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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

FOR THE TRANSITION PERIOD FROM            TO           .

Commission File Number:  001-31569

CANTERBURY PARK HOLDING CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

1100 Canterbury Road

Shakopee, MN  55379

(Address of principal executive offices and zip code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x  NO o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  YES o  NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2).

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). YES o  NO x

The Company had 3,998,196 shares of common stock, $.01 par value, outstanding as of November 13, 2009.

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Canterbury Park Holding Corporation

INDEX

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PART 1 - FINANCIAL INFORMATION

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2009 AND DECEMBER 31, 2008 (Unaudited)

See notes to consolidated financial statements.

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

PERIODS ENDED SEPTEMBER 30, 2009 AND 2008 (Unaudited)

See notes to consolidated financial statements.

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

PERIODS ENDED SEPTEMBER 30, 2009 AND 2008 (Unaudited)

See notes to consolidated financial statements.

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PERIODS ENDED SEPTEMBER 30, 2009 AND 2008 (Unaudited)

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (GAAP), the financial position of Canterbury Park Holding Corporation as of September 30, 2009 and December 31, 2008; the results of its operations for the three and nine months ended September 30, 2009 and 2008; and its cash flows for the nine months ended September 30, 2009 and 2008.  The condensed consolidated financial statements were derived from the audited financial statements.  All adjustments are of a normal, recurring nature, except as otherwise disclosed.  Management has also evaluated the impact of events occurring after September 30, 2009 up to November 13, 2009, which is the date of issuance of these consolidated financial statements.  These statements contain all necessary adjustments and disclosures resulting from that evaluation.  Results for an interim period are not necessarily considered as indicative of results for a full year.

The summary of significant accounting policies is included in the notes to consolidated financial statements in the 2008 Annual Report on Form 10-K.

1.               SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business — Canterbury Park Holding Corporation (the “Company”) was incorporated under the laws of Minnesota and acquired land and buildings to conduct pari-mutuel horse racing operations (the “Racetrack”) in March 1994.  The Racetrack is located in Shakopee, Minnesota, approximately 25 miles southwest of downtown Minneapolis.  In May 1994, we commenced year-round horse racing simulcast operations and hosted the first annual live race meet during the summer of 1995.  Our live racing operations are a seasonal business as we host live race meets each year from May until August.  We earn additional pari-mutuel revenue by televising our live racing to out-of-state racetracks around the country.  We also derive revenues from related services and activities, such as advertising, admissions, parking and publication sales and from other entertainment events and activities held at the Racetrack.  In April 2000, we opened Canterbury Park’s Card Club (the “Card Club”).  The Card Club operates 24 hours a day, seven days a week and is limited by Minnesota State law to a maximum of 50 tables.  The Card Club currently offers 31 tables of Poker Games and 19 tables of Casino Games.  Our three largest sources of revenues, Card Club operations, pari-mutuel operations and concessions sales, generate cash revenues.

Presentation — The Condensed Consolidated Statement of Operations from the prior-period has been conformed to the 2009 presentation.  This presentation change had no effect on net income, earnings per share, or stockholders’ equity.

Reclassifications — Segment income before income taxes as viewed in Note 5 “Operating Segments” and short-term investments found in Note 3 “Fair Value” from the prior-period have been conformed to the 2009 presentation.  These reclassification changes had no effect on net income, earnings per share, or stockholders’ equity.

Revenue Recognition - Our revenues are derived primarily from the operations of a Card Club, pari-mutuel wagering on simulcast and live horse races, concession sales, and related activities.  Collection revenue from Card Club operations is recognized at the time that the wagering process is complete.  Pari-mutuel revenues are recognized upon occurrence of the live race that is presented for wagering and after that live race is made official by the respective state’s racing regulatory body.  Revenues related to concession and publication sales and parking and admission fees are recognized as revenue when the service has been performed or the product has been delivered.

Estimates - The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the

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reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

Short-term Investments — Short-term investments consist of certificates of deposit held by the Company.  The maturity dates of these investments vary but are less than one year in length.

Restricted Cash - Restricted cash represents refundable deposits and amounts due to horsemen for purses, stakes and awards, and amounts accumulated in the player pool and jackpot pools to be used to repay card club players in the form of promotions, giveaways, prizes, or by other means.

Income Taxes - Income tax expense is computed by applying the estimated annual effective tax rate to the year-to-date income.  Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to reverse.

