**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

**FORM 10-K**

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

 

**For the fiscal year ended December 31, 2006**

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

 

**For the Transition period from             to**

**Commission File Number:  001-31569**

**CANTERBURY PARK HOLDING CORPORATION**

(Exact Name of Registrant as Specified in Its Charter)

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

 

**1100 Canterbury RoadShakopee, MN  55379**

(Address ofprincipal executive offices and zip code)

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

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

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

 

Indicate by check mark if the registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act.

YES         o                           NO         x

Indicate by check mark if the registrant is not required to filereports pursuant to Section 13 or Section 15(d) of the Act.

YES         o                           NO         x

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         x                           NO         o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-K.   x

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule12b-2).

Large acceleratedfiler      o            Acceleratedfiler      o            Non-acceleratedfiler   x   

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

YES         o                           NO         x

The aggregate marketvalue of the shares of voting and non-voting common equity held bynon-affiliates based on the price at which the Company’s common stock was lastsold on the American Stock Exchange, on June 30, 2006, the last business day ofthe registrant’s most recently completed second fiscal quarter wasapproximately $32,580,000.

On March 15, 2007, theCompany had 4,105,282 shares of common stock, $.01 par value, outstanding.

DOCUMENTSINCORPORATED BY REFERENCE

Portions of the Company’s definitive Proxy Statementfor its 2007 Annual Meeting of Shareholders, to be held on June 7, 2007, areincorporated by reference into Part III of this Form 10-K.

 

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CANTERBURY PARKHOLDING CORPORATION

FORM 10-K ANNUALREPORT

FOR THE YEAR ENDED DECEMBER 31, 2006

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

 

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**Item1.    BUSINESS**

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

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

TheCompany was incorporated under the laws of Minnesota on March 24, 1994,acquired the Racetrack on March 29, 1994, commenced seven day a week simulcastoperations on May 6, 1994, and, beginning in May 1995, launched live horseracing and related pari-mutuel wagering on a seasonal basis, generally fromearly May to early September.  TheCompany opened the Card Club on April 19, 2000 with 43 tables and expanded to50 tables (the maximum permitted by law) in 2001.  The ownership and operation of the Racetrackand the Card Club are significantly regulated by the Minnesota RacingCommission (the “MRC”).

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

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

TheCompany divides its business into three segments: card club, horse racing andconcessions. The card club segment represents operations of the Card Club. Thehorse racing segment represents simulcast and live racing operations, and theconcessions segment represents food and beverage services for simulcast andlive racing, the Card Club, and during special events. Further informationregarding the Company’s business segments is set forth in Note 11 of the Notesto Consolidated Financial Statements under Item 8 of this Form 10-K and suchinformation is incorporated herein by reference.

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

**(i)            Card Club Operations**

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

Poker games,including Texas Hold ‘Em, 7-Card Stud and Omaha, with betting limits rangingbetween $2 and $60, are currently offered on a maximum of 34 tables in thepoker room.  A dealer, employed by theCompany, regulates the play of the game at each table and deals the cards, butdoes not participate in play.  In pokergames, the Company is allowed to deduct a percentage from the accumulatedwagers and impose other charges for hosting the activity, but does not have aninterest in the outcome of a game.  TheCompany may add additional prizes, awards, or money to any game for promotionalpurposes.  The Company collects a “rake”of 10% of each addition to the “pot”, up to a maximum of $4.00 or $4.50 perhand, depending on the game, as its collection revenue.  In addition, poker games offer progressivejackpots for most games.  In order tofund the jackpot pool, the dealer withholds $1.00 from each final pot in excessof the $15 minimum.

Casino Games,including Pai Gow Poker, Blackjack, Caribbean Stud, Let-It-Ride, Three CardPoker and Four Card Poker, are currently offered at 16 of the 50 tables in theCard Club.  The Company’s Casino Gamesare required by law to be “unbanked.”  “Unbanked”refers to a wagering system or game where wagers lost or won in card games areaccumulated into a player pool liability for purposes of enhancing the totalamount paid back to winning players. The Company may only serve as custodian ofthe player pool, may not have an active interest in any card game, and does notrecognize amounts that dealers “win” or “lose” during the course of play

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as revenue.  The Company also takes a “rake” of $.50 to$3.00 per wager, depending on the game and size of wager, for the Company’scollection revenue.  The only casino gameto offer a progressive jackpot is Caribbean Stud.  The player has the option of playing thejackpot, and has the opportunity to win some, or all, of the jackpot amountdepending upon his hand.

**(ii)           Horse Racing Operations**

The Company’shorse racing operations consist of year-round pari-mutuel wagering on simulcasthorse races (“simulcasting”) and live horse races (“live meets”) held on aseasonal basis beginning in May and concluding in September.  Thoroughbred and quarter horse racing isconducted during the live meet.  TheCompany has also conducted two-day harness racing live meets from time to time.

*LiveRacing.*

The Companyconducts live horse racing at its facility generally from early May until earlySeptember each year.  In 2006 theRacetrack hosted 68 days of live racing beginning May 6th and concludingSeptember 4th.  The meet included 44 daysof mixed thoroughbred and quarter horse racing and 24****days of thoroughbred only racing.  The 2005 live meet was also 68 days long,beginning May 7th and ending September 5th, and consisted of 46 days of mixedthoroughbred and quarter horse racing and 22 days of thoroughbred only racing.

Currently,Minnesota law requires the Racetrack to schedule a minimum of 125 days of liveracing annually, unless the Minnesota Horsemen’s Benevolent and Protective Association(the “MHBPA”) agrees to a lesser number of live racing days.  Since 1995, the MHBPA has agreed to waive the125-day requirement and has allowed the Company to run a live meet of at least50 days each year.  After 2007, noassurance can be given that the MHBPA will agree to a shorter live meet thanthe 125-day statutory minimum.  If theMHBPA does not agree to a live meet shorter than 125 days, the Company’soperations could be adversely impacted by a decrease in the daily purses andpotential reduction in quality of horses, attendance and overall handle, aswell as increased operating expenses.

*Simulcasting.*

Simulcasting isthe process by which live horse races held at one facility (the “host track”)are transmitted simultaneously to other locations that allow patrons at eachreceiving location (the “guest track”) to place wagers on races transmittedfrom the host track.  Monies arecollected at the guest track and the information with respect to the totalamount wagered is electronically transmitted to the host track.  All of the amounts wagered at guest tracksare combined into the appropriate pools at the host track with the final oddsand payouts determined based upon all the monies in the respective pools.

The Company offers“full card” simulcast racing (broadcasting of another racetrack’s entire dailylive racing program) from up to 20 racetracks per day, seven days a week, 364days per year, including Churchill Downs, Hollywood Park, Santa Anita,Gulfstream Park, Belmont Park and Saratoga Racecourse.  In addition, races of national interest, suchas the Kentucky Derby, Preakness Stakes and Breeders’ Cup, supplement theregular simulcast program.  The Companyregularly evaluates its agreements with other racetracks in order to offer themost popular simulcast signals of live horse racing that are feasible to offerat the Racetrack.

Under applicableprovisions of federal and state law, the Racetrack must obtain the consent ofthe state’s regulatory authority, and the organization which represents themajority of the owners and trainers of the horses who race at the Racetrack,with respect to simulcast operations both as a host and guest track.  In Minnesota such consent must be obtainedfrom the MHBPA and the MRC.

**(iii)         Special Events**

While pari-mutuelhorse racing and Card Club operations are the Company’s principal businesses,the Company’s facilities are capable of being used for multiple purposes.  In an effort to more fully utilize theproperty and to generate additional revenues, the Company has increasingly usedits grandstand, grounds and parking lot for special events and rentals.  While the use of the Company’s facilities forparticular special events

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and purposes varies fromyear to year, the following are among the types of events and purposes forwhich the Company’s facilities have been used: snowmobile races, major arts andcrafts shows, trade shows, concerts, fund raisers, automobile shows andcompetitions, vehicle and boat storage, and private parties.

** (iv)         Sourcesof Revenue**

*General.*

The Company’srevenues are principally derived from Card Club operations, wagering on liveand simulcast horse races, and concession sales.  For the fiscal year ended December 31, 2006revenues from Card Club operations represented 53.8% of total revenues,wagering on horse races generated 29.3% of total revenues and concessionsrevenue represented 10.8% of total revenues.

*Card ClubOperations.*

TheCompany receives revenue from its Card Club, which operates 24 hours per day,seven days per week.  The Companycurrently receives collection revenue from 34 poker tables and 16 tablesoffering casino games.  Under Minnesotalaw, the Company is required to pay 10% of the first $6 million of gross CardClub revenues towards purses for live horse racing at the Racetrack.  After meeting the $6 million threshold, theCompany must pay 14% of gross Card Club revenues as purse monies, although byagreement with the MHBPA the Company paid 15% of Card Club collection revenuesinto the purse fund in 2006, 2005 and 2004. Of funds allocated for purses, the Company pays 10% of the purse moniesto the State of Minnesota Breeders’ Fund, with the remaining 90% of pursemonies divided between thoroughbred (90%), quarter horse (9%) and standard bred(1%) purse funds.

*Pari-mutuel wagering – General.*

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

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

The amount oftakeout earned by the Company depends on where the race is run and the form ofwager (straight or exotic).  Net revenuesfrom pari-mutuel wagering on live races run at the Racetrack consist of thetotal amount wagered, less the amounts paid (i) to winning patrons, (ii) forpurses, (iii) to the Breeders’ Fund and (iv) for pari-mutuel taxes to the Stateof Minnesota.  Net revenues frompari-mutuel wagering on races being run at out-of-state racetracks andsimulcast to the Racetrack have similar expenses, but also include a host feepayment to the host track.  The host fee,which is calculated as a percentage of monies wagered (generally 2.50% to4.50%), is negotiated with the host track and must comply with state lawsgoverning the host track.

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*Wageringon Live Races.*

The Racing Actestablishes the maximum takeout that may be deducted from the handle.  The takeout percentage on live races dependson the type of wager.  The total maximumtakeouts are 17% from straight wagering pools and 23% from exotic wageringpools.  From this takeout, Minnesota lawrequires deductions for purses, pari-mutuel taxes and the Breeders’ Fund.

While the RacingAct provides that a minimum of 8.4% of the live racing handle is to be paid aspurses to the owners of the horses, the size of the purse is subject to furtheragreement with the horsepersons’ associations. The Breeders’ Fund receives 1%of the handle.  The pari-mutuel taxapplicable to wagering on all simulcast and live races is 6% of takeout inexcess of $12 million during the twelve month period beginning July 1 andending the following June 30.

The followingtable sets forth the percentage distribution of each dollar wagered on liveraces at the Racetrack, as established by the Racing Act, and the Racetrack’sretainage:
| ** **                      | ** ** | **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 atwelve-month period will depend upon the total takeout during that period.

*Wageringon Simulcast Races.*

The amount oftakeout from simulcast wagering is determined by the laws of the state in whichthe host track is located.  In addition,the Racing Act establishes a minimum that must be set aside from simulcastingfor purse payments on racing within Minnesota. Different amounts are deducted for purses from the takeout depending onwhether simulcasting occurs during the “Racing Season,” a statutorily defined25 week period beginning in early May each year, or outside of the RacingSeason.  If simulcasting occurs duringthe Racing Season, the amount set aside for purses further depends on whetherthe simulcasting is part of a full racing card that occurs during the part ofthe day that live races are conducted at the Racetrack.  For races that are part of a full simulcastracing card that takes place within the time of live races at the Racetrack,the amount reserved for purse payout is 8.4%. For simulcasting conducted during the Racing Season that does not occurwithin the time period of live races, the purse is equal to 50% of the takeoutremaining after deductions for pari-mutuel taxes, payments to the Breeders’Fund and payments to the host racetrack for host track fees.  For simulcasting conducted outside of theRacing Season, the amount that must be contributed to the purses is 25% of thetakeout after deducting pari-mutuel taxes, payments to the Minnesota Breeders’Fund and host fee payments to the host racetrack.

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Thefollowing table sets forth the approximate percentage distribution of eachdollar wagered for races simulcast at the Racetrack and the Racetrack’sretainage at December 31, 2006 and 2005:
| ** **                       | ** ** | **During Racing Season**       | ** ** | ** **                                        | ** ** | ** **                              | ** ** |
|----------------------------------|------------|------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                       | ** ** | **Concurrent with  Live Card** | ** ** | **Not Concurrent with  Live Card** | ** ** | **Outside of Racing  Season** | ** ** |
|                             |       |                                     |       |                                              |       |                                    |       |   |   |   |   |   |   |
| Returned to  Winning Patrons (1) |       |                                     |       | 80.50                                             | %          |                                    |       | 80.50 | % |   |   | 80.50 | % |
| Minnesota Breeders’ Fund    |       | 1.00                                     |       |                                              |       | 1.00                                    |       |   |   | 1.10 |   |   |   |
| Minnesota Pari-Mutuel Taxes (2)  |       | .19                                      |       |                                              |       | .19                                     |       |   |   | .19 |   |   |   |
| Purse (3)                        |       | 8.40                                     |       |                                              |       | 7.39                                    |       |   |   | 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 isdetermined by local and state law applicable to the host track, and ranges from75.0% to 85.0%.

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

(3)           AlthoughMinnesota law specifies purse percentages, the actual percentage is determinedby agreement between the Racetrack and the MHBPA.  Until December 31, 2005, the MHBPA allowedthe Company to deduct an additional 8% expense factor when calculating thepurse contribution for periods outside of the racing season.  For the year ended December 31, 2006 theMHBPA allowed a 3.7% expense deduction, and in 2007 the expense deduction isestimated to be 1.9%.

(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%.

##### *Concessions Revenue.*

The Company earnsrevenue from food and beverage sales in its restaurant, group catering areasand numerous concession stands located throughout the facility.   Food and beverage sales are offered duringlive and simulcast racing, in the Card Club and during special events.

##### *Other Revenue.*

The Companygenerates cash revenues from the receipt of admission and reserved seatingcharges, preferred and valet parking, and the sales of various dailypari-mutuel publications.  Additionalrevenues are derived from the operation of an RV Park during the summer months,and the use of the facility year round for special events such as concerts,trade and craft shows, snowmobile racing, business meetings, private parties,horse expositions and sales, boat and automobile storage and communityevents.  The Company also generatesrevenue from providing advertising signage space similar to that appearing atmany sports stadiums and leases excess parking lot space for various automotiveactivities and vehicle storage.

**(v)            Competition**

From 1994 through2004, the Company was the only Racetrack licensed to operate in the State ofMinnesota.  On January 20, 2005, the MRCgranted a license to the North Metro Harness Initiative, LLC (“NMHI”) toconstruct and operate a harness racetrack in Columbus Township, Anoka County,MN.  Construction has not begun on thatfacility as of the date of this report. Columbus Township is approximately 50 miles from Canterbury Park.  This license authorizes NMHI to engage inpari-mutuel wagering on live and simulcast racing for standardbred (harness)horses.  NMHI has stated they intend tocommence operations in 2008.

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Current Minnesota statelaw permits licensed racetracks to operate a card room with up to 50 tablessubject to completion of a 50-day live race meet and regulatory approval of acard room plan of operation.  NMHI haspublicly stated its intentions to seek legislation to allow them to apply for alicense to operate a card room prior to completion of the minimum 50 live racedays, and to permit pari-mutuel simulcast racing of all breeds at itsracetrack.

The Companycompetes with other forms of gaming, principally casino-style gamblingincluding slots and blackjack offered at numerous tribal casinos locatedthroughout the State of Minnesota, including a large casino locatedapproximately four miles from the Racetrack. More recently, unbanked card games have also become available at sometribal casinos.  In addition, the Companycompetes against charitable gambling (bingo and pull tabs) and various statelottery products. The Company also faces increasing competition from offshoreand out-of-state simulcast operations offering Internet and telephone accounthome wagering systems to Minnesota residents, although Minnesota regulatoryauthorities consider such wagering to be illegal.

The Company alsocompetes with other forms of entertainment in the Minneapolis-Saint Paulmetropolitan area, including a wide range of live and televised professionaland collegiate sporting events.  Inaddition, live horse racing competes with a wide variety of summer attractions,including amusements parks, sporting events and other local activities.

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

**(vi)          Regulation**

*General.*

The ownership andoperation of the Racetrack in Minnesota is subject to significant regulation bythe MRC under the Racing Act and the rules adopted by the MRC.  The Racing Act provides for the allocation ofeach wagering pool to winning bettors, the Racetrack, purses, the State ofMinnesota and the Breeders’ Fund and empowers the MRC to license and regulatesubstantially all aspects of horse racing in the State.  The MRC, among other things, grants operatinglicenses to racetracks after an application process and public hearings,licenses all employees of a racetrack, jockeys, trainers, veterinarians andother participants, regulates the transfer of ownership interests in licenses,allocates live race days and simulcast-only race days, approves race programs,regulates the conduct of races, sets specifications for the racing ovals,animal facilities, employee quarters and public areas of racetracks, regulatesthe types of wagers on horse races, and approves significant contractualarrangements with racetracks, including management agreements, simulcast arrangements,totalizator contracts and concessionaire agreements.

A federal statute,the Interstate Horse Racing Act of 1978, also provides that a racetrack mustobtain the consent of the group representing the horsepersons (owners andtrainers) racing the breed of horses that race a majority of the time at theracetrack, and the consent of the state agency regulating the racetrack, inorder to transmit simulcast signals of its live races or to receive and usesimulcast signals from other racetracks. The Company has obtained the consent of the MHBPA and MRC for receivingand sending simulcast signals.

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

The Company holdsa Class A License, issued by the MRC, which allows the Company to own andoperate the Racetrack.  The Class ALicense is effective until revoked or suspended by the MRC, or relinquished bythe licensee.  Currently the fee for aClass A License is $253,000 per fiscal year.

The Company alsoholds a Class B License, issued by the MRC that allows the Company to sponsorand manage horse racing on which pari-mutuel wagering is conducted at its ClassA licensed racetrack and on other horse races run at out-of-state locations asauthorized by the MRC.  The Class BLicense is renewable

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each year by the MRCafter a public hearing (if required by the MRC).  Currently the fee for the Class B License is$500 for each assigned race day on which live racing is actually conducted and$100 for each day on which simulcasting is authorized and actually takes place.

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

Pursuant to theRacing Act, so long as the Racetrack maintains its Class A License, no otherClass A License may be issued to operate a racetrack in the seven countymetropolitan area (the counties of Hennepin, Ramsey, Washington, Scott, Dakota,Anoka and Carver), except the MRC may issue an additional Class A Licensewithin the seven county metropolitan area, provided that the additional licensemay only be issued for a facility which, among other conditions, is locatedmore than 20 miles from the Racetrack, contains a track no larger thanfive-eighths of a mile in circumference, and is used exclusively for standardbred (harness) racing.  An additional ClassA license was issued to NMHI on January 20, 2005 (see “Competition”above).  However, as long as the Companyholds its Class A License, only the Company may own and operate a racetrack inthe seven county metropolitan area where thoroughbred horses and quarter horsesmay be raced.

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

The Racing Actrequires prior MRC approval of all officers, directors, 5% shareholders, orother persons having a present or future direct or indirect financial ormanagement interest in any person applying for a Class A and Class B license,and if a change of ownership of more than 5% of the licensee’s shares is madeafter an application is filed or the license issued, the applicant or licenseemust notify the MRC of the changes within five days of this occurrence andprovide the information required by the Racing Act.

*Card ClubRegulation.*

TheMRC is authorized by law to regulate Card Club operations and the law requiresthat the Company reimburse the MRC for its actual costs, including personnelcosts, of regulating the Card Club.  Forfiscal years ended December 31, 2006, and 2005, the Company paid $120,000 and$110,000, respectively, to the MRC as reimbursement for costs of regulatingcard club operations.

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

*LocalRegulation.*

The Company’soperations are subject to state and local laws, regulations, ordinances andother provisions affecting zoning and other matters which may have the effectof restricting the uses to which the Company’s land and other assets may beused.  Also, any development of theRacetrack site is, among other things, subject to applicable zoning ordinancesand requires approval by the City of Shakopee and other authorities and therecan be no assurance such approvals would be obtained if any development wasundertaken.

**(vii)         Legislation**

In 2006 the Company supported legislation toplace a proposed amendment of the Minnesota Constitution on the November 2006ballot that would have established a framework under which electronic gamingcould be conducted at the Racetrack.  Theextension of the Company’s business to include electronic gaming at theRacetrack, often referred to as a “Racino”, contemplated adding approximately3,000 electronic gaming devices, as well as 40 table games, a 250-room hotel,an Olympic scale horse park and additional restaurant venues.  Legislation was also introduced in 2006 toremove the 50-table limit currently imposed by Minnesota law and allowCanterbury Park to offer “banked” games in the Card Club.  No action was, however, taken on either ofthese bills in 2006.  In the future, theCompany may support legislation similar to the bills

9

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introducedin 2006, or other legislation that would increase gaming options at CanterburyPark, however, no Canterbury Park legislation has been introduced in 2007.

