters and Control Persons; Compliance With Section  16(a) of the Exchange Act |
| ITEM 10.      | Executive Compensation |
| ITEM  11.     | Security  Ownership of Certain Beneficial Owners and Management |
| ITEM  12.     | Certain  Relationships and Related Transactions |
| ITEM 13.      | Exhibits and  Reports on Form 8-K |
|          |   |
| SIGNATURES    |
|          |   |
| EXHIBIT INDEX |

 

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Item 1.    DESCRIPTIONOF BUSINESS

 

(a)           BUSINESS DEVELOPMENT

 

Canterbury Park Holding Corporation (the “Company”)hosts pari-mutuel wagering on live Thoroughbred and Quarter Horse racing at itsfacilities in Shakopee, Minnesota (the “Racetrack”) and pari-mutuel wagering onraces held at out-of-state racetracks that are televised simultaneously at theRacetrack (“simulcasting”).  Inaddition, the Company is the only facility in the State of Minnesota authorizedby law to host “unbanked” card games, in which the players compete against eachother and not against the house.  TheCompany also derives revenues from related services and activities, such asconcessions, parking, admissions and programs, and from other entertainmentevents held at the Racetrack.

 

The Company was incorporated under the laws ofMinnesota on March 24, 1994 and acquired the Racetrack on March 29, 1994.  On May 6, 1994 the Company commencedsimulcasting operations, which now are generally conducted seven days perweek.  Beginning in May 1995, theCompany began hosting annual live horse racing (“live meets”) and relatedpari-mutuel wagering on a seasonal basis, generally from mid May to late Augustor early September.

 

On April 19, 2000, the Company opened its CanterburyCard Club (the “Card Club”).  At theCard Club patrons compete against each other in various unbanked cardgames.  The Card Club operates under theauthority of legislation adopted in May 1999 by the Minnesota legislature (the“Card Club Legislation”) and is regulated by the Minnesota RacingCommission.  Under the Card ClubLegislation, the Company is authorized to host up to 50 tables where card gamesare played and receives a percentage of the wagers or a fee from the players asits revenue for providing the facility and services.  The Card Club Legislation requires that the Racetrack’s pursefund and the State of Minnesota Breeders’ Fund receive a total of 10% to 14% ofthe gross revenue generated by the Card Club.

 

(b)           BUSINESS OF ISSUER

 

**(i)            CardClub Operations**

 

The Card Club is open 24 hours per day, seven days perweek, offering two types of unbanked card games: poker games and table games.

 

Poker games, including Texas Hold ‘Em, 7-Card Stud andOmaha, with table limits ranging between $2 and $60, are offered on a maximumof 31 tables currently available in the poker room.  In poker games, the sponsor is allowed to deduct a percentagefrom the accumulated wagers and impose other charges for hosting the activity,but does not have an interest in the outcome of a game.  The sponsor may add additional prizes,awards, or money to any game for promotional purposes.  In the Canterbury Card Club, a dealer,employed by the Company, regulates the play of the game at each table and dealsthe cards, but does not participate in play. The Company collects a “rake” of 10% of each addition to the “pot”, upto a maximum of $4.00 or $4.50 per hand, depending on the game, as itscollection revenue.  In addition, pokergames offer progressive jackpots for most games.  In order to fund the jackpot pool, the dealer withholds $1.00from each final pot which exceeds the minimum of $15.

 

Table games are offered currently at 19 tables.  Table games include Pai Gow Poker, Minnesota21 (a version of blackjack), Super Nine, Caribbean Stud, Let-It-Ride and ThreeCard poker.  Table games are playedusing a “player pool” system.  “Playerpool” means a wagering system, in which wagers lost in card games may be accumulatedinto a pool for purposes of enhancing the total amount paid back to winningplayers in other card games.  In suchinstances, the sponsor may only serve as custodian of the player pool and maynot have an active interest in any card game. In the table games area of the Card Club, the amount that the dealer“wins” or “loses” during the course of play is accumulated in a “Player Pool”to be used to repay players in the form of promotions, giveaways, prizes or byother means.  The Company also takes a“rake” of $.50 to $1.00 per wager, depending on the game, for the Company’scollection revenue.  The only table gameto offer a progressive jackpot is Caribbean

 

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Stud.  The player has the optionof playing the jackpot, and has the opportunity to win some, or all, of thejackpot amount depending upon his hand.

 

**(ii)           Horse Racing Operations**

 

The Company’s horse racing operations consist ofyear-round pari-mutuel wagering on simulcast horse races (“simulcasting”) andlive meets held on a seasonal basis beginning in May and concluding in September.  Thoroughbred and Quarter Horse racing isconducted during the live meet.  TheCompany also conducted two days of live harness racing in September 2001.

 

*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 the race being broadcast. Monies are collected at the guest track and the information with respectto the total amount wagered is electronically transmitted to the hosttrack.  In effect, all of the amountswagered at the guest track are combined into the appropriate pools at the hosttrack with the final odds and payouts determined based upon all the monies inthe 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 andBreeders’ Cup, supplement the regular simulcast program.  The Company regularly evaluates itsagreements with other racetracks in order to offer the most popular simulcastsignals of live horse racing which is feasible to offer at the Racetrack.

 

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 Minnesotasuch consent must be obtained from the Minnesota Horsemen’s Benevolent andProtective Association (the “MHBPA”) and the Minnesota Racing Commission.

 

*LiveRacing.*

 

The Company conducts live horse racing at its facilitygenerally from May until early September each year.  The Company raced 63 days in the year 2001, beginning May 18thand ending September 23rd, consisting of 31 days of mixed Thoroughbred andQuarter Horse racing, 30 days of Thoroughbred only racing and 2 days of Harnessracing.  In 2002, the Racetrack willconduct 62 live race days, beginning May 17th and concluding September2nd.  The race meet will include 27 daysof mixed Thoroughbred and Quarter Horse racing, and 35 days of Thoroughbredonly racing.

 

Currently, Minnesota law requires the Racetrack toschedule a minimum of 125 days of live racing annually, unless the MinnesotaHorsemen’s Benevolent and Protective Association (the “MHBPA”) agrees to alesser number of live racing days. Since 1995, the MHBPA has agreed to waive the 125-day requirement andallow the Company to run a minimum of 50 days of live racing each year.  After 2002, no assurance can be given thatthe MHBPA will agree to a shorter live meet than the 125-day statutoryminimum.  If the MHBPA does not agree toa live meet shorter than 125 days, the Company’s operations could be adverselyimpacted by a decrease in the daily purses and potential reduction in qualityof horses, attendance and overall handle, as well as increased operatingexpenses.

 

**(iii)         SpecialEvents**

 

While pari-mutuel horse racing is the Company’sprincipal business, the Company’s facilities are capable of being used formultiple purposes.  In an effort to morefully utilize the property and to generate additional

 

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revenues, the Company has, in each year of its operations, expanded theuse of the grandstand, grounds and parking lot for special events and rentals.

 

From 1996 through 2001, a number of non-horseracingevents were held, including snowmobile races, major arts and crafts shows, tradeshows, concerts, motorcycle races, fund raisers, automobile shows andcompetitions and private parties.  TheCompany also conducted two to four additional major concerts each September in1998 through 2001.

 

Due to the construction and commencement of the CardClub operation in the year 2000, the available square footage for specialevents occurring within the grandstand facility was reduced.  As a result, in October 2000, the Companyinvested in a semi-permanent structure, which attaches to the main entrance ofthe grandstand, referred to as the “Pavilion”. The Pavilion has approximately 18,000 square feet and will allow theCompany to continue to market itself as a venue for large indoor entertainmentevents.

 

**(iv)          Sourcesof Revenue**

 

*General.*

 

The Company’s revenues in the year 2001 wereprincipally derived from pari-mutuel wagering and Card Club operations.

 

In pari-mutuel wagering, bettors wager against eachother in a pool, rather than against the operator of the facility or withpreset odds.  From the total amountwagered or “handle,” the Minnesota Pari-Mutuel Horse Racing Act (the “RacingAct”) specifies the maximum percentage, referred to as the “takeout,” which maybe withheld by the Racetrack, with the balance returned to the winning bettors.  The takeout constitutes the Racetrack’sprimary source of operating revenue. From the takeout, funds are paid to the State of Minnesota forpari-mutuel taxes, with additional amounts set aside for purses and for the“Breeders’ Fund,” which is a fund apportioned by the Minnesota RacingCommission (“Racing Commission”) among various purposes related to Minnesota’shorse breeding and horse racing industries. The balance of the takeout remaining after these deductions is commonlyreferred to as the “retainage.”

 

The various forms of pari-mutuel wagering can bedivided into two categories:  straightwagering pools and multiple wagering pools, which are also referred to as“exotic” wagering pools.  Examples ofstraight wagers include:  “win” (a wageron one specific horse to finish first); “place” (a wager on one specific horseto finish first or second); and “show” (a wager on one specific horse to finishfirst, second or third).  Examples ofexotic wagers include: “daily double” (a wager in which the bettor selects thehorses that will win two consecutive races); “exacta” (a wager in which thebettor selects the horses that will finish first and second, in order);“trifecta” (a wager in which the bettor selects the horses that will finishfirst, second and third, in order); and “pick six” (a wager in which the bettorselects the horses that will 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) to the Breeders’Fund and (iv) for pari-mutuel taxes to the State of Minnesota.  Net revenues from pari-mutuel wagering onraces being run at out-of-state racetracks and simulcast to the Racetrack havesimilar expenses, but also include a host fee payment to the host track.  The host fee is calculated as a percentageof monies wagered (generally 2.50% to 4.50%) and is negotiated with the hosttrack and must comply with state laws governing the host track.

 

*Wageringon 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.

 

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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 live races is 6% of takeout inexcess of $12 million during the twelve month period beginning July 1 andending the following June 30.

 

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

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

 

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(1)                                  Minnesotalaw provides that the 8.40% purse payment is a minimum.  The actual percentage, if any, above theminimum is determined between the Racetrack and the MHBPA.  Any additional amounts paid for pursesdecrease the Racetrack’s retainage.

(2)                                  Thecurrent pari-mutuel tax structure exempts the first $12 million of takeoutduring a statutorily mandated twelve-month period.  The total pari-mutuel tax liability for a twelve-month periodwill depend upon the total takeout during that 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 established 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 Racing Season, the amount setaside for purses further depends on whether the simulcasting is part of a fullracing card that occurs during the part of the day that live races areconducted at the Racetrack.  For racesthat are part of a full simulcast racing card that takes place within the timeof live races at the Racetrack, the amount reserved for purse payout is8.4%.  For simulcasting conducted duringthe Racing Season that does not occur within the time period of live races, thepurse is equal to 50% of the takeout remaining after deductions for pari-mutueltaxes, payments to the Breeders’ Fund and payments to the host racetrack forhost track fees.  For simulcasting conductedoutside of the Racing Season, the amount that must be contributed to the pursesis 25% of the takeout after deducting an 8% expense factor, pari-mutuel taxes,payments to the Breeders’ Fund and host fee payments to the host racetrack.

 

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

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

 

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(1)                                  Thisamount will depend upon the takeout at the host racetrack.  This percentage will be determined by localand state law applicable to the host track, and ranges from 75.0% to 85.0%.

 

(2)                                  Thecurrent pari-mutuel tax structure exempts the first $12 million of takeoutduring a statutorily mandated twelve-month period.  The total pari-mutuel tax liability for a twelve month periodwill depend upon the total takeout during that period.

 

(3)                                  AlthoughMinnesota law specifies a minimum, the actual percentage is determined byagreement between the Racetrack and the MHBPA. Any additional amounts paid for purses reduce the Racetrack’s retainage.

 

(4)                                  Paymentsto the host track generally range from 2.5% to 4.5% of total handle, subject tonegotiation with each host track.  Forpurposes of this table, the host track fee is assumed to be 3.5%.

 

*CardClub Operations*

 

As discussed above, the Company receives revenues fromits Card Club operations, which run 24 hours per day, seven days per week.  The Company currently receives collectionrevenue from 31poker tables and 19 tables offering table games.  Under Minnesota law, the Company is requiredto pay 10% of the first $6 million of gross Card Club revenues as pursemonies.  After meeting the $6,000,000threshold, the Company must pay 14% of gross Card Club revenues as pursemonies.  Of funds allocated for purses,the Company pays 10% of the purse monies to the State of Minnesota Breeders’Fund.  The remaining 90% of the pursemonies is divided between thoroughbred (90%), quarter horse (9%) and standardbred (1%) purse funds

 

*OtherRevenues*

 

The Company also derives revenue from other activitiessuch as admissions and parking fees, as well as from the sale of food andbeverage, programs, and other racing publications.  The Company offers advertising signage space similar to thatappearing at many sports stadiums. Finally, additional revenues are derived from use of the facilities forevents such as concerts, trade and craft shows, snowmobile racing, businessmeetings, private parties, horse expositions and sales, boat and automobilestorage, community events, and rental of the parking lot for various automobileactivities and vehicle storage.

 

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**(v)            Competition**

 

The Company competes with other forms of gaming in theState of Minnesota, particularly casino-style gambling located on NativeAmerican reservations throughout the State of Minnesota, including a largecasino located approximately three miles from the Racetrack.  In addition, the Company competes againstcharitable gambling (bingo and pulltabs) and various state lottery products.  In addition, the Company faces increasingcompetition from off-shore and out-of-state simulcast operations illegallymarketing internet and telephone account home wagering systems to Minnesotaresidents.