The Company and its consolidated subsidiaries file income tax returns in the United States (“U.S.”) federal jurisdiction.  The Company is no longer subject to U.S. federal examinations by tax authorities for years prior to 2007 or by State of Minnesota tax authorities for years prior to 2003.  We do not believe there will be any material changes in our unrecognized tax positions over the next twelve months.

Net Income (Loss) Per Share - Basic net income (loss) per common share is based on the weighted average number of common shares outstanding during each period.  The weighted average number of common shares outstanding for the three and nine-month periods ended September 30, 2009 were 3,994,352 and 3,987,714, respectively.  The weighted average number of common shares outstanding for the three and nine-month periods ended September 30, 2008 were 3,948,473 and 4,011,126, respectively.  Diluted net income per common share takes into effect the dilutive effect of potential common shares outstanding.  The Company’s potential common shares outstanding are stock options.  After considering the dilutive effect of stock options outstanding, the weighted average shares used to calculate diluted earnings per share for the three and nine-month periods ended September 30, 2009 were 4,011,360 and 3,997,456, respectively.  The weighted average shares used to calculate diluted earnings per share for the three and nine-month periods ended September 30, 2008 were 3,948,473 and 4,098,070, respectively.  61,092 weighted average shares were considered anti-dilutive and excluded from the computation of common equivalent shares for the three months ended September 30, 2008, as the Company reported a net loss for that period.

Recent Accounting Pronouncements — In June 2009, the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Codification (“ASC”) 105, Generally Accepted Accounting Principles (“ASC 105”).  ASC 105 establishes the FASB Accounting Standards Codification (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernment entities in the preparation of financial statements in conformity with GAAP.  Rules and interpretive releases of the SEC under authority of federal securities law are also sources of authoritative GAAP for SEC registrants.  The Company adopted ASC 105 in three months ended September 30, 2009.  References to FASB guidance throughout this document have been updated for the Codification.

The Company adopted an update to ASC 805 — Business Combinations (“ASC 805”) on January 1, 2009.  ASC 805 establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree.  The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This update had no material impact on the Company’s financial position, results of operations or cash flows.

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The Company adopted an update to ASC 820 — “Fair Value Measurement and Disclosures” (“ASC 820”) January 1, 2009.  ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurement.  ASC 820 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets.  Under ASC 820, fair value measurements are disclosed by level within that hierarchy.  The Company adopted ASC 820 for the fiscal year beginning January 1, 2008.  The adoption of ASC 820 and the update had no material impact on the Company’s financial position, results of operations, or cash flows.

The Company adopted an update to ASC 855 — “Subsequent Events” (“ASC 855”) on April 1, 2009.  ASC 855 provides guidance on when a subsequent event should be recognized in the financial statements. Subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet should be recognized at the balance sheet date.  Subsequent events that provide evidence about conditions that arose after the balance sheet date but before financial statements are issued, or are available to be issued, are not required to be recognized.  The date through which subsequent events have been evaluated must be disclosed as well as whether it is the date the financial statements were issued or the date the financial statements were available to be issued.  For non-recognized subsequent events which should be disclosed to keep the financial statements from being misleading, the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made, should be disclosed. The standard is effective for interim or annual periods ending after June 15, 2009.  The adoption of ASC 855 and the update had no material impact on the Company’s financial position, results of operations, or cash flows.

2.               STOCK BASED COMPENSATION

Stock based compensation is included in the salaries and benefits expense line item on the consolidated statements of operations and amounted to $103,692 and $116,086 during the nine months ended September 30, 2009 and 2008, respectively.

Each non-employee member of the Board of Directors receives an annual recurring grant of 3,000 non-qualified stock options on the first business day in February.  On February 2, 2009, 15,000 options were granted to the five non-employee board members with an exercise price equal to the market price on the date of grant of $6.66.  The stock options vested over a six-month period and expire in ten years.  The compensation cost associated with this grant of Board of Director options was $18,900 and was recognized as expense over the six-month vesting period.  On February 1, 2008, 15,000 options were granted to the five non-employee board members with an exercise price equal to the market price on the date of grant of $11.35.

In addition, on April 23, 2009, 100,000 options were granted to employees with an exercise price equal to the market price on the date of grant of $6.00.  The stock options vest over a 42-month period and expire in ten years.  The compensation cost associated with this grant of employee options is $92,555 to be recognized as expense over the 42-month vesting period.