The effort to support legislation that would increase gaming options atCanterbury Park has required, and similar efforts in the future will require,substantial expenditures.  Due to theinherent uncertainty of the outcome of legislative activities, there can be noassurance that any such activities will result in bills favorable to theCompany’s interests being enacted into law. Moreover, it is possible that,  asa result of the legislative process, legislation directly or indirectly adverseto the Company (including proposed legislation discussed in the paragraphbelow) may be enacted into law.

As of March 30, 2007 bills were under consideration in the MinnesotaLegislature, in both the House and the Senate, that if enacted into law wouldseverely restrict smoking in all public places in Minnesota, including bars andrestaurants generally and the Racetrack in particular.  Eighteen tribal casinos in Minnesota wouldnot, however, be covered by this legislation as currently proposed and thesecasinos would continue to be able to offer various gaming alternatives, includingcard games, in an environment that allows smoking.  Therefore, if the proposed legislation isenacted into law in Minnesota in substantially its current form, the Company’srevenues and profits may be materially adversely affected to the extent currentand potential Racetrack customers who smoke decide to patronize tribal casinos,where smoking is permitted, rather than the Racetrack.

**(viii)        Marketing**

The Company’sprimary market is the seven-county Minneapolis-Saint Paul metropolitan areaplus the two counties to the south of the Racetrack. Current demographicinformation indicates that approximately 2.2 million adults age 18 and older,reside within the primary market.  TheCity of Shakopee, located in the southwestern portion of the metropolitan area,is one of the fastest growing communities in the region and Scott County is oneof the fastest growing counties in the country. Between 2005 and 2010, the population of adults age 18 and older in theprimary market is expected to increase by an estimated 6.7%.

To support itspari-mutuel horse racing and Card Club businesses, the Company conductsyear-round marketing efforts to maintain the loyalty of live racing andsimulcast patrons and attract new racing and Card Club customers.  The Company utilizes newspapers andtelevision advertising, the Internet, other print media, radio and directmail.  Often the Company combines itsmarketing efforts to communicate the excitement of both wagering on horseracing and card playing.  In addition toits regular advertising program, the Company conducts numerous specialpromotions and handicapping contests to increase simulcast patronage, andmaintains successful pari-mutuel player and Casino Games player rewardsprograms.  In addition, the developmentand maintenance of a customer database over the past several years has enabledthe Company to effectively utilize direct mail advertising.

Because wageringon horse racing and playing poker and casino style card games are more complexthan many other forms of gaming, such as slot machines or various lottery products,the Company continues to develop and conduct various educational programs, suchas complimentary poker and casino games lessons, tours of the Racetrack,wagering and handicapping classes and contests that it believes will makepari-mutuel wagering on horse racing and card playing more understandable tothe general public.

**(ix)          Employees**

At March 15, 2007,the Company had 398 full-time employees and 292 part-time employees.  On a seasonal basis the Company addsapproximately 120 full-time and 250 part-time employees for live racingoperations from early May until early September.  The Company’s management believes itsemployee relations are good.

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**(x)           Executive Officers**

The executiveofficers of the Company, their ages and their positions with the Company are asfollows:
| Name                | ** ** | **Age**    | ** ** | **Position with Company**                              |
|---------------------|------------|------------|------------|--------------------------------------------------------|
| ** **          | ** ** | ** ** | ** ** | ** **                                             |
| Randall D.  Sampson |       | 48         |       | President, CEO and General Manager                     |
|                |       |       |       |                                                   |
| David C. Hansen     |       | 50         |       | Vice President of Finance, CFO and Secretary           |
|                |       |       |       |                                                   |
| Mark A. Erickson    |       | 50         |       | Vice President of Facilities                           |
|                |       |       |       |                                                   |
| Jerrold J.  Fuller  |       | 62         |       | Vice President of Card Club Operations                 |
|                |       |       |       |                                                   |
| Michael J. Garin    |       | 51         |       | Vice President of Hospitality and Assistant  Secretary |
|                |       |       |       |                                                   |
| Eric A. Halstrom    |       | 38         |       | Vice President of Racing and Simulcasting              |
|                |       |       |       |                                                   |
| John R. Harty       |       | 62         |       | Vice President of Marketing                            |

 

Randall D. Sampsonhas been President and Chief Executive Officer since the formation of theCompany in March 1994 and General Manager since September 1995.  He has been active in horse industryassociations, currently serving on the Board of Directors of the ThoroughbredRacetracks of America and is past President of the Minnesota ThoroughbredAssociation.  Mr. Sampson also currentlyserves as a director of Communications Systems, Inc. (AMEX:JCS), a manufacturerof telecommunications and data communications products based in Hector,Minnesota.  Mr. Sampson is the son ofCurtis A. Sampson, the Company’s Chairman of the Board and the beneficial ownerof approximately 22% of the Company’s common stock.

DavidC. Hansen joined the Company in July 2001 as Vice President of Finance andChief Financial Officer.  From 2000 to2001 Mr. Hansen served as Director of Accounting for Prairie Meadows Racetrackand Casino in Altoona, IA, one of the nations first Racino operations.  He served as Controller, and later Directorof Finance at Treasure Island Resort & Casino, in Red Wing, MN, from 1993until 2000.  Mr. Hansen earned his CPAcertification in 1983.  Mr. Hansen is amember of the Minnesota Society of Certified Public Accountants and theHospitality Financial and Technology Professionals Association.

Mark A. Ericksonhas been Vice President of Facilities since May 1997, serving as the Racetrack’sDirector of Facilities since April 1994. From 1992 to 1994 Mr. Erickson served as Maintenance Supervisor for theMall of America, supervising the interior maintenance for one of the largestshopping malls in North America.  Mr.Erickson was Master Electrician for Canterbury Downs from 1986 to 1992,supervising the installation and maintenance of all electrical equipment.

Jerrold J. Fullerhas been Vice President of Card Club Operations since June of 2005.  He previously worked in various capacitiesfor the Company including most recently as the Executive Director of Card ClubOperations.  He joined the Company inFebruary 2000 as a Poker Shift Manager and played a significant role in theopening of the Card Club in April of that year. Mr. Fuller has been employed in the gaming industry since 1968 inCalifornia, Montana, and Louisiana, and is currently a member of the PokerTournament Directors Association of America.

Michael J. Garinhas been Vice President of Hospitality since May of 1997.  He had served as President of Canterbury ParkConcessions, Inc. since September of 1995. From 1993 to 1994 Mr. Garin served as Food & Beverage Supervisor forLittle Six, Inc., one of the largest tribal casino operations in thecountry.  Mr. Garin was President of MMRVending, Inc., a regional vending company, from 1988 to 1992.  Prior to 1988 he was a Regional Director atGeneral Mills Restaurant Group overseeing seven restaurants in three states.

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Eric A. Halstrom has been vice President of Racing and Simulcasting sinceJune of 2005.  Employed at CanterburyPark since 1997, Mr. Halstrom has worked in various capacities for the Companyincluding most recently as the Executive Director of TeleracingOperations.  Prior to his employment withCanterbury Park, Mr. Halstrom worked for Churchill Downs Management Companyfrom 1994 – 1997 and was their Director of Off-Track Betting Operations inIndiana.  Mr. Halstrom serves on theBoard of Directors of the North Star Problem Gambling Alliance and theMinnesota affiliate of the National Council on Problem Gambling.

John R. Hartyjoined the Company in February 2000 as Vice President of Marketing.  From 1996 to 1999 Mr. Harty served asPresident of Minneapolis based Sun Products a manufacturer of sporting goodsand pet products.  He served that companyas Vice President of Sales and Marketing from 1992 to 1996.  From 1977 to 1991 Mr. Harty worked forGenesco, a billion dollar footwear company. He served as Executive Vice President in charge of Sales and Marketingfor its Hosiery Divisions located in New York City.  Mr. Harty currently serves on the Board andas Vice Chairman of the Shakopee Area Chamber of Commerce.

**Item1A.  RISK FACTORS**

The Company issubject to risk factors that may affect our operating results.  Such risk factors include, but are notlimited to, the matters discussed below as well as the additional risksdiscussed under Forward Looking Statements on page 33 of this Form 10-K foradditional risks to which the Company is exposed.

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

We face intensecompetition in our market, particularly competition from tribal casinos.  Such facilities have the advantage of beingexempt from certain state and federal taxes. We also compete with Internet wagering on horse races, other forms ofgambling, other forms of entertainment and other racetracks throughout thecountry as previously discussed under *Competition*above.

In addition,another racetrack may begin competing with the Company.  In early 2005, the MRC granted a license toNMHI to construct and operate a harness racetrack in Columbus Township, AnokaCounty, MN, which is approximately 50 miles from the Racetrack.  This license authorizes NMHI to engage inpari-mutuel wagering on live and simulcast racing for standardbred (harness)horses.  In addition, Minnesota lawpermits licensed racetracks to operate a card room with up to 50 tables aftercompleting a 50-day live race meet and regulatory approval of a card room planof operation.  As of the date of thisreport, construction had not begun on the harness racetrack, but NMHI hasindicated it intends to commence harness racing operations in 2008 and willseek to begin operating a card room at the earliest possible time it is legallypermitted to do so.

We expectcompetition for our existing and future operations to increase both from NMHI,and as existing tribal casinos expand their operations.  In addition, several of our tribal gamingcompetitors have substantially larger marketing and financial resources than wedo.  We are unable to predict with anycertainty the effects of existing and future competition on our operatingresults.

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

The ownership andoperation of our Racetrack and Card Club are subject to significant regulationby the MRC under the Racing Act and the rules adopted by the MRC.  The MRC has the authority to impose increasesin the Class A and Class B license fees. In addition, State law requires that we reimburse the MRC for its actualcosts of regulating the Card Club, including personnel costs.  Increases in these licensing and regulatorycosts could adversely affect our results of operations.

Decisions by theMRC in regard to any one or more of the following matters could also adverselyaffect the Company’s operations:  thegranting of operating licenses to Canterbury Park and other racetracks after anapplication process and public hearings; the licensing of all employees of aracetrack, jockeys, trainers, veterinarians and other participants; regulatingthe transfer of ownership interests in licenses, allocating live race days andsimulcast-only race days, approving race programs, regulating the conduct ofraces, setting

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specifications for theracing ovals, animal facilities, employee quarters and public areas ofracetracks; changes to the types of wagers on horse races; and approval ofsignificant contractual agreements.

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

Our operations andoversight by the MRC are ultimately subject to the laws of Minnesota and thereexists the risk that these laws may be amended in ways adverse to ouroperations.  In particular, we arerequired to pay taxes and fees in addition to normal federal, state and localincome taxes, and such taxes and fees are subject to increase at any time.  From time to time, state and local legislatorsand officials have proposed changes in tax laws, or in the administration oflaws affecting our industry, such as the allocation of each wagering pool towinning bettors, the Racetrack, purses, and the Breeders’ Fund.  In addition, poor economic conditions couldintensify the efforts of state and local governments to raise revenues throughincreases in gaming taxes.  It is notpossible to determine with certainty the likelihood of changes in tax laws orin the administration of such laws.  Suchchanges, if adopted, could have a material adverse effect on our operations.

We are alsosubject to laws in Minnesota that affect businesses generally.  And, itis possible, as a result of the legislative process, that legislation directlyor indirectly adverse to the Company (including proposed legislation discussedin the remainder of this paragraph) may be enacted into law.  As of March 30, 2007 bills were underconsideration in the Minnesota Legislature, in both the House and the Senate,that if enacted into law would severely restrict smoking in all public placesin Minnesota, including bars and restaurants generally and the Racetrack inparticular.  Eighteen tribal casinos inMinnesota would not, however, be covered by this legislation as currentlyproposed and these casinos would continue to be able to offer various gamingalternatives, including card games, in an environment that allows smoking.Therefore, if the proposed legislation is enacted into law in Minnesota insubstantially its current form, the Company’s revenues may be materiallyadversely affected to the extent current and potential Racetrack customers whosmoke decide to patronize tribal casinos, where smoking is permitted, ratherthan the Racetrack.

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

Ourfacility uses significant amounts of electricity, natural gas and other formsof energy.  While no shortages of energyhave been experienced, increases in the cost of electricity or natural gasnegatively affect our results of operations. In addition, energy and fuel price increases could negatively impact ouroperations by reducing disposable income of potential customers and decreasingvisitation to our facility.

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

Our business issubject to changes in national and local economic conditions, including changesin the economy related to threatened or actual terrorist attacks and related tothe war with Iraq.  A recession ordownturn in the general or regional economy could result in fewer customersvisiting our facility, adversely affecting our results of operations.

**Item1B.  UNRESOLVED STAFF COMMENTS**

*NotApplicable.*

**Item 2.    PROPERTIES**

*General.*

The Company’sfacilities, which are operated under the name “Canterbury Park Racetrack andCard Club,” are a modern complex of buildings and grounds, generally comparableto other major racetracks located

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throughout thecountry.  The Racetrack’s grandstand hasa patron capacity of approximately 10,000 within enclosed areas, and a maximumpatron capacity of over 30,000, including outside areas around thegrandstand.  The grandstand and mostpublic outdoor areas contain numerous pari-mutuel windows, odds informationboards, video monitors, concessions stands and other amenities.  The audio/visual system includes over 600television monitors with most areas providing multi-screen viewing of theraces.

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

*RacingSurfaces.*

The racingsurfaces consist of a one-mile oval dirt/limestone track and a 7/8 mile ovalturf course.  The dirt track includes amile and one-quarter front stretch chute, a 6-1/2 furlong backstretch chute, a3-1⁄2 furlong chute, and is lighted for night racing.

*Grandstand.*

The grandstand isa modern, air-conditioned, and enclosed structure of approximately 275,000square feet with a variety of facilities on six levels.  The lower level contains space for supportfunctions such as jockey quarters, administrative offices, Racing Commissionoffices, first aid, mechanical and electrical rooms.  The track level includes pari-mutuel windows,restrooms, a variety of concession stands and other services as well as theCard Club which occupies 27,000 square feet on the track level. The mezzaninelevel contains 1,320 fixed seats in a glass-enclosed, air-conditioned area andan additional 3,000 seats located outside. In addition to the seats, the mezzanine Level contains pari-mutuelwindows, restrooms, concession stands and other guest facilities. A portion ofthe mezzanine level is currently being used as a simulcast center during liveracing, and for banquets and other events during the off-season.  The kitchen level is an intermediate levellocated between the mezzanine and clubhouse floors; it contains a full-servicekitchen which supports a full dining menu for the track-side dining terraces onthe clubhouse level and food preparation for the other concession areas.  The clubhouse level is a multi-purpose areaserving as a simulcast center during wagering sessions on televised races, aswell as a full-service dining area during the live racing season.  The clubhouse level includes 325 tracksidetables, each equipped with a television set, with a total seating capacity of1,200 patrons and an additional 1,000 seats are located in lounges locatedthroughout the area.  The press box andofficials’ level is located in the roof trusses over the clubhouse and containswork areas for the press, racing officials, closed-circuit television, photofinish and the track announcer.  Inaddition, the grandstand was structurally built to accommodate skyboxes underthe press box/officials’ level, although none have yet been constructed.  Escalators and elevators are available tomove patrons among the various levels within the grandstand.

*Barn andBackside Facilities.*

The stable areaconsists of 33 barns with a total of approximately 1,650 stalls.  In the stable area, there are 216 dormitoryrooms for the grooms and others working at the Racetrack.  The stable area also contains a combinationracing office and cafeteria/recreation building for stable personnel, twoblacksmith buildings and a one half mile training track.

*Parking.*

Approximately7,500 paved parking spaces are available for patron and employee automobiles atthe Racetrack, including parking spaces that are reserved for physicallychallenged patrons.  The Racetrack also

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has unpaved areasavailable for overflow parking for approximately 5,000 additionalautomobiles.  Areas are also reserved forbus parking.

*RVPark.*

The Company ownsand operates a recreational vehicle (RV) park, located two miles from theRacetrack in Shakopee, Minnesota on approximately 29 acres adjacent to theMinnesota River.  The RV Park has 68independent sites and 40 dependent sites, an indoor swimming pool, laundryfacilities, game room and mini store. The sites are rented to horsemen participating in Canterbury’s racingoperations, seasonal employees, and the general public.

*UndevelopedLand.*

Approximately 100acres of the 380 acres owned by the Company are not necessary for currentoperations.  This property could be soldin whole or in part, depending upon future opportunities.  The Company regularly evaluates otherbusiness activities and development opportunities that would maximize the useof the real estate surrounding the Racetrack and which would complement theCompany’s primary businesses of horse racing and card club operations.

**Item 3.    LEGAL PROCEEDINGS**

 There are no material legal proceedingspending against the Company.  From timeto time, the Company is party to ordinary and routine litigation incidental toour business.  We do not expect theoutcome of any such pending litigation to have a material adverse effect on ourconsolidated financial position or results of operations.

**Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.**

Not Applicable.

**PART II**

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

**(a)           MARKET INFORMATION**

The Company’sCommon Stock trades on the American Stock Exchange under the symbol ECP.  The table set forth below indicates the highand low sale prices for the Common Stock in the quarterly periods endingDecember 31, 2006 and 2005.
| ** **     | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| ** **     | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
|           |       |     |       |     |       |   |   |   |   |
| Common Stock   |       |     |       |     |       |   |   |   |   |
|           |       |     |       |     |       |   |   |   |   |
| First Quarter  |       | $        | 15.00      |     | $          | 13.60 |   | $ | 20.49 |   | $ | 15.55 |   |
| Second Quarter |       | 14.50    |       | 13.35    |       | 18.40 |   | 15.60 |   |
| Third Quarter  |       | 13.80    |       | 12.50    |       | 18.10 |   | 13.83 |   |
| Fourth Quarter |       | 13.69    |       | 12.60    |       | 15.29 |   | 13.72 |   |
|                |            |          |            |          |            |  |  |  |  |  |  |  |  |

** **

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**(b)           HOLDERS**

At March 15, 2007,the Company had 722 holders of record of its common stock.  In addition, on that date a depositorycompany held approximately 2,578,000 shares as nominee for an estimated 1,805beneficial holders.

**(c)           DIVIDENDS**

The Company paidspecial cash dividends on its common stock of $.25 per share on July 14, 2006and $.25 per share on July 8, 2005.   The Company has not adopted any policy regarding the payment ofdividends and further dividend payments, if any, would require Board ofDirector approval.

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

The following table sets forth information as ofDecember 31, 2006 regarding our equity compensation plans.

Securities Authorized for Issuance Under EquityCompensation Plans
| Plan Category (1)                                      | ** ** | **(a)  Number of shares of  common stock to be  issued upon exercise of  outstanding options,  warrants and rights** | ** ** | **(b)  Weighted-average  exercise price of  outstanding options,  warrants and rights** | ** **                                 | **(c)  Number of shares of  common stock  remaining available  for future issuance  under equity  compensation plans  (excluding shares in  column (a))** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|--------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                             |       |                                                                                                                                                                             |       |                                                                                                             |                                       |                                                                                                                                                                                                                  |       |   |   |
| Equity  compensation plans approved by security holders:         |       |                                                                                                                                                                             |       |                                                                                                             |                                       |                                                                                                                                                                                                                  |       |   |   |
| 1994 Stock Plan                                                  |       | 666,550                                                                                                                                                                          |       |                                                                                                             | $      10.12 |                                                                                                                                                                                                                  |       | 188,000 |   |
| 1995 Employee Stock Purchase Plan                                |       | —                                                                                                                                                                           |       |                                                                                                             | —                                     |                                                                                                                                                                                                                  |       | 126,500 |   |
|                                                             |       |                                                                                                                                                                             |       |                                                                                                             |                                       |                                                                                                                                                                                                                  |       |   |   |
| Equity  compensation plans not approved by security holders:     |       |                                                                                                                                                                             |       |                                                                                                             |                                       |                                                                                                                                                                                                                  |       |   |   |
| Stock Option Plan for Non-Employee Consultants and  Advisors (2) |       | —                                                                                                                                                                           |       |                                                                                                             | —                                     |                                                                                                                                                                                                                  |       | 172,500 |   |
|                                                             |       |                                                                                                                                                                             |       |                                                                                                             |                                       |                                                                                                                                                                                                                  |       |   |   |
| Total                                                            |       | 666,550                                                                                                                                                                          |       |                                                                                                             |                                       |                                                                                                                                                                                                                  |       | 487,000 |   |

 

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

(2) Adopted by the Company’s Board of Directors in 1997,the purpose of the Stock Option Plan for Non-Employee Consultants and Advisorsis to attract and retain the services of experienced and knowledgeablenon-employee consultants and advisors to assist in projects having strategicsignificance for the Company, to provide an alternative form of cashcompensation to such persons and to provide such persons with the opportunityto participate in the Company’s long term progress and success.

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**(e)           PERFORMANCE GRAPH**

**COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN***

Among Canterbury Park Holding Corporation, The AMEXComposite Index,The Russell 2000 Index And The S & P Casinos & Gaming Index

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* $100 invested on 12/31/01 in stock or index-including reinvestment ofdividends. Fiscal year ending December 31.

Copyright© 2007, Standard & Poor's, a division of The McGraw-Hill Companies, Inc.All rights reserved. www.researchdatagroup.com/S&P.htm
| ** **                               | ** ** | **12/01**  | ** ** | **12/02**  | ** ** | **12/03**  | ** ** | **12/04**  | ** ** | **12/05**  | ** ** | **12/06**  | ** ** |
|------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Canterbury  Park Holding Corporation** | ** ** | **100.00** | ** ** | **189.16** | ** ** | **244.80** | ** ** | **295.95** | ** ** | **205.85** | ** ** | **207.23** | ** ** |
| **AMEX  Composite**                      | ** ** | **100.00** | ** ** | **100.08** | ** ** | **144.57** | ** ** | **178.46** | ** ** | **220.35** | ** ** | **262.17** | ** ** |
| **Russell  2000**                        | ** ** | **100.00** | ** ** | **79.52**  | ** ** | **117.09** | ** ** | **138.55** | ** ** | **144.86** | ** ** | **171.47** | ** ** |
| **S & P Casinos & Gaming**       | ** ** | **100.00** | ** ** | **109.32** | ** ** | **180.17** | ** ** | **198.03** | ** ** | **191.64** | ** ** | **255.56** | ** ** |

 

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

 Notapplicable.

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

Asreflected in the following table, on November 2, 2006 the Company announcedthat its Board of Directors authorized the repurchase of up to 100,000 sharesof the Company’s common stock.  OnDecember 6, 2006 the Company repurchased 53,050 shares of common stock at aprice of $13.10 per share for an aggregate purchase price of $694,955.

| Period                 | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price  Paid per Share** | ** **               | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plan** | ** ** | **Maximum Number  of Shares that May  Yet Be Purchased  Under the Plan** | ** ** |
|------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|--------------------------|---------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|
|                   |       |                                                 |       |                                             |                     |                                                                                                          |       |                                                                                                             |       |   |   |   |   |
| Oct 1 to Oct 31,  2006 |       | —                                               |       |                                             |                     |                                                                                                          |       | —                                                                                                           |       |   | — |   |   |
| Nov 1 to Nov 30,  2006 |       | —                                               |       |                                             |                     |                                                                                                          |       | 100,000                                                                                                          |       |   | 100,000 |   |   |
| Dec 1 to Dec 31,  2006 |       | 53,050                                               |       |                                             | $   13.10 |                                                                                                          |       | 53,050                                                                                                           |       |   | 46,950 |   |   |
| Total                  |       | 53,050                                               |       |                                             |                     |                                                                                                          |       | 53,050                                                                                                           |       |   |   |   |   |

 

**Item 6.    SELECTED FINANCIAL DATA**

(In thousands except forper share amounts)
| ** **                        | ** ** | **Year Ended December 31** | ** ** |
|-----------------------------------|------------|-------------------------------------------|------------|
| ** **                        | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ***OPERATING  DATA***             |       |                                      |       |   |   |   |   |   |   |   |   |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Net Revenues                      |       | $                                         | 55,840     |   | $ | 54,920 |   | $ | 54,428 |   | $ | 47,471 |   | $ | 41,396 |   |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Operating  expenses               |       | 50,660                                    |       | 49,474 |   | 47,661 |   | 42,212 |   | 37,594 |   |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Income Before  Income Tax Expense |       | 5,459                                     |       | 5,565 |   | 6,801 |   | 5,299 |   | 3,831 |   |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Income Tax  Expense               |       | (2,334                                    | )          | (2,512 | ) | (2,939 | ) | (2,429 | ) | (1,554 | ) |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Net Income                        |       | $                                         | 3,125      |   | $ | 3,053 |   | $ | 3,862 |   | $ | 2,870 |   | $ | 2,277 |   |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Basic Net Income per Share        |       | $                                         | .78        |   | $ | .78 |   | $ | 1.02 |   | $ | .78 |   | $ | .64 |   |
| Diluted Net Income per Share      |       | .74                                       |       | .73 |   | .92 |   | .70 |   | .57 |   |
| Dividends per Share               |       | .25                                       |       | .25 |   | .25 |   | .15 |   | .25 |   |
|                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Cash Flow from  Operations        |       | $                                         | 5,973      |   | $ | 4,714 |   | $ | 6,336 |   | $ | 4,702 |   | $ | 3,593 |   |

 
| ** **                                       | ** ** | **At December 31** | ** ** |
|--------------------------------------------------|------------|------------------------------|------------|
| ** **                                       | ** ** | **2006**                     | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ***BALANCE  SHEET DATA***                        | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                             | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land, Buildings  & Equipment                 |       | $                            | 24,904     |   | $ | 22,694 |   | $ | 20,439 |   | $ | 17,113 |   | $ | 14,551 |   |
|                                             |       |                         |       |   |   |   |   |   |   |   |   |
| Total Assets                                     |       | 34,351                       |       | 31,440 |   | 28,223 |   | 22,418 |   | 19,030 |   |
|                                             |       |                         |       |   |   |   |   |   |   |   |   |
| Stockholders’  Equity                       |       | 26,860                       |       | 24,358 |   | 20,996 |   | 16,826 |   | 13,907 |   |
|                                             |       |                         |       |   |   |   |   |   |   |   |   |
| Book Value per  Share                            |       | $                            | 6.63       |   | $ | 6.15 |   | $ | 5.47 |   | $ | 4.53 |   | $ | 3.82 |   |
|                                             |       |                         |       |   |   |   |   |   |   |   |   |
| Number of Common Shares  Outstanding at Year End |       | 4,051                        |       | 3,960 |   | 3,836 |   | 3,714 |   | 3,638 |   |

 

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I**tem 7.****           MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The followingManagement’s Discussion and Analysis of Financial Condition and Results ofOperations (“MD&A”) is intended to help the reader understand CanterburyPark Holding Corporation, our operations and our present businessenvironment.  This MD&A is providedas a supplement to – and should be read in conjunction with – our consolidatedfinancial statements and the accompanying notes to the financial statements(the “Notes”).  This MD&A consists ofthe following sections:

·                  *Strategic Overview* – a general descriptionof our business, summary of our financial performance, and our strengths andstrategic initiatives.

·                  *Critical Accounting Policies and Estimates*

·                  *New Accounting Pronouncements*

·                  *Contingencies*

·                  *Operations Review* – an analysis of ourCompany’s consolidated results of operations for the three years presented inour consolidated financial statements.

·                  *Liquidity and Capital Resources* – ananalysis of the sources and uses of cash.

·                  *Commitments and Contractual Obligations*

·                  *Forward-Looking Statements*– cautionaryinformation about forward-looking statements and a description of certain risksand uncertainties that could cause our actual results to differ materially fromthe Company’s historical results or our current expectations of projections.

**STRATEGICOVERVIEW**

Canterbury ParkHolding Corporation (the “Company”) was incorporated under the laws ofMinnesota and acquired land and buildings to conduct pari-mutuel horse racingoperations (the “Racetrack”) in March 1994. The Racetrack is located in Shakopee, Minnesota, approximately 25 milessouthwest of downtown Minneapolis.  InMay 1994 we commenced year round horse racing simulcast operations and hostedthe first annual live race meet during the summer of 1995.  Our live racing operations are a seasonalbusiness as we host live race meets each year from early May until LaborDay.  We earn additional pari-mutuelrevenue by televising our live racing to out-of-state Racetracks around thecountry.  We also derive revenues fromrelated services and activities, such as advertising, admissions, parking andpublication sales, and from other entertainment events and activities held atthe Racetrack.

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

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

During the year ended December 31, 2006, increasedcompetition (discussed below) along with a general industry decline in on-trackwagering and other causes mentioned in the Operations Review below, resulted ina decrease in pari-mutuel handle and associated revenues.

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|                                      | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| ***Financial  Performance Summary*** |       |     |       |     |       |     |       |     |       |     |       |
| *** ***                         |       |     |       |     |       |     |       |     |       |     |       |
| Net Revenues                         |       | $        | 55,840     |     | $          | 54,920   |       | $        | 54,428     |     | $          | 47,471 |   | $ | 41,396 |   |
|                                 |       |     |       |     |       |     |       |     |       |     |       |
| Operating  Expenses                  |       | 50,660   |       | 49,474   |       | 47,661   |       | 42,212   |       | 37,594   |       |
|                                 |       |     |       |     |       |     |       |     |       |     |       |
| Income Before  Income Tax Expense    |       | 5,459    |       | 5,565    |       | 6,801    |       | 5,299    |       | 3,831    |       |
|                                 |       |     |       |     |       |     |       |     |       |     |       |
| Income Tax  Expense                  |       | (2,334   | )          | (2,512   | )          | (2,939   | )          | (2,429   | )          | (1,554   | )          |
|                                 |       |     |       |     |       |     |       |     |       |     |       |
| Net Income                           |       | $        | 3,125      |     | $          | 3,053    |       | $        | 3,862      |     | $          | 2,870 |   | $ | 2,277 |   |

 

The primarystrengths of Canterbury Park are our dedicated and capable staff, ourfirst-class facilities and 380-acre property, and the legal authority to offerour unique gaming products in our market area.

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

Our facilities aremodern by racetrack industry standards and we have invested heavily in the pastfew years to update and upgrade them to meet the needs of our customers andhorsemen.  Our 380-acre property with aprime location in one of the fastest-growing areas in Minnesota provides uswith great long-term growth and development opportunities.  Our Board of Directors has begun the processof conducting research to determine the highest and best potential uses of ourunderutilized land.  Our long-term strategicdirection is to enhance the character of our property as a unique gaming andentertainment destination.

We have a strongcommitment to live racing and have been particularly successful in attractingnew customers and providing a quality live racing experience for our horseracing fans as well as the horsemen who participate in the live racing atCanterbury Park.  The success of the CardClub has greatly enhanced our ability to offer a more competitive purse structurefor live racing and has allowed us to make significant improvements to ourGrandstand and the backside stabling and training facilities.  As a result, we have been near capacity forhorses stabled at Canterbury Park during our recent live race meets.  We have also increased live racing attendanceduring a time when the industry trend has generally been downward.

Currentlywe are the only facility offering live and simulcast racing in our market,although we do have competition in the simulcast market from Internet horseracing sites.  While a number ofMinnesota Tribal Casinos operate the same unbanked card games offered atCanterbury Park, we are currently the only non-tribal operator and we have theonly non-tribal Poker room operating within the seven-county Twin Citiesmetropolitan area.  However, in January2005, the Minnesota Racing Commission (“MRC”) granted a second license for theconstruction and operation of a harness racetrack in Columbus Township, AnokaCounty, MN.  While construction of theharness track had not begun as of March 2007, the licensee has stated theyintend to commence operations in 2008. Under current law this licensee would be allowed to offer live andsimulcast wagering only on harness races. Current law, however, also permits the licensee to receive a license tohost unbanked card games in a card room similar to the Company’s Card Clubafter it conducts a 50-day live harness racing meet, submits a plan ofoperation related to the card room and receives MRC approval for its plan ofoperation.  The licensee has indicatedits intention to secure such approval at the earliest possible time.

Wecontinue to believe that our best option for long-term growth is to gainauthority under Minnesota law to offer additionalgaming options, which would enhance horse racing with increased purses, providegrowth and development opportunities for us, and produce significant new taxrevenues for state and local governments. The effort to obtain legislative authority for these initiatives hasrequired, and will continue to require, substantial expenditures.  Due to the inherent uncertainty of theoutcome of legislative activities, there can be no assurance

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that any bills favorable to the Company’s interests will be enacted intolaw, and it is possible, as a result of the legislative process, thatlegislation directly or indirectly adverse to the Company may be enacted intolaw.

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

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

Oursignificant accounting policies are included in Note 1 to our consolidatedfinancial statements. We believe the following critical accounting policiesaffect our more significant judgments and estimates used in the preparation ofour consolidated financial statements.

*Propertyand Equipment -*We have significant capital invested in ourproperty and equipment, which represents approximately 72.5% of our totalassets at December 31, 2006. We utilize our judgment in various ways including:determining whether an expenditure is considered a maintenance expense or acapital asset; determining the estimated useful lives of assets; anddetermining if or when an asset has been impaired.  Management periodically reviews the carryingvalue of property and equipment for potential impairment by comparing thecarrying value of these assets with their related expected future net cashflows.  Should the sum of the relatedexpected future net cash flows be less than the carrying value, we willdetermine whether an impairment loss should be recognized.  An impairment loss would be measured by theamount by which the carrying value of the asset exceeds the fair value of theassets.  To date, we have determined thatno impairment of these assets exists.

*Stock Based Employee Compensation*- In December 2004, the Financial Accounting Standards Board (FASB) revisedSFAS No.123, Share Based Payment (SFAS No. 123R).  This Statement supercedes APB Opinion No. 25,which resulted in no stock-based employee compensation cost related to stockoptions if the options granted had an exercise price equal to the market valueof the underlying common stock on the date of grant.  SFAS No. 123R requires recognition ofemployee services provided in exchange for a share-based payment based on thegrant date fair market value.  TheCompany adopted SFAS No. 123R as of January 1, 2006.  As of the effective date, this Statementapplies to all new awards issued as well as awards modified, repurchased, orcancelled.  Additionally, for stock-basedawards issued prior to the effective date, compensation cost attributable tofuture services will be recognized as the remaining service is rendered.  The Company elected to apply the modifiedprospective method of adoption of SFAS No.123R.

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

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

In September 2006,the FASB issued SFAS No. 157, *Fair ValueMeasurements,* which defines fair value, establishes a framework formeasuring fair value, and expands disclosures about fair value measurements.The provisions of SFAS No. 157 are effective for fiscal years beginning afterNovember 15, 2007.  The Company isevaluating the impact the adoption of SFAS No. 157 will have on its financialstatements.

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In June 2006, the FASBissued FASB Interpretation No. 48 (FIN 48), *Accountingfor Uncertainty in Income Taxes—an interpretation of FASB Statement No.109. *FIN 48 prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return.  The Company must determinewhether it is “more-likely-than-not” that a tax position will be sustained uponexamination, including resolution of any related appeals or litigation processes,based on the technical merits of the position. Once it is determined that aposition meets the more-likely-than-not recognition threshold, the position ismeasured to determine the amount of benefit to recognize in the financialstatements. FIN 48 applies to all tax positions related to income taxes subjectto FASB Statement No. 109, *Accountingfor Income Taxes*. FIN 48 is applicable for fiscal years beginningafter December 15, 2006.  The Company hasevaluated the impact and does not expect it to have a material impact on itsfinancial statements.

**CONTINGENCIES**

Inconnection with the purchase of the Racetrack, the company entered into an EarnOut Promissory Note dated March 29, 1994. In accordance with the Earn Out Noteif (i) off-track betting becomes legally permissible in the State of Minnesotaand (ii) we begin to conduct off-track betting with respect to or in connectionwith its operations, we will be required to pay to the IMR Fund, L.P. thegreater of $700,000 per operating year, as defined, or 20% of the net pretaxprofit, as defined for each of five operating years.  At this time, we believe that the likelihoodthat these two conditions will be met, and that we will be required to paythese amounts is remote.  At the date (ifany) that these two conditions are met, the five minimum payments will bediscounted back to their present value and the sum of those discounted paymentswill be capitalized as part of the purchase price in accordance with generallyaccepted accounting principles.  Thepurchase price will be further increased if payments become due under the “20%of Net Pretax Profit” calculation.  Thefirst payment is to be made 90 days after the end of the third operating yearin which off-track betting is conducted by us. Remaining payments would be made within 90 days of the end of each ofthe next four operating years.

TheCompany is periodically involved in various legal actions arising in the normalcourse of business.  At December 31,2006, management believes that the resolution of any legal actions outstandingwill not have a material impact on the consolidated financial statements.

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**OPERATIONSREVIEW**

###### **YEAR ENDEDDECEMBER 31, 2006 COMPARED TO YEAR ENDED DECEMBER 31, 2005**

**OPERATINGREVENUES**

Totalnet operating revenues for the year ended December 31, 2006 were $55.8 million,an increase of  $920,000, or 1.7%,compared to total operating revenues of $54.9 million for the year endedDecember 31, 2005.  Total Card Clubrevenues increased 1.9%, pari-mutuel revenues decreased .5% and concessionrevenues increased 3.5% in fiscal 2006 compared to fiscal 2005.   Discussions of Pari-mutuel and Card Clubrevenues follow.
|                                             | ** ** | **Year Ended  12/31/06** | ** ** | **Year Ended  12/31/05** | ** ** |
|---------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| **SUMMARY  OF PARI-MUTUEL OPERATING DATA:** | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| ** **                                  | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| **Racing Days**                             | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Simulcast only days                         |       | 296                           |       | 296                           |       |
| Live and simulcast days                     |       | 68                            |       | 68                            |       |
| **Total Racing Days**                       |       | 364                           |       | 364                           |       |
|                                        |       |                          |       |                          |       |
| **On-Track  Handle**                        |       |                          |       |                          |       |
| Simulcast handle on non-live race days      |       | $                             | 41,291,000 |                          | $          | 41,341,000 |   |
|                                        |       |                          |       |                          |       |
| Simulcast handle on live race days          |       | 16,772,000                    |       | 17,287,000                    |       |
| Total simulcast handle                      |       | 58,063,000                    |       | 58,628,000                    |       |
|                                        |       |                          |       |                          |       |
| Live racing  handle                         |       | 16,877,000                    |       | 17,591,000                    |       |
| **Total On-Track Handle**                   |       | 74,940,000                    |       | 76,219,000                    |       |
|                                        |       |                          |       |                          |       |
| **Out-of-state  Live Handle**               |       | 19,246,000                    |       | 14,180,000                    |       |
| ** **                                  |       |                          |       |                          |       |
| **Total Handle**                            |       | $                             | 94,186,000 |                          | $          | 90,399,000 |   |
|                                        |       |                          |       |                          |       |
| **On-Track  Average Daily Handle**          |       |                          |       |                          |       |
| Simulcast only days                         |       | $                             | 139,500    |                          | $          | 140,000 |   |
| Live and  simulcast days                    |       | 495,000                       |       | 513,000                       |       |

 

Pari-mutuelrevenues include commission and breakage revenues on live on-track andsimulcast racing, fees received from out-of-state racetracks for wagering onour live races, and proceeds from uncashed winning tickets.  Pari-mutuel revenues decreased slightly to$16.4 million from $16.5 million in 2005, primarily reflecting an increase inout-of-state live handle, offset by decreases in on-track handle in 2006compared to 2005.

Wagering atout-of-state tracks on races conducted at the Racetrack during the 2006 livemeet, increased $5,066,000, or 35.7%, compared to the 2005 meet primarily dueto increased wagering at certain out-of-state locations.

Total handlewagered on simulcast races in 2006 decreased $565,000, or 1.0%, compared to2005.  In addition, on-track live handledecreased by $714,000, or 4.1%, for the 2006 live meet compared to the livemeet in 2005 due partly to the fact that in 2006 the Company was forced toshorten or delay live racing on five days due to inclement or dangerously hotweather conditions which did not occur in 2005.

We also believethat lower patron wagering can be partially attributed to competition fromInternet wagering and other gaming options, as well as the general downturn ineconomic conditions during 2006, including record high gasoline prices, whichreduce our patrons’ disposable income.

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Revenuesrecognized on proceeds from winning pari-mutuel tickets, which were notpresented for payment within one year of the end of the respective race meets,decreased approximately $36,000 in 2006 compared to 2005, primarily due toreduced amounts wagered on simulcast horse races.
|                                     | ** ** | **Year Ended  12/31/06** | ** ** | **Year Ended  12/31/05** | ** ** |
|-------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| **SUMMARY  OF CARD CLUB REVENUES:** |       |                          |       |                          |       |
| ** **                          |       |                          |       |                          |       |
| Poker Games                         |       | $                             | 18,281,000 |                          | $          | 18,279,000 |   |
| Casino Games                        |       | 10,948,000                    |       | 10,557,000                    |       |
| Total Collection Revenue            |       | 29,229,000                    |       | 28,836,000                    |       |
|                                |       |                          |       |                          |       |
| Other Revenue                       |       | 939,000                       |       | 778,000                       |       |
|                                |       |                          |       |                          |       |
| Total Card Club Revenue             |       | $                             | 30,168,000 |                          | $          | 29,614,000 |   |
|                                |       |                          |       |                          |       |
| Number of Days Offered              |       | 364                           |       | 364                           |       |
| Average Revenue  per Day            |       | $                             | 82,900     |                          | $          | 81,400 |   |

 

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

TheCard Club is divided into two areas, the casino games area and the pokerarea.  The average daily collectionamount per game is dependent upon the number of tables utilized to offer thegame.  Patron demand determines thenumber of tables to be used for a specific game.  Since December 2005 there have been a totalof 16 tables in the casino games area and 34 tables in the poker area, and 19and 31 tables, respectively, during the first eleven months of 2005.

TotalCard Club revenue increased $554,000, or 1.9%, compared to 2005.  The increase in Card Club revenue is dueprimarily to growth in casino games revenue of $391,000, or 3.7%, in 2006 over2005.  Revenue in the poker room remainedrelatively unchanged.

Card Club revenuesrepresent 54.0% and 53.9% of total revenues for 2006 and 2005, respectively.

We expect thatcompetition from Internet wagering and tribal casinos will continue to putpressure on Card Club operating revenues in future periods.  As a result, we continue to search foropportunities to make Canterbury Park the most attractive alternative when ourcustomers want to wager on card games.

Concessionrevenues increased 3.5% to $6,049,000 in 2006 from $5,843,000 in 2005.   The increase is primarily attributable to anincrease of $160,000 in food & beverage sales primarily during live racing,an $81,000 increase in food & beverage revenues in the Card Club during2006 compared to 2005, partially offset by a decrease of $40,000 in revenuesfrom catering compared to 2005.

The Companyexperienced an increase in admission and parking revenues due to a $1 increasein live racing admission in 2006. Publication sales revenues decreased due to the decision to discontinuethe on-site production and sale of a simulcast racing program.

Otheroperating revenue increased $222,000, or 10.6%, to $2,312,000 in fiscal year2006 compared to 2005.  The increase in2006 was due primarily to continued growth in the corporate sponsorships andadvertising revenues of $129,000, an increase in vending machine commissions of$61,000, and a rise in cash services fees of $40,000 resulting from increasedpatronage in the Card Club. Promotional allowances

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decreased$38,000, or 12.5%, in 2006 compared to 2005. The decrease is primarily attributable to the decrease in on-trackhandle, and also to the change in composition of players who participate in theprogram.

**OPERATING EXPENSES**

Total operatingexpenses increased approximately $1,186,000, or 2.4%, to $50,660,000 in 2006,from $49,474,000 in 2005 primarily due to increases in salaries, wages andbenefit costs, statutory purses, depreciation, utilities and contractedservices. See below for a detailed quantification of each of these items.  Total operating expenses as a percentage oftotal revenues increased to 90.7% from 90.1% in 2005. We experienced a decreasein pari-mutuel revenue in 2006, accompanied by modest growth in Card Club andconcession revenues.  As a result,despite decreases in variable pari-mutuel expenses, increases in salaries andbenefits and purse expense along with increases in other fixed expenses such asdepreciation, real estate taxes and regulatory costs, become a largerpercentage of total revenues.

Totalpurse expense increased $306,000, or 3.6%, in 2006 compared to 2005 aspresented in the table below.  Purseexpense is one of our largest single expense items. Minnesota law requires usto allocate a portion of funds received from betting in the Card Club andwagering on simulcast and live horse races for future payment as purses forlive horse races or other uses of Minnesota’s horsepersons’ associations.

TotalMinnesota Breeders’ Fund (“MBF”) expense decreased slightly for the year endedDecember 31, 2006 compared to the year ended December 31, 2005 as presented inthe table below.
|                  | ** ** | **Purse Expense** | ** ** | **Minnesota Breeders’ Fund  Expense** | ** ** |
|------------------|------------|-------------------|------------|--------------------------------------------|------------|
| ** **       | ** ** | **2006**          | ** ** | **2005**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **       | ** ** | ** **        | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Card Club        |       | $                 | 4,073,000  |                                       | $          | 3,999,000 |   | $ | 453,000 |   | $ | 444,000 |   |
|             |       |              |       |                                       |       |   |   |   |   |
| Simulcast Racing |       | 3,043,000         |       | 2,806,000                                  |       | 646,000 |   | 651,000 |   |
|             |       |              |       |                                       |       |   |   |   |   |
| Live Racing      |       | 1,696,000         |       | 1,701,000                                  |       | 169,000 |   | 176,000 |   |
|             |       |              |       |                                       |       |   |   |   |   |
| Total            |       | $                 | 8,812,000  |                                       | $          | 8,506,000 |   | $ | 1,268,000 |   | $ | 1,271,000 |   |

 

Whilewe are obligated by state law to pay up to 14% of Card Club revenues to thepurse fund and MBF, pursuant to an agreement with the MHBPA, we paid a total of15% of total Card Club revenues to these funds in 2006 and 2005.  The amounts paid are allocated 90% to thepurse funds and 10% to the MBF.  Thegrowth in Card Club revenues in 2006 compared to 2005 resulted in the increasesin Card Club purse and MBF expense shown in the table above.

Totalpurse expense associated with simulcast racing increased in 2006 compared to2005 despite lower wagering levels.  Thisis due to an increase in the negotiated purse rate with the MHBPA thatrepresents the thoroughbred horsemen.  Inaddition, the amounts paid to the purse fund for simulcast racing differdepending upon whether the simulcast wagering occurs during the “Racing Season,”a statutorily defined 25 week period beginning in early May each year, oroutside of the Racing Season.  We paid anaverage of 5.24% of handle to the purse fund in 2006, compared to 4.79% in2005.  We pay 5.50% of pari-mutuelsimulcast commission revenues to the MBF, consequently, lower revenues resultin lower MBF expense.

Purseand MBF expense related to live racing decreased slightly compared to2005.  Minnesota law generally providesthat a minimum of 8.4% of the on-track live racing handle be paid to the pursefund.  The amount paid to the purse fundfor wagers at out-of-state racetracks is 50% of the net of fees collected lesscosts incurred to provide the uplink signal. We experienced a slight decrease in live racing purse expense which isattributable to lower on-track wagering and a reduction of $35,000 in theClaiming Crown net purse guarantee,

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partiallyoffset by higher purses related to increased wagering at out-of-stateracetracks on live racing in 2006 compared to 2005.  We pay 1.0% of on-track live handle to theMBF.

Wealso experienced a .8% reduction in host fees in 2006 due to lower wageringlevels compared to 2005.

Salaryand benefit expenses increased by $1,168,000, or 5.5%, for the twelve monthsended December 31, 2006 compared to the twelve months ended December 31,2005.  The implementation of newaccounting rules for equity based compensation effective January 1, 2006resulted in the recognition of $239,000 in expense in 2006 for which there isno comparable expense in 2005.  Increasesin direct hourly Card Club labor and related payroll taxes increasedapproximately $336,000, or 4.3%, in 2006 compared to 2005.  This is primarily attributable to an increasein the minimum wage of $1.00 effective August 2005, which had the greatestimpact on Card Club wages where tipped positions are compensated at minimumwage.  Wages directly related topari-mutuel wagering decreased $75,000 due to general efforts to control laborcosts in that area.  General increases inlabor occurred in support areas throughout the Company partly due to routineannual salary reviews coupled with low rates of employee turnover, and also toefforts to utilize internal labor rather than contract labor where possible toreduce the overall expense to the Company. In recent years, the Company has emphasized the importance of retirementsavings for its employees by contributing Company stock to an Employee StockOwnership Plan beginning in 2004 and by increasing its match percentage for the401(k) Plan effective March 2006.  Thesemeasures contributed to a $182,000 increase in salaries and benefits expense in2006 compared to 2005.  In addition, thecost of providing health and medical benefits to our employees continues togrow and increased by $123,000 in 2006 compared to 2005.

Costof concessions and publication sales decreased a total of $44,000.  A decrease in publication cost of sales of$237,000 is due primarily to the cessation of the on-site production of asimulcast racing program. This was partially offset by an increase of $199,000in the cost of concession sales attributable to the 3.5% increase inconcessions revenues, an increase in food & beverage provided at no chargeto our patrons, and increases in certain product costs compared to 2005.

Depreciationexpense increased $161,000, or 9.6%, in 2006 compared to 2005 and reflectssignificant investments in our facilities during the past two years.  Beginning in late 2004, we have continuallyadded improvements to the stable area and training facilities.  We have made various other investments inbuilding improvements and furniture, fixtures and equipment in both 2006 and2005.

Utilities expenseincreased $76,000, or 5.8%, in 2006 primarily due to higher energy costs forelectricity and natural gas compared to 2005.

TheCompany experienced decreases in repair and maintenance, advertising andmarketing expenses primarily due to focused efforts on expense reduction in2006 compared to 2005.  The Company alsoreduced expenses associated with lobbying efforts by $268,000 in 2006 comparedto 2005.

Net other income increased $160,000, or 134%, in 2006compared to 2005.  This increase isprimarily attributable to a $150,000 increase in interest income on our primarybank account balance during 2006.  Theaverage balance in our primary cash account increased in 2006 compared to 2005,and the interest rate earned on those balances increased gradually from 1.23%at the end of 2004, to 3.28% at the end of 2005 and 4.39% at year-end 2006.

Income tax expense as a percentage of pre-tax incomedecreased to 42.8% for the year ended December 31, 2006 from 45.1% for the yearended December 31, 2005. The decrease is primarily attributable to a reducedlevel of non-deductible lobbying expenses in 2006 compared to 2005.

Net income increased $71,564, or 2.3%, to $3,125,043for the year ended December 31, 2006 compared to  $3,053,479 for the year ended December 31,2005.

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###### **YEAR ENDEDDECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004**

**OPERATINGREVENUES**

Totaloperating revenues for the year ended December 31, 2005 were $54.9 million, anincrease of  $492,000, or .9%, comparedto total operating revenues of $54.4 million for the year ended December 31,2004.  Total Card Club revenues increased4.2%, pari-mutuel revenues decreased 7.3% and concession revenues increased5.7% in fiscal 2005 compared to fiscal 2004.  Discussions of Pari-mutuel and Card Club revenues follow.
|                                             | ** ** | **Year Ended  12/31/05** | ** ** | **Year Ended  12/31/04** | ** ** |
|---------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| **SUMMARY  OF PARI-MUTUEL OPERATING DATA:** | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| ** **                                  | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| **Racing  Days**                            | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Simulcast only days                         |       | 296                           |       | 298                           |       |
| Live and simulcast days                     |       | 68                            |       | 67                            |       |
| **Total Racing Days**                       |       | 364                           |       | 365                           |       |
|                                        |       |                          |       |                          |       |
| **On-Track  Handle**                        |       |                          |       |                          |       |
| Simulcast handle on non-live race days      |       | $                             | 41,341,000 |                          | $          | 46,295,000 |   |
|                                        |       |                          |       |                          |       |
| Simulcast handle on live race days          |       | 17,287,000                    |       | 17,657,000                    |       |
| Total simulcast handle                      |       | 58,628,000                    |       | 63,952,000                    |       |
|                                        |       |                          |       |                          |       |
| Live racing handle                          |       | 17,591,000                    |       | 17,990,000                    |       |
| **Total On-Track Handle**                   |       | 76,219,000                    |       | 81,942,000                    |       |
|                                        |       |                          |       |                          |       |
| **Out-of-state  Live Handle**               |       | 14,180,000                    |       | 17,473,000                    |       |
| ** **                                  |       |                          |       |                          |       |
| **Total Handle**                            |       | $                             | 90,399,000 |                          | $          | 99,415,000 |   |
|                                        |       |                          |       |                          |       |
| **On-Track  Average Daily Handle**          |       |                          |       |                          |       |
| Simulcast only days                         |       | $                             | 140,000    |                          | $          | 155,000 |   |
| Live and  simulcast days                    |       | 513,000                       |       | 532,000                       |       |

 

Pari-mutuelrevenues include commission and breakage revenues on live on-track andsimulcast racing, fees received from out-of-state racetracks for wagering onour live races, and proceeds from uncashed winning tickets.  Pari-mutuel revenues decreased $1.3 million,or 7.7%, to $16.5 million compared to 2004, primarily reflecting a $9.0million, or 9.1%, decrease in all categories of handle in 2005 compared to2004.  Total handle wagered on simulcastraces in 2005 decreased $5.3 million, or 8.3%, compared to 2004.  In addition, on-track live handle decreasedby $399,000, or 2.2%, compared to 2004 despite one additional live racing dayin 2005.  Finally, out-of-state livehandle decreased $3.3 million, or 18.3%, compared to 2004.

The reduction inon-track simulcast and live handle can be primarily attributed to an overallindustry decline as well as a number of other factors including significantgrowth in the accessibility of internet pari-mutuel wagering, the lack of aTriple Crown contender in the Belmont Stakes, and major construction projectsin 2005 on freeways leading to Canterbury Park.   There was also a shift in simulcast handlefrom days when only simulcasting is offered (see table above) to days when bothlive and simulcast racing are offered, due to the live meet starting one weekearlier on Kentucky Derby day, May 7th, in 2005 compared to May 14th in2004.  The Kentucky Derby simulcasthandle of $1.4 million in 2005 is included in the table above in simulcasthandle on live and simulcast days, compared to the 2004 Kentucky Derbysimulcast handle of $1.5 million which is included in simulcast handle onsimulcast only days.

The decrease inamounts wagered by out-of-state racetracks on Canterbury’s live race meet isdue primarily to our decision to discontinue accepting wagers from selectedInternet wagering and offshore locations

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due to questions aboutthe regulation of these entities.  Thisdecision contributed to lower wagering at out-of-state racetracks on thenationally recognized Claiming Crown racing event as handle decreased $1.1million to $1.6 million in 2005, from $2.7 million in 2004.

Revenuesrecognized on proceeds from winning pari-mutuel tickets, which were notpresented for payment within one year of the end of the respective race meets,decreased to approximately $407,000 in 2005 compared to $426,000 in 2004,reflecting a decrease in overall handle in 2005.
| ** **                          | ** ** | **Year Ended  12/31/05** | ** ** | **Year Ended  12/31/04** | ** ** |
|-------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| **SUMMARY  OF CARD CLUB REVENUES:** |       |                          |       |                          |       |
| ** **                          |       |                          |       |                          |       |
| Poker Games                         |       | $                             | 18,279,000 |                          | $          | 16,214,000 |   |
| Casino Games                        |       | 10,557,000                    |       | 11,418,000                    |       |
| Total Collection Revenue            |       | 28,836,000                    |       | 27,632,000                    |       |
|                                |       |                          |       |                          |       |
| Other Revenue                       |       | 778,000                       |       | 801,000                       |       |
|                                |       |                          |       |                          |       |
| Total Card Club Revenue             |       | $                             | 29,614,000 |                          | $          | 28,433,000 |   |
|                                |       |                          |       |                          |       |
| Number of Days Offered              |       | 364                           |       | 365                           |       |
| Average Revenue per Day             |       | $                             | 81,400     |                          | $          | 77,900 |   |

 

The primary sourceof Card Club revenue is a percentage of the wagers received from the players ascompensation for providing the Card Club facility and services, referred to as “collectionrevenue”.  Other Revenue includes feescollected for the administration of tournaments, and amounts earned asreimbursement of the administrative costs of maintaining the jackpot funds.

TheCard Club is divided into two areas, the casino games area and the pokerarea.  The average daily collectionamount per game is dependent upon the number of tables utilized to offer thegame.  Patron demand determines thenumber of tables to be used for a specific game.  There were 16 tables in the casino games areaand 34 tables in the poker area at December 31, 2005, and 19 and 31 tables,respectively, in 2004.

TotalCard Club revenue increased $1.2 million, or 4.2%, compared to 2004.  The increase in Card Club revenue is dueprimarily to growth of $2.1 million, or 12.7%, in poker revenue in 2006,partially offset by reductions of $861,000, or 7.5%, in casino games and$23,000, or 2.9%, in other revenues.  Thepopularity of Texas Hold’Em and televised poker tournaments continues to fuelgrowth in our poker business.  However,our casino games area experienced a significant increase in competition in 2005as tribal casinos in the area expanded their casino games offerings to includethe same unbanked card games offered at the Card Club.

Card Club revenuesrepresented 53.6% and 51.8% of total revenues for 2005 and 2004, respectively.The percentage for 2005 is higher primarily due to decreased pari-mutuelrevenues accompanied by modest growth in Card Club revenues during 2005.

Concessionrevenues increased 10.6% to $5,843,000 in 2005 compared to $5,529,000 in2004.   The increase is primarilyattributable to an increase of $128,000 in food and beverage revenues in theCard Club during 2005 compared to 2004, an increase of $118,000 in beveragesales during live racing, and an increase of $83,000 in revenues from groupsales compared to 2004 primarily generated in a new outdoor catering areaopened in 2005.

Otheroperating revenue increased $129,000, or 6.6%, to $2,089,000 in fiscal year2005 compared to 2004.  The increase in2005 was due primarily to continued growth in the corporate sponsorship programof $99,000 and a rise in cash services fees of $28,000 resulting from increasedpatronage in the Card Club.  Promotionalallowances decreased $168,000, or 35.6%, in 2005 compared to 2004.  The decrease is primarily

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attributableto the decrease in on-track handle, and also to the change in composition ofplayers who participate in the program.

**OPERATING EXPENSES**

Total operatingexpenses increased approximately $1,813,000, or 3.8%, to $49,474,000 in 2005from $47,661,000 in 2004 primarily due to increases in salaries, wages andbenefit costs, depreciation, utilities and cost of sales related to theincrease in revenues in 2005. See below for a detailed quantification of eachof these items.  Total operating expensesas a percentage of total revenues increased to 90.1% from 87.6% in 2004. Weexperienced decreases in pari-mutuel revenues in 2005, accompanied by modestgrowth in Card Club and concession revenues  As a result, despite decreases in variable pari-mutuel expenses, fixedpari-mutuel expenses and increases in other fixed expenses such as depreciation,insurance and regulatory costs become a larger percentage of total revenues.

Totalpurse and MBF expense decreased approximately $19,000, or .2%, for the yearended December 31, 2005 compared to the year ended December 31, 2004.  Purse expense is one of our largest singleexpense items.  Minnesota law requires usto allocate a portion of funds received from betting in the Card Club andwagering on simulcast and live horse races for future payment as purses forlive horse races or other uses of Minnesota’s horsepersons’ associations.

|                  | ** ** | **Purse Expense** | ** ** | **Minnesota Breeders’ Fund  Expense** | ** ** |
|------------------|------------|------------------------|------------|------------------------------------------------------|------------|
| ** **       | ** ** | **2005**               | ** ** | **2004**                                             | ** ** | **2005** | ** ** | **2004** | ** ** |
|             |       |                   |       |                                                 |       |   |   |   |   |
| Card Club        |       | $                      | 3,999,000  |                                                 | $          | 3,730,000 |   | $ | 444,000 |   | $ | 414,000 |   |
|             |       |                   |       |                                                 |       |   |   |   |   |
| Simulcast Racing |       | 2,806,000              |       | 3,048,000                                            |       | 651,000 |   | 706,000 |   |
|             |       |                   |       |                                                 |       |   |   |   |   |
| Live Racing      |       | 1,701,000              |       | 1,718,000                                            |       | 176,000 |   | 180,000 |   |
|             |       |                   |       |                                                 |       |   |   |   |   |
| Total            |       | $                      | 8,506,000  |                                                 | $          | 8,496,000 |   | $ | 1,271,000 |   | $ | 1,300,000 |   |

 

Whilewe are obligated by state law to pay up to 14% of Card Club revenues to thepurse fund and MBF, pursuant to an agreement with the MHBPA, we paid a total of15% of total Card Club revenues to these funds in 2005.  The amounts paid are allocated 90% to thepurse funds and 10% to the MBF.  Thegrowth in Card Club revenues in 2005 compared to 2004 resulted in the increasesillustrated in the above table.  During2004 the Company paid 15% of collection revenue into the purse fund and MBF.

Totalpurse and MBF expense associated with simulcast racing decreased due to lowerwagering during 2005 compared to 2004. The amounts paid to the purse fund for simulcast racing differ dependingupon whether the simulcast wagering occurs during the “Racing Season,” astatutorily defined 25 week period beginning in early May each year, or outsideof the Racing Season.  We paid an averageof 4.79% of handle to the purse fund in 2005, compared to 4.76% in 2004.  We pay 5.50% of pari-mutuel simulcastcommission revenues to the MBF.

Purseand MBF expense related to live racing remained relatively unchanged comparedto 2004.  Minnesota law generallyprovides that a minimum of 8.4% of the on-track live racing handle be paid tothe purse fund.  The amount paid to thepurse fund for wagers by out-of-state racetracks is 50% of the net of feescollected less costs incurred to provide the uplink signal.  We experienced a decrease of $72,000 in purseexpense attributable to lower on-track wagering and wagering by out-of-stateracetracks on live racing in 2005, which was partially offset by an increase inthe Claiming Crown net purse guarantee of $55,000.  We pay 1.0% of on-track live handle to theMBF.

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Wealso experienced reductions in host fees and pari-mutuel taxes in 2005 due tolower wagering levels compared to 2004.

Salaryand benefit expenses increased by $963,00,0 or 4.8%, for the twelve monthsended December 31, 2005 compared to the twelve months ended December 31,2004.  Direct hourly Card Club labor andrelated payroll taxes increased approximately $428,000, or 7.6%, in 2005compared to 2004.  This is primarilyattributable to an increase in the minimum wage of $1.00 effective August 2005,which had the greatest impact on wages related to the Card Club, where tippedpositions are compensated at minimum wage. Card Club wages also increased due to a 4.2% growth in revenue comparedto 2004.  The labor costs associated withlive racing increased $81,000 due to a longer live race meet which began a weekearlier than in prior years.  Labor costsassociated with sales of food and beverage increased $161,000, or 5.2%, in 2005compared to 2004, coinciding with an increase of 5.7% in concessionrevenues.  Health benefit costs increasedby $211,000 in 2005 compared to 2004 due to higher insurance rates along withincreased participation. The increase in labor costs also reflects the effectsof inflation on wages and salaries. These increases were partially offset by a decrease of $304,000 inincentive pay and Employee Stock Ownership Plan contribution expense.

Costof concessions and publication sales increased a total of $200,000.  This is primarily due to an increase of $176,000,or 7.6%, in the cost of concession sales attributed to the 5.7% increase inconcessions revenues, and to increases in certain product costs compared to2004.

Depreciationexpense increased $362,000, or 27.6%, in 2005 compared to 2004 reflecting significantinvestments in our facilities during the past two years.  We completed a total remodel andmodernization of the clubhouse level of the grandstand in 2004, and addedimprovements to the stable area and training facilities between the 2004 and2005 live meets.  We acquired gamingequipment for the Card Club in 2004 and made various other investments inbuilding improvements and furniture, fixtures and equipment in both 2005 and2004.

Utilities expenseincreased $138,000, or 11.8%, in 2005 primarily due to higher energy costs forelectricity and natural gas compared to 2004.

Net other income increased $86,000, or 257%, in 2005compared to 2004.  This increase isprimarily attributable to an $81,000 increase in interest income on our cashbalances during 2005.  The interest rateon our cash balances increased to 3.28% at year-end 2005, from 1.23% at the endof 2004.

Income tax expense as a percentage of pre-tax incomeincreased to 45.1% for the year ended December 31, 2005 from 43.2% for the yearended December 31, 2004.  The increase isprimarily attributable to the impact of higher non-deductible lobbying expenseson lower pretax income in 2005 compared to 2004.

**LIQUIDITYAND CAPITAL RESOURCES**

At December 31,2006, we had cash and cash equivalents of $5.7 million compared to $4.8 millionat December 31, 2005.  This $906,000increase consists of $6.0 million net cash provided by operating activities,offset by $4.0 million net cash used in investing activities and $1.1 millionnet cash used in financing activities. In addition, as of December 31, 2006, we had $2.25 million of capacityunder a commercial revolving credit line as part of a general credit andsecurity agreement with Bremer Bank.  InApril 2005 this agreement was renewed for an additional two-year term.  We had no borrowings under the credit line in2006 or 2005.

Our three largestsources of revenue, pari-mutuel wagering, card club operations, andconcessions, are all based on cash transactions.  Consequently, we have significant inflows of cashon a daily basis.  We designate cashbalances which will be required to satisfy certain short-term liabilities suchas progressive jackpots, the player pool, and amounts due horsemen for pursesand awards as “restricted.”  We believethat our existing cash balances, restricted cash balances, cash flow fromoperations and borrowings available under our credit line will be sufficient tosupport our working capital needs and planned capital expenditures for theforeseeable future.

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The Company’sCasino Games are required by law to be “unbanked”.   “Unbanked” refers to a wagering system orgame where wagers “lost” or “won” by the host are accumulated into a playerpool liability for purposes of enhancing the total amount paid back to playersin any other card game.  The Company mayonly serve as custodian of the player pool. It may not have an active interest in any card game and does notrecognize net “wins” or “losses” as revenue. The Company is required to return accumulated player pool funds to theplayers through giveaways, promotional items, prizes or by other means.  The player pool liability was approximately$137,000 at December 31, 2006 compared to $442,000 at December 31, 2005.

The Card Cluboffers progressive jackpots for Poker games and certain Casino Games.    Amounts collected for these jackpot fundsare accrued as liabilities until paid to winners.  At December 31, 2006, accrued jackpot fundstotaled approximately $897,000 compared to $679,000 at December 31, 2005.   The MRC regulates the operation of theplayer pool and progressive jackpot pools. These liabilities have the potential for significant fluctuation on adaily basis.

All games in theCard Club are played using chips.  Thevalue of chips issued and outstanding, referred to as the “outstanding chipliability”, was approximately $226,000 at December 31, 2006, compared to$221,000 at December 31, 2005. This liability has the potential for significantfluctuation on a daily basis depending upon the demand for chip redemptions andsales.

Oursecond largest operating expense item is purse expense.  Pursuant to an agreement with the MHBPA, wetransferred into a trust account or paid directly to the MHBPA, approximately$7,825,000 and $7,575,000 in purse funds for the years ended December 31, 2006and 2005, respectively.  MinnesotaStatutes specify that amounts transferred into trust are the property of thetrust and not the Company.  Unpaid pursefund obligations due the MHBPA were $140,281 and $94,853 at December 31, 2006and 2005, respectively.  The interestrates on any purses accrued but not transferred into the trust (which areguaranteed by our Chairman of the Board) were 8.25% and 7.25% at December 31,2006 and 2005, respectively.

*CASHFLOWS FROM OPERATING ACTIVITIES*

Net cash provided byoperations during the year ended December 31, 2006 was $5,973,305, whichresulted primarily from net income of $3,125,043, depreciation of $1,834,012,an increase in accounts payable and accrued wages and payroll taxes of$498,704, an increase in stock-based compensation expense of $239,428 and adecrease in restricted cash of $73,925. The increase in accounts payable and accrued wages and payroll taxesincludes an increase of $320,478 in accrued wages and payroll taxes and anincrease of $178,226 in accounts payable and accruals.  Year-end payroll accruals increased $331,000due to an increase in the number of days payable as of year-end 2006 comparedto 2005.  The increase in accountspayable is primarily due to increases in payables to other racetracks for feesand settlements of $100,000 and to an increase in trade payables and expenseaccruals of $47,000, and an increase of $28,196 representing the net effect ofnon-cash investing activities for additions to land, buildings and equipmentfunded through accounts payable during the year ended December 31, 2006.  The decrease in restricted cash resultsprimarily from a decrease of $305,000 in the player pool, attributable to anincrease in promotions and giveaways to patrons during the fourth quarter of 2006,partially offset by an increase in the progressive jackpot pools of $218,000.

Net cash providedby operations during the year ended December 31, 2005 was $4,714,453, whichresulted primarily from net income of $3,053,479, depreciation of $1,672,827, andan increase in Card Club accruals of $385,587. These sources of cash and non-cash reconciling items were partiallyoffset by an increase in accounts payable, accrued wages and payroll taxes of$364,825 and an increase in restricted cash of $242,383.  The increase in Card Club accruals includesan increase of $101,000 in the player pool, an increase of $155,000 in thejackpot pools and an increase of $25,000 in the outstanding chip liability asdiscussed above.  The decrease inaccounts payable and accrued wages and payroll taxes is due to a decrease of$253,000 in accrued wages and payroll taxes and a decrease of $112,000 inaccounts payable and accruals.  Year-endpayroll accruals decreased $156,000 due to a decrease in the number of dayspayable as of year-end and the accrual for funds collected for the EmployeeStock Purchase Plan decreased by $100,000 compared to December 31, 2004.  The decrease in accounts payable primarilyresults from lower accruals at December 31, 2005 for a large capital projectcompared to 2004, and to excluding from operating activities the non-cash

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investing activity itemof $115,000 for capital expenditure accruals at December 31, 2005. The increasein restricted cash is primarily due to higher balances in the Player Pool andPoker Jackpot Pools at December 31, 2005 compared to December 31, 2004. TheseCard Club accruals do not change in direct correlation to Card Club revenues.

*CASHFLOWS FROM INVESTING ACTIVITIES*

Cash used ininvesting activities for the year ended December 31, 2006 totaled $4,000,467and primarily reflects capital improvements to buildings and land, including anew Card Club lounge area and backside barns, and additions to furniture andequipment, including a video messaging display for the racetrack infield.

Cash used ininvesting activities for the year ended December 31, 2005 totaled $3,852,869and primarily reflects improvements to land and buildings and additions tofurniture and equipment.  During 2005 wecompleted construction on a number of projects begun in 2004 including theinstallation of an equine swimming pool, widening and upgrading the surface ofthe practice track and replacing stalls in the summer barns in the Racetrack’sstable area.  Also, additional remodelingwas completed on the clubhouse level of the grandstand and the Card Clubpurchased additional gaming equipment.

###### *CASH FLOWSFROM FINANCING ACTIVITIES*

Netcash used in financing activities was $1,066,648 for the year ended December31, 2006 compared to cash used in financing activities of $200,762 for the yearended December 31, 2005. The 2006 net cash outflows resulted primarily from a$.25 per share cash dividend totaling $1,010,796 paid in July 2006.  In addition, on December 6, 2006, pursuant toa Stock Repurchase Plan approved in November 2006, the Company repurchased53,050 shares of common stock at a price of $13.10 per share for a total priceof $694,955. These outflows were partially offset by proceeds of $532,956received upon the issuance of common stock due to the exercise of stock optionsand shares of common stock purchased by employees pursuant to our EmployeeStock Purchase Plan and the related excess tax benefit of $106,147.

Cashused by financing activities was $200,762 for the year ended December 31, 2005compared to cash used by financing activities of $294,555 for the year endedDecember 31, 2004. The 2005 net cash outflows resulted primarily from a $.25per share cash dividend totaling $973,717 paid in July 2005.  This outflow was partially offset by proceedsof $772,955 received upon the issuance of common stock due to the exercise ofstock options and shares of common stock purchased by employees pursuant to ourEmployee Stock Purchase Plan.

**COMMITMENTSAND CONTRACTUAL OBLIGATIONS**

In January 2004 theCompany entered into a five-year totalizator services agreement with ScientificGames Inc. (formerly Autotote Systems, Inc.). Pursuant to the agreement, Scientific Games provides totalizatorequipment and computer programs which record and process all wagers andcalculate the odds and payoffs.  Amountscharged to operations under this agreement for the years ended December 31,2006, 2005 and 2004 were approximately $342,000, $348,000 and $370,000,respectively.  During annual live racemeets, Scientific Games provides uplink services, which enables the Company tosimulcast horse races held at Canterbury Park to out-of-state racetracks.  These services resulted in amounts charged tooperations in 2006, 2005 and 2004 of approximately $138,000, $137,500 and$135,500, respectively.

We have entered into operating leases for rental ofoffice equipment and equipment to print certain publications.  Amounts charged to operations under theseagreements for the years ended December 31, 2006, 2005 and 2004 wereapproximately $96,000, $162,000 and $170,000, respectively.  All such leases expire on or before April 30,2010.  Future lease payment obligationsunder these leases are provided in the contractual obligations table below.

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*CONTRACTUAL OBLIGATIONS TABLE*

Thefollowing table reflects our contractual obligations as of December 31, 2006:

|                                  | ** ** | **Payments Due by Period** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| **Contractual  Obligation (1)**  | ** ** | **TOTAL**                                 | ** ** | **Less than  1 year** | ** ** | **1 – 3   years** | ** ** | **3 – 5  years** | ** ** | **More than  5 years** | ** ** |
| * *                         |       |                                      |       |   |   |   |   |   |   |   |   |
| Operating Lease  Obligations (2) |       | $                                         | 218,300    |   | $ | 90,500 |   | $ | 115,800 |   | $ | 12,000 |   | $ | 0 |   |
|                                  |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1) Totalizator leaseobligations as discussed above are excluded from the table as the expense isentirely dependent upon wagering levels.

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

SinceDecember 31, 2006, there have been no material changes outside theordinary course of business to our contractual obligations as set forthabove.   As of December 31, 2006, wehad no borrowings pursuant to our line of credit and were not party to capitallease obligations, significant purchase obligations or other long-termobligations.

**FORWARD-LOOKINGSTATEMENTS**

From time to time, inreports filed with the Securities and Exchange Commission, in press releases,and in other communications to shareholders or the investing public, we maymake forward-looking statements concerning possible or anticipated futurefinancial performance, prospective business activities or plans which aretypically preceded by words such as “believes,” “expects,” “anticipates,” “intends”or similar expressions.  For suchforward-looking statements, we claim the protection of the safe harbor forforward-looking statements contained in federal securities laws.  Shareholders and the investing public shouldunderstand that such forward-looking statements are subject to risks anduncertainties which could affect our actual results, and cause actual resultsto differ materially from those indicated in the forward-looking statements.  Such risks and uncertainties include, but arenot limited to: material fluctuations in attendance at the Racetrack, materialchanges in the level of wagering by patrons, decline in interest in theunbanked card games offered at the Card Club, competition from other venuesoffering unbanked card games, or other forms of wagering, competition fromother sports and entertainment options, costs associated with our efforts toobtain legislative authority for additional gaming options, increases incompensation and employee benefit costs; increases in the percentage ofrevenues allocated for purse fund payments; higher than expected expenserelated to new marketing initiatives; the impact of wagering products andtechnologies introduced by competitors; legislative and regulatory decisions andchanges; the general health of the gaming sector; and other factors that arebeyond our ability to control or predict.

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

We are exposed to market risk from changes in interest rates on borrowingsunder our commercial revolving credit line that bears interest at the primerate.  At December 31, 2006 we have nodebt borrowings under our credit facility.

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

33

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

(a)           Financial Statements

Thefollowing financial statements of the Company are set forth on pages 35 through51 of the Form 10-K:
| Report  of Independent Registered Public Accounting Firm                                                               |   |
|------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                   |   |
| Consolidated  Balance Sheets as of December 31, 2006 and 2005                                                          |   |
|                                                                                                                   |   |
| Consolidated  Statements of Operations for the years ended December 31, 2006, 2005 and 2004                            |   |
|                                                                                                                   |   |
| Consolidated  Statements of Changes in Stockholders’ Equity for the years ended December  31, 2006, 2005 and 2004 |   |
|                                                                                                                   |   |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004                            |   |
|                                                                                                                   |   |
| Notes to Consolidated Financial Statements for the  years ended December 31, 2006, 2005 and 2004                       |   |

 

(b)           Supplementary Data

See Note 12 of Notes toConsolidated Financial Statements.

34

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders of

Canterbury Park Holding Corporation

Shakopee, Minnesota

We have audited theaccompanying consolidated balance sheets of Canterbury Park Holding Corporationand subsidiaries (the Company) as of December 31, 2006 and 2005 and the relatedconsolidated statements of operations, stockholders’ equity, and cash flows foreach of the three years in the period ended December 31, 2006.  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 auditsin accordance with standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe consolidated financial statements are free of material misstatement.  The Company is not required to have, nor werewe engaged to perform, an audit of its internal control over financialreporting.  An audit includes considerationof internal control over financial reporting as a basis for designing auditprocedures that are appropriate in the circumstances but not for the purpose ofexpressing an opinion on the effectiveness of the Company’s internal controlover financial reporting.  Accordingly,we express no such opinion.  An auditalso includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of Canterbury Park Holding Corporation and subsidiaries asof December 31, 2006 and 2005 and the results of its operations and its cashflows for each of the three years in the period ended December 31, 2006 inconformity with accounting principles generally accepted in the United Statesof America.

As discussed in Notes 1and 5 to the consolidated financial statements, the Company changed its methodof accounting for stock-based compensation in 2006.

Deloitte & Touche LLP

March 27, 2007

Minneapolis, Minnesota

35

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**CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**DECEMBER 31, 2006 AND 2005
| ** **                                                                                                                        | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                                                                              |       |       |       |       |       |
| **ASSETS**                                                                                                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                                                                              |       |       |       |       |       |
| CURRENT ASSETS                                                                                                                    |       |       |       |       |       |
| Cash                                                                                                                              |       | $          | 5,745,556  |       | $          | 4,839,366 |   |
| Restricted cash                                                                                                                   |       | 1,915,057  |       | 1,988,982  |       |
| Short-term investments                                                                                                            |       | 78,231     |       | 75,000     |       |
| Accounts receivable, net of allowance of $38,600 and  $82,600                                                                     |       | 559,146    |       | 696,857    |       |
| Inventory                                                                                                                         |       | 159,918    |       | 158,470    |       |
| Prepaid expenses                                                                                                                  |       | 733,979    |       | 763,976    |       |
| Deferred income taxes (Note 3)                                                                                                    |       | 235,200    |       | 203,400    |       |
| Total current assets                                                                                                              |       | 9,427,087  |       | 8,726,051  |       |
|                                                                                                                              |       |       |       |       |       |
| LONG-TERM ASSETS                                                                                                                  |       |       |       |       |       |
| Deposits                                                                                                                          |       | 20,000     |       | 20,000     |       |
| Land, buildings and equipment, net (Note 2)                                                                                       |       | 24,903,946 |       | 22,694,438 |       |
|                                                                                                                              |       |       |       |       |       |
|                                                                                                                              |       | $          | 34,351,033 |       | $          | 31,440,489 |   |
|                                                                                                                              |       |       |       |       |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                                                                              |       |       |       |       |       |
| CURRENT  LIABILITIES                                                                                                              |       |       |       |       |       |
| Accounts payable                                                                                                                  |       | $          | 2,032,953  |       | $          | 1,882,923 |   |
| Card club accruals                                                                                                                |       | 2,073,363  |       | 2,122,333  |       |
| Accrued wages and payroll taxes                                                                                                   |       | 1,866,633  |       | 1,546,155  |       |
| Accrued interest payable                                                                                                          |       | 7,303      |       | 7,303      |       |
| Due to MHBPA (Note 1)                                                                                                             |       | 140,281    |       | 94,853     |       |
| Accrued property taxes                                                                                                            |       | 457,331    |       | 403,357    |       |
| Income taxes payable                                                                                                              |       | 105,918    |       | 66,108     |       |
| Payable to horsepersons                                                                                                           |       | 346,779    |       | 366,266    |       |
| Total current liabilities                                                                                                         |       | 7,030,561  |       | 6,489,298  |       |
|                                                                                                                              |       |       |       |       |       |
| DEFERRED INCOME  TAXES (Note 3)                                                                                                   |       | 460,900    |       | 593,100    |       |
|                                                                                                                              |       |       |       |       |       |
| COMMITMENTS AND  CONTINGENCIES (Notes 8 and 9)                                                                                    |       |       |       |       |       |
|                                                                                                                              |       |       |       |       |       |
| STOCKHOLDERS’  EQUITY (Notes 4 and 5)                                                                                        |       |       |       |       |       |
| Common stock, $.01 par value, 10,000,000 shares  authorized,4,050,782 and 3,959,885, respectively, shares issued and  outstanding |       | 40,508     |       | 39,599     |       |
| Additional paid-in capital                                                                                                        |       | 14,914,328 |       | 14,045,248 |       |
| Accumulated earnings                                                                                                              |       | 11,904,736 |       | 10,273,244 |       |
| Total stockholders’ equity                                                                                                   |       | 26,859,572 |       | 24,358,091 |       |
|                                                                                                                              |       |       |       |       |       |
|                                                                                                                              |       | $          | 34,351,033 |       | $          | 31,440,489 |   |

 

See notes to consolidatedfinancial statements.

36

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**CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
| ** **                                            | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| OPERATING  REVENUES:                                  |       |       |       |       |       |       |       |
| Pari-mutuel                                           |       | $          | 16,432,014 |       | $          | 16,513,318 |       | $ | 17,805,597 |   |
| Card Club                                             |       | 30,168,349 |       | 29,614,309 |       | 28,432,768 |       |
| Concessions                                           |       | 6,049,334  |       | 5,842,558  |       | 5,529,203  |       |
| Admissions and parking                                |       | 668,235    |       | 578,177    |       | 539,826    |       |
| Publications                                          |       | 475,886    |       | 585,529    |       | 631,432    |       |
| Other operating revenue                               |       | 2,311,716  |       | 2,089,368  |       | 1,960,466  |       |
| Total Revenues                                        |       | 56,105,534 |       | 55,223,259 |       | 54,899,292 |       |
| Less Promotional allowances                           |       | (265,837   | )          | (303,642   | )          | (471,510   | )          |
| Net Revenues                                          |       | 55,839,697 |       | 54,919,617 |       | 54,427,782 |       |
| OPERATING  EXPENSES:                                  |       |       |       |       |       |       |       |
| Purses                                                |       | 8,811,943  |       | 8,506,327  |       | 8,496,480  |       |
| Minnesota Breeders’ Fund                         |       | 1,267,656  |       | 1,270,664  |       | 1,299,908  |       |
| Host track fees                                       |       | 2,158,267  |       | 2,176,022  |       | 2,344,500  |       |
| Pari-mutuel taxes                                     |       | 210,886    |       | 208,646    |       | 267,754    |       |
| Salaries and benefits                                 |       | 22,414,363 |       | 21,246,165 |       | 20,283,216 |       |
| Cost of concessions and publication sales             |       | 3,438,597  |       | 3,482,710  |       | 3,285,736  |       |
| Depreciation                                          |       | 1,834,012  |       | 1,672,827  |       | 1,311,124  |       |
| Utilities                                             |       | 1,382,356  |       | 1,306,389  |       | 1,168,824  |       |
| Repairs, maintenance and supplies                     |       | 1,300,566  |       | 1,419,666  |       | 1,437,111  |       |
| License fees and property taxes                       |       | 786,153    |       | 725,775    |       | 664,172    |       |
| Advertising and marketing                             |       | 1,843,832  |       | 2,072,434  |       | 1,900,649  |       |
| Insurance                                             |       | 1,122,266  |       | 1,194,336  |       | 1,106,900  |       |
| Other operating expenses                              |       | 4,089,266  |       | 4,191,707  |       | 4,094,163  |       |
| Total Operating Expenses                              |       | 50,660,163 |       | 49,473,668 |       | 47,660,537 |       |
|                                                  |       |       |       |       |       |       |       |
| OTHER (EXPENSE)  INCOME:                              |       |       |       |       |       |       |       |
| Interest expense (Note 7)                             |       | (1,521     | )          | (11,419    | )          | (16,406    | )          |
| Interest income                                       |       | 280,729    |       | 130,792    |       | 49,885     |       |
| Net Other Income                                      |       | 279,208    |       | 119,373    |       | 33,479     |       |
|                                                  |       |       |       |       |       |       |       |
| INCOME BEFORE  INCOME TAX EXPENSE                     |       | 5,458,742  |       | 5,565,322  |       | 6,800,724  |       |
|                                                  |       |       |       |       |       |       |       |
| Income tax expense (Note 3)                           |       | (2,333,699 | )          | (2,511,843 | )          | (2,938,416 | )          |
|                                                  |       |       |       |       |       |       |       |
| NET INCOME                                            |       | $          | 3,125,043  |       | $          | 3,053,479  |       | $ | 3,862,308 |   |
|                                                  |       |       |       |       |       |       |       |
| WEIGHTED AVERAGE  NUMBER OF COMMON SHARES OUTSTANDING |       | 4,000,505  |       | 3,903,844  |       | 3,775,990  |       |
|                                                  |       |       |       |       |       |       |       |
| BASIC NET INCOME  PER COMMON SHARE (Note 6)           |       | $          | .78        |       | $          | .78        |       | $ | 1.02 |   |
|                                                  |       |       |       |       |       |       |       |
| DILUTED NET INCOME PER  COMMON SHARE (Note 6)         |       | $          | .74        |       | $          | .73        |       | $ | .92 |   |

 

See notes to consolidatedfinancial statements.

37

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**CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYYEARS ENDED DECEMBER 31, 2006, 2005 AND 2004**
| ** **                                                                    | ** ** | **Number  of Shares** | ** ** | **Common  Stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Accumulated  Earnings** | ** ** | **Total**  | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------|------------|----------------------------------|------------|---------------------------|------------|------------|------------|
|                                                                          |       |                       |       |              |       |                             |       |                      |       |       |       |
| ***Balance  at December 31, 2003***                                           |       | 3,714,369                  |       | $                 | 37,144     |                             | $          | 11,510,650                |       | $          | 5,278,303  |   | $ | 16,826,097 |   |
|                                                                          |       |                       |       |              |       |                             |       |                      |       |       |       |
| Cash dividend  paid                                                           |       |                       |       |              |       |                             |       | (947,129                  | )          | (947,129   | )          |
| Exercise of  stock options                                                    |       | 77,850                     |       | 779               |       | 293,834                          |       |                      |       | 294,613    |       |
| Common stock  repurchase                                                      |       | (752                       | )          | (8                | )          | (14,356                          | )          |                      |       | (14,364    | )          |
| Tax benefit of  stock option exercises                                        |       |                       |       |              |       | 349,800                          |       |                      |       | 349,800    |       |
| Shares issued  under Employee Stock Purchase Plan                             |       | 29,202                     |       | 292               |       | 372,033                          |       |                      |       | 372,325    |       |
| Shares issued  under Employee Stock Ownership Plan                            |       | 15,000                     |       | 150               |       | 251,850                          |       |                      |       | 252,000    |       |
| Net income                                                                    |       |                       |       |              |       |                             |       | 3,862,308                 |       | 3,862,308  |       |
|                                                                          |       |                       |       |              |       |                             |       |                      |       |       |       |
| ***Balance  at December 31, 2004***                                           |       | 3,835,669                  |       | $                 | 38,357     |                             | $          | 12,763,811                |       | $          | 8,193,482  |   | $ | 20,995,650 |   |
|                                                                          |       |                       |       |              |       |                             |       |                      |       |       |       |
| Cash dividend  paid                                                           |       |                       |       |              |       |                             |       | (973,717                  | )          | (973,717   | )          |
| Exercise of  stock options                                                    |       | 78,900                     |       | 789               |       | 394,337                          |       |                      |       | 395,126    |       |
| Tax benefit of  stock option exercises                                        |       |                       |       |              |       | 310,301                          |       |                      |       | 310,301    |       |
| Shares issued  under Employee Stock Purchase Plan                             |       | 31,174                     |       | 312               |       | 377,517                          |       |                      |       | 377,829    |       |
| Shares issued  under Employee Stock Ownership Plan                            |       | 14,142                     |       | 141               |       | 199,282                          |       |                      |       | 199,423    |       |
| Net income                                                                    |       |                       |       |              |       |                             |       | 3,053,479                 |       | 3,053,479  |       |
|                                                                          |       |                       |       |              |       |                             |       |                      |       |       |       |
| ***Balance  at December 31, 2005***                                           |       | 3,959,885                  |       | $                 | 39,599     |                             | $          | 14,045,248                |       | $          | 10,273,244 |   | $ | 24,358,091 |   |
| *** ***                                                                  |       |                       |       |              |       |                             |       |                      |       |       |       |
| Cash dividend  paid                                                           |       |                       |       |              |       |                             |       | (1,010,796                | )          | (1,010,796 | )          |
| Exercise of  stock options and issuance of restricted stock and stock options |       | 126,400                    |       | 1,264             |       | 680,808                          |       |                      |       | 682,072    |       |
| Tax benefit of  stock option exercises                                        |       |                       |       |              |       | 177,199                          |       |                      |       | 177,199    |       |
| Common stock  repurchase                                                      |       | (53,050                    | )          | (530              | )          | (211,670                         | )          | (482,755                  | )          | (694,955   | )          |
| Shares issued  under Employee Stock Purchase Plan                             |       | 7,501                      |       | 75                |       | 90,237                           |       |                      |       | 90,312     |       |
| Shares issued  under Employee Stock Ownership Plan                            |       | 10,046                     |       | 100               |       | 132,506                          |       |                      |       | 132,606    |       |
| Net income                                                                    |       |                       |       |              |       |                             |       | 3,125,043                 |       | 3,125,043  |       |
|                                                                          |       |                       |       |              |       |                             |       |                      |       |       |       |
| ***Balance  at December 31, 2006***                                           |       | 4,050,782                  |       | $                 | 40,508     |                             | $          | 14,914,328                |       | $          | 11,904,736 |   | $ | 26,859,572 |   |

 

See notes to consolidatedfinancial statements.

38

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**CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
| ** **                                                                     | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **Operating  Activities:**                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                     |       | $          | 3,125,043  |       | $          | 3,053,479  |       | $ | 3,862,308 |   |
| Adjustments to reconcile net income to net cash  provided by operations:       |       |       |       |       |       |       |       |
| Depreciation                                                                   |       | 1,834,012  |       | 1,672,827  |       | 1,311,124  |       |
| Stock–based compensation expense                                          |       | 239,428    |       |       |       |       |       |
| Excess tax benefit from exercise of stock options                              |       | (106,147   | )          | 310,301    |       | 349,800    |       |
| Gain on sale of land, buildings & equipment                                |       | (74,480    | )          | (35,323    | )          |       |       |
| Contribution of common stock to ESOP                                           |       | 132,606    |       | 199,423    |       | 252,000    |       |
| Increase (decrease) in deferred income taxes                                   |       | 13,199     |       | (223,300   | )          | 224,000    |       |
| Decrease (increase) in accounts receivable                                     |       | 137,711    |       | 53,755     |       | (380,636   | )          |
| Decrease (increase) in restricted cash                                         |       | 73,925     |       | (242,383   | )          | (459,861   | )          |
| Decrease (increase) in other current assets                                    |       | 28,549     |       | 63,088     |       | (1,277     | )          |
| Increase (decrease) in income taxes payable                                    |       | 39,810     |       | 48,622     |       | (78,013    | )          |
| Increase (decrease) in accounts payable and accrued  wages & payroll taxes |       | 498,704    |       | (615,287   | )          | 659,922    |       |
| (Decrease) increase in card club accruals                                      |       | (48,970    | )          | 385,587    |       | 441,920    |       |
| Increase (decrease) in accrued interest                                        |       |       |       | 7,074      |       | (1,929     | )          |
| Increase in accrued property taxes                                             |       | 53,974     |       | 121,238    |       | 58,212     |       |
| (Decrease) increase in payable to horsepersons                                 |       | (19,487    | )          | (48,355    | )          | 70,278     |       |
| Increase (decrease) in due to MHBPA                                            |       | 45,428     |       | (36,293    | )          | 27,952     |       |
| Net cash provided by operations                                                |       | 5,973,305  |       | 4,714,453  |       | 6,335,800  |       |
|                                                                           |       |       |       |       |       |       |       |
| **Investing  Activities:**                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Additions to land, buildings and equipment                                     |       | (4,071,716 | )          | (3,813,469 | )          | (4,386,261 | )          |
| Proceeds from sale of equipment                                                |       | 74,480     |       | 35,600     |       |       |       |
| Increase in short-term investments                                             |       | (3,231     | )          | (75,000    | )          |       |       |
| Net cash used in investing activities                                          |       | (4,000,467 | )          | (3,852,869 | )          | (4,386,261 | )          |
|                                                                           |       |       |       |       |       |       |       |
| **Financing  Activities:**                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Proceeds from issuance of common stock                                         |       | 532,956    |       | 772,955    |       | 666,938    |       |
| Common stock repurchase                                                        |       | (694,955   | )          |       |       | (14,364    | )          |
| Cash dividend to shareholders                                                  |       | (1,010,796 | )          | (973,717   | )          | (947,129   | )          |
| Excess tax benefit from exercise of stock options                              |       | 106,147    |       |       |       |       |       |
| Net cash used in financing activities                                          |       | (1,066,648 | )          | (200,762   | )          | (294,555   | )          |
|                                                                           |       |       |       |       |       |       |       |
| Net increase in  cash                                                          |       | 906,190    |       | 660,822    |       | 1,654,984  |       |
|                                                                           |       |       |       |       |       |       |       |
| Cash at  beginning of year                                                     |       | 4,839,366  |       | 4,178,544  |       | 2,523,560  |       |
|                                                                           |       |       |       |       |       |       |       |
| Cash at end of  year                                                           |       | $          | 5,745,556  |       | $          | 4,839,366  |       | $ | 4,178,544 |   |
|                                                                           |       |       |       |       |       |       |       |
| **Supplemental  disclosure of non-cash investing activities:**                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Additions to land, buildings and equipment fundedthrough  accounts payable     |       | $          | 87,345     |       | $          | 115,541    |       | $ | 250,462 |   |
|                                                                           |       |       |       |       |       |       |       |
| **Supplemental  disclosure of cash flow information:**                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income taxes paid, net of refunds                                              |       | $          | 2,225,000  |       | $          | 2,355,000  |       | $ | 2,425,000 |   |
| Net cash  payments for interest                                                |       | 0          |       | 0          |       | 9,000      |       |

 

See notes to consolidatedfinancial statements.

39

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**CANTERBURY PARK HOLDINGCORPORATION AND SUBSIDIARIES**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2006, 2005 AND 2004**

1.               SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

*Business* – Canterbury ParkHolding Corporation (the Company) was incorporated on March 24, 1994. On March29, 1994 the Company acquired all the outstanding securities of Jacobs Realty,Inc. (JRI) from Irwin Jacobs and IMR Fund, L.P. (an investment fund for variouspension plans and trusts). JRI was merged into the Company and the acquisitionwas accounted for under the purchase method of accounting whereby the acquiredassets and liabilities have been recorded at the Company’s cost. The primaryasset of JRI was Canterbury Downs Racetrack and the 325 acres of surroundingland.

On May 20, 1994, the Company adopted a plan of Reorganization pursuantto which the sole shareholder of Canterbury Park Concessions, Inc. (CPC), andmajority shareholder of the Company, agreed to exchange his shares of CPC stockfor 198,888 shares of the Company’s common stock concurrent with the closing ofa public offering. Pursuant to the Plan of Reorganization, CPC became a whollyowned subsidiary of the Company in August 1994 when the Company completed theinitial public offering of its common stock. This reorganization was treated ina manner similar to a pooling of interests. Net proceeds received by theCompany from the public offering were approximately $4,847,000, which alongwith additional borrowings under the Company’s line of credit with the majorityshareholder, were used to pay off the remaining notes payable from theacquisition of JRI.

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

*Revenue Recognition*–**Ourrevenues are derived primarily from the operations of a Card Club, pari-mutuelwagering on simulcast and live horse races, concession sales and relatedactivities. Collection revenue from Card Club operations and pari-mutuelcommission and fee revenues are recognized at the time that the wageringprocess is complete. Revenues related to wagering activities includingconcession and publication sales, and parking and admission fees are recognizedas revenue when the service has been performed or the product has beendelivered.

*Estimates* – The preparation ofthe consolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe consolidated financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from theseestimates.

*Reclassifications* –Certain prior year numbers have been reclassified to be consistent with currentperiod presentation. These reclassifications had no effect on net earnings or stockholders’equity.

The Company has reclassified promotional allowances from advertisingand marketing expense to net revenues as of December 31, 2006. Prior periodswere reclassified to be consistent with current period presentation.

In the third quarter of fiscal 2006, the Company has changed itsaccounting treatment for presentation of cash flows related to restricted cash.The Company is now presenting all cash flows related to restricted cash withinthe operating activities section of the Statements of Cash Flows rather thanthe investing activities section. The Company believes this is a more properpresentation as it more appropriately reflects the nature of the restrictedcash activities. The Company after considering the nature of this change in classificationand having given appropriate weight to the guidance provided by StaffAccounting Bulletin No. 99, believed it is sufficient to incorporate thischange in this current and future filings, at which time we will reclassifyprior periods presented, and not treat this change in classification as anerror requiring restatement.

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The following table presents the affect of the changein accounting treatment for all fiscal years and interim periods where the cashflows from restricted cash were previously presented within the investingactivities section of the Statements of Cash Flows:
|                               | ** ** | ** **             | ** ** | **As Revised**  | ** ** | **Previously Reported** | ** ** |
|-------------------------------|------------|------------------------|------------|----------------------|------------|------------------------------|------------|
| ** **                    | ** ** | **Decrease**           | ** ** | ** **           | ** ** | **Net Cash**            | ** ** | ** ** | ** ** | **Net Cash** | ** ** |
| ** **                    | ** ** | **(increase) in** | ** ** | **Net Cash**    | ** ** | **Used in**             | ** ** | **Net Cash** | ** ** | **Used in** | ** ** |
| ** **                    | ** ** | **Restricted**         | ** ** | **Provided by** | ** ** | **Investing**                | ** ** | **Provided by** | ** ** | **Investing** | ** ** |
| ** **                    | ** ** | **Cash**               | ** ** | **Operations**       | ** ** | **Activities**               | ** ** | **Operations** | ** ** | **Activities** | ** ** |
|                          |       |                   |       |                 |       |                         |       |   |   |   |   |
| Fiscal Year  Ended 12/31/2004 |       | $(459,861              | )          | $6,335,800           |       | $(4,386,261                  | )          | $6,795,661 |   | $(4,846,122 | ) |
|                          |       |                   |       |                 |       |                         |       |   |   |   |   |
| Period Ended  3/31/2005       |       | 42,921                 |       | 2,278,941            |       | (956,980                     | )          | 2,236,020 |   | (914,059 | ) |
|                          |       |                   |       |                 |       |                         |       |   |   |   |   |
| Period Ended  6/30/2005       |       | (2,428,494             | )          | 3,271,005            |       | (2,487,839                   | )          | 5,699,499 |   | (4,916,333 | ) |
|                          |       |                   |       |                 |       |                         |       |   |   |   |   |
| Period Ended  9/30/2005       |       | 375,998                |       | 3,282,258            |       | (3,077,098                   | )          | 2,906,260 |   | (2,701,100 | ) |
|                          |       |                   |       |                 |       |                         |       |   |   |   |   |
| Fiscal Year  Ended 12/31/2005 |       | (242,383               | )          | 4,714,453            |       | (3,852,869                   | )          | 4,956,836 |   | (4,020,252 | ) |
|                          |       |                   |       |                 |       |                         |       |   |   |   |   |
| Period Ended  3/31/2006       |       | (208,779               | )          | 1,604,836            |       | (861,656                     | )          | 1,813,615 |   | (1,070,435 | ) |
|                          |       |                   |       |                 |       |                         |       |   |   |   |   |
| Period Ended  6/30/2006       |       | $(2,813,396            | )          | $3,766,778           |       | $(2,313,987                  | )          | $6,580,174 |   | $(5,127,383 | ) |

 

*Restricted Cash* –Restricted cash represents refundable deposits and amounts due to horsemen forpurses, stakes and awards, and amounts accumulated in card game progressivejackpot pools, the Player Pool and Poker Promotional Fund to be used to repaycard players in the form of promotions, giveaways, prizes, or by other means.

*Uncashed Winning Tickets*–**Pari-mutuel tickets which are not cashed within one year ofthe end of the respective race meet become the property of the Company. TheCompany records revenue associated with the uncashed winning tickets at thetime that, based on historical experience, management can reasonably estimatethe amount of additional winning tickets from a race meet that will bepresented for payment.

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

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

*Due to Minnesota Horsemen’s Benevolent andProtective Association, Inc. (“MHBPA”)* – The MinnesotaPari-Mutuel Horse Racing Act specifies that the Company is required tosegregate a portion of funds (recorded as purse expense in the statements ofoperations), received from card club operations and wagering on simulcast andlive horse races, for future payment as purses for live horse races or otheruses of the horsepersons’ associations. Pursuant to an agreement with theMHBPA, the Company has transferred into a trust account or paid directly to theMHBPA, approximately $7,825,000, $7,575,000 and $7,601,000 for the years endedDecember 31, 2006, 2005 and 2004, respectively, related to thoroughbred races. Amountsdue to the MHBPA are guaranteed by the 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 pursesaccrued but not transferred into the trust were 8.25%, 7.25% and 5.25% atDecember 31, 2006, 2005 and 2004, respectively.

*Impairment of Long-Lived Assets*–**Management of the Company periodically reviews the carryingvalue of property and equipment for potential impairment by comparing thecarrying value of these assets with their related expected future net cashflows. Should the sum of the related expected future net cash flows be

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less than the carrying value, management will determine whether animpairment loss should be recognized. An impairment loss would be measured bythe amount by which the carrying value of the asset exceeds the fair value ofthe asset. To date, management has determined that no impairment of theseassets exists.

*Depreciation* – Buildings and equipmentare depreciated on a straight-line basis over the estimated useful lives of theassets, generally 5 to 39 years.

# *Card Club Accruals* – Minnesota law allows the Company to collectamounts from patrons to fund progressive jackpot pools in the Card Club. Theseamounts, along with amounts earned by the player pool, promotional pools andthe outstanding chip liability, are accrued as short-term liabilities at eachbalance sheet date.

*Borrowings* - The weighted averageinterest rates on short-term borrowings at December 31, 2006, 2005 and 2004were 8.25%, 7.25% and 5.25%, respectively. The weighted average rates forshort-term borrowings for the years ended December 31, 2006, 2005 and 2004 were7.93%, 5.90% and 4.23%, respectively.

*Income Taxes* – Income taxes areaccounted for under the asset and liability method. Deferred tax assets andliabilities are recognized for the estimated future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases. Deferred taxassets and liabilities are measured using enacted tax rates in effect for theyear in which those temporary differences are expected to reverse.

*Net Income Per Share* – Basic netincome per common share is based on the weighted average number of commonshares outstanding during each year. Diluted net income per common share takesinto effect the dilutive effect of potential common shares outstanding. TheCompany’s only potential common shares outstanding are stock options and sharesof unvested restricted stock.

*Comprehensive Income –*Statementof 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 income includes all changes in stockholders’ equityexcept those resulting from investments by and distributions to owners. SFASNo. 130 is not currently applicable for the Company because the Company did nothave any items of other comprehensive income in any of the periods presented.

*Fair**Values of Financial Instruments*– Due tothe current classification of all financial instruments of the Company andgiven the short-term nature of the related account balances, carrying amountsreported in the consolidated balance sheets approximate fair value.

*Stock Based Employee Compensation*– In December 2004, the Financial Accounting Standards Board (FASB) revisedSFAS No.123, Share Based Payment (SFAS No. 123R). This Statement supercedes APBOpinion No. 25, which resulted in no stock-based employee compensation costrelated to stock options if the options granted had an exercise price equal tothe market value of the underlying common stock on the date of grant. SFAS No.123R requires recognition of employee services provided in exchange for ashare-based payment based on the grant date fair market value. In April 2005the effective date of SFAS No. 123R was deferred to the fiscal year beginningafter June 15, 2005. Consequently, the Company adopted SFAS No. 123R as ofJanuary 1, 2006. As of the effective date, this Statement applies to all newawards issued as well as awards modified, repurchased, or cancelled. Additionally,for stock-based awards issued prior to the effective date, compensation costattributable to future services will be recognized as the remaining service isrendered. The Company elected to apply the modified prospective method ofadoption of SFAS No.123R.

SFAS 123(R) requires the use of a fair valuebased measurement method when granting stock options. The Companyselected the Black-Scholes method to measure the compensation cost for stockoptions. The Black-Scholes method requires the use of significant assumptionsto estimate the fair value of the stock option awards. The expected term of theboard of director options is equivalent to the historical exercise experiencefor these options. The expected term of the key employee options was the termof the option as the individuals have exhibited a pattern of exercising optionsat or near the expiration date. The expected volatility was calculatedprimarily with reliance on historical volatility rates. The Company has noreason to believe that future volatility of the share price over the expectedoption term is likely to differ from its past. The Company assumed a dividendyield equivalent to historical dividend rates over the vesting period. The

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risk-free rateutilized in the Black-Scholes calculations was the U.S. Constant MaturityTreasury Security for the period equivalent to the term of the option.

The fair value of options granted under the 1994 Stock Plan during2006, 2005 and 2004 were estimated on the date of grant using the Black-Scholesoption-pricing model with the following weighted average assumptions andresults: 
|                                      | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Dividend yield                       |       | 1.74     | %          |     | 1.49       | %        |       | None |   |   |
| Expected  volatility                 |       | 25       | %          |     | 43         | %        |       | 46 | % |   |
| Risk-free  interest rate             |       | 4.50     | %          |     | 4.14       | %        |       | 3.28 | % |   |
| Expected term of  options in years   |       | 8.6      |       |     | 5.8        |     |       | 5.9 |   |   |
| Fair value of  options on grant date |       | $135,300 |       | $698,000 |       | $840,000 |       |

 

The following table illustrates the effect on netincome and earnings per share if the Company had applied the fair valuerecognition provisions of SFAS No. 123, *Accountingfor Stock-Based Compensation,*to stock-based employee compensationto periods prior to January 1, 2006.
|                                                                                                                                                       | ** ** | **Year Ended December 31** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                                                            | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| Net Income:                                                                                                                                           |       | $3,053,479                                |       | $3,862,308 |   |
| As reported

Deduct: Pro  forma stock-based compensation expense determined under fair value based  method for all awards, net of related tax effects |       | (416,340                                  | )          | (448,065 | ) |
| Pro forma net income                                                                                                                                  |       | $2,637,139                                |       | $3,414,243 |   |
|                                                                                                                                                  |       |                                      |       |   |   |
| Basic Earnings  Per Share:                                                                                                                            |       |                                      |       |   |   |
| As reported                                                                                                                                           |       | $                                         | .78        |   | $ | 1.02 |   |
| Pro forma                                                                                                                                             |       | .68                                       |       | .90 |   |
|                                                                                                                                                  |       |                                      |       |   |   |
| Diluted Earnings  Per Share:                                                                                                                          |       |                                      |       |   |   |
| As reported                                                                                                                                           |       | $                                         | .73        |   | $ | .92 |   |
| Pro forma                                                                                                                                             |       | .63                                       |       | .82 |   |

 

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

*New Accounting Pronouncements*– In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements,* which defines fair value,establishes a framework for measuring fair value, and expands disclosures aboutfair value measurements. The provisions of SFAS No. 157 are effective forfiscal years beginning after November 15, 2007. The Company is evaluating theimpact the adoption of SFAS No. 157 will have on its consolidated financialstatements.

In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), *Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109.*FIN 48 prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return. The Company must determine whether it is “more-likely-than-not” thata tax position will be sustained upon examination, including resolution of anyrelated appeals or litigation processes, based on the technical merits of theposition. Once it is determined that a position meets the more-likely-than-notrecognition threshold, the position is measured to determine the amount ofbenefit to recognize in the financial statements. FIN 48 applies to all taxpositions related to income taxes subject to FASB Statement No. 109, *Accounting for Income Taxes*. FIN 48 isapplicable for fiscal years beginning after December 15, 2006. The Company hasevaluated the impact and does not expect it to have a material impact on itsconsolidated financial statements.

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2.               LAND, BUILDINGS ANDEQUIPMENT

Land, buildings and equipment consists of the following at December 31:
|                                      | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|
|                                 |       |        |       |        |       |
| Land                                 |       | $           | 6,673,076  |        | $          | 6,645,701 |   |
| Buildings and  building improvements |       | 18,238,651  |       | 15,448,272  |       |
| Furniture and  equipment             |       | 13,074,400  |       | 12,028,619  |       |
|                                 |       | 37,986,127  |       | 34,122,592  |       |
| Accumulated  depreciation            |       | (13,082,181 | )          | (11,428,154 | )          |
|                                 |       | $           | 24,903,946 |        | $          | 22,694,438 |   |

 

3.               INCOME TAXES

A reconciliation between income taxes computed at thestatutory federal income tax rate and the effective tax rate is as follows:
|                                                 | ** ** | **2006** | ** ** | **2005** | ** ** | **2004**  | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
|                                            |       |     |       |     |       |      |       |
| Federal tax  expense computed at statutory rate |       | $        | 1,856,000  |     | $          | 1,892,000 |       | $ | 2,312,000 |   |
| Nondeductible  lobbying expense                 |       | 65,700   |       | 184,000  |       | 163,000   |       |
| State expense,  net of federal impact           |       | 368,000  |       | 395,000  |       | 471,000   |       |
| Other                                           |       | 43,999   |       | 40,843   |       | (7,584    | )          |
|                                            |       | $        | 2,333,699  |     | $          | 2,511,843 |       | $ | 2,938,416 |   |

 

Income tax expense for the years ended December 31,2006, 2005 and 2004 consists of the following:
|                              | ** ** | **2006**  | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Current                      |       |      |       |      |       |      |       |
| Federal                      |       | $         | 1,930,600  |      | $          | 2,289,559 |       | $ | 2,081,616 |   |
| State                        |       | 567,100   |       | 445,584   |       | 632,800   |       |
|                         |       | 2,497,700 |       | 2,735,143 |       | 2,714,416 |       |
| Deferred,  primarily Federal |       | 163,999   |       | (223,300  | )          | 224,000   |       |
|                         |       | $         | 2,333,699  |      | $          | 2,511,843 |       | $ | 2,938,416 |   |

 

Current and long term temporary differences and tax carryforwards atDecember 31 are as follows:
|                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Current                         |       |     |       |     |       |
| Vacation accrual                |       | $        | 125,700    |     | $          | 75,000 |   |
| Player rewards  program accrual |       | 83,200   |       | 80,400   |       |
| Other                           |       | 26,300   |       | 48,000   |       |
| Net current  deferred tax asset |       | $        | 235,200    |     | $          | 203,400 |   |

 
|                                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
| Long-Term                                        |       |     |       |     |       |
| Tax depreciation  greater than book depreciation |       | $        | (483,700   | )        | $          | (587,700 | ) |
| Deferred gain on  sale of land                   |       | (104,000 | )          | (104,000 | )          |
| Stock options                                    |       | 79,400   |       |     |       |
| Other                                            |       | 47,400   |       | 98,600   |       |
| Net long-term  deferred tax liability            |       | $        | (460,900   | )        | $          | (593,100 | ) |

 

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4.               STOCKHOLDERS’EQUITY

*Stock Options:*

The Company’s 1994 Stock Plan (the “Plan”) provides for the granting ofawards in the form of stock options, restricted stock, stock appreciationrights, and deferred stock to key employees and non-employees, includingdirectors of and consultants to the Company and any subsidiary, to purchase upto a maximum of 1,450,000 shares of common 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 theBoard of Directors, or a committee designated by the Board, which determinesthe persons who are to receive awards under the Plan, the type of award to begranted, the number of shares subject to each award and, if an option, theexercise price of each option. The Plan also provides for formula grants ofNon-Qualified Stock Options to non-employee directors of the Company.

The Plan provides that payment of theexercise price may be made in the form of unrestricted shares of common stockalready owned by the optionee. The Company calculates the fair market value ofunrestricted shares as the average of the high and low sales prices on the dateof exercise. During 2004, the Company purchased and retired 752 shares valuedat $14,364.

*Employee Stock Purchase Plan:*

On April 3, 1995, the Board of Directors adopted an Employee StockPurchase Plan (the “ESPP”). The ESPP is open to all employees of the Companyworking more than 15 hours per week. The ESPP consists of one-year phases. Thephases commence on October 1 of each year and under the terms of the planemployees were allowed to set aside a portion of their payroll earnings topurchase shares of the Company’s common stock. Prior to the phase which startedOctober 1, 2005, the purchase price was the lower of 85% of the fair marketvalue of the shares on the commencement date of each phase or 85% of the fairmarket value on the termination date of each phase. Effective with the phasebeginning October 1, 2005 the purchase price is 95% of the fair market value ofthe shares on the termination date of the phase. The plan provides for the saleof up to 350,000 shares. The plan issued 7,501, 31,174 and 29,202 shares in2006, 2005 and 2004, respectively. The ESPP has issued a total of 223,500shares since the inception of the ESPP.

*401(k) Plan:*

On June 1, 1998 the Company established a defined contribution savingsplan for employees who had completed one year of service, as defined in thePlan document. The defined contribution savings plan allows for employeecompensation deferral contributions under Section 401(k) of the InternalRevenue Code and discretionary contributions by the Company. Employercontributions charged to operations in 2006, 2005 and 2004 were approximately$376,000, $128,000 and $113,000, respectively.

*Employee Stock Ownership Plan:*

In December 2004, the Company’s Board of Directors approved an EmployeeStock Ownership Plan (the “ESOP”) effective for calendar years beginningJanuary 1, 2004. All eligible employees of the Company participate in the ESOPafter completing one full calendar year of service. Contributions to the ESOPare determined by the Board of Directors and can be made in cash or shares ofthe Company’s common stock. Annual contributions are allocated to eachparticipant based on compensation and vest in accordance with a seven yeargraded vesting schedule. Compensation expense for the ESOP is determined basedon the average fair value of shares on the date the Company commits to thecontribution to the ESOP. For the purposes of earnings per share, ESOP sharesare included in weighted-average common shares outstanding at year-end as theshares are committed to be contributed on that date. On December 15, 2006, theCompany committed to contribute 10,000 shares of the Company’s common stockvalued at $132,000. The shares were issued in February 2007 and will beallocated to the accounts of eligible employees based upon their 2006compensation during the first quarter of 2007. During 2006, the Companycontributed an additional 46 shares valued at $606 for calendar year 2005. Forcalendar year 2005 the Company contributed 14,000 shares of the Company’scommon stock valued at $197,400. During 2005, the Company contributed anadditional 142 shares valued at $2,023 for calendar year 2004.

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*Stock Repurchase Plan:*

On November 2, 2006 the Company announced that its Board of Directorshad authorized a program to repurchase up to 100,000 shares of the Company’scommon stock. On December 6, 2006 the Company repurchased 53,050 shares ofcommon stock at a price of $13.10 per share for a total of $694,955.

5.               STOCK-BASEDCOMPENSATION

The Plan, an equity based compensation plan, provides for the grantingof awards in the form of stock options, restricted stock, stock appreciationrights, and deferred stock to key employees and non-employees, includingdirectors of and consultants to the Company and any subsidiary, for up to amaximum of 1,450,000 shares of common stock. During the first quarter of 2006the Company issued non-qualified options to the members of the Board of Directors,granted incentive stock options to two executive officers and issued shares ofcommon stock that were restricted in regard to ownership and disposition rights(herein referred to as “restricted stock”) to key management level employees.

Stock option activity related to the Plan during the years endedDecember 31, 2006, 2005 and 2004 is summarized below:
|                                     | ** ** | **2006**   | ** ** | **2005**                               | ** ** | **2004**   | ** ** |
|-------------------------------------|------------|------------|------------|----------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|                                |       |       |       |                                   |       |       |       |   |   |   |   |   |   |
| Outstanding at  beginning of year   |       | 721,950    |       | $                                      | 9.35       |       | 708,850    |   | $ | 7.90 |   | 692,200 |   | $ | 5.42 |   |
|                                |       |       |       |                                   |       |       |       |   |   |   |   |   |   |
| Granted                             |       | 30,000     |       | 14.43                                  |       | 92,000     |       | 16.81 |   | 94,500 |   | 16.67 |   |
| Exercised                           |       | (85,400    | )          | 5.18                                   |       | (78,900    | )          | 5.01 |   | (77,850 | ) | 3.78 |   |
|                                |       |       |       |                                   |       |       |       |   |   |   |   |   |   |
| Outstanding at  end of year         |       | 666,550    |       | $                                      | 10.12      |       | 721,950    |   | $ | 9.35 |   | 708,850 |   | $ | 7.90 |   |
|                                |       |       |       |                                   |       |       |       |   |   |   |   |   |   |
| Options exercisable at  end of year |       | 651,550    |       | $                                      | 10.01      |       | 696,283    |   | $ | 9.08 |   | 631,850 |   | $ | 6.88 |   |

 

The grant-date fair value of options outstanding and exercisable atDecember 31, 2006 is $3,317,000 and $3,243,000, respectively. The weightedaverage remaining contractual term of these options is 3.0 and 2.9 years,respectively. The Company estimates no forfeitures related to these options.

The weighted-average grant-date fair value of options granted duringthe years 2006, 2005 and 2004 was $135,300, $738,740, and $714,060,respectively. The total intrinsic value of options exercised during the yearsended December 31, 2006, 2005, and 2004, was $204,000, $312,000, and $207,000,respectively.

The following table summarizes information concerning all optionsoutstanding and options exercisable as of December 31, 2006:
| 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  |                     | 73,500     |                                                                   | 0.5        |                                   | $          | 2.28                     |       | 73,500                                 |       | $ | 2.28 |   |
|                                   | 2.50 – 5.00  |                     | 83,050     |                                                                   | 2.0        |                                   | 4.04       |                     | 83,050     |                                   | 4.04       |   |
|                                   | 5.00 – 7.50  |                     | 190,000    |                                                                   | 3.4        |                                   | 6.25       |                     | 190,000    |                                   | 6.25       |   |
|                                   | 7.50 – 17.25 |                     | 320,000    |                                                                   | 3.6        |                                   | 15.79      |                     | 305,000    |                                   | 15.85      |   |
| Total                                  |              | 666,550                  |       | 3.0                                                                    |       | $                                      | 10.12      |                     | 651,550    |                                   | $          | 10.01 |   |

 

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*2006 Grants*

Each member of the Board of Directors receives an annual recurringgrant of 3,000 non-qualified stock options. On February 1, 2006 15,000 optionswere granted to the five board members with an exercise price equal to themarket price on the date of grant of $14.30. The stock options vest over a six-month period and expire in ten years. The Company also granted 15,000 incentivestock options to two executive officers of the Company on February 9, 2006. Theexercise price of these incentive stock options was the market value on thedate of grant of $14.55. The stock options vest ratably over a four-year periodand expire in ten years. Shares of restricted stock were granted to keymanagement -level employees on February 9, 2006. The Company granted 41,000shares of restricted stock that vest 100% after four years. Employees whoterminate employment prior to the vesting date forfeit their right to theshares.

The compensationcost associated with the Board of Director options is $61,200 to be recognizedas expense over the six-month vesting period. The compensation cost associatedwith the employee stock option grant is $74,100 to be recognized ratably overthe four-year vesting period. The Company also recognized $7,807 relatedto a grant of employee stock options in 2004 which vested in February of 2006. Inaccordance with the modified prospective method, the compensation cost relatedto the option awards included in salaries and benefits expense for 2006 was$104,386. As of December 31, 2006, there was $38,722 of total unrecognizedcompensation cost related to stock options which is expected to be recognizedover 3.1 years. The total income tax benefit recognized in the income statementfor stock-based compensation arrangements was $177,000, $310,000 and $350,000for 2006, 2005 and 2004, respectively.

A summary of the status of the Company’s restricted stock as ofDecember 31, 2006, and changes during the year then ended are presented below:
| Restricted Stock          | ** ** | **Shares** | ** ** | **Weighted  Average  Grant-Date  Fair Value** | ** ** |
|--------------------------------|------------|------------|------------|----------------------------------------------------|------------|
|                           |       |       |       |                                               |       |
| Unvested at  beginning of year |       | 0          |       | $                                                  | 0.00       |   |
|                           |       |       |       |                                               |       |
| Granted                        |       | 41,000     |       | 14.55                                              |       |
| Vested                         |       | 0          |       | 0.00                                               |       |
| Forfeited                      |       | 0          |       | 0.00                                               |       |
| Unvested at end  of year       |       | 41,000     |       | $                                                  | 14.55      |   |

 

The compensation cost associated with the restricted stock grant wascalculated as the market price on the date of grant of $14.55 for the 41,000shares (reduced by estimated forfeitures) of $589,275. In accordance with themodified prospective method, the compensation cost related to these awardsincluded in salaries and benefits expense for 2006 was $135,042. As of December31, 2006, there was $454,232 of total unrecognized compensation cost related torestricted stock compensation arrangements granted under the Plan which isexpected to be recognized over a period of 3.1 years.

47

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6.               EARNINGS PER SHARECOMPUTATIONS

The following is areconciliation of the numerator and denominator of the earnings per commonshare computations:
|                                                                                    | ** **   | **2006**  | ** ** | **2005**     | ** ** | **2004**  | ** **   |
|------------------------------------------------------------------------------------|--------------|-----------|------------|--------------|------------|-----------|--------------|
|                                                                               |         |      |       |         |       |      |         |
| Net income  (numerator) amounts used for basic and diluted per share computations: | *** *** | $         | 3,125,043  | *** *** | $          | 3,053,479 | *** *** | $ | 3,862,308 | *** *** |
|                                                                               |         |      |       |         |       |      |         |
| Weighted average  shares (denominator) of common stock outstanding:                |         |      |       |         |       |      |         |
| Basic                                                                              |         | 4,000,505 |       | 3,903,844    |       | 3,775,990 |         |
| Plus dilutive effect of stock options                                              |         | 230,743   |       | 287,422      |       | 408,243   |         |
| Diluted                                                                            |         | 4,231,248 |       | 4,191,266    |       | 4,184,233 |         |
|                                                                               |         |      |       |         |       |      |         |
| Net income per  common share:                                                      |         |      |       |         |       |      |         |
| Basic                                                                              |         | $         | .78        |         | $          | .78       |         | $ | 1.02 |   |
| Diluted                                                                            |         | .74       |       | .73          |       | .92       |         |

 

Options to purchase290,500 shares of common stock at an average of $16.15 per share wereoutstanding at December 31, 2006 but were not included in the computation ofdiluted EPS because the options’ exercise price was greater than the averagemarket price of the common shares. The options expire in an average of 3.5years.

7.               LINES OFCREDIT

The Company has a general credit and security agreement with BremerBank, N.A. Borrowings under the credit agreement include a commercial revolvingcredit line, which provides for maximum advances of $2,250,000 with interest atthe prime rate until April 30, 2007. The Company had no borrowings under thecredit line during the year 2006. The credit agreement contains covenantsrequiring the Company to maintain certain financial ratios. The Company was incompliance with these requirements as of December 31, 2006. Management believesthat funds available under this line of credit, along with funds generated fromcard club and simulcast operations, will be sufficient to satisfy its liquidityand capital resource requirements during 2007.

8.               OPERATING LEASESAND COMMITMENTS

In January 2004 the Company entered into a five-year totalizatorservices agreement with Scientific Games Inc. (formerly Autotote Systems,Inc.). Pursuant to the agreement, Scientific Games provides totalizatorequipment and computer programs which record and process all wagers andcalculate the odds and payoffs. Amounts charged to operations under thisagreement for the years ended December 31, 2006, 2005 and 2004 wereapproximately $342,000, $348,000 and $370,000, respectively. During annual liverace meets, Autotote provides uplink services, which enables the Company tosimulcast horse races held at Canterbury Park to out-of-state racetracks. Theseservices resulted in amounts charged to operations in 2006, 2005 and 2004 ofapproximately $138,000, $137,500 and $135,500, respectively.

The Company has entered into operating leases for rental of officeequipment and equipment to print certain publications. Amounts charged tooperations under these agreements for the years ended December 31, 2006, 2005and 2004 were approximately $96,000, $162,000 and $170,000, respectively. Allsuch leases expire on or before April 30, 2010. Future lease paymentobligations under these leases are provided in the contractual obligationstable below.

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*CONTRACTUAL OBLIGATIONS TABLE*

The following tablereflects our contractual obligations as of December 31, 2006:
|                                          | ** ** | **Payments Due by Period** | ** ** |
|------------------------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligation (1)** | ** ** | **TOTAL**                                 | ** ** | **Less than  1 year** | ** ** | **1 – 3  years** | ** ** | **3 – 5  years** | ** ** | **More  than  5 years** | ** ** |
|                                     |       |                                      |       |   |   |   |   |   |   |   |   |
| Operating Lease  Obligations (2)         |       | $                                         | 218,300    |   | $ | 90,500 |   | $ | 115,800 |   | $ | 12,000 |   | $ | 0 |   |
|                                          |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

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

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

Since December 31, 2006, there have been nomaterial changes outside the ordinary course of business to our contractualobligations as set forth above. As of December 31, 2006, we had noborrowings pursuant to our line of credit and were not party to capital leaseobligations, significant purchase obligations or other long-term obligations.

9.               CONTINGENCIES

In connection with the purchase of the Racetrack (Note 1), the Companyentered into an Earn Out Promissory Note dated March 29, 1994. In accordancewith the Earn Out Note, if (i) off-track betting becomes legally permissible inthe State of Minnesota and (ii) the Company begins to conduct off-track bettingwith respect to or in connection with its operations, the Company will berequired to pay to the IMR Fund, L.P. the greater of $700,000 per operatingyear, as defined, or 20% of the net pretax profit, as defined for each of fiveoperating years. At this time, management believes that the likelihood thatthese two conditions will be met, and that the Company will be required to paythese amounts is remote. At the date (if any) that these two conditions aremet, the five minimum payments will be discounted back to their present valueand the sum of those discounted payments will be capitalized as part of thepurchase price in accordance with generally accepted accounting principles. Thepurchase price will be further increased if 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. Remaining payments would be made within 90 days ofthe end of each of the next four operating years.

The Company is periodically involved in various legal actions arisingin the normal course of business. At December 31, 2006, management believesthat the resolution of any legal actions outstanding will not have a materialimpact on the consolidated financial statements.

The Company guarantees payment of statutory distributions under a$500,000 bond issued to the Minnesota Racing Commission.

10.         RELATED-PARTYTRANSACTIONS

The Company paid a total of $50,100 in 2006, $50,100 in 2005 and$50,052 in 2004 to the Chair and Vice Chair of the Company in consideration forthe services they provided pursuant to consulting agreements. In addition,another non-employee Board member received $0 in 2006, $25,500 in 2005 and$32,000 in 2004 for services related to building support for proposedlegislation to provide additional gaming authority to the Company.

11.         OPERATING SEGMENTS

The Company has three reportable operating segments: horse racing, cardclub, and concessions. The horse racing segment includes simulcast and livehorse racing operations, the card club segment includes operations of theCanterbury Card Club, and the concessions segment provides concessions duringsimulcast and live racing, in the card club and during special events. TheCompany’s reportable operating segments are strategic business units that offerdifferent products and services. They are managed

49

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separately because the segments differ in the nature of the productsand services provided, as well as processes to produce those products andservices. The horse racing and card club segments are regulated by the State ofMinnesota Racing Commission.

The accounting policies of the operating segments are the same as thosedescribed in the summary of significant accounting policies

Depreciation, interest expense and income taxes are allocated to thesegments but no allocation is made to concessions for shared facilities. Theconcessions segment paid approximately 25% of gross revenues on live racing andspecial event days to the horse racing segment for use of the facilities in2006, 2005 and 2004.

The following tablesprovide information about the Company’s operating segments (in 000’s):
|                                       | ** ** | **Twelve Months Ended December 31, 2006** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                                              | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Net revenues  from external customers |       | $                                                                  | 19,556     |   | $ | 30,168 |   | $ | 6,116 |   | $ | 55,840 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 373                                                                |       |   |   | 2,231 |   | 2,604 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Net interest  income (expense)        |       | 279                                                                |       |   |   |   |   | 279 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Depreciation                          |       | 1,124                                                              |       | 584 |   | 126 |   | 1,834 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Segment income  before income taxes   |       | (621                                                               | )          | 6,032 |   | 1,397 |   | 6,808 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Segment Assets                        |       | $                                                                  | 29,867     |   | $ | 3,676 |   | $ | 6,258 |   | $ | 39,801 |   |

 
|                                       | ** ** | **Twelve Months Ended December 31, 2005** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                                              | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Net revenues  from external customers |       | $                                                                  | 19,459     |   | $ | 29,614 |   | $ | 5,847 |   | $ | 54,920 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 338                                                                |       |   |   | 1,995 |   | 2,333 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Net interest  income (expense)        |       | 119                                                                |       |   |   |   |   | 119 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Depreciation                          |       | 1,001                                                              |       | 556 |   | 116 |   | 1,673 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Segment income  before income taxes   |       | 2                                                                  |       | 5,560 |   | 1,256 |   | 6,818 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Segment Assets                        |       | $                                                                  | 27,191     |   | $ | 3,493 |   | $ | 4,821 |   | $ | 35,505 |   |

 
|                                       | ** ** | **Twelve Months Ended December 31, 2004** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Horse Racing**                                              | ** ** | **Card Club** | ** ** | **Concessions** | ** ** | **Total** | ** ** |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Net revenues  from external customers |       | $                                                                  | 20,473     |   | $ | 28,433 |   | $ | 5,522 |   | $ | 54,428 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Intersegment  revenues                |       | 357                                                                |       |   |   | 1,872 |   | 2,229 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Net interest  income (expense)        |       | 33                                                                 |       |   |   |   |   | 33 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Depreciation                          |       | 688                                                                |       | 527 |   | 96 |   | 1,311 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Segment income  before income taxes   |       | 706                                                                |       | 6,047 |   | 1,142 |   | 7,895 |   |
|                                  |       |                                                               |       |   |   |   |   |   |   |
| Segment Assets                        |       | $                                                                  | 23,962     |   | $ | 3,688 |   | $ | 3,599 |   | $ | 31,249 |   |

 

50

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Included in horse racing segment revenues for the years ended December31, 2006, 2005 and 2004 is approximately $271,000, $274,000 and $288,000,respectively, for rental of the racing facility for special events and storage.

The following are reconciliations of reportable segment revenue, incomebefore income taxes, and assets, to the Company’s consolidated totals (in 000’s):
|                                                         | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Revenues                                                |       |     |       |     |       |     |       |
| Net revenues for reportable segments                    |       | $        | 58,444     |     | $          | 57,253   |       | $ | 56,657 |   |
| Elimination of intersegment revenues                    |       | (2,604   | )          | (2,333   | )          | (2,229   | )          |
| Total consolidated net revenues                         |       | $        | 55,840     |     | $          | 54,920   |       | $ | 54,428 |   |
| Income before  income taxes                             |       |     |       |     |       |     |       |
| Total segment income before income taxes                |       | $        | 6,808      |     | $          | 6,818    |       | $ | 7,895 |   |
| Elimination of intersegment income before income  taxes |       | (1,349   | )          | (1,253   | )          | (1,094   | )          |
| Total  consolidated income before income taxes          |       | $        | 5,459      |     | $          | 5,565    |       | $ | 6,801 |   |

 
|                                         | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Assets                                  |       |                        |       |                        |       |                        |       |
| Total asset for reportable segments     |       | $                           | 39,801     |                        | $          | 35,505                      |       | $ | 31,249 |   |
| Elimination of intercompany receivables |       | (5,450                      | )          | (4,065                      | )          | (3,026                      | )          |
| Total  consolidated assets              |       | $                           | 34,351     |                        | $          | 31,440                      |       | $ | 28,223 |   |

 

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

 
|                             | ** ** | **2005 Quarter Ended:** | ** ** |
|-----------------------------|------------|-----------------------------------|------------|
| ** **                  | ** ** | **March 31**                 | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| Net revenues                |       | $                                 | 11,659,406 |   | $ | 14,825,622 |   | $ | 16,390,505 |   | $ | 12,044,084 |   |
|                        |       |                              |       |   |   |   |   |   |   |
| Operating  expenses         |       | 9,732,226                         |       | 13,919,005 |   | 15,236,476 |   | 10,585,961 |   |
|                        |       |                              |       |   |   |   |   |   |   |
| Net income                  |       | 1,080,428                         |       | 454,149 |   | 688,372 |   | 830,530 |   |
|                        |       |                              |       |   |   |   |   |   |   |
| Basic earnings  per share   |       | .28                               |       | .12 |   | .18 |   | .21 |   |
|                        |       |                              |       |   |   |   |   |   |   |
| Diluted earnings per  share |       | .26                               |       | .11 |   | .16 |   | .20 |   |
|                             |            |                                   |            |  |  |  |  |  |  |  |  |  |  |

 

The Company has reclassified promotional allowances from operatingexpenses to net revenues as of December 31, 2006. Prior periods werereclassified to be consistent with current period presentation.

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**Item 9.****          CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

Not Applicable.

**Item 9A(T).****          ****CONTROLS AND PROCEDURES**

(a)           Evaluation ofDisclosure Controls and Procedures:

TheCompany’s Chief Executive Officer, Randall D. Sampson, and Chief FinancialOfficer, David C. Hansen, have reviewed the Company’s disclosure controls andprocedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the periodcovered by this report. Based upon this review, these officers have concludedthat the Company’s disclosure controls and procedures are effective to ensurethat information required to be disclosed in the reports that the Company filesunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in the rules and forms of the SEC and that thedisclosure controls are also effective to ensure that information required tobe disclosed in the Company’s Exchange Act reports is accumulated andcommunicated to management, including the chief executive officer and chieffinancial officer, to allow timely decisions regarding required disclosure.

(b)                                 Changesin Internal Control Over Financial Reporting:

There has been no change in our internal control over financialreporting (as defined in Rules 13a-15(f) under the Securities Exchange Act of1934) that occurred during our fiscal quarter ended December 31, 2006, thathave materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

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

Not Applicable.

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**PART III**

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

Information Incorporated by Reference.

Information required under Item 402 of Regulation S-K to the extentapplicable with respect to the directors will be set forth in a sectioncaptioned “Election of Directors” in the Company’s Proxy Statement for theAnnual Meeting of Shareholders to be held on June 7, 2007 (the “2007 ProxyStatement”), a definitive copy of which will be filed with the Commissionwithin 120 days of the close of the 2006 fiscal year, which information isincorporated herein by reference. Information required under Item 402 ofRegulation S-K regarding executive officers is presented under Item 1(c)(x)herein. Information required under Item 405 regarding Exchange Act Section 16acompliance to the extent required will be set forth in a section titled “Section16a Beneficial Ownership Reporting Compliance” in the 2007 Proxy statement.

Code of Ethics

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

**Item 11.****                EXECUTIVECOMPENSATION**

Informationrequired under Item 402 of Regulation S-K will be set forth in a sectionentitled “Executive Compensation and Other Information” in the Company’s 2007Proxy Statement which information is incorporated herein by reference.

**Item 12.****                SECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

Informationrequired under Item 403 of Regulation S-K will be set forth in a sectionentitled “Security Ownership of Certain Beneficial Owners” and “Election ofDirectors” in the Company’s 2007 Proxy Statement which information isincorporated herein by reference.

**Item 13.****                CERTAINRELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

Information, if any, required by Item 404 of Regulation S-K will be setforth in a section entitled “Certain Transactions” in the Company’s 2007 ProxyStatement which information is incorporated herein by reference.

**Item 14.****                PRINCIPALACCOUNTING FEES AND SERVICES**

Information required byItem 14 of this Form 10-K and Item 9(e) of Schedule 14A will be set forth in asection entitled “The Company’s Auditors” in the Company’s 2007 Proxy statementwhich information is incorporated herein by reference.

53

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**PART IV**

**Item 15.****               ****EXHIBITS AND FINANCIALSTATEMENT SCHEDULES**
| (a)    | 1.                                                                                                                                                      | The following Consolidated Financial Statements of  Canterbury Park Holding Corporation and subsidiaries are included in Part II,  Item 8 pages 35 - 51: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                    |                                                                                                                                                     |
|   |                                                                                                                                                    | Report of Independent Registered Public Accounting  Firm                                                                                                 |
|   |                                                                                                                                                    |                                                                                                                                                     |
|   |                                                                                                                                                    | Consolidated Balance Sheets as of December 31, 2006  and 2005                                                                                            |
|   |                                                                                                                                                    |                                                                                                                                                     |
|   |                                                                                                                                                    | Consolidated Statements Of Operations for the years  ended December 31, 2006, 2005, and 2004                                                             |
|   |                                                                                                                                                    |                                                                                                                                                     |
|   |                                                                                                                                                    | Consolidated  Statements of Changes in Stockholders’ Equity for the years ended December  31, 2006, 2005, and 2004                                  |
|   |                                                                                                                                                    |                                                                                                                                                     |
|   |                                                                                                                                                    | Consolidated Statements of Cash Flows for the years  ended December 31, 2006, 2005, and 2004                                                             |
|   |                                                                                                                                                    |                                                                                                                                                     |
|   |                                                                                                                                                    | Notes to Consolidated Financial statements                                                                                                               |
|   |                                                                                                                                                    |                                                                                                                                                     |
| (b).   | The exhibits  listed on the “Exhibits Index” on pages 56 & 57 are filed with this Form  10-K or incorporated by reference in this report. |
|   |                                                                                                                                                    |
| (c).   | No financial statement schedules are required by  Item 8 and Item 15(c) of Form 10-K.                                                                   |

 

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**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.
| Dated: March 30, 2007 |   | CANTERBURY PARK HOLDING  CORPORATION   |
|-----------------------|--------|----------------------------------------|
|                  |   |                                   |
|                  | By     | /s/ Randall D. Sampson                 |
|                  |   | Randall D. Sampson                     |
|                  |   | President and Chief  Executive Officer |

 

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

**Power ofAttorney**

Each person whosesignature appears below constitutes and appoints CURTIS A. SAMPSON, DALE H.SCHENIAN and RANDALL D. SAMPSON as his true and lawful attorneys-in-fact andagents, each acting alone, with full power of substitution and resubstitution,for him and in his name, place and stead, in any and all capacities, to signany of all amendments to this Annual Report on Form 10-K and to file the same,with all exhibits thereto, and other documents in connection therewith, withthe Securities and Exchange Commission, granting unto said attorneys-in-factand agents, each acting alone, full power and authority to do and perform eachand every act and thing requisite and necessary to be done in and about thepremises, as fully to all intents and purposes as he might or could do in person,hereby ratifying and confirming all said attorneys-in-fact and agents, eachacting alone, or his substitute or substitutes, may lawfully do or cause to bedone by virtue thereof.
| Signature               | ** ** | **Title**                      | ** **                          | **Date** |
|-------------------------|------------|--------------------------------|-------------------------------------|----------|
|                    |       |                           |                                |     |
| /s/ Curtis A.  Sampson  |       |                           | Director; Chairman of the Board     |     | March 30, 2007 |
| Curtis A.  Sampson      |       |                           |                                |     |
|                    |       |                           |                                |     |
| /s/ Dale H.  Schenian   |       |                           | Director; Vice Chairman             |     | March 30, 2007 |
| Dale H. Schenian        |       |                           |                                |     |
|                    |       |                           |                                |     |
| /s/ Randall D.  Sampson |       |                           | Chief Executive Officer, President, |     | March 30, 2007 |
| Randall D.  Sampson     |       | General Manager, Treasurer and |                                |     |
|                    |       | Director                       |                                |     |
|                    |       |                           |                                |     |
| /s/ David C.  Hansen    |       |                           | Chief Financial Officer*            |     | March 30, 2007 |
| David C. Hansen         |       |                           |                                |     |
|                    |       |                           |                                |     |
| /s/ Patrick R.  Cruzen  |       |                           | Director                            |     | March 30, 2007 |
| Patrick R.  Cruzen      |       |                           |                                |     |
|                    |       |                           |                                |     |
| /s/ Carin J. Offerman   |       |                           | Director                            |     | March 30, 2007 |
| Carin J.  Offerman      |       |                           |                                |     |
|                    |       |                           |                                |     |
| /s/ Burton F.  Dahlberg |       |                           | Director                            |     | March 30, 2007 |
| Burton F.  Dahlberg     |       |                           |                                |     |

 

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* Principal AccountingOfficer

55

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CANTERBURY PARKHOLDING CORPORATION AND SUBSIDIARY

Exhibit Index ToForm 10-K for the Year Ended December 31, 2006
| Regulation S-B  Exhibit Table  Reference | ** ** | **Title of Document**                                                                                                                                                     | ** ** | **Location in Consecutive Numbering  System as Filed with the Securities  and Exchange Commission**                                                                                     |
|------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                     |       |                                                                                                                                                                      |       |                                                                                                                                                                                    |
| 3.1                                      |       | Articles of Incorporation, as amended.                                                                                                                                    |       | Filed as Exhibit 3.1 to the Forms SB-2 Registration  Statement of the Company, File No. 33-81262C, (the “SB-2 Registration  Statement”) and incorporated herein by reference. |
|                                     |       |                                                                                                                                                                      |       |                                                                                                                                                                                    |
| 3.2                                      |       | Bylaws, as amended                                                                                                                                                        |       | Filed as Exhibit 3.2 to the SB-2 Registration  Statement and incorporated herein by reference.                                                                                          |
|                                     |       |                                                                                                                                                                      |       |                                                                                                                                                                                    |
| 10.1                                     |       | Plan of Reorganization dated as of May 20, 1994  between Canterbury Park Holding Corporation and Canterbury Park Concessions,  Inc.                                       |       | Filed as Exhibit 10.1 to the SB-2 Registration  Statement and incorporated herein by reference.                                                                                         |
|                                     |       |                                                                                                                                                                      |       |                                                                                                                                                                                    |
| 10.2                                     |       | Restated Stock Purchase Agreement                                                                                                                                         |       | Filed as Exhibit 10.2 to the SB-2 Registration  Statement and incorporated herein by reference.                                                                                         |
|                                     |       |                                                                                                                                                                      |       |                                                                                                                                                                                    |
| 10.3                                     |       | Letter dated April 4, 1994 from the Minnesota  Horsemen’s Benevolent and Protective Association, Inc. to Minnesota Racing  Commission waiving 125 day racing minimum |       | Filed as Exhibit 10.3 to the SB-2 Registration  Statement and incorporated herein by reference.                                                                                         |
|                                     |       |                                                                                                                                                                      |       |                                                                                                                                                                                    |
| 10.5                                     |       | Stock Option Plan, as amended*                                                                                                                                            |       | Filed as Exhibit 4.1 to the Registration Statement  on Form S-8 of the Company filed on August 28, 1997 (File No. 333-34509) and  incorporated herein by reference.                     |
|                                     |       |                                                                                                                                                                      |       |                                                                                                                                                                                    |
| 10.6                                     |       | Form of Non-qualified Stock Option Agreement                                                                                                                              |       | Filed as Exhibit 10.6 to the SB-2 Registration  Statement and incorporated herein by reference.                                                                                         |

 

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

56

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| Regulation S-B  Exhibit Table  Reference | ** ** | **Title of Document**                                                                                                                                                                                                                                                                  | ** ** | **Location in Consecutive Numbering  System as Filed with the Securities  and Exchange Commission**                                                                 |
|------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                     |       |                                                                                                                                                                                                                                                                                   |       |                                                                                                                                                                |
| 10.7                                     |       | Curtis A. Sampson Guaranty to HRA                                                                                                                                                                                                                                                      |       | Filed as Exhibit 10.7 to the SB-2 Registration  Statement and incorporated herein by reference.                                                                     |
|                                     |       |                                                                                                                                                                                                                                                                                   |       |                                                                                                                                                                |
| 10.10                                    |       | General Credit and Security Agreement dated as of  June 3, 1998 between Canterbury Park Holding Corporation and Bremer Bank N.A.  (previously First American Bank, N.A.) This exhibit 10.10 replaces exhibit  10.10 filed previously as an exhibit to the SB-2 Registration Statement. |       | Filed as Exhibit 10.10 to the Form 10-KSB for the  fiscal year ended December 31, 1998.                                                                             |
|                                     |       |                                                                                                                                                                                                                                                                                   |       |                                                                                                                                                                |
| 10.11                                    |       | Stock Purchase Savings Plan                                                                                                                                                                                                                                                            |       | Filed as Exhibit 10.11 to 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                                       |       | Subsidiaries of the Registrant                                                                                                                                                                                                                                                         |       | Filed herewith.                                                                                                                                                     |
|                                     |       |                                                                                                                                                                                                                                                                                   |       |                                                                                                                                                                |
| 23                                       |       | Consent of Independent Registered Public Accounting  Firm                                                                                                                                                                                                                              |       | Filed herewith.                                                                                                                                                     |
|                                     |       |                                                                                                                                                                                                                                                                                   |       |                                                                                                                                                                |
| 24                                       |       | Power of Attorney                                                                                                                                                                                                                                                                      |       | Included in signature page at page 55.                                                                                                                              |
|                                     |       |                                                                                                                                                                                                                                                                                   |       |                                                                                                                                                                |
| 31.1                                     |       | Certification of the Chief Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act 0f 2002                                                                                                                                                                                |       | Filed herewith                                                                                                                                                      |
|                                     |       |                                                                                                                                                                                                                                                                                   |       |                                                                                                                                                                |
| 31.2                                     |       | Certification of the Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                |       | Filed herewith                                                                                                                                                      |
|                                     |       |                                                                                                                                                                                                                                                                                   |       |                                                                                                                                                                |
| 32                                       |       | Certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                               |       | Filed herewith.                                                                                                                                                     |

 

The exhibits referred toin this Exhibit will be supplied to a shareholder at a charge of $.25 per pageupon written request directed to Canterbury Park Holding Corporation at theexecutive offices of the Company.

57

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