 

The Company also competes with other forms of entertainmentin the Minneapolis-Saint Paul metropolitan area, including a wide range of liveand televised professional and collegiate sporting events.  Finally, live horse racing competes with awide variety of summer attractions, including amusements parks, sporting eventsand other local activities.

 

The Company also competes with racetracks locatedthroughout the United States in securing the better quality horses to run atthe Racetrack.  Attracting the ownersand trainers of better quality horses is largely influenced by the ability tooffer large purses.  The Companyexperiences significant competition for better quality horses from a racetracklocated near Des Moines, Iowa, as well as racetracks in Chicago, Illinois,which offer substantially larger purses than the Company.  This competition is expected to continue forthe foreseeable future.

 

**(vi)          Marketing**

 

The Company’s primary market is the seven-countyMinneapolis-Saint Paul metropolitan area. Current demographic information indicates that approximately 2 millionadults age 21 and older, reside within a 50 mile radius of Shakopee,Minnesota.  This information does notinclude adults, ages 18 to 20 years of age, which are also patrons of theRacetrack.

 

To support its pari-mutuel horse racing and Card Clubbusinesses, the Company maintains year-round marketing efforts which arefocused on maintaining the loyalty of live and simulcast patrons and attractingnew racing and Card Club customers.  TheCompany plans substantial marketing of the Card Club using newspapers,television, the internet, other print media, radio and direct mail.  The Company plans to combine its marketingefforts on communicating the excitement of wagering on horse racing with cardplaying.  In addition to its regularadvertising program, the Company conducts numerous special promotions andhandicapping contests to increase simulcast patronage, and successfullyimplemented a player rewards program in March of 2001.

 

The 2001 combined card club and live racingadvertising campaigns utilized print, radio and television advertising tohighlight the attractive, park-like atmosphere of Canterbury Park, promotingactivities for the entire family, as well as the fun and excitement of livehorse racing and card playing.  Inaddition, the development of a customer database enabled the Company toincreasingly utilize direct mail advertising since 1997.

 

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

 

**(vii)         Regulation**

 

*General.*

 

The ownership and operation of a horse racetrack inMinnesota is subject to significant regulation by the Racing Commission underthe Racing Act and the rules adopted by the Racing Commission.  The Racing Act provides for the allocationof each wagering pool to winning bettors, the racetrack, purses, the State ofMinnesota and the Breeders’ Fund and empowers the Racing Commission to licenseand regulate substantially all aspects of horse racing in the State.  The Racing Commission, among other things,grants operating licenses to racetracks after an application process and publichearings, licenses all employees of a racetrack, jockeys, trainers,

 

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veterinarians and other participants, regulates the transfer ofownership 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.  Decisions bythe Racing Commission in regard to any one or more of the foregoing matterscould adversely affect the Company’s operations.

 

A federal statute, the Interstate Horse Racing Act of1978, also provides that a racetrack must obtain the consent of the grouprepresenting the majority of the horsepersons (owners and trainers) of thehorses racing at the racetrack, and the consent of the state agency regulatingthe racetrack, in order to transmit simulcast signals of its live races or toreceive and use simulcast signals from other racetracks.  The Company has obtained the consent of theMHBPA and Minnesota Racing Commission for receiving and sending simulcastingsignals.

 

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

 

The Racing Commission issued a Class A License to theCompany on April 27, 1994.  The Class ALicense allows the Company to own and operate the Racetrack.  The Class A License is effective untilrevoked or suspended by the Racing Commission, or relinquished by thelicensee.  The fee for a Class A Licenseis $10,000 per calendar year.

 

The Racing Commission issued a Class B License to theCompany on April 27, 1994.  The Class BLicense 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 RacingCommission.  The Class B License isrenewable each year by the Racing Commission after a public hearing (ifrequired by the Racing Commission).  Thefee for this Class B License is $100 for each assigned race day on which liveracing is actually conducted and $50 for each day on which simulcasting isauthorized and actually takes place.

 

The Racing Commission issued an additional Class BLicense to the Company on January 19, 2000. This Class B License allows the Company to host unbanked cardgames.  The Class B License is renewableeach year by the Racing Commission after a public hearing (if required by theRacing Commission).  The fee for thisClass B License is $10,000 per calendar year.

 

*                Limitation on the Number ofClass A, and Class B Licenses.*

* *

Pursuant to the Racing Act, so long as the Racetrackmaintains its Class A License, no other Class A License may be issued in theseven county metropolitan area (the counties of Hennepin, Ramsey, Washington,Scott, Dakota, Anoka and Carver), except the Racing Commission may issue an additionalClass A License within the seven county metropolitan area, provided that theadditional license may only be issued for a facility which, among otherconditions, is located more than 20 miles from the Racetrack, contains a trackno larger than five-eighths of a mile in circumference, and is used exclusivelyfor Standardbred (harness) racing. Therefore, as long as the Company holds the Class A License, only theCompany may own and operate a racetrack in the seven county metropolitan areawhere Thoroughbred Horses and Quarter Horses may be raced.

 

*Limitationon Ownership and Management of an Entit, which holds a Class A License and/orClass B License.*

 

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

 

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*CardClub Regulation.*

 

The Racing Commission is authorized by law to regulateCard Club operations.  The law requiredthat the Company submit a plan of operation for card playing activities to theRacing Commission prior to receiving its Class B license to operate the CardClub.  The operating plan received finalapproval and the Class B license was granted on January 19, 2000.  The law requires that the Company reimbursethe Minnesota Racing Commission for it’s actual costs, including personnelcosts, of regulating the Card Club.

 

*LocalRegulation.*

 

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

 

**(viii)        Employees**

 

At March 18, 2002, the Company had approximately 331full-time employees and 350 part-time employees.  On a seasonal basis the Company adds approximately 120 full-timeand 250 part-time employees for live racing operations from early May untilearly September.  The Company’smanagement believes its employee relations are good.

 

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**(ix)          ExecutiveOfficers**

 

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

 
| **Name**            |   | **Age** |   | **Position  with Company**           |   |
|---------------------|--------|---------|--------|--------------------------------------|--------|
| Randall D.  Sampson |   | 43      |   | President, and  General Manager      |   |
|                |   |    |   |                                 |   |
| David C. Hansen     |   | 45      |   | Vice President  of Finance & CFO |   |
|                |   |    |   |                                 |   |
| Mark A. Erickson    |   | 45      |   | Vice President  of Facilities        |   |
|                |   |    |   |                                 |   |
| Michael J. Garin    |   | 46      |   | Vice President  of Hospitality       |   |
|                |   |    |   |                                 |   |
| John R. Harty       |   | 57      |   | Vice President  of Marketing         |   |

 

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Randall D. Sampson has been President since theformation of the Company in March 1994 and General Manager since September1995.  He also serves as a director ofthe Thoroughbred Racing Association of North America and CommunicationsSystems, Inc.  Mr. Sampson is the son ofCurtis A. Sampson, the Company’s Chairman of the Board who is a holder ofapproximately 30% of the Company’s common stock.

 

David C. Hansen joined the Company in July 2001 asVice President of Finance and Chief Financial Officer.  Mr. Hansen was employed as Controller, andlater Director of Finance at Treasure Island Resort & Casino, in Red Wing,MN, from 1993 until 2000.  He thenserved as Director of Finance for Prairie Meadows Racetrack and Casino inAltoona, IA from 2000 to 2001.

 

Mark A. Erickson has been Vice President of Facilitiessince May 1997.  Mr. Erickson was theDirector of Facilities from 1994 until 1997.

 

Michael J. Garin has been Vice President ofHospitality since May of 1997.  Mr.Garin had served as President of Canterbury Park Concessions, Inc. since Aprilof 1994.

 

John R. Harty has been Vice President of Marketingsince February of 2000.  Mr. Hartyserved as Vice President of Sales and Marketing for Kim and Sun Hosiery inPhiladelphia prior to joining Canterbury Park. He was employed by Sun Hockey as its President from 1997 until 1998, andVice President of Sales and Marketing from 1992 through 1996.

 

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**Item 2.    DESCRIPTION OF PROPERTY**

 

*General.*

 

The facility, which is operated under the name“Canterbury Park Racetrack and Card Club,” is a modern facility, generallycomparable to other major racetracks located throughout the country.  The Racetrack has a patron capacity ofapproximately 10,000 within an enclosed grandstand, and a maximum patroncapacity of over 30,000 including the outside areas around the grandstand.  The grandstand and most public outdoor areascontain numerous pari-mutuel windows, odds information boards, video monitors,concessions stands and other amenities. The audio/visual system includes over 600 television monitors with mostareas providing multi-screen viewing of the races.

 

The facility is located approximately 25 milessouthwest of downtown Minneapolis.  Thearea immediately surrounding the Racetrack consists primarily of a partiallydeveloped industrial park and farm land. However, the Racetrack is in reasonable proximity to a number of majorentertainment destinations including: Valleyfair, an amusement park about two miles from the Racetrack whichannually attracts approximately 1.3 million visitors during the spring andsummer; the Renaissance Festival, a seven-weekend late summer attractionattracting approximately 340,000 visitors, located about five miles from theRacetrack; and Mystic Lake Casino, located about three miles from theRacetrack, which draws approximately 5.2 million patrons annually.  Approximately 20 miles from the Racetrack isthe Mall of America, the largest enclosed shopping mall in the United States,which attracts approximately 42.5 million visitors per year.

 

*RacingSurfaces.*

 

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 and one-quarter front stretchchute, a 6-1/2 furlong backstretch chute and a quarter horse chute, and islighted for night racing.

 

*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, RacingCommission offices, the pari-mutuels department, concession and maintenanceoffices, first aid, mechanical and electrical rooms.  The Track Level includes pari-mutuels windows, restrooms, avariety of concession stands and other services.  The Card Club currently occupies 27,000 square feet of tracklevel.  The Mezzanine Level contains1,320 fixed seats in a glass-enclosed, air-conditioned area and an additional3,000 seats located outside.  Inaddition to the seats, the Mezzanine Level contains pari-mutuel windows,restrooms, concession stands and other guest facilities.  A portion of the mezzanine level iscurrently being used as a simulcast center to be used during live racing, andfor banquets and other events during the off-season.  The Kitchen Level is an intermediate level located between theMezzanine and Clubhouse floors; it contains a full-service kitchen which cansupport a full dining menu for the track-side dining terraces on the ClubhouseLevel and to prepare food 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.  An additionalfeature of the Clubhouse Level is a special club area, which includes 225dining seats, a party room and a large bar and lounge.  The Press Box/Officials’ Level is located inthe roof trusses over the Clubhouse and contains work areas for the press,racing officials, closed-circuit television, photo-finish and the trackannouncer.  In addition, the grandstandwas structurally built to accommodate skyboxes under the Press Box/Officials’Level, although none have yet been constructed.  Escalators and elevators are available to move patrons among thevarious levels within the grandstand.

 

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*OtherViewing Areas.*

 

In addition to the grandstand, patrons can watch racesfrom the following outdoor areas:  theapron, or standee ramp, between the grandstand and the racetrack and a largepicnic area immediately north of the grandstand.  These areas have concession stands and pari-mutuel windowsnearby.

 

*Grounds;Saddling Paddock Area.*

 

The grounds surrounding the grandstand are extensivelylandscaped.  Located near the mainentrance behind the grandstand is a European-style paddock area where patronscan observe the jockey mounting and the post parade.

 

*Barnand 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 physically challenged patrons.  The Racetrack also has unpaved areas available for overflowparking for approximately 5,000 additional automobiles.  Areas are also reserved for bus parking.

 

*Insurance.*

 

The Company maintains insurance on its facilities inamounts it believes are sufficient.

 

*OtherProperties.*

 

In January 2002, the Company acquired an additional 12acres of undeveloped land adjacent to the Racetrack.  Approximately 92 acres of the 367 acres owned by the Company arenot necessary for current operations. This property is undeveloped and could be sold in whole or in part,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 primarybusiness of horse racing.

 

**Item3.    LEGAL PROCEEDINGS**

 

Not Applicable.

 

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

 

Not Applicable.

 

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**PART II**

 

**Item 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

 

**(a)           MARKETINFORMATION**

 

The Company’s Common Stock is traded on the NASDAQStock Market under the symbol TRAK.  Thetable set forth below indicates the high and low trade prices for the CommonStock for the years ended December 31, 2001 and 2000.  These prices indicate interdealer prices without retail markup,markdowns or commissions.

 
|           |   | **2001** |   | **2000** |   |
|----------------|--------|----------|--------|----------|--------|
|           |   | **High** |   | **Low**  |   | **High** |   | **Low** |   |
| Common Stock   |   |     |   |     |   |   |   |   |   |
|           |   |     |   |     |   |   |   |   |   |
| First Quarter  |   | $        | 7.94   |     | $      | 5.88 |   | $ | 8.50 |   | $ | 5.06 |   |
| Second Quarter |   | 9.50     |   | 5.85     |   | 11.94 |   | 6.56 |   |
| Third Quarter  |   | 7.69     |   | 5.75     |   | 9.38 |   | 7.50 |   |
| Fourth Quarter |   | 8.25     |   | 6.00     |   | 8.38 |   | 7.00 |   |
|                |        |          |        |          |        |  |  |  |  |  |  |  |  |

 

**(b)           HOLDERS**

 

At March 19, 2002, the Company had approximately 546holders of record of its common stock. In addition, on that date a depository company held approximately1,706,000 shares as nominees for an estimated 1,200 beneficial holders.