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The number of shares granted and the weighted average fair value per share during the periods presented were:

The fair value of stock options granted during the first nine months of 2009 and 2008 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions and results:

A summary of stock option activity as of September 30, 2009 and changes during the nine months then ended is presented below:

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A summary of stock option activity as of September 30, 2008 and changes during the nine months then ended is presented below:

Employee Stock Ownership Plan — During the first quarter of 2008, the Company contributed 10,000 shares of common stock to the Employee Stock Ownership Plan (“ESOP”).  This contribution of $110,000 was a noncash transaction in which shares were issued and were allocated to the accounts of eligible employees based upon their 2007 compensation during the first quarter of 2008.  On October 24, 2008, the Company announced it had suspended its ESOP contribution for fiscal 2008.  As of the date of this filing, the Company has taken no further action regarding possible re-introduction of the contribution.

3.               FAIR VALUE

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities.  The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

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Assets and liabilities measured at fair value on a recurring basis for September 30, 2009 and December 31, 2008 are summarized below:

4.               GENERAL CREDIT AGREEMENT

The Company has a general credit agreement with Bremer Bank, which provides a revolving credit line.  On September 30, 2009, the Company signed an amendment with Bremer Bank extending the expiration date from September 30, 2009 to June 30, 2010 and adjusting the credit line from $5,000,000 to $3,000,000.  The Company had no borrowings under this credit line at September 30, 2009 and December 31, 2008.  The credit agreement contains certain covenants requiring the Company to maintain certain financial ratios.  The Company was in compliance with these requirements as of September 30, 2009.  Management believes that funds available under this line of credit, along with funds generated from card club and simulcast operations, will be sufficient to satisfy its liquidity and capital resource requirements during 2009.

5.               OPERATING SEGMENTS

During the first nine months of 2009 and 2008, the Company had three reportable operating segments:  horse racing, card club, and concessions.  The horse racing segment primarily represents simulcast and live horse racing operations.  The card club segment primarily represents operations of Canterbury Park’s Card Club, and the concessions segment primarily represents food and beverage operations provided during simulcast and live racing, in the card club, and during special events.  The Company’s reportable operating segments are strategic business units that offer different products and services.  They are managed separately because the segments differ in the nature of the products and services provided as well as processes to produce those products and services.  The Minnesota Racing Commission regulates the horse racing and card club segments.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the 2008 Annual Report on Form 10-K.

Depreciation, interest expense and income taxes are allocated to the segments but no allocation is made to concessions for shared facilities.  However, the concessions segment pays approximately 25% of gross revenues earned on live racing and special event days to the horse racing segment for use of the facilities.

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

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

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6.               COMMITMENTS AND CONTINGENCIES

In accordance with an Earn Out Note, given to the prior owner of the Racetrack as part of the consideration paid by the Company to acquire the Racetrack in 1994, if (i) off-track betting becomes legally permissible in the State of Minnesota and (ii) the Company begins to conduct off-track betting with respect to or in connection with its operations, the Company will be required to pay to the IMR Fund, L.P. the greater of $700,000 per operating year, as defined, or 20% of the net pretax profit, as defined for each of five operating years.  At this time, management believes that the likelihood that these two conditions will be met, and that the Company will be required to pay these amounts is remote.  At the date (if any) that these two conditions are met, the five minimum payments will be discounted back to their present value and the sum of those discounted payments will be capitalized as part of the purchase price in accordance with generally accepted accounting principles.  The purchase 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 days after the end of the third operating year in which off-track betting is conducted by the Company.  Remaining payments would be made within 90 days of the end of each of the next four operating years.

The Company is periodically involved in various legal actions arising in the normal course of business.  At September 30, 2009, management believes that the resolution of any legal actions outstanding will not have a material impact on the consolidated financial statements.

On June 5, 2008, Company’s Board of Directors declared a special cash dividend of $.25 per share of common stock payable on July 11, 2008 to shareholders of record on June 20, 2008.  The aggregate amount paid to shareholders on July 11, 2008 pursuant to this dividend declaration was $1,007,173.  No special dividend has been declared year-to-date in 2009, and it is not anticipated that any special dividend will be declared in 2009.

