CANTERBURY PARK HOLDING CORP - FORM 10-Q

Attached files

file	filename
EX-99.2 - STOCK APPRECIATION RIGHTS AGREEMENT - CANTERBURY PARK HOLDING CORP	cphc122917_ex99-2.htm
EX-31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 - CANTERBURY PARK HOLDING CORP	cphc122917_ex31-2.htm
EX-99.1 - COOPERATIVE MARKETING AGREEMENT - CANTERBURY PARK HOLDING CORP	cphc122917_ex99-1.htm
EX-31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 - CANTERBURY PARK HOLDING CORP	cphc122917_ex31-1.htm
EXCEL - IDEA: XBRL DOCUMENT - CANTERBURY PARK HOLDING CORP	Financial_Report.xls
EX-32 - CERTIFICATION OF CEO/CFO PURSUANT TO SECTION 906 - CANTERBURY PARK HOLDING CORP	cphc122917_ex32.htm

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012.

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 LOGO)


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		Identification No.)
Organization)

	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

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	X		NO


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).
	Large accelerated filer	Accelerated filer
	Non-accelerated filer	Smaller reporting company	X

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


	YES			NO	X

The Company had 4,144,000 shares of common stock, $.01 par value, outstanding as of August 13, 2012.

Canterbury Park Holding Corporation

INDEX


			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements (unaudited)

		Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011	3

		Condensed Consolidated Statements of Operations for the periods Ended June 30, 2012 and 2011	4

		Condensed Consolidated Statements of Cash Flows for the periods Ended June 30, 2012 and 2011	5

		Notes to Condensed Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23

	Item 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	24

	Item 1A.	Risk Factors	24

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

	Item 3.	Defaults Upon Senior Securities	24

	Item 4.	Mine Safety Disclosures	24

	Item 5.	Other Information	24

	Item 6.	Exhibits	24

	Signatures		25

	Certifications		26

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PART 1 - FINANCIAL INFORMATION

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2012 AND DECEMBER 31, 2011 (Unaudited)


	June 30, 2012		December 31, 2011
ASSETS
CURRENT ASSETS
Cash	$	9,490,071	$	8,268,779
Restricted cash		2,515,514		1,146,163
Short-term investments		202,626		201,669
Accounts receivable, net of allowance of $27,773		859,037		540,167
Inventory		292,420		183,122
Prepaid expenses		962,855		682,404
Deferred income taxes		612,100		315,200
Income taxes receivable		144,010		—
Due from Minnesota horsemen associations		—		44,372
Total current assets		15,078,633		11,381,876

LONG-TERM ASSETS
Deposits		26,400		26,400
Land, buildings and equipment, net of accumulated depreciation of $21,180,077 and $20,364,053, respectively		22,704,802		22,776,115
	$	37,809,835	$	34,184,391

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	$	5,296,393	$	2,432,818
Card Casino accruals		1,337,167		1,314,173
Accrued wages and payroll taxes		870,483		775,256
Due to MHBPA		61,128		158,616
Accrued property taxes		609,229		606,252
Income taxes payable		—		97,000
Dividend payable		1,035,475		—
Payable to horsepersons		64,251		17,745
Total current liabilities		9,274,126		5,401,860

LONG-TERM LIABILITIES
Deferred income taxes		1,312,600		1,309,000
Stock appreciation rights		117,226		—

COMMITMENTS AND CONTINGENCIES		—		—

STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized, 4,141,898 and 4,101,701, respectively, shares issued and outstanding		41,419		41,017
Additional paid-in capital		16,714,925		16,413,468
Retained earnings		10,349,539		11,019,046
Total stockholders’ equity		27,105,883		27,473,531
	$	37,809,835	$	34,184,391

See notes to condensed consolidated financial statements.

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

PERIODS ENDED JUNE 30, 2012 AND 2011 (Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
OPERATING REVENUES:
Pari-mutuel	$	3,095,486		$	3,055,969		$	4,871,317		$	4,739,719
Card Casino		6,050,038			6,132,831			12,593,111			11,733,633
Concessions		1,796,079			1,638,580			2,728,873			2,361,701
Other		1,075,935			901,078			1,473,431			1,238,587
Total Revenues		12,017,538			11,728,458			21,666,732			20,073,640
Less: Promotional Allowances		(53,454	)		(62,938	)		(93,938	)		(100,310	)
Net Revenues		11,964,084			11,665,520			21,572,794			19,973,330

OPERATING EXPENSES:
Purse expense		1,829,069			1,782,164			2,750,800			2,588,071
Minnesota Breeders’ Fund		234,719			233,027			394,648			376,015
Other pari-mutuel expenses		468,686			467,756			821,510			773,282
Salaries and benefits		5,174,074			4,899,306			9,361,649			8,609,908
Cost of sales		985,897			915,613			1,520,941			1,380,240
Depreciation		411,000			476,730			884,580			937,230
Utilities		276,129			311,003			502,939			545,541
Advertising and marketing		484,470			423,161			680,282			525,709
Other operating expenses		2,393,390			2,182,259			3,943,836			3,625,865
		12,257,434			11,691,019			20,861,185			19,361,861

(LOSS) INCOME FROM OPERATIONS		(293,350	)		(25,499	)		711,609			611,469

NONOPERATING (EXPENSES) REVENUES:
Interest expense		—			(587	)		—			(593	)
Other, net		2,225			1,264			3,339			2,623
		2,225			677			3,339			2,030

(LOSS) INCOME BEFORE INCOME TAXES		(291,125	)		(24,822	)		714,948			613,499

INCOME TAX BENEFIT (EXPENSE)		124,589			(323,234	)		(348,980	)		(751,000	)

NET (LOSS) INCOME	$	(166,536	)	$	(348,056	)	$	365,968		$	(137,501	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING		4,115,771			4,066,539			4,113,901			4,067,743

WEIGHTED AVERAGE NUMBER OF DILUTIVE SHARES OUTSTANDING		4,115,771			4,066,539			4,162,094			4,067,743

BASIC NET (LOSS) INCOME PER COMMON SHARE	$	(.04	)	$	(.09	)	$	.09		$	(.03	)

DILUTED NET (LOSS) INCOME PER COMMON SHARE	$	(.04	)	$	(.09	)	$	.09		$	(.03	)

See notes to condensed consolidated financial statements.

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

PERIODS ENDED JUNE 30, 2012 AND 2011 (Unaudited)


	Six Months Ended June 30,
	2012			2011
Operating Activities:
Net income (loss)	$	365,968		$	(137,501	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		884,580			937,230
Stock-based compensation expense		91,558			132,750
(Decrease) increase in deferred income taxes		(293,300	)		205,200
Tax benefit from exercise of stock options		27,289			25,900
Changes in operating assets and liabilities:
Increase in restricted cash		(1,369,351	)		(1,329,973	)
Increase in accounts receivable		(318,870	)		(263,325	)
Increase in other current assets		(389,749	)		(379,817	)
(Decrease) increase in income taxes payable		(268,299	)		493,999
Increase in accounts payable and accrued wages and payroll taxes		2,899,089			3,010,184
Increase in Card Casino accruals		22,994			350,333
Increase in stock appreciation rights		117,226			—
Increase in accrued property taxes		2,977			16,965
Increase in payable to horsepersons		46,506			26,260
Decrease in due to MHBPA		(53,116	)		(41,834	)
Net cash provided by operating activities		1,765,502			3,046,371

Investing Activities:
Additions to buildings and equipment		(753,553	)		(348,465	)
Proceeds from sale of assets		—			1,000
Proceeds from redemption of investments		—			29,430
Purchase of investments		(957	)		(100,000	)
Net cash used in investing activities		(754,510	)		(418,035	)

Financing Activities
Proceeds from issuance of common stock		183,011			199,595
Tax benefit from exercise of stock options		27,289			25,900
Net cash provided by financing activities		210,300			225,495

Net increase in cash		1,221,292			2,853,831

Cash at beginning of period		8,268,779			5,451,462

Cash at end of period	$	9,490,071		$	8,305,293

Supplemental disclosure of noncash investing and financing activities:
Additions to buildings and equipment funded through accounts payable	$	88,999		$	4,119
Proceeds from issuance of common stock funded through shares swapped	$	—		$	210,470
Dividend declared	$	1,035,475		$	—

Supplemental disclosure of cash flow information:
Income taxes paid, net of refunds	$	856,000		$	—

See notes to condensed consolidated financial statements.

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PERIODS ENDED JUNE 30, 2012 AND 2011 (Unaudited)


	The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, and, in the opinion of management, 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 June 30, 2012 and December 31, 2011, the results of its operations for the three and six months ended June 30, 2012 and 2011 and the results of its cash flows for the six months ended June 30, 2012 and 2011. The condensed consolidated balance sheet as of December 31, 2011 was derived from the audited financial statements. All adjustments are of a normal, recurring nature, except as otherwise disclosed. Results for an interim period are not necessarily indicative of results for a full year.

	The complete summary of significant accounting policies is included in the notes to consolidated financial statements in the Company’s 2011 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 early September. We earn additional pari-mutuel revenue by televising our live racing to out-of-state racetracks around the country. Canterbury Park’s Card Casino operates 24 hours a day, seven days a week and is limited by Minnesota State law to a maximum of 80 tables. The Card Casino currently offers a variety of poker and table games. Our three largest sources of revenues, Card Casino operations, pari-mutuel operations and concessions sales, generate cash revenues. We also derive revenues from related services and activities, such as advertising, parking and publication sales and from other entertainment events and activities held at the Racetrack.

	Revenue Recognition – Our revenues are derived primarily from the operations of a Card Casino, pari-mutuel wagering on simulcast and live horse races, concession sales, and related activities. Collection revenue from Card Casino operations, a set percentage of wagers, 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. All sales taxes are presented on a net basis and are excluded from revenue.

	Estimates – The preparation of the 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

	Unrestricted Cash – Cash includes all investments with original maturities of three months or less or which are readily convertible into known amounts of cash and are not legally restricted. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.

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

	Short-term Investments – Securities are classified as held to maturity when the Company has the positive intent and ability to hold them to maturity, and are measured at amortized cost. At June 30, 2012 and December 31, 2011, all investments were classified as held-to-maturity. The Company continually reviews its investments to determine whether a decline in fair value below the cost basis is other than temporary. If the decline in fair value is judged to be other than temporary, the cost basis of the security is written down to fair value and the amount of the write-down is included in earnings. Short-term investments consist of certificates of deposits at June 30, 2012 and December 31, 2011. Amortized cost approximated fair value for both periods.

	Uncashed Winning Tickets – The Company records a liability for winning tickets upon the completion of a race. As winning tickets are redeemed, this liability is reduced for the respective cash payment. We recognize revenue associated with the uncashed winning tickets when the likelihood of the redemption of the winning ticket is remote.

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

	Due to Minnesota Horsemen’s Benevolent and Protective Association, Inc. (“MHBPA”) – The Minnesota Pari-mutuel Horse Racing Act specifies that the Company is required to segregate a portion of funds (recorded as purse expense in the statements of operations), received from card room operations and wagering on simulcast and live horse races, for future payment as purses for live horse races or other uses of the horsepersons’ associations. Pursuant to an agreement with the MHBPA, the Company transferred into a trust account or paid directly to the MHBPA, approximately $2,575,000 and $2,425,000 for the six-month periods ending June 30, 2012 and 2011, respectively, related to thoroughbred races. Minnesota Statutes specify that amounts transferred into the trust account are the property of the trust and not of the Company.

	Impairment of Long-Lived Assets – Management of the Company periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected future net cash flows. Should the sum of the related expected future net cash flows be less than the carrying value, management will determine whether an impairment loss should be recognized. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. Management has determined that no impairment of these assets exists at June 30, 2012.

	Land, Buildings, and Equipment – Land, buildings, equipment, and building improvements are capitalized at a level of $1,000 or greater and are recorded at cost. Repair and maintenance costs are charged to operations when incurred. Furniture, fixtures, and equipment are depreciated using the straight-line method over estimated useful lives ranging from 5 – 7 years, while buildings are depreciated over 15 – 39 years. Building improvements are amortized using the straight-line method over the useful life of the assets.

	Card Casino Accruals – Minnesota law allows the Company to collect amounts from patrons to fund progressive jackpot pools in the Card Casino. These amounts, along with amounts earned by the player pool, promotional pools and the outstanding chip liability, are accrued as short-term liabilities at each balance sheet date.

	Income Taxes – 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.

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	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 effective income tax rate for 2012 is higher than the statutory rate primarily due to non-deductible lobbying expenses.

	Interest and penalties associated with uncertain income tax positions are presented in income tax expense. During the three months ended June 30, 2012 and 2011, we did not recognize any expense related to interest and penalties. Additionally, we do not have any amounts accrued at June 30, 2012 for the payment of interest and penalties.

2.	STOCK BASED COMPENSATION

	Stock based compensation is recorded at fair value as of the date of grant and included in the salaries and benefits expense line item on the consolidated statements of operations and amounted to $91,558 and $132,750 during the six months ended June 30, 2012 and 2011, respectively.

	Prior to June 2, 2011, the Company’s Stock Plan provided for annual, automatic grants to each non-employee member of the Board of Directors on the first business day each February of non-qualified stock options to acquire 3,000 shares of common stock. Pursuant to this provision, on February 1, 2011, 15,000 options were granted to five non-employee board members with an exercise price per share equal to the market price on the date of grant of $13.30. The stock options vested over a six-month period and expire in ten years. The compensation cost associated with this grant of Board of Directors options is $93,750 and was recognized as expense over the six-month vesting period.

	Pursuant to Board action taken on April 15, 2011 and shareholder approval on June 2, 2011, the Company’s Stock Plan was amended to authorize annual grants of restricted stock or stock options, or both, as determined by the Board, and, pursuant to the amended Stock Plan, on June 2, 2011, 1,000 shares of restricted stock were granted to each of the five non-employee members of the Board of Directors. The restricted stock vested 100% after one year and is subject to restrictions on resale for an additional year. The compensation cost associated with the total grant of 5,000 shares was $73,300 that was recognized as expense over the one-year vesting period. Also pursuant to the amended Stock Plan, on June 7, 2012, 2,364 shares of restricted stock were granted to each of the five non-employee members of the Board of Directors. The restricted stock will vest 100% after one year and will be subject to restrictions on resale for an additional year. The compensation cost associated with the total grant of 11,820 shares is $149,996 that will be recognized as expense over the one-year vesting period.

	On September 8, 2011, 54,250 shares of deferred stock awards were granted to employees with a price per share equal to the market price on the date of grant of $9.27. The issuance of these deferred stock awards is contingent upon the Company obtaining legislation authorizing the operation of a Racino at Canterbury Park on or before December 31, 2012 and the Racino opens for business to the public pursuant to such legal authority by December 31, 2014. The Company believes the likelihood of this event to be remote due to the signing of the Cooperative Marketing Agreement as noted in Note 7.

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	The number of shares that may be issued pursuant to options and restricted stock granted and the weighted average fair value during the periods presented were:


	Six Months Ended
	June 30, 2012				June 30, 2011
	Grant		Weighted Average Fair Value Per Share		Grant		Weighted Average Fair Value Per Share

Board stock options		—		—		15,000	$	6.25
Board restricted stock		11,820	$	12.69		5,000	$	14.66

Total shares		11,820				20,000


	The fair value of stock options granted under the Company’s 1994 Stock Plan during the first six months of 2011 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions and results; no stock options were granted during the first six months of 2012:


	2011
Expected dividend yield		0.00	%
Expected weighted-average volatility		50	%
Risk-free interest rate		2.02	%
Expected term of stock options (in years)		5.5
Fair value of stock options on grant date	$	93,750


	A summary of stock option activity as of June 30, 2012 and changes during the six months then ended is presented below:


Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Grant Date Fair Value

Outstanding at January 1, 2012		318,002		$	9.21

Granted		—			—
Exercised		(19,750	)	$	7.23
Expired/Forfeited		—			—

Outstanding at June 30, 2012		298,252		$	10.06		5.8 Years	$	3,000,852

Exercisable at June 30, 2012		246,752		$	10.57		5.6 Years	$	2,607,492

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	A summary of stock option activity as of June 30, 2011 and changes during the six months then ended is presented below:


Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Grant Date Fair Value

Outstanding at January 1, 2011		368,437		$	9.21

Granted		15,000		$	13.30
Exercised		(59,935	)	$	6.84
Expired/Forfeited		(3,250	)	$	7.23

Outstanding at June 30, 2011		320,252		$	9.86		6.7 Years	$	3,157,726

Exercisable at June 30, 2011		212,877		$	10.67		5.8 Years	$	2,272,021


	Employee Stock Ownership Plan – Prior to 2008, the Company contributed shares of its common stock to its Employee Stock Ownership Plan (the “ESOP”). However, no contributions have been made from January 1, 2008 to date, and the Company has not taken any action to reinstate contributions to the ESOP.

	Employee Stock Purchase Plan – On April 3, 1995, the Board of Directors adopted an Employee Stock Purchase Plan (the “ESPP”). Pursuant to Board action taken in September 2011, the ESPP was amended to consist of three-month phases. The plan issued 2,096 shares during the second quarter of 2012. The plan did not issue any shares during the second quarter of 2011. The ESPP has issued a total of 248,262 shares since its inception. Pursuant to Board action taken on June 2, 2012, and effective during the third quarter of 2012, the discount offered to employees as part of the ESPP was raised 5% to 10%.

	Stock Appreciation Rights (“SARs”)
	As part of the Cooperative Marketing Agreement (the “Agreement”) discussed in Note 7, on June 14, 2012, the Company signed a Stock Appreciation Rights Agreement (the “SAR Agreement”) and issued SARs to non-employees. The SAR Agreement granted rights to non-employees to benefit from the appreciation in the value of 165,000 shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately and the remaining rights vest at the rate of 16,500 per year beginning in 2013. The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s common stock price on the date of exercise over the grant price. SARs have no effect on dilutive shares or shares outstanding as any appreciation of the Company’s common stock value over the grant price is paid in cash and not in common stock. The SAR Agreement and all rights granted expire on December 31, 2022.

	The fair value of SARs is revalued (mark-to-market) each reporting period using the Black-Scholes valuation model based on the Company’s period-end stock price. The expected term of the SARs granted is based on the contractual term. Expected volatility is based on the historical volatility of the Company’s stock for the length of time corresponding to the expected term of the SARs. The expected dividend yield is based on the Company’s historical dividend payments. The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the reporting date for the length of time corresponding to the expected term of the SARs.

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	The following weighted-average assumptions were used in calculating the fair value of SARs granted during the three-month period ended June 30, 2012, using the Black-Scholes valuation model; no SARs were granted during the three and six-month periods ended June 30, 2011:


	Three Months Ended June 30, 2012
Expected dividend yield		0.00	%
Expected weighted-average volatility		48.0	%
Risk-free interest rate		1.67	%
Expected term of SARs (in years)		10.55

There were no exercises during the three and six-month periods ended June 30, 2012. The total fair value of SARs vested during the three and six-month periods ended June 30, 2012 was $117,226. This expense was recorded as a component of other pari-mutuel expenses due to the nature of the Agreement. In the future, changes in the fair value of these SARs will also be recorded to this expense.

Changes to the Company’s non-vested SARs during the six-month period ended June 30, 2012, are as follows:


	SARs			*Fair Value ()**
Non-vested SARs at December 31, 2011		—			—
Granted		165,000		$	6.09
Vested		(15,000	)	$	6.09
Cancellations		—			—
Non-vested SARs at June 30, 2012		150,000		$	6.09


	*Weighted-average

3.	EARNINGS PER SHARE COMPUTATIONS

	Basic net income per common share is based on the weighted average number of common shares outstanding during each period. 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. Options to purchase 119,500 shares of common stock at an average price of $14.36 per share were outstanding but not included in the computation of diluted earnings per share for both the three and six-month periods ending June 30, 2012 because the options were out of the money at June 30, 2012. Options to purchase 29,500 shares of common stock at an average price of $16.94 per share were outstanding but not included in the computation of diluted earnings per share for both the three and six-month periods ending June 30, 2011 because the options were out of the money at June 30, 2011. Weighted average shares of 50,294 were considered anti-dilutive and excluded from the computation of common equivalent shares for the three month period ended June 30, 2012, as the Company reported a loss for that period. Additionally, weighted average shares of 51,667 and 59,397 were considered anti-dilutive and excluded from the computation of common equivalent shares for the three and six-month period ended June 30, 2011, as the Company reported a net loss for those periods.

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	The following is a reconciliation of the numerator and denominator of the earnings per common share computations for the three and six-month periods ending June 30, 2012 and 2011:


	Three Months Ended June 30, 2012			Three Months Ended June 30, 2011			Six Months Ended June 30, 2012		Six Months Ended June 30, 2011
Net (loss) income (numerator) amounts used for basic and diluted per share computations:	$	(166,536	)	$	(348,056	)	$	365,968	$	(137,501	)

Weighted average shares (denominator) of common stock outstanding:
Basic		4,115,771			4,066,539			4,113,901		4,067,743
Plus dilutive effect of stock options		—			—			48,193		—
Diluted		4,115,771			4,066,539			4,162,094		4,067,743

Net (loss) income per common share:
Basic	$	(.04	)	$	(.09	)	$	.09	$	(.03	)
Diluted		(.04	)		(.09	)		.09		(.03	)


4.	GENERAL CREDIT AGREEMENT

	The Company has a general credit agreement with Bremer Bank, which provides a revolving credit line of up to $3,000,000. On May 6, 2012, the Company signed an amendment with Bremer Bank extending the expiration date from May 8, 2012 to May 5, 2013, while keeping previous provisions intact. The Company had no borrowings under this credit line at June 30, 2012 and December 31, 2011. The credit agreement contains certain covenants requiring the Company to maintain certain financial ratios. The Company was in compliance with these requirements as of June 30, 2012. The Company believes that unrestricted funds available in its cash accounts, funds available under this line of credit, along with funds generated from operations, will be sufficient to satisfy its liquidity and capital resource requirements during 2012.

5.	OPERATING SEGMENTS

	During the first six months of 2012 and 2011, the Company had three reportable operating segments: horse racing, Card Casino, and concessions. The horse racing segment primarily represents simulcast and live horse racing operations. The Card Casino segment primarily represents operations of Canterbury Park’s Card Casino, and the concessions segment primarily represents food and beverage operations provided during simulcast and live racing, in the Card Casino, 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 Casino segments.

	The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the 2011 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):


	Six Months Ended June 30, 2012
	Horse Racing			Card Casino		Concessions		Total

Net revenues from external customers	$	6,246		$	12,593	$	2,734	$	21,573

Intersegment revenues		249			—		733		982

Net interest income		3			—		—		3

Depreciation		526			294		65		885

Segment (loss) income before income taxes		(975	)		1,822		357		1,204

	At June 30, 2012
Segment Assets	$	34,599		$	2,560	$	11,818	$	48,977

	Six Months Ended June 30, 2011
	Horse Racing			Card Casino		Concessions		Total

Net revenues from external customers	$	5,873		$	11,734	$	2,366	$	19,973

Intersegment revenues		156			—		700		856

Net interest income		2			—		—		2

Depreciation		563			294		80		937

Segment (loss) income before income taxes		(946	)		1,705		219		978

	At December 31, 2011
Segment Assets	$	30,832		$	2,838	$	11,222	$	44,892


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


	Six Months Ended June 30,
	2012			2011
Revenues
Total net revenue for reportable segments	$	22,555		$	20,829
Elimination of intersegment revenues		(982	)		(856	)
Total consolidated net revenues	$	21,573		$	19,973

Income before income taxes
Total segment income before income taxes	$	1,204		$	978
Elimination of intersegment income before income taxes		(489	)		(365	)
Total consolidated income before income taxes	$	715		$	613

	June 30, 2012			Dec. 31, 2011
Assets
Total assets for reportable segments	$	48,977		$	44,892
Elimination of intercompany receivables		(11,167	)		(10,173	)
Total consolidated assets	$	37,810		$	34,719

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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.

	Additionally, if the Company breaches certain obligations as a result of the Cooperative Marketing Agreement that became effective on June 15, 2012, the Company will be forced to repay various amounts (depending on the breach).

	The Company periodically is subject to claims or involved in legal proceedings arising in the normal course of business. At June 30, 2012, management believes that the resolution of any pending claims or legal proceedings will not have a material impact on the consolidated financial statements.

7.	COOPERATIVE MARKETING AGREEMENT

	On June 4, 2012, Canterbury Park Holding Corporation (the “Company”) entered into a Ten-Year Cooperative Marketing Agreement (“Agreement”) with the Shakopee Mdewakanton Sioux Community (“SMSC”), a federally recognized Indian tribe. The primary purpose of the Agreement is to increase purses paid during live horse racing at the Canterbury Park racetrack. Under the terms of the Agreement, SMSC will make purse enhancement payments in order to strengthen Minnesota’s horse industry. Under the Agreement, SMSC has agreed to contribute $2.7 million for purse enhancements in 2012 and, after 2012, the additional amounts listed below.

	In addition, the Company and SMSC have also agreed to partner in joint marketing efforts for their mutual benefit, including events, cross promotions, cooperative poker tournaments, shared promotions and player benefits and signage. Under the agreement, SMSC has agreed to pay the Company an additional $300,000 for 2012 marketing purposes and, after 2012, the additional amounts listed below.

	After 2012, under the Agreement, SMSC has agreed to make the following purse enhancement and marketing payments in the years 2013 through 2022:


Year	Purse Enhancement	Marketing Payment
2013	5,300,000	600,000
2014	5,840,000	660,000
2015	6,434,000	726,000
2016	7,087,400	798,600
2017	7,806,140	878,460
2018	8,000,000	900,000
2019	8,000,000	900,000
2020	8,000,000	900,000
2021	8,000,000	900,000
2022	8,000,000	900,000

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	The Company will not receive any part of any purse enhancement payment. As the Company will not directly be handling these funds, there will be no impact on the Company’s financial statements.

	The amounts earned from the marketing payments will be recorded as a component of other revenue and the related expenses will be recorded as a component of marketing and advertising expense in the Company’s financial statements. For the period ended June 30, 2012, the Company did not earn any revenues and did not incur any expenses related to the 2012 marketing payment.

	As part of the Agreement, on June 14, 2012, the Company signed a Stock Appreciation Rights Agreement (the “SAR Agreement”) and issued stock appreciation rights to SMSC. The SAR Agreement granted rights to SMSC to benefit from the appreciation in the value of 165,000 shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately and the remaining rights vest at the rate of 16,500 per year beginning in 2013. The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s common stock price on the date of exercise over the grant price. The SAR Agreement and all rights granted expire on December 31, 2022. The liability related to these stock appreciation rights is recorded as a long-term liability and the Company will recognize the expense related to these stock appreciation rights as a component of other operating expenses due to the nature of the agreement. During the period ended June 30, 2012, the Company recognized $117,226 of expense related to these stock appreciation rights. In the future, changes in the fair value of these stock appreciation rights will increase or decrease the stock appreciation rights liability, and the Company will recognize additional expense or income related to these changes.

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ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 Casino 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 early September. 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.

The Card Casino at Canterbury Park currently hosts “unbanked” card games in which players compete against each other and not against the house. In addition, changes to the law governing Card Casino operations will enable us to begin offering banked games in the future. The Card Casino is open twenty-four hours a day, seven days a week. Under Minnesota law, the Company is required to pay up to 14% of gross Card Casino revenues to the Racetrack’s purse fund and the State of Minnesota Breeders’ Fund.

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

Operations Review for the Three and Six Months Ended June 30, 2012 and June 30, 2011:

The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA (defined below), which is a non-GAAP measure, for the six month periods ended June 30, 2012 and 2011:


	June 30, 2012			June 30, 2011
Net income (loss)	$	365,968		$	(137,501	)
Interest income, net of interest expense		(3,339	)		(2,030	)
Income tax expense		348,980			751,000
Depreciation		884,580			937,230
EBITDA	$	1,596,189		$	1,548,699

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 as a percentage of