 

**(c)           DIVIDENDS**

 

The Company has not paid any dividends on its commonstock and does not anticipate paying any in the foreseeable future.  The Company’s current loan arrangements witha commercial bank prohibit the payment of dividends without the bank’s consent.

 

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**Item 6     MANAGEMENT’S DISCUSSION AND ANALYSIS**

 

*GENERAL*

 

Canterbury Park Holding Corporation (the “Company”)owns and operates Canterbury Park Racetrack and Card Club in Shakopee,Minnesota.  The business of the Companyincludes pari-mutuel horse racing, unbanked card games, facility rental forspecial events and vehicle storage, and food and beverage operations.  The Company’s revenues for the twelve monthsended December 31, 2001 and December 31, 2000 were derived primarily from CardClub revenues and pari-mutuel take-out on live and simulcast horse races.

 

The Racetrack is the only pari-mutuel horse racingfacility in the State of Minnesota.  TheRacetrack earns revenues from pari-mutuel take-out on live races and racessimulcast year-round to Canterbury Park from racetracks throughout thecountry.  The Company earned pari-mutueltake-out during live race meets featuring thoroughbred and quarter horseracing.  In 2001 the Company conducted364 days of simulcast racing, including 63 days of live racing.  In 2000 the Company conducted 365 days ofsimulcast racing including 60 days of live racing.  The live race meets in 2001 and 2000 commenced in the month ofMay and concluded in September.  Duringlive race meets, the Company televises its races to out-of-state racetracksaround the country and the Company earns additional pari-mutuel revenue onwagers placed at the out-of-state racetracks.

 

The Canterbury Card Club (the “Card Club”) is the onlyfacility in the State of Minnesota authorized to host unbanked card games inwhich players compete against each other and not against the house.  The Company receives a percentage of the wagersor a fee from the players as compensation for providing the Card Club facilityand services.  Card Club operationscommenced on April 19, 2000 and contributed significantly to revenues in thesecond, third and fourth quarters of fiscal year 2000 and to all of fiscal2001.  The Card Club is open twenty-fourhours a day, seven days a week.

 

In addition to pari-mutuel and card club revenues, theCompany generates revenues from concession sales, admissions, parking,publication sales, special events, facility rental, advertising and other sources.

 

The Minnesota Racing Commission is authorized byMinnesota law to regulate Card Club and horse racing operations.  The law requires that up to 14% of the grossrevenue generated by the Card Club be paid to the Racetrack’s purse fund andthe State of Minnesota Breeders’ Fund. The Card Club’s operating plan, was approved by the Minnesota RacingCommission on January 19, 2000.  Theoriginal 15,828 square foot Card Club, constructed within the Racetrackgrandstand facility, was completed in mid-April 2000.  Expenditures related to the construction of the Card Club andenhancements to the facility were approximately $2.3 million.  The Company entered into a lending agreementwith Bremer Bank to provide term financing for approximately 75% of the totalestimated costs of construction.  Theloan, with an initial principal balance of approximately $1,587,000, was paidoff in December 2000.  Expendituresrelated to the acquisition of furniture, fixtures, equipment and supplies wereapproximately $700,000 and were funded with current cash flows.  In May 2001, the Company completed an 11,000square foot expansion of the Card Club to allow for the maximum number of 50tables allowed by Minnesota law. Expenditures for the construction and the related furniture, fixturesand equipment were approximately $1,100,000 and funded with current cash flows.

 

*CRITICAL ACCOUNTING POLICIES*

 

In preparing the financial statements, we followaccounting principles generally accepted in the United States of America, whichin many cases require us to make assumptions, estimates and judgments thataffect the amounts reported.  Many ofthese policies are relatively straightforward. There are, however, a few policies that are critical because they areimportant in determining the financial condition and results of operations andthey can be difficult to apply.  Webelieve that the most critical accounting policies applied in the preparationof our financial statements relate to: a) accounting for contingencies, underwhich we accrue a loss when it is probable that a liability has been incurredand the amount can be reasonably measured; and b) measuring long-term assetsfor impairment.

 

The difficulty in applying these policies arises fromthe assumptions, estimates and judgments that have to be made currently aboutmatters that are inherently uncertain, such as future economic conditions,operating

 

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results and valuations as well as management intentions.  As the difficulty increases, the level ofprecision decreases, meaning that actual results can and probably will bedifferent from those currently estimated. We base our assumptions, estimates and judgments on a combination ofhistorical experience and other reasonable factors.

 

*RESULTS OF OPERATIONS FOR THE YEARSENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000*

 

Total operating revenues for the year ended December31, 2001 were $39.5 million, an increase of $7.0 million or 21.7% compared to total operating revenues of $32.5million for the year ended December 31, 2000. Pari-mutuel revenues increased 5.6% in fiscal year 2001compared tofiscal year 2000 and concession revenues increased 11.6%.  The increase in concession revenues isprimarily due to a full year of food and beverage sales in the Card Club.  Discussions of the changes in Card Club andpari-mutuel revenues follow.

 

The following table summarizes Card Club collectionrevenue for the years ended December 31, 2001 and December 31, 2000.

 
| **SUMMARY OF CARD CLUB COLLECTION REVENUE DATA:** |   | **Revenue  Year Ended  12/31/01** |       | **Revenue  Year Ended  12/31/00** |   |
|---------------------------------------------------|--------|-----------------------------------|------------|-----------------------------------|--------|
| Poker Games                                       |   |                              |       |                              |   |
| Hold ‘Em                                     |   | $                                 | 6,761,000  |                              | $      | 4,367,000 |   |
| 7 Card Stud                                       |   | 2,239,000                         |       | 2,680,000                         |   |
| Omaha                                             |   | 524,000                           |       | 482,000                           |   |
| Total Poker  Games                                |   | 9,524,000                         |       | 7,529,000                         |   |
|                                              |   |                              |       |                              |   |
| Table Games                                       |   |                              |       |                              |   |
| Pai Gow Poker                                     |   | 1,687,000                         |       | 1,633,000                         |   |
| MN 21  “blackjack”                 |   | 1,933,000                         |       | 801,000                           |   |
| Super Pan Nine                                    |   | 516,000                           |       | 680,000                           |   |
| Let It Ride                                       |   | 1,172,000                         |       | 314,000                           |   |
| Caribbean Stud                                    |   | 729,000                           |       | 76,000                            |   |
| Three card poker                                  |   | 694,000                           |       | 0                                 |   |
| Casino War                                        |   | 48,000                            |       | 0                                 |   |
| Total Table  Games                                |   | 6,779,000                         |       | 3,504,000                         |   |
|                                              |   |                              |       |                              |   |
| Total Card Club                                   |   | $                                 | 16,303,000 |                              | $      | 11,033,000 |   |
| Number of days  offered                           |   | 364                               |       | 255                               |   |
| Average Revenue  per Day                          |   | 44,800                            |       | 43,000                            |   |

 

Total Card Club revenues were approximately $17.0million for the twelve months ended December 31, 2001 an increase of 50.5%compared to $11.3 million for the period April 19, 2000 to December 31,2000.  The Company receives a percentageof the wagers or a fee from the players as compensation for providing the CardClub facility and services, referred to as the “collection revenue”, whichtotaled $16.3 million in 2001 compared to $11.0 million in 2000.  In addition, the Company is authorized bylaw to retain a specified percentage of the jackpot fund collections asreimbursement for administrative costs of maintaining the jackpot funds.  The Card Club also charges enrollment feesfor dealer training school and collects entry fees for card club tournaments.

 

The Card Club is divided into two areas, the tablegames area and the poker games area. The average daily collection amount per game is dependent upon thenumber of tables utilized to offer the game. Patron demand determines the number of tables to be used for a specificgame.  At December 31, 2001, there werea

 

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total of 19 tables in the table games room and 31 tables in the pokerroom compared to 10 and 33 tables respectively at December 31, 2000.

 

The following table summarizes the Pari-mutueloperating data for the years ended December 31, 2001 and 2000:

 

 
| **SUMMARY OF PARI-MUTUEL OPERATING DATA:** |   | **2001**   |       | **2000**   |   |
|--------------------------------------------|--------|------------|------------|------------|--------|
| **Racing  Days**                           |   |       |       |       |   |
| Simulcast only  days                       |   | 301        |       | 305        |   |
| Live and  simulcast days                   |   | 63         |       | 60         |   |
| **Total  Racing Days**                     |   | 364        |       | 365        |   |
|                                       |   |       |       |       |   |
| **On-Track  Handle**                       |   |       |       |       |   |
| Simulcast only  days                       |   | $          | 46,138,000 |       | $      | 44,102,000 |   |
| Live and  simulcast days:                  |   |       |       |       |   |
| Live racing                                |   | 16,014,000 |       | 15,673,000 |   |
| Simulcast racing                           |   | 14,510,000 |       | 13,154,000 |   |
| **Out-of-state  Live Handle**              |   | 13,105,000 |       | 9,647,000  |   |
| **Total  Handle**                          |   | $          | 89,767,000 |       | $      | 82,576,000 |   |
|                                       |   |       |       |       |   |
| **On-Track  Average Daily Handle**         |   |       |       |       |   |
| Simulcast only  days                       |   | $          | 153,000    |       | $      | 145,000 |   |
| Live and  simulcast days                   |   | 485,000    |       | 480,000    |   |

 

Total Pari-mutuel revenues increased 5.6% toapproximately $16,478,000 in 2001 from $15,609,000 in 2000.  Total on-track handle increasedapproximately 5.1% to $76,662,000 in 2001 from $72,929,000 in 2000.  Handle wagered at out-of-state locationsincreased 35.9% or $3,458,000 compared to 2000.  Handle wagered by out-of-state locations on the Claiming Crownraces on August 4, 2001 was $2.5 million, compared to $1.4 million fromout-of-state wagering on the 2000 Claiming Crown races.  The Claiming Crown will not be held atCanterbury Park in 2002, however, the Racetrack is the scheduled site of thisnational event in three of the next seven years.

 

Pari-mutuel revenues related to simulcast racingincreased 6.1% to $12,443,000 in 2001 from $11,722,000 in 2000.  This change was consistent with the changein total simulcast handle, which increased 5.9% to $60,648,000 in 2001, up from$57,256,000 in 2000.

 

On-track wagering on live races at the Racetrackincreased by $341,000, or 2.2%, to $16,014,000 in 2001 from $15,673,000 in2000, causing pari-mutuel revenue related to live racing to increase by 2.0% to$3,370,000 in 2001 from $3,304,000 in 2000. This increase is primarily due toan increase in the number of live racing days to 63 from 60 in 2000.  Also, an increase of 1.0% in the averagedaily handle of $485,000 in 2001 compared to $480,000 in 2000 on days when bothsimulcast and live racing were conducted.

 

Pari-mutuel revenue from simulcasting the Racetrack’slive races to out-of-state locations totalled approximately $345,000 in 2001compared to $253,000 in 2000.  TheRacetrack receives amounts ranging from 2.50% to 3.00% of amounts wagered atout-of-state racetracks as a “guest fee”. The 36% increase in revenues is attributable to the increase in out-of-state handle as discussedabove.  The Company anticipates thisrevenue will decline in 2002 since the Claiming Crown event will not be held atthe Racetrack.

 

Revenues recognized on proceeds from winningpari-mutuel tickets, which were not presented for payment within one year ofthe end of the respective race meets decreased to approximately $319,000 in2001 compared to $330,000 in 2000.

 

Other operating revenue decreased $42,000 or 5.7% to$692,000 in fiscal year 2001.  Therevenues from leasing unused areas of the Racetrack for vehicle storagedecreased 31.2% from approximately $278,000 in 2000

 

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to $191,000 in 2001.  Thisdecrease was due mainly to the weak economic conditions in 2001.  However, increases in space rental forspecial events, and check cashing and ATM fees partially offset the decrease inspace rental revenues from vehicle storage.

 

Total operating expenses increased approximately$5,436,000 or 17.6% to $36,405,000 in 2001, from $30,969,000 in 2000.  The increase in operating expenses isprimarily due to the ongoing costs of operating the Card Club for twelve monthsin 2001 compared to approximately eight months in 2000.

 

Minnesota law requires the Company to allocate aportion of funds received from betting in the Card Club and wagering onsimulcast and live horse races for future payment as purses for live horseraces or other uses of Minnesota’s horsepersons’ associations.  This purse expense is one of the Company’slargest single expense items. Pari-mutuel expenses increased 13.2% or approximately $1,122,000 for theyear ended December 31, 2001 compared to the year ended December 31, 2000.  The increase was due primarily to the purseexpense attributable to the Card Club operation.  Total purse and breeders fund expenses for the Card Club for theyear ended December 31, 2001 was $2,042,000 compared to $1,305,000 for the yearended December 31, 2000.  UnderMinnesota law, the Company is required to pay 10% of the first $6 million ofgross Card Club revenues as purse monies. After meeting the $6 million threshold, the Company must pay 14% ofgross Card Club revenues as purse monies. The Company estimates for each year, an estimated annual effective ratefor purse monies, which is applied to gross Card Club revenue throughout theyear.  Of funds allocated for purses,the Company pays 10% of the purse monies to the State of Minnesota Breeders’ Fund.  The remaining 90% of the purse monies isdivided between thoroughbred (90%), quarter horse (9%) and standard bred (1%)purse funds.

 

The minimum percentage required by law to be set asidefor purses from simulcasting varies substantially depending on the time of yearthe simulcasting is conducted.  For the25-week period beginning in early May, which is the statutorily established“Racing Season,” 50% of net pari-mutuel revenue, before deducting for purses,is allocated to a fund for the payment of purses during the live meet.  For the remaining 27 weeks of the racingyear, November through April, funds accumulate at the rate of 25% of netpari-mutuel revenue, before deducting for purses, but after deducting an 8%expense factor.  Pari-mutuel purse expenseas a percentage of the Company’s pari-mutuel commission and breakage revenuesremained relatively unchanged at 28.1% in 2001, compared to 28.4% in 2000.

 

The Company incurred incremental pari-mutuel purseexpense due to Claiming Crown purse guarantees of $182,000 and $162,000 for theyears 2001 and 2000, respectively. These amounts are included in pari-mutuel statutory purse expense in thestatements of operations.

 

Amounts paid to the Minnesota Breeders’ Fund forsimulcast and live horse-racing are a function of on-track handle and theincrease to $826,000 in 2001 compared to $783,000 in 2000 is attributable toand consistent with the increase in total on-track handle.  The Company also paid $204,000 and $131,000to the Breeders Fund related to Card Club operations in 2001 and 2000respectively.

 

Host track fees remained steady at 3.43% of simulcasthandle in 2001 compared to 3.43% in 2000. The host fee is calculated as a percentage of monies wagered onout-of-state racetracks (generally 2.50% to 4.50%) and is negotiated with eachhost track.

 

Salary and benefit expenses increased by $3.2 millionor 26.6% for the twelve months ended December 31, 2001 compared to the twelvemonths ended December 31, 2000.  Thefull year of Card club operations in 2001 was the primary reason for thesignificant increase in labor costs. The Card Club salary and benefit expenses for the year 2001, wereapproximately $7.5 million compared to approximately $5.9 million for 2000.  In addition, the Company experienced anincrease in its health insurance expense. Rate increases, coupled with an increase in employees resulted in a 50%increase in costs for employee health insurance in 2001. Also, the Companyextended the length of its live race meet from 60 days in 2000 to 63 days in2001, increasing salaries related to the live racing operations in 2001compared to the same periods in 2000.

 

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Depreciation and amortization expense increased 17.0%in 2001 compared to 2000.  The increasewas primarily attributable to building improvements and capital assets acquiredfor the Card Club expansion during the year 2001.

 

Repairs, maintenance and supply costs increasedapproximately $169,000 or 13.7% for 2001 compared to 2000.  The Company made repairs to the majorbuilding systems and equipment, including elevators, electrical, heating andair flow systems.  Because the Card Clubrelies significantly upon these building systems due to its 24 / 7 operations,it is allocated a pro-rata portion of these repair and maintenanceexpenses.  In addition, the Card Clubmade significant purchases for decks of cards, radios, uniforms, printedmaterials and other supplies for the full year in 2001.

 

Real estate tax expense was approximately $183,000 in2001 compared to approximately $261,000 in 2000.  The Company estimates and accrues property tax expense each yearfor taxes due and payable the following year, based on estimates received fromthe taxing authorities.  Actual propertytax payments were approximately $238,000 in 2001 compared to approximately$261,000 in 2000.

 

Advertising and marketing expenses increasedapproximately $193,000 or 11.7% in 2001 compared to 2000 primarily due toexpenditures related to the full year of operating the Card Club.  The Company experienced increased costs forthe production and broadcast of television advertising to promote the Card Cluband live racing.  Advertising andmarketing costs for the Card Club increased 36% to approximately $834,000 for2001 compared to $614,000 for 2000.

 

Other operating expenses include personnel costs,professional fees, equipment rent, contracted services, insurance and otherexpenses.  These expenses increasedapproximately $280,000 or 9% in 2001, compared to 2000.  Approximately $173,000 of the increase wasattributable to the full year of operating the Card Club.  Also, the number of live race days increasedto 63 days in 2001, from 60 days in 2000. This increase in number of race days, along with an increase in ratespaid to the Minnesota Racing Commission for reimbursement for stewards,veterinarians and drug testing costs, resulted in a 7% increase in contractedservices related to live racing.

 

Interest expense for 2001 decreased to approximately$7,000 from approximately $126,000 for 2000. The Company incurred interest expense in 2001 on amounts due on advancesfrom the MHBPA, offset by periodic amounts due from the MHBPA.  The average daily balance of amounts dueunder advances with the MHBPA was approximately $189,000, in 2001 compared to$282,000 in 2000. The weighted average rate of interest on the amounts due tothe MHBPA was 4.92% for fiscal year 2001, compared to 9.11% for fiscal year2000.  The interest rate on the MHBPAadvances was 4.75% at December 31, 2001 compared to 9.50% at December 31,2000.  Interest charged to operations onadvances with the MHBPA was $4,173 in fiscal year 2001, compared to $25,680 infiscal year 2000.

 

The Company entered into a borrowing agreement withBremer Bank on April 20, 2000 to fund the construction of the Card Club.  The agreement was initially structured as aconstruction loan, which was converted to a five-year installment loan onAugust 1, 2000.  The loan had an initialprincipal amount of $1,587,000, requiring monthly principal and interestpayments of approximately $33,600.  Theoutstanding principal balance on the loan was paid off on December 29, 2000with current cash flow.  The averagedaily balance upon which interest was paid was $863,515.  The interest rate on the loan was prime rateplus 0.25%.  The amount charged tooperations for interest expense in 2000 on this borrowing was approximately$100,300, including a $15,000 financing fee paid to Bremer Bank.  The weighted average interest rate on theloan for the year ended December 31, 2000 was 11.62%.

 

On June 11, 1998 the Company obtained a commercialrevolving credit line with Bremer Bank N.A. The average daily balance of borrowings under the line of credit was$14,000 in 2001 and the line of credit was not utilized in the year 2000.  The weighted average rate of interest on theline of credit was 6.66% and the amount charged to operations in 2001 forinterest expense on the line of credit with Bremer Bank was approximately$1,000.

 

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Interest income was approximately $63,000 in fiscalyear 2001 compared to approximately $114,000 in fiscal year 2000.  All cash balances of the Company are “swept”into a single account at the close of every business day to maximize earnings andfloat.  The cash balances are investedin an overnight repurchase agreement on a daily basis, collateralized bymortgage-backed securities.  Thedecrease in interest income is due primarily to a decrease in the averageinterest rate earned on these cash balances. The average daily balance of amounts in the cash account wasapproximately $1,461,000 in 2001, compared to $1,713,000 in 2000.  The average interest rate earned on the cashbalances was 3.30% and 5.41%, for the years ended December 31, 2001 and 2000,respectively.

 

Pretax income for the Card Club operating segment for2001 was approximately $2,802,000 compared to approximately $970,000 for2000.  The horseracing segment of theCompany earned pretax income of $341,000 in fiscal year 2001 compared to$512,000 for fiscal year 2000.  Pretaxincome for the concessions segment of the Company was $113,000 in 2001 comparedto $123,000 in 2000.

 

Income before income taxes increased to $3,143,455 in2001 compared to $1,482,209 in 2000. The Company incurred income tax expense of $1,326,675 in 2001 comparedto income tax expense of $643,300 in 2000. Net income for the year ended December 31, 2001 was $1,816,780, comparedto net income of $838,909 for the year ended December 31, 2000.

 

*Commitmentsand Contingencies*

 

The Company leased certain copying equipment under anoperating lease, which expired in February 2001.  Rental expenses charged to operations were approximately $5,560for the period ended December 31, 2001. In addition, in January 1999 the Company entered into a five-yeartotalizator services agreement with Autotote Systems, Inc. (Autotote).  Pursuant to the agreement, Autotote providestotalizator equipment and computer programs which record and process all wagersand calculate the odds and payoffs.  Forsuch services, Autotote receives a fee of approximately .45% of the grossmonies wagered.  Amounts charged tooperations under this agreement for the years ended December 31, 2001 and 2000were approximately $346,000 and $332,000, respectively.  During the 2001 and 2000 live race meets,Autotote provided uplink services, which enabled the Company to simulcast horseraces held at Canterbury Park to out-of-state racetracks.  These services resulted in an amount chargedto operations in 2001 and 2000 of approximately $122,000 and $118,000,respectively.

 

In connection with the purchase of the Racetrack, thecompany entered into an Earn Out Promissory Note dated March 29, 1994. Inaccordance with the Earn Out Note if (i) off-track betting becomes legallypermissible in the State of Minnesota and (ii) the Company begins to conductoff-track betting with respect to or in connection with its operations, theCompany will be required to pay to the IMR Fund, L.P. the greater of $700,000per operating year, as defined, or 20% of the net pretax profit, as defined foreach of five operating years.  At thedate (if any) that these two conditions are met, the five minimum payments willbe discounted back to their present value and the sum of those discountedpayments will be recorded as an increase to the purchase price.  The purchase price will be further increasedif payments become due under the “20% of Net Pretax Profit” calculation.  The first payment is to be made 90 daysafter the end of the third operating year in which off-track betting isconducted by the Company.  Remainingpayments would be made within 90 days of the end of each of the next fouroperating years.

 

                The Company isperiodically involved in various legal actions arising in the normal course ofbusiness.  At December 31, 2001,management believes that the resolution of any legal actions outstanding willnot have a material impact on the consolidated financial statements.

 

                The MinnesotaDepartment of Labor and Industry (DOL&I) is conducting an audit for theperiod April 10, 1999 through April 10, 2001 regarding compliance with the tiplaw sections of the Minnesota Fair Labor Standards Act.  At December 30, 2001, the Company hasreceived no communications from the DOL&I regarding the disposition oftheir audit.  Management believes thatthe Company's practices regarding tips are consistent with the requirements ofMinnesota law.

 

*AccountingPronouncements*

 

On January 1, 2001, the Company adopted Statement ofFinancial Accounting Standards (SFAS) No. 133, *Accountingfor Derivative Instruments and Hedging Activities,*as amended bySFAS No. 138, *Accounting for CertainDerivative Instruments and Certain Hedging Activities. *SFAS No. 133 establishesaccounting and reporting standards for derivative instruments and for hedgingactivities.  It requires that allderivatives, including those embedded in other contracts, be recognized aseither assets or liabilities and that those financial instruments be measuredat fair value.  The accounting forchanges in the fair value of derivatives depends on their intended use anddesignation.  Management has reviewedthe requirements of SFAS No. 133 and has determined that they have nofree-standing or embedded derivatives. All contracts that contain provisions meeting the definition of a

 

20

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derivative also meet the requirements of, and have been designated as,normal purchases or sales.  TheCompany’s policy is to not use free-standing derivatives and to not enter intocontracts with terms that cannot be designated as normal purchases or sales.

 

In July 2001, the Financial Accounting Standards Board(“FASB”) issued SFAS No. 141, *BusinessCombinations*, which replaces APB Opinion 16 and requires allbusiness combinations initiated after June 30, 2001 to use the purchase methodof accounting; the pooling of interest method of accounting is prohibitedexcept for transactions initiated before July 1, 2001.  While SFAS No. 141 will affect how futurebusiness combinations, if undertaken, are accounted for and disclosed in thefinancial statements, the issuance of the new guidance had no effect on theCompany’s results of operations, financial position or liquidity during 2001.

 

In conjunction with the issuance of the new guidancefor business combinations, the FASB also issued SFAS No. 142, *Goodwill and Other Intangible Assets*,which addresses the accounting and reporting for acquired goodwill and otherintangible assets and supersedes APB Opinion 17.  Under the provisions of SFAS no. 142, intangible assets acquiredin a business combination, which do not possess finite useful lives will nolonger be amortized into net income over an estimated useful life but ratherwill be tested for impairment at least annually based on specific guidanceprovided in the new standard.  TheCompany adopted SFAS No. 142 on January 1, 2002, and will have no materialimpact on the Company’s financial statements.

 

The FASB also issued SFAS No. 144, *Accounting for the Impairment or Disposal of Long-LivedAssets*, which is required to be adopted for fiscal years beginningafter December 15, 2001.  SFAS No. 144establishes accounting and reporting standards for the impairment or disposalof long-lived assets.  The provisions ofSFAS No. 144 became effective for the Company on January 1, 2002 and are notexpected to have a material impact on its financial position and results ofoperations.

 

21

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LIQUIDITY AND CAPITAL RESOURCES:

 

During the year ended December 31, 2001, net cashprovided by operations was $3,876,299, which resulted primarily from net incomeof $1,816,780, depreciation and amortization of $1,064,407, and an increase inCard Club accruals, accounts payable and accrued wages and payroll taxes of $1,109,114.  During the year ended December 31, 2000 cashprovided by operating activities was $3,561,337, which resulted principallyfrom net income of $838,909 depreciation and amortization of $909,345, anincrease in Card Club accruals, accounts payable and accrued wages and payrolltaxes of $1,444,219.

 

The Card Club operation requires the accrual ofcertain liabilities.  The Card Cluboffers progressive jackpots for poker games and certain table games.  Amounts collected for these jackpot fundsare accrued as liabilities.  At December31, 2001, accrued jackpot funds totaled approximately $421,000 compared to$297,000 at December 31, 2000.  Tablegames are played using a “player pool”. “Player pool” means a wagering system or game where wagers lost in a numberof card games may be accumulated into a pool for purposes of enhancing thetotal amount paid back to players in any other card game.  In such games, the sponsor may only serve ascustodian of the player pool and may not have an active interest in any cardgame.  In the table games area of theCard Club, the net amount that the dealer “wins” or “loses” during the courseof play is accumulated as a “player pool” liability, and is not recognized asrevenue by the Company.  The Company isrequired by law to return accumulated player pool funds to the players in theforms of giveaways, promotional items, prizes or by other means.  The accumulated player pool liability isapproximately $398,000 at December 31, 2001 compared to $305,000 at December31, 2000.  The Minnesota RacingCommission regulates the operation of the jackpot and player pool funds.  All games in the Card Club are played usingchips.  The value of chips issued andoutstanding, referred to as the “outstanding chip liability”, was approximately$97,000 at December 31, 2001 compared to $112,000 at December 31, 2000. These Card Club accruals have the potential forsignificant fluctuation on a daily basis. The Company believes it has adequate liquidity to meet the potentialdaily obligations of these accrual items.

 

Cash used in investing activities for the year endedDecember 31, 2001 was $2,169,416 for capital expenditures generally related tothe expansion of the Card Club in May 2001. Additions to furniture, fixtures and equipment were primarily toaccommodate the Card Club operation. For fiscal 2000, net cash used in investing activities was $4,159,318for property and equipment primarily related to the addition of the Card Clubin April 2000.

 

Cash provided by financing activities was $183,112 forthe year ended December 31, 2001 compared to $446,778 for the year endedDecember 31, 2000. The net cash inflows resulted primarily from proceeds on theissuance of common stock due to the exercise of stock options in 2001 of$232,927 and $390,734 in 2000. These common stock issuances also resulted fromthe Company’s employee stock purchase plan. In 2001, the cash inflows related to option exercises were partly offsetby net payments on the borrowings under the credit agreement  and payments on the advance with the MHBPAtotaling $49,815.  During the fiscalyear 2000, the Company entered into a five-year installment loan to fund theconstruction of the Card Club.  The initialprincipal balance of the loan was $1,586,750 however, this loan was paid off inDecember of 2000.

 

                Pursuant to anagreement with the Minnesota Horsemen’s Benevolent and Protective Association,(the “MHBPA”), the Company transferred into a trust account or paid directly tothe MHBPA, approximately $5,624,000 and $4,717,000 in purse funds for the yearsended December 31, 2001 and 2000, respectively.  Minnesota Statutes specify that amounts transferred into trustare the property of the trust and not of the Company.  Unpaid purse fund obligations due the MHBPA were $373,240 and $423,055at December 31, 2001 and 2000, respectively. The interest rates on any statutory purses accrued but not transferredinto the trust (which are guaranteed by the Company’s Chairman of the Board)were 4.75% and 9.50% at December 31, 2001 and 2000, respectively.

 

22

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The Company renewed a general credit and securityagreement with Bremer Bank, N.A., a financial institution located in SouthSaint Paul, Minnesota, on April 30, 2001. Borrowings under the credit agreement include a commercial revolvingcredit line, which provides for maximum advances of $2,250,000 with interest atthe prime rate plus .25% (4.75% at December 31, 2001).  The average daily balance on the line ofcredit was $14,000 in 2001, with a weighted average interest rate for the yearof 6.66%.  No borrowings under thecredit line were outstanding during the year ended December 31, 2000.

 

Cash balances at December 31, 2001 were $3,088,844compared to $1,198,849 at December 31, 2000. Management believes that funds available in its cash accounts, amountsavailable under the general credit and security agreement, along with fundsgenerated from operations, will be sufficient to satisfy its liquidity andcapital resource requirements during 2001. In January 2002, the Company acquired 12 acres of undeveloped landadjacent to the Racetrack.  Expendituresrelated to the purchase of this land were approximately $1,014,000 and werefunded with current cash flows.

 

OPERATING PLAN:

 

In 2001 the Company successfully conducted its seventhconsecutive live race meet.  The Companyplans a 62-day live race meet in 2002 consisting of 27 days of mixedThoroughbred and Quarter Horse racing, and 35 days of Thoroughbred onlyracing.  The Company competes with racetrackslocated throughout the United States in securing the better quality horses torun at the Racetrack.  Attracting theowners and trainers of better quality horses is largely influenced by theability to offer large purses.  Over thepast several years, the Company has offered consistent levels of purse moniesfrom year to year by limiting the number of live racing days and utilizingpurse monies from simulcasting and live race wagering.  However, since the commencement of Card Cluboperations in 2000, the Company was able to offer significant purse increasesduring the 2001 and 2000 live race meets. The Company continues to experience stiff competition for better qualityhorses from a racetrack located near Des Moines, Iowa, as well as racetracks inChicago, Illinois, which offer substantially larger purses.

 

The Company anticipates that it will continue toimprove its profitability in the year 2002 mainly due to a full year ofoperation of the expanded Card Club. The expansion of the Card Club has positively affected operating resultssince its completion in May 2001.  Inaddition, management anticipates it will be able to maintain levels ofattendance and handle for live and simulcast racing at or near levels similarto previous years.  The Company ishopeful that the higher purse rates continue to draw better quality horses andincrease attendance compared to the year 2001. The Company continues to pursue special events and to market itsfacility as a venue for large outdoor and indoor events.

 

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

 

23

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FACTORS AFFECTING FUTURE PERFORMANCE:

 

From time to time, in reports filed with theSecurities and Exchange Commission, in press releases, and in othercommunications to shareholders or the investing public, the Company may makeforward-looking statements concerning possible or anticipated future financialperformance, business activities or plans which are typically preceded by thewords “believes,” “expects,” “anticipates,” “intends” or similarexpressions.  For such forward-lookingstatements, the Company claims the protection of the safe harbor forforward-looking statements contained in federal securities laws.  Shareholders and the investing public shouldunderstand that such forward-looking statements are subject to risks anduncertainties which could cause actual performance, activities or plans todiffer significantly from those indicated in the forward-lookingstatements.  Such risks anduncertainties include, but are not limited to: fluctuations in attendance atthe Racetrack, changes in the level of wagering by patrons, continued interestin the unbanked card games offered at the Card Club, legislative and regulatorychanges, the impact of wagering products and technologies introduced bycompetitors; upward pressure on salary and benefit expense due to the tightlabor market; the general health of the gaming sector; higher than expectedexpense related to new marketing initiatives; and other factors discussed fromtime to time in the Company’s filings with the Securities and ExchangeCommission.

 

**Item 7.    FINANCIAL STATEMENTS**

 

The following financial statements of the Company areset forth on pages 25 through 38 of the Form 10-KSB:

 
| Independent Auditors’  Report                                                                               |
|------------------------------------------------------------------------------------------------------------------|
|                                                                                                             |
| Consolidated Balance Sheets  as of December 31, 2001 and 2000                                                    |
|                                                                                                             |
| Consolidated  Statements of Operations for the years ended December 31, 2001 and 2000                            |
|                                                                                                             |
| Consolidated  Statements of Changes in Stockholders’ Equity for the years ended December  31, 2001 and 2000 |
|                                                                                                             |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2001 and 2000                            |
|                                                                                                             |
| Notes to  Consolidated Financial Statements for the years ended December 31, 2001 and  2000                      |

 

24

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**INDEPENDENT AUDITORS’ REPORT**

 

Board of Directors

Canterbury Park Holding Corporation

Shakopee, Minnesota

 

We have audited the accompanying consolidated balance sheets ofCanterbury Park Holding Corporation and subsidiary (the Company) as of December31, 2001 and 2000 and the related consolidated statements of operations,stockholders’ equity, and cash flows for the years then ended.  These consolidated financial statements arethe responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements arefree of material misstatement.  An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of CanterburyPark Holding Corporation and subsidiary as of December 31, 2001 and 2000 andthe results of their operations and their cash flows for the years then ended,in conformity with accounting principles generally accepted in the UnitedStates of America.

 

Deloitte & Touche LLP

 

 

March 8, 2002

Minneapolis, Minnesota

 

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**CANTERBURY PARK HOLDING CORPORATIONAND SUBSIDIARY**

 

**CONSOLIDATED BALANCE SHEETS**

**DECEMBER 31, 2001 AND 2000**

 
|                                                                                                                               |   | **2001**   |       | **2000**   |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|------------|--------|
| **ASSETS**                                                                                                                         |   |       |       |       |   |
|                                                                                                                               |   |       |       |       |   |
| CURRENT ASSETS:                                                                                                                    |   |       |       |       |   |
| Cash                                                                                                                               |   | $          | 3,088,844  |       | $      | 1,198,849 |   |
| Accounts receivable                                                                                                                |   | 556,192    |       | 306,852    |   |
| Inventory                                                                                                                          |   | 113,324    |       | 106,381    |   |
| Deposits                                                                                                                           |   | 45,000     |       | 24,500     |   |
| Prepaid expenses                                                                                                                   |   | 300,845    |       | 267,425    |   |
| Total current  assets                                                                                                              |   | 4,104,205  |       | 1,904,007  |   |
|                                                                                                                               |   |       |       |       |   |
| PROPERTY AND  EQUIPMENT, net  (Note 2)                                                                                        |   | 12,439,413 |       | 11,334,404 |   |
|                                                                                                                               |   |       |       |       |   |
| DEFERRED TAX  ASSET  (Note 3)                                                                                                 |   |       |       | 79,100     |   |
|                                                                                                                               |   |       |       |       |   |
|                                                                                                                               |   | $          | 16,543,618 |       | $      | 13,317,511 |   |
|                                                                                                                               |   |       |       |       |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                     |   |       |       |       |   |
|                                                                                                                               |   |       |       |       |   |
| CURRENT  LIABILITIES:                                                                                                              |   |       |       |       |   |
| Accounts payable                                                                                                                   |   | $          | 1,683,092  |       | $      | 930,597 |   |
| Card club  accruals                                                                                                                |   | 1,058,465  |       | 817,812    |   |
| Accrued wages  and payroll taxes                                                                                                   |   | 782,461    |       | 666,495    |   |
| Accrued interest                                                                                                                   |   | 15,878     |       | 11,705     |   |
| Advance from  MHBPA (Note 1)                                                                                                       |   | 373,240    |       | 423,055    |   |
| Accrued property  taxes                                                                                                            |   | 237,784    |       | 292,546    |   |
| Income taxes  payable                                                                                                              |   | 134,330    |       | 204,840    |   |
| Payable to  horsepersons                                                                                                           |   | 235,158    |       | 207,818    |   |
| Deferred tax  liability (Note 3)                                                                                                   |   | 168,000    |       |       |   |
| Total current  liabilities                                                                                                         |   | 4,688,408  |       | 3,554,868  |   |
|                                                                                                                               |   |       |       |       |   |
| COMMITMENTS AND  CONTINGENCIES (Notes 7 and 8)                                                                                     |   |       |       |       |   |
|                                                                                                                               |   |       |       |       |   |
| STOCKHOLDERS’  EQUITY (Note 4):                                                                                               |   |       |       |       |   |
| Common stock,  $.01 par value, 10,000,000 shares authorized, 3,529,324 and 3,473,832,  respectively, shares issued and outstanding |   | 35,293     |       | 34,738     |   |
| Additional  paid-in capital                                                                                                        |   | 10,240,249 |       | 9,965,017  |   |
| Accumulated  earnings                                                                                                              |   | 1,579,668  |       | (237,112   | )      |
| Total  stockholders’ equity                                                                                                   |   | 11,855,210 |       | 9,762,643  |   |
|                                                                                                                               |   | $          | 16,543,618 |       | $      | 13,317,511 |   |

 

See notes to consolidated financial statements.

 

26

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**CANTERBURY PARK HOLDING CORPORATIONAND SUBSIDIARY**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**YEARS ENDED DECEMBER 31, 2001 AND2000**

 
|                                                  |   | **2001**   |       | **2000**   |   |
|-------------------------------------------------------|--------|------------|------------|------------|--------|
| OPERATING  REVENUES:                                  |   |       |       |       |   |
| Pari-mutuel                                           |   | $          | 16,477,564 |       | $      | 15,608,800 |   |
| Card Club                                             |   | 16,968,407 |       | 11,277,153 |   |
| Concessions                                           |   | 4,117,222  |       | 3,689,715  |   |
| Admissions and  parking                               |   | 567,248    |       | 518,609    |   |
| Publications                                          |   | 669,795    |       | 635,183    |   |
| Other operating  revenue                              |   | 691,801    |       | 733,956    |   |
|                                                  |   | 39,492,037 |       | 32,463,416 |   |
|                                                  |   |       |       |       |   |
| OPERATING  EXPENSES:                                  |   |       |       |       |   |
| Pari-mutuel  expenses:                                |   |       |       |       |   |
| Statutory purses                                      |   | 6,278,104  |       | 5,441,897  |   |
| Host track fees                                       |   | 2,084,041  |       | 1,961,447  |   |
| Pari-mutuel  taxes                                    |   | 202,029    |       | 155,268    |   |
| Minnesota  Breeders’ Fund                        |   | 1,030,201  |       | 913,868    |   |
| Salaries and  benefits                                |   | 15,242,771 |       | 12,036,380 |   |
| Cost of sales  related to concessions                 |   | 1,766,668  |       | 1,447,778  |   |
| Cost of sales  related to publications                |   | 852,565    |       | 839,525    |   |
| Depreciation and  amortization                        |   | 1,064,407  |       | 909,345    |   |
| Repairs,  maintenance and supplies                    |   | 1,400,901  |       | 1,232,205  |   |
| Property taxes                                        |   | 183,022    |       | 260,996    |   |
| Advertising and  marketing                            |   | 1,842,618  |       | 1,649,592  |   |
| Utilities                                             |   | 1,064,085  |       | 1,006,546  |   |
| Other operating  expenses                             |   | 3,393,798  |       | 3,114,132  |   |
|                                                  |   | 36,405,210 |       | 30,968,979 |   |
|                                                  |   |       |       |       |   |
| NONOPERATING  (EXPENSES) REVENUES:                    |   |       |       |       |   |
| Interest expense  (Note 6)                            |   | (6,836     | )          | (126,045   | )      |
| Other, net                                            |   | 63,464     |       | 113,817    |   |
|                                                  |   | 56,628     |       | (12,228    | )      |
|                                                  |   |       |       |       |   |
| INCOME BEFORE  INCOME TAX EXPENSE                     |   | 3,143,455  |       | 1,482,209  |   |
|                                                  |   |       |       |       |   |
| Income tax  expense  (Note 3)                    |   | (1,326,675 | )          | (643,300   | )      |
| NET INCOME                                            |   | $          | 1,816,780  |       | $      | 838,909 |   |
|                                                  |   |       |       |       |   |
| WEIGHTED AVERAGE  NUMBER OF COMMON SHARES OUTSTANDING |   | 3,496,781  |       | 3,449,666  |   |
|                                                  |   |       |       |       |   |
| BASIC NET INCOME  PER COMMON SHARE (Note 5)           |   | $          | .52        |       | $      | .24 |   |
|                                                  |   |       |       |       |   |
| DILUTED NET  INCOME PER COMMON SHARE (Note 5)         |   | $          | .49        |       | $      | .23 |   |

 

See notes to consolidated financial statements.

 

27

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**CANTERBURY PARK HOLDING CORPORATIONAND SUBSIDIARY**

 

**CONSOLIDATED STATEMENTS OF CHANGES INSTOCKHOLDERS’ EQUITY**

**YEARS ENDED DECEMBER 31, 2001 AND2000**

 
|                                              |   | **Number  of Shares** |   | **Common  Stock** |   | **Additional  Paid-in  Capital** |   | **Accumulated  Deficit** |   | **Total** |       |
|---------------------------------------------------|--------|-----------------------|--------|-------------------|--------|----------------------------------|--------|--------------------------|--------|-----------|------------|
| ***Balance, December 31, 1999***                  |   | 3,371,999             |   | $                 | 33,720 |                             | $      | 9,493,101                |   | $         | (1,076,021 | ) | $ | 8,450,800 |   |
|                                              |   |                  |   |              |   |                             |   |                     |   |      |       |
| Exercise of stock options                         |   | 84,200                |   | 842               |   | 314,952                          |   |                     |   | 315,794   |       |
|                                              |   |                  |   |              |   |                             |   |                     |   |      |       |
| Tax benefit of  stock option exercises            |   |                  |   |              |   | 82,200                           |   |                     |   | 82,200    |       |
|                                              |   |                  |   |              |   |                             |   |                     |   |      |       |
| Shares issued  under Employee Stock Purchase Plan |   | 17,633                |   | 176               |   | 74,764                           |   |                     |   | 74,940    |       |
|                                              |   |                  |   |              |   |                             |   |                     |   |      |       |
| Net income                                        |   |                  |   |              |   |                             |   | 838,909                  |   | 838,909   |       |
|                                              |   |                  |   |              |   |                             |   |                     |   |      |       |
| ***Balance, December  31, 2000***                 |   | 3,473,832             |   | $                 | 34,738 |                             | $      | 9,965,017                |   | $         | (237,112   | ) | $ | 9,762,643 |   |
|                                              |   |                  |   |              |   |                             |   |                     |   |      |       |
| Exercise of  stock options                        |   | 30,500                |   | 305               |   | 104,663                          |   |                     |   | 104,968   |       |
|                                              |   |                  |   |              |   |                             |   |                     |   |      |       |
| Tax benefit of  stock option exercises            |   |                  |   |              |   | 42,860                           |   |                     |   | 42,860    |       |
|                                              |   |                  |   |              |   |                             |   |                     |   |      |       |
| Shares issued  under Employee Stock Purchase Plan |   | 24,992                |   | 250               |   | 127,709                          |   |                     |   | 127,959   |       |
|                                              |   |                  |   |              |   |                             |   |                     |   |      |       |
| Net income                                        |   |                  |   |              |   |                             |   | 1,816,780                |   | 1,816,780 |       |
|                                              |   |                  |   |              |   |                             |   |                     |   |      |       |
| ***Balance, December  31, 2001***                 |   | 3,529,324             |   | $                 | 35,293 |                             | $      | 10,240,249               |   | $         | 1,579,668  |   | $ | 11,855,210 |   |

 

See notes to consolidated financial statements.

 

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**CANTERBURY PARK HOLDING CORPORATIONAND SUBSIDIARY**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**YEARS ENDED DECEMBER 31, 2001 AND2000**

 
|                                                                     |   | **2001**   |      | **2000**   |   |
|--------------------------------------------------------------------------|--------|------------|-----------|------------|--------|
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                   |   |       |      |       |   |
| Net income                                                               |   | $          | 1,816,780 |       | $      | 838,909 |   |
| Adjustments to  reconcile net income to net cash provided by operations: |   |       |      |       |   |
| Depreciation and  amortization                                           |   | 1,064,407  |      | 909,345    |   |
| Deferred income  taxes                                                   |   | 247,100    |      | 251,700    |   |
| Increase in  accounts receivable                                         |   | (249,340   | )         | (119,389   | )      |
| Increase in  other current assets                                        |   | (60,863    | )         | (168,712   | )      |
| (Decrease)  increase in income taxes payable                             |   | (27,650    | )         | 293,733    |   |
| Increase in  accounts payable and accrued wages & payroll taxes      |   | 868,461    |      | 626,407    |   |
| Increase in card  club accruals                                          |   | 240,653    |      | 817,812    |   |
| Increase in  accrued interest                                            |   | 4,173      |      | 4,252      |   |
| Decrease in  accrued property taxes                                      |   | (54,762    | )         |       |   |
| Increase in  payable to horsepersons                                     |   | 27,340     |      | 107,280    |   |
| Net cash  provided by operations                                         |   | 3,876,299  |      | 3,561,337  |   |
|                                                                     |   |       |      |       |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                   |   |       |      |       |   |
| Additions to  property and equipment and other assets                    |   | (2,169,416 | )         | (4,159,318 | )      |
| Net cash used in  investing activities                                   |   | (2,169,416 | )         | (4,159,318 | )      |
|                                                                     |   |       |      |       |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                   |   |       |      |       |   |
| Net (payments) /  proceeds on advance from MHBPA                         |   | (49,815    | )         | 56,044     |   |
| Proceeds from  issuance of common stock                                  |   | 232,927    |      | 390,734    |   |
| Proceeds from  long-term financing                                       |   |       |      | 1,586,750  |   |
| Payments on  long-term financing                                         |   |       |      | (1,586,750 | )      |
| Net cash  provided by financing activities                               |   | 183,112    |      | 446,778    |   |
|                                                                     |   |       |      |       |   |
| NET INCREASE  (DECREASE) IN CASH                                         |   | 1,889,995  |      | (151,203   | )      |
|                                                                     |   |       |      |       |   |
| CASH AT  BEGINNING OF YEAR                                               |   | 1,198,849  |      | 1,350,052  |   |
|                                                                     |   |       |      |       |   |
| CASH AT END OF  YEAR                                                     |   | $          | 3,088,844 |       | $      | 1,198,849 |   |
|                                                                     |   |       |      |       |   |
| INTEREST PAID                                                            |   | $          | 2,663     |       | $      | 121,793 |   |
|                                                                     |   |       |      |       |   |
| INCOME TAXES  PAID                                                       |   | $          | 1,112,500 |       | $      | 99,476 |   |

 

See notes to consolidated financial statements.

 

29

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**CANTERBURY PARK HOLDING CORPORATIONAND SUBSIDIARY**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**YEARS ENDED DECEMBER 31, 2001 AND2000**

 

1.             SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

 

*Business*- Canterbury Park Holding Corporation (the Company) was incorporated on March24, 1994.  On March 29, 1994 the Companyacquired all the outstanding securities of Jacobs Realty, Inc. (JRI) from IrwinJacobs and IMR Fund, L.P. (an investment fund for various pension plans andtrusts).  JRI was merged into theCompany and the acquisition was accounted for under the purchase method ofaccounting whereby the acquired assets and liabilities have been recorded atthe Company’s cost.  The primary assetof JRI was Canterbury Downs Racetrack and the 325 acres of surrounding land.

 

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

 

The consolidated financial statements include theaccounts of the Company and CPC after elimination of intercompany accounts andtransactions.

 

*Operations**-*TheCompany’s revenues are derived primarily from the operations of a Card Club andpari-mutuel wagering on simulcast and live horse races.

 

*Estimates*- The preparation 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.  Actual results could differ from these estimates.

 

*Depreciation*- Property and equipment are depreciated on a straight-line basis over theestimated useful lives of the assets, generally 5 to 39 years.

 

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

 

*Pari-mutuelTaxes -*Thefirst $12 million of pari-mutuel revenue is exempt from the 6% pari-mutueltax.  Pari-mutuel taxes are estimatedfor each 12-month period from July 1 through June 30, and an estimated annualeffective tax rate is applied to all pari-mutuel commission revenues.

 

30

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*Advancefrom the Minnesota Horsemen’s Benevolent and Protective Association, Inc. (the“MHBPA”)* - The Minnesota Pari-Mutuel Horse Racing Actspecifies that the Company is required to segregate a portion of funds(recorded as statutory purses in the statements of operations), received fromwagering on simulcast and live horse races, for future payment as purses forlive horse races or other uses of the horsepersons’ associations.  Pursuant to an agreement with the MHBPA, theCompany has transferred into a trust account or paid directly to the MHBPA,approximately $5,624,000 and $4,717,000 for the years ended December 31, 2001and 2000, respectively, related to thoroughbred races.  Amounts due to the MHBPA, are guaranteed bythe Chairman of the Board.  MinnesotaStatutes specify that amounts transferred into the trust account are theproperty of the trust and not of the Company. The interest rates on any statutory purses accrued but not transferredinto the trust were 4.75% and 9.50% at December 31, 2001 and 2000,respectively.

 

*Borrowings*- The weighted average interest rates on short-term borrowings at December 31,2001 and 2000 were 4.75% and 9.50%, respectively.  The weighted average rates for short-term borrowings for theyears ended December 31, 2001 and 2000 were 7.54% and 9.11%, respectively.  The Company incurred long-term debt in May2000, which was paid in December 2000. The weighted average interest rate on this borrowing was 11.62%.

 

*IncomeTaxes* - Prior to the completion of the Company’s initialpublic offering of its common stock, the Company was taxed as a “small businesscorporation” under Subchapter S of the Internal Revenue Code.  As a result, any income tax liability orbenefit was being passed through to the individual shareholders and no incometaxes payable or income tax expenses were recorded in the consolidatedfinancial statements.  Simultaneous withthe Company’s completion of the public offering of its common stock, theCompany’s Subchapter S election was terminated.  A portion of the losses accumulated prior to the public offeringis not available to offset future earnings. The Company currently accounts for income taxes in accordance withStatement of Financial Accounting Standards (SFAS) No. 109, *Accountingfor Income Taxes*.

 

*NetIncome Per Share* - Basic net income per common share is basedon the weighted average number of common shares outstanding during eachyear.  Diluted net income per commonshare takes into effect the dilutive effect of potential common sharesoutstanding.  The Company’s onlypotential common shares outstanding are stock options.

 

*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 sumof the related expected future net cash flows be less than the carrying value,management will determine whether an impairment loss should be recognized.  An impairment loss would be measured by theamount by which the carrying value of the asset exceeds the fair value of theasset.  To date, management hasdetermined that no impairment of these assets exists.

 

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

 

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

 

31

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*DerivativeInstruments and Hedging Activities*- On January 1, 2001, theCompany adopted Statement of Financial Accounting Standards (SFAS) No. 133, *Accounting for Derivative Instruments and HedgingActivities,*as amended by SFAS No. 138, *Accounting for Certain Derivative Instruments and Certain HedgingActivities.  *SFAS No. 133establishes accounting and reporting standards for derivative instruments andfor hedging activities.  It requiresthat all derivatives, including those embedded in other contracts, berecognized as either assets or liabilities and that those financial instrumentsbe measured at fair value.  Theaccounting for changes in the fair value of derivatives depends on theirintended use and designation. Management has reviewed the requirements of SFAS No. 133 and hasdetermined that they have no free-standing or embedded derivatives.  All contracts that contain provisionsmeeting the definition of a derivative also meet the requirements of, and havebeen designated as, normal purchases or sales. The Company’s policy is to not use free-standing derivatives and to notenter into contracts with terms that cannot be designated as normal purchasesor sales.

 

*NewAccounting Pronouncements* - In July 2001, the FinancialAccounting Standards Board (“FASB”) issued SFAS No. 141, *Business Combinations*, which replaces APBOpinion 16 and requires all business combinations initiated after June 30, 2001to use the purchase method of accounting; the pooling of interest method ofaccounting is prohibited except for transactions initiated before July 1, 2001.  While SFAS No. 141 will affect how futurebusiness combinations, if undertaken, are accounted for and disclosed in thefinancial statements, the issuance of the new guidance had no effect on theCompany’s results of operations, financial position or liquidity during 2001.

 

In conjunction with the issuance of the new guidancefor business combinations, the FASB also issued SFAS No. 142, *Goodwill and Other Intangible Assets*,which addresses the accounting and reporting for acquired goodwill and otherintangible assets and supersedes APB Opinion 17.  Under the provisions of SFAS no. 142, intangible assets acquiredin a business combination, which do not possess finite useful lives will nolonger be amortized into net income over an estimated useful life but ratherwill be tested for impairment at least annually based on specific guidanceprovided in the new standard.  TheCompany adopted SFAS No. 142 on January 1, 2002, and will have no materialimpact on the Company’s financial statements.

 

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

 

2.             PROPERTY ANDEQUIPMENT

 

Property and equipment consists of the following atDecember 31:

 
|                                 |   | **2001**   |       | **2000**   |   |
|--------------------------------------|--------|------------|------------|------------|--------|
| Land                                 |   | $          | 3,617,865  |       | $      | 3,617,865 |   |
| Buildings and  building improvements |   | 7,161,764  |       | 5,653,251  |   |
| Furniture and  equipment             |   | 8,085,758  |       | 7,424,855  |   |
|                                 |   | 18,865,387 |       | 16,695,971 |   |
| Accumulated  depreciation            |   | (6,425,974 | )          | (5,361,567 | )      |
|                                 |   | $          | 12,439,413 |       | $      | 11,334,404 |   |

 

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3.             INCOME TAXES

 

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

 
|                                            |   | **2001** |      | **2000** |   |
|-------------------------------------------------|--------|----------|-----------|----------|--------|
| Federal tax  expense computed at statutory rate |   | $        | 1,100,000 |     | $      | 519,000 |   |
| Nondeductible  lobbying expense                 |   | 25,000   |      | 22,000   |   |
| State expense,  net of federal impact           |   | 205,000  |      | 99,000   |   |
| Other                                           |   | (3,325   | )         | 3,300    |   |
|                                            |   | $        | 1,326,675 |     | $      | 643,300 |   |

 

Income tax expense for the years ended December 31,2001 and December 31, 2000 consists of the following:

 
|                         |   | **2001**  |      | **2000** |   |
|------------------------------|--------|-----------|-----------|----------|--------|
| Current                      |   |      |      |     |   |
| Federal                      |   | $         | 819,575   |     | $      | 294,200 |   |
| State                        |   | 260,000   |      | 97,400   |   |
|                         |   | 1,079,575 |      | 391,600  |   |
| Deferred,  primarily Federal |   | 247,100   |      | 251,700  |   |
|                         |   | $         | 1,326,675 |     | $      | 643,300 |   |

 

Temporary differences and tax carryforwards atDecember 31 are as follows:

 
|                                             |   | **2001** |     | **2000** |   |
|--------------------------------------------------|--------|----------|----------|----------|--------|
| Federal / State  AMT Benefit                     |   | 0        |     | 180,100  |   |
| Tax depreciation  greater than book depreciation |   | (191,000 | )        | (134,000 | )      |
| Repairs  capitalized                             |   | 3,000    |     | 5,000    |   |
| Other                                            |   | 20,000   |     | 28,000   |   |
| Net (liability)  asset                           |   | $        | (168,000 | )        | $      | 79,100 |   |
|                                                  |        |          |          |          |        |  |  |

 

The Company had federal income tax net operating losscarryforwards of approximately $307,000 at December 31, 1999, which were fullyutilized in 2000.

 

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4.             STOCKHOLDERS’EQUITY

 

*EmployeeStock Purchase Plan:*

 

On April 3, 1995, the Board of Directors adopted the1995 Employee Stock Purchase Plan.  Theplan, which is open to all employees of the Company working more than 15 hoursper week, commenced on April 15, 1995 and will continue for ten years.  The plan consists of one-year phases.  The phases commence on October 1 of eachyear.  Under the terms of the plan,employees may set aside a portion of their payroll earnings to purchase sharesof the Company’s common stock at the lower of 85% of the fair market value ofthe shares on the commencement date of each phase or 85% of the fair marketvalue on the termination date of each phase. The plan provides for the sale of up to 250,000 shares.  The plan issued 24,992 and 17,633 shares in2001 and 2000, respectively.

 

*401(k)Plan:*

 

On June 1, 1998 the Company established a definedcontribution savings plan for employees who had completed one year of service, asdefined in the Plan document.  Thedefined contribution savings plan allows for employee compensation deferralcontributions under Section 401(k) of the Internal Revenue Code anddiscretionary contributions by the Company. Employer contributions charged to operations in 2001 and 2000 wereapproximately $66,000 and $28,000, respectively.

 

*StockOptions:*

 

The Company has a stock option plan (the Stock OptionPlan) which provides for the granting of awards in the form of stock options,restricted stock, stock appreciation rights, and deferred stock to keyemployees and non-employees, including directors of and consultants to theCompany and any subsidiary, to purchase up to a maximum of 850,000 shares ofcommon stock.  Options that are grantedunder the plan may be either options that qualify as “incentive stock options”within the meaning of Section 422 of the Internal Revenue Code of 1986, asamended (Incentive Stock Options), or those that do not qualify as IncentiveStock Options (Non-Qualified Stock Options). 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 plan also provides for formula grants ofNon-Qualified Stock Options to non-employee directors of the Company.

 

Stock option activity related to the Plan during theyears ended December 31, 2001 and 2000 is summarized below:

 
|                                |   | **2001**   |   | **2000**                              |   |
|-------------------------------------|--------|------------|--------|---------------------------------------|--------|
|                                |   | **Shares** |   | **Weighted  Average  Exercise Price** |   | **Shares** |   | **Weighted  Average  Exercise Price** |   |
| Outstanding at  beginning of year   |   | 536,300    |   | $                                     | 3.89   |   | 426,500 |   | $ | 3.09 |   |
|                                |   |       |   |                                  |   |   |   |   |   |
| Granted                             |   | 113,000    |   | 6.76                                  |   | 146,000 |   | 6.23 |   |
| Exercised                           |   | (15,500    | )      | 4.23                                  |   | (34,200 | ) | 3.75 |   |
| Canceled                            |   |       |   |                                  |   | (2,000 | ) | 5.63 |   |
|                                |   |       |   |                                  |   |   |   |   |   |
| Outstanding at  end of year         |   | 633,800    |   | $                                     | 4.39   |   | 536,300 |   | $ | 3.89 |   |
|                                |   |       |   |                                  |   |   |   |   |   |
| Options  exercisable at end of year |   | 583,800    |   | $                                     | 4.20   |   | 474,800 |   | $ | 3.65 |   |

 

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In 1997, the Company issued an option to purchase50,000 shares of common stock at an exercise price of $3.75 per share, forconsulting services.  The option wasvalued at $88,176, of which $22,044 was recognized in the 1998 statement ofoperations and $66,132 was recognized in 1997. The option was exercised prior to its expiration on March 31, 2000.

 

The Company also issued options in 1998 and 1997 topurchase 15,000 and 12,500 shares of common stock, respectively, to a Boardmember for consulting services.  Theexercise prices of the options are $2.625 and $3.25 per share,respectively.  The options were valuedat $18,796 and $19,926 and were recognized in the 1998 and 1997 statements ofoperations, respectively.  The optionsissued in 1997 and 1998 were exercised during 1999 and 2001, respectively.

 

At December 31, 2001, the weighted average remainingcontractual life of all options was 80 months, and the range of exercise priceswas $1.75 to $9.94.

 

The following table summarizes information concerningall options outstanding and exercisable options as of December 31, 2001:

 
| **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 |                     | 209,300 |                                                         | 4.9    |                                   | $      | 2.16                     |   | 209,300                                |   | $ | 2.16 |   |
| 2.50 - 5.00                 |        | 157,000                  |    | 5.8                                                          |   | 3.89                                   |   | 157,000                  |   | 3.89                                   |   |
| 5.00 - 9.94                 |        | 267,500                  |    | 8.6                                                          |   | 6.45                                   |   | 217,500                  |   | 6.39                                   |   |
|                             |             |                          |         |                                                              |        |                                        |        |                          |        |                                        |        |  |  |  |

 

In 1996, the Company adopted Statement of Financial AccountingStandards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation.”  As permitted by SFAS 123, the Company haselected to continue following the guidance of APB 25 for measurement andrecognition of stock-based transactions with employees.  No compensation cost has been recognized forstock options issued under the Stock Option Plan because the exercise price ofall options granted was at least equal to the fair value of the common stock atthe date of grant.  If compensation costfor the Company’s stock option and employee stock purchase plans had beendetermined based on the fair value at the grant dates, consistent with themethod provided in SFAS 123, the Company’s net income and earnings per sharewould have been as follows:

 
|                         |   | **2001**  |      | **2000** |   |
|------------------------------|--------|-----------|-----------|----------|--------|
| Net Income:                  |   |      |      |     |   |
| As reported                  |   | $         | 1,816,780 |     | $      | 838,909 |   |
| Pro forma                    |   | 1,294,655 |      | 374,355  |   |
|                         |   |      |      |     |   |
| Basic Earnings  Per Share:   |   |      |      |     |   |
| As reported                  |   | $         | .52       |     | $      | .24 |   |
| Pro forma                    |   | .37       |      | .11      |   |
|                         |   |      |      |     |   |
| Diluted Earnings  Per Share: |   |      |      |     |   |
| As reported                  |   | $         | .49       |     | $      | .23 |   |
| Pro forma                    |   | .35       |      | .10      |   |

 

35

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The fair value of options granted under the StockOption Plan during 2001 and 2000 were estimated on the date of grant using theBlack-Scholes option-pricing model with the following weighted averageassumptions and results:

 
|                                 |   | **2001** |    | **2000** |   |
|--------------------------------------|--------|----------|---------|----------|--------|
| Dividend yield                       |   | None     |    | None     |   |
| Expected  volatility                 |   | 42       | %       | 47       | %      |
| Risk-free  interest rate             |   | 5.01     | %       | 5.11     | %      |
| Expected life of  option             |   | 120 mo.  |    | 120 mo.  |   |
| Fair value of  options on grant date |   | $        | 492,000 |     | $      | 666,200 |   |
|                                      |        |          |         |          |        |  |  |

 

5.             EARNINGS PER SHARE

 
|                                      |   | **Year Ended  December 31, 2001** |      | **Year Ended  December 31, 2000** |      |
|-------------------------------------------|--------|-----------------------------------|-----------|-----------------------------------|-----------|
|                                      |   | **Income  (Numerator)**           |      | **Shares  (Denominator)**         |      | **Per Share  Amount** |   | **Income  (Numerator)** |   | **Shares  (Denominator)** |   | **Per Share  Amount** |   |
| Net Income                                |   | $                                 | 1,816,780 |                              |      |   |   |   | $ | 838,909 |   |   |   |   |   |
|                                      |   |                              |      |                              |      |   |   |   |   |   |   |   |   |
| Basic EPS                                 |   |                              |      |                              |      |   |   |   |   |   |   |   |   |
| Income available  to common stockholders  |   | 1,816,780                         |      | 3,496,781                         |      | $ | .52 |   | 838,909 |   | 3,449,666 |   | $ | .24 |   |
|                                      |   |                              |      |                              |      |   |   |   |   |   |   |   |   |
| Effect of  dilutive securities            |   |                              |      |                              |      |   |   |   |   |   |   |   |   |
| Stock options                             |   |                              |      | 225,843                           |      |   |   |   |   | 239,169 |   |   |   |
|                                      |   |                              |      |                              |      |   |   |   |   |   |   |   |   |
| Diluted EPS                               |   |                              |      |                              |      |   |   |   |   |   |   |   |   |
| Income available  to common stock-holders |   | $                                 | 1,816,780 |                              | 3,722,624 |   | $ | .49 |   | $ | 838,909 |   | 3,688,836 |   | $ | .23 |   |

 

Options to purchase 48,000 shares of common stock at aweighted average exercise price of $8.30 per share were outstanding during 2001but were not included in the computation of diluted EPS because the options’exercise prices were greater than the average market price of the commonshares.

 

6.             LINES OF CREDIT

 

The Company entered into a general credit and securityagreement with Bremer Bank, N.A., a financial institution located in SouthSaint Paul, Minnesota, on June 3, 1998. Borrowings under the credit agreement include a commercial revolvingcredit line, which provides for maximum advances of $2,250,000 with interest atthe prime rate (4.75% at December 31, 2001). The Company had an average daily balance of borrowings under the creditline of approximately $14,000 during the year 2001.  Interest charged to operations under this line of credit wasapproximately $1,000 for the period ended December 31, 2001.  The weighted average interest rate on theline of credit was 6.66% in 2001. The credit agreement contains covenantsrequiring the Company to maintain certain financial ratios.  The Company was in compliance with theserequirements as of December 31, 2001. The Company’s current loan arrangements prohibit the payment of dividendswithout the bank’s consent.

 

36

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7.             OPERATING LEASESAND COMMITMENTS

 

The Company leased certain copying equipment under anoperating lease which expired in February 2001.  Rental expenses charged to operations were approximately $5,560for the period ended December 31, 2001.

 

In addition, in January 1999 the Company entered intoa five-year totalizator services agreement with Autotote Systems, Inc.(Autotote).  Pursuant to the agreement,Autotote provides totalizator equipment and computer programs which record andprocess all wagers and calculate the odds and payoffs.  For such services, Autotote receives a feeof approximately .45% of the gross monies wagered.  Amounts charged to operations under this agreement for the yearsended December 31, 2001 and 2000 were approximately $346,000 and $332,000,respectively.  During the 2001 and 2000live race meets, Autotote provided uplink services, which enabled the Companyto simulcast horse races held at Canterbury Park to out-of-state racetracks.  These services resulted in an amount chargedto operations in 2001 and 2000 of approximately $122,000 and $118,000,respectively.

 

8.             CONTINGENCIES

 

In connection with the purchase of the Racetrack(Note1), the Company entered into an Earn Out Promissory Note dated March 29, 1994.In accordance with the Earn Out Note, if (i) off-track betting becomes legallypermissible in the State of Minnesota and (ii) the Company begins to conductoff-track betting with respect to or in connection with its operations, theCompany will be required to pay to the IMR Fund, L.P. the greater of $700,000per operating year, as defined, or 20% of the net pretax profit, as defined foreach of five operating years.  At thedate (if any) that these two conditions are met, the five minimum payments willbe discounted back to their present value and the sum of those discountedpayments will be recorded as an increase to the purchase price.  The purchase price will be further increasedif payments become due under the “20% of Net Pretax Profit” calculation.  The first payment is to be made 90 daysafter the end of the third operating year in which off-track betting isconducted by the Company.  Remainingpayments would be made within 90 days of the end of each of the next fouroperating years.

 

                TheCompany is periodically involved in various legal actions arising in the normalcourse of business.  At December 31,2001, management believes that the resolution of any legal actions outstandingwill not have a material impact on the consolidated financial statements.

 

                TheMinnesota Department of Labor and Industry (DOL&I) is conducting an auditfor the period April 10, 1999 through April 10, 2001 regarding compliance withthe tip law sections of the Minnesota Fair Labor Standards Act.  At December 30, 2001, the Company hasreceived no communications from the DOL&I regarding the disposition oftheir audit.  Management believes thatthe Company's practices regarding tips are consistent with the requirements ofMinnesota law.

 

9.             RELATED-PARTYTRANSACTIONS

 

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

 

In 2001 and 2000, the Company paid $74,000 to a Boardmember for advertising and marketing services provided to the Company.  This Board member was also granted 15,000stock options in 1998 and 12,500 stock options in 1997 (Note 4).

 

10.           OPERATING SEGMENTS

 

The Company has three reportable operatingsegments:  card club, horse racing, andconcessions.  The card club segmentincludes operations of the Canterbury Card Club.  The horse racing segment includes simulcast and live racingoperations, and the concessions segment provides concessions during simulcastracing, live racing, in the card club and during special events.  The Company’s reportable operating segmentsare strategic business units that offer different products and services.  They are managed separately because thesegments differ in the nature of the products and services provided, as well as

 

37

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processes to produce those products and services.  The horse racing and card club segments areregulated by the State of Minnesota Racing Commission.

 

The accounting policies of the operating segments arethe same as those described in the summary of significant accounting policies.

 

Depreciation, interest expense and income taxes areallocated to the segments but no allocation is made to concessions for sharedfacilities.  However, the concessionssegment pays approximately 25% of gross revenues to the horse racing segmentfor use of the facilities.

 

The following tables provide information about theCompany’s operating segments (in 000’s):

 
|                                |   | **Twelve  Months Ended December 31, 2001** |   |
|-------------------------------------|--------|--------------------------------------------|--------|
|                                |   | **Horse  Racing**                          |   | **Card Club** |   | **Concessions** |   | **Total** |   |
| Revenues from  external customers   |   | 18,354                                     |   | 16,969 |   | 4,169 |   | 39,492 |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Intersegment  revenues              |   | 692                                        |   |   |   | 1,253 |   | 1,945 |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Net interest  income (expense)      |   | 57                                         |   |   |   |   |   | 57 |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Depreciation and  amortization      |   | 597                                        |   | 467 |   |   |   | 1,064 |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Segment income  before income taxes |   | 341                                        |   | 2,802 |   | 113 |   | 3,256 |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Segment Assets                      |   | 11,962                                     |   | 4,493 |   | 522 |   | 16,977 |   |

 
|                                |   | **Twelve  Months Ended December 31, 2000** |   |
|-------------------------------------|--------|--------------------------------------------|--------|
|                                |   | **Horse  Racing**                          |   | **Card Club** |   | **Concessions** |   | **Total** |   |
| Revenues from  external customers   |   | $                                          | 17,375 |   | $ | 11,347 |   | $ | 3,741 |   | $ | 32,463 |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Intersegment  revenues              |   | 658                                        |   |   |   | 874 |   | 1,532 |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Net interest  income (expense)      |   | 88                                         |   | (100 | ) |   |   | (12 | )  |
|                                |   |                                       |   |   |   |   |   |   |   |
| Depreciation and  amortization      |   | 585                                        |   | 324 |   |   |   | 909 |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Segment income  before income taxes |   | 512                                        |   | 970 |   | 123 |   | 1,605 |   |
|                                |   |                                       |   |   |   |   |   |   |   |
| Segment Assets                      |   | $                                          | 9,968  |   | $ | 3,318 |   | $ | 525 |   | $ | 13,811 |   |

 

Included in horse racing segment revenues for theyears ended December 31, 2001 and 2000 is approximately $377,000 and $444,000,respectively, for rental of the racing facility for special events and storage.

 

38

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The following are reconciliations of reportablesegment revenue, income before income taxes, and assets, to the Company’sconsolidated totals (in 000’s):

 
|                                                    |   | **2001** |   | **2000** |   |
|---------------------------------------------------------|--------|----------|--------|----------|--------|
| Revenues                                                |   |     |   |     |   |
| Total revenue  for reportable segments                  |   | $        | 41,437 |     | $      | 33,995 |   |
| Elimination of  intersegment revenues                   |   | (1,945   | )      | (1,532   | )      |
| Total  consolidated revenues                            |   | 39,492   |   | 32,463   |   |
|                                                    |   |     |   |     |   |
| Income before  income taxes                             |   |     |   |     |   |
| Total segment  income before income taxes               |   | $        | 3,256  |     | $      | 1,605 |   |
| Elimination of  intersegment income before income taxes |   | (113     | )      | (123     | )      |
| Total  consolidated income before income taxes          |   | 3,143    |   | 1,482    |   |

 
|                                     |   | **December  31,  2001** |   | **December  31,  2000** | ** ** |
|------------------------------------------|--------|-------------------------|--------|-------------------------|------------|
| Assets                                   |   |                    |   |                    |       |
| Total assets for  reportable segments    |   | $                       | 16,977 |                    | $          | 13,811 |   |
| Elimination of  intercompany receivables |   | (433                    | )      | (493                    | )          |
| Total  consolidated assets               |   | 16,544                  |   | 13,318                  |       |
|                                          |        |                         |        |                         |            |  |  |

 

39

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**Item 8.    CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

                Not Applicable.

 

PART III

 

**Item 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT**

 

Information required under this item with respect tothe directors will be set forth in a section captioned “Election of Directors”in the Company’s Proxy Statement for the Annual Meeting of Shareholders to beheld on June 6, 2002 (the “2002 Proxy Statement”), a definitive copy of whichwill be filed with the Commission within 120 days of the close of the 2001fiscal year, which information is incorporated herein by reference.  Information regarding executive officers ispresented under Item 1 herein.

 

**Item 10. EXECUTIVE COMPENSATION**

 

Information required under this item will be set forthin a section entitled “Executive Compensation and Other Information” in theCompany’s 2002 Proxy Statement which information is incorporated herein byreference.

 

**Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

Information required under this item will be set forthin a section entitled “Security Ownership of Certain Beneficial Owners” in theCompany’s 2002 Proxy Statement which information is incorporated herein byreference.

 

**ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

 

Information required under this item will be set forthin a section entitled “Certain Transactions” in the Company’s 2002 ProxyStatement which information is incorporated herein by reference.

 

**Item 13. EXHIBITS AND REPORTS ON FORM 8-K**

 

(a)           Exhibits.  See Exhibit Index at page 42, which isincorporated herein by reference. Exhibits that cover management contracts or compensatory plans orarrangements are marked with an asterisk (*) on the Exhibit Index.

 

(b)           Reports on Form8-K.  No reports on Form 8-K  were filed during the fourth quarter of2001.

 

40

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

 
| Dated:  March  29, 2002 |   | CANTERBURY PARK HOLDING CORPORATION          |
|------------------------------|--------|----------------------------------------------|
|                         |   |                                         |
|                         | By     | /s/ Randall D. Sampson                       |
|                         |   |  Randall D. Sampson                     |
|                         |   |  President  and Chief Executive Officer |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this Report has been signed below by the followingpersons on behalf of the registrant and in the capacities indicated on the dateset forth above.

 

**Power ofAttorney**

 

Each person whose signature appears below constitutesand appoints CURTIS A. SAMPSON, DALE H. SCHENIAN and RANDALL D. SAMPSON as histrue and lawful attorneys-in-fact and agents, each acting alone, with fullpower of substitution and resubstitution, for him and in his name, place andstead, in any and all capacities, to sign any or all amendments to this AnnualReport on Form 10-KSB and to file the same, with all exhibits thereto, andother documents in connection therewith, with the Securities and ExchangeCommission, granting unto said attorneys-in-fact and agents, each acting alone,full power and authority to do and perform each and every act and thingrequisite and necessary to be done in and about the premises, as fully to allintents and purposes as he might or could do in person, hereby ratifying andconfirming all said attorneys-in-fact and agents, each acting alone, or hissubstitute or substitutes, may lawfully do or cause to be done by virtuethereof.

 
| **Signature**               |   | **Title**                            |   | **Date**       |   |
|-----------------------------|--------|--------------------------------------|--------|----------------|--------|
| /s/ Curtis A. Sampson       |   | Chairman of the Board                |   | March 29, 2002 |   |
|  Curtis A.  Sampson    |   |                                 |   |           |   |
|                        |   |                                 |   |           |   |
| /s/ Dale H. Schenian        |   | Director; Vice Chairman              |   | March 29, 2002 |   |
|  Dale H.  Schenian     |   |                                 |   |           |   |
|                        |   |                                 |   |           |   |
| /s/ Randall D. Sampson      |   | Chief Executive  Officer, President, |   | March 29, 2002 |   |
|  Randall D.  Sampson   |   | General Manager,  Treasurer and      |   |           |   |
|                        |   | Director                             |   |           |   |
|                        |   |                                 |   |           |   |
| /s/ Brian C. Barenscheer    |   | Director                             |   | March 29, 2002 |   |
|  Brian C.  Barenscheer |   |                                 |   |           |   |
|                        |   |                                 |   |           |   |
| /s/ Gibson Carothers        |   | Director                             |   | March 29, 2002 |   |
|  Gibson  Carothers     |   |                                 |   |           |   |
|                        |   |                                 |   |           |   |
| /s/ Carin Offerman          |   | Director                             |   | March 29, 2002 |   |
|  Carin  Offerman       |   |                                 |   |           |   |
|                        |   |                                 |   |           |   |
| /s/ David C. Hansen         |   | Chief Financial Officer              |   | March 29, 2002 |   |
|  David C.  Hansen      |   |                                 |   |           |   |

 

41

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CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARY

 

Exhibit Index To

Form 10-KSB for the YearEnded December 31, 2001

 
| **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.                                                                                          |   |
|                                         |   |                                                                                                                                                                      |   |                                                                                                                                                                                    |   |
| 4.1                                          |   | Warrant Agreement between the Company and the  Warrant Agent                                                                                                              |   | Filed as Exhibit 4.1 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.                                                                                         |   |
|                                         |   |                                                                                                                                                                      |   |                                                                                                                                                                                    |   |
| 10.4                                         |   | Totalizator Services Agreement dated May 2, 1994  between Autotote Systems, Inc. and Canterbury Park Holding Corporation.                                                 |   | Filed as Exhibit 10.4 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.                                                                                         |   |

 

42

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| 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 Form10-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     |   | Subsidiary of the Registrant                                                                                                                                                                                                                                                                  |   | Filed herewith.                                                                                                                                                     |   |
|   |   |                                                                                                                                                                                                                                                                                          |   |                                                                                                                                                                |   |
| 23     |   | Independent Auditors’ Consent                                                                                                                                                                                                                                                            |   | Filed herewith.                                                                                                                                                     |   |
|   |   |                                                                                                                                                                                                                                                                                          |   |                                                                                                                                                                |   |
| 24     |   | Power of Attorney                                                                                                                                                                                                                                                                             |   | Included in signature page at page 41.                                                                                                                              |   |

 

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*  Denotes an exhibit thatcovers management contracts or compensatory plans or arrangements.

 

The exhibits referred to in this Exhibit will be supplied to ashareholder at a charge of $.25 per page upon written request directed toCanterbury Park Holding Corporation at the executive offices of the Company.

 

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