In April 2008, the Minnesota Legislature passed a bill allowing pari-mutuel simulcast wagering on all breeds at Running Aces, a harness track and card club that opened in Anoka County in April 2008.  In anticipation of the passing of this legislation, the Company entered into a revenue sharing agreement with Running Aces.  This agreement has benefited the respective horsemen’s associations by requiring the Company and Running Aces to make purse set aside contributions and Breeders Fund contributions as required by law.  Additionally, under the terms of the agreement, the Company pays Running Aces a portion of net revenues for simulcast wagers taken on harness racing at Canterbury Park, and Running Aces pays the Company a portion of net revenues for simulcast wagers taken on thoroughbred racing at Running Aces.  Canterbury Park recognized net revenues of $122,383 and $43,804 for the nine months ended September 30, 2009 and 2008, respectively.

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The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Canterbury Park Holding Corporation, our operations and our present business environment.  This MD&A is provided as a supplement to — and should be read in conjunction with — our condensed consolidated financial statements and the accompanying notes to the financial statements (the “Notes”).

Overview:

Canterbury Park Holding Corporation (the “Company”) owns and operates the Canterbury Park Racetrack and Card Club in Shakopee, Minnesota (the “Racetrack”).  The primary businesses of the Company are simulcast and live pari-mutuel horse racing, hosting unbanked card games, and food and beverage operations.

The Racetrack is the only pari-mutuel thoroughbred and quarter horse racing facility in the State of Minnesota.  The Racetrack earns revenues from pari-mutuel take-out on races simulcast year-round to Canterbury Park from racetracks throughout the country and from live race meets featuring thoroughbred and quarter horse racing.  Live race meets commence in the month of May and conclude in August.  During live race meets, the Company televises its races to out-of-state racetracks around the country, and earns additional pari-mutuel revenue on wagers placed on its races at the out-of-state racetracks.

Canterbury Park’s Card Club (the “Card Club”) hosts “unbanked” card games in which players compete against each other and not against the house.  The Card Club is open twenty-four hours a day, seven days a week.  Under Minnesota law, the Company is required to pay up to 14% of the gross Card Club revenues to the Racetrack’s purse fund and the State of Minnesota Breeders’ Fund.

The Company also generates revenues from other activities such as admission and parking fees and from the sale of food and beverage, programs and other racing publications, and corporate sponsorships.  Additional revenues are derived from an RV park and the use of the Racetrack facilities for special events such as concerts, craft shows and snowmobile racing.

Operations Review for the Three and Nine Months Ended September 30, 2009 and September 30, 2008:

The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA, a non-GAAP measure, for the periods ended September 30, 2009 and 2008:

EBITDA represents earnings before interest income, income tax expense, and depreciation and amortization.  EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles (“GAAP”), and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance, or cash flows from operating activities as a measure of liquidity.  EBITDA has been presented as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry.  Moreover, other companies that provide EBITDA information may calculate EBITDA differently than we do.

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EBITDA increased slightly as a percentage of net revenues to 6.1% for the first nine months ended September 30, 2009 compared to 6.0% for the first nine months ended September 30, 2008.

Total net revenues decreased $5,735,224, or 15.4%, during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008, and decreased $1,085,695, or 8.2%, for the three months ended September 30, 2009 compared to the three months ended September 30, 2008.  The decrease was due primarily to reductions of 15.5% and 19.3% in pari-mutuel and Card Club revenues, respectively, for the nine months ended September 30, 2009.  Pari-mutuel and Card Club revenues decreased 10.0% and 11.9%, respectively, for the three months ended September 30, 2009.

Pari-mutuel revenues decreased $1,720,914, or 15.5%, in the nine-month period ended September 30, 2009 compared to the same period in 2008, and decreased $435,084, or 10.0%, for the three-month period ended September 30, 2009 compared to the same period in 2008.  Total handle wagered for the first nine months of 2009 was down $14.2 million, or 20.3%, compared to the same period last year.  The decrease is attributable to the economic recession that has adversely impacted discretionary spending on entertainment.  The economic recession, which began in 2008, has continued to erode revenues throughout the first nine months of 2009.  In addition, the Company now faces direct pari-mutuel competition from Running Aces Harness Park (“Running Aces”), a harness track that opened in Anoka County in April 2008.  The Company also believes that an increasing number of Minnesota residents are unlawfully wagering on horse races by means of the Internet.  Finally, the Company conducted 81 fewer races during 2009, which further resulted in decreased on-track handle.  See the “Summary of Pari-mutuel Data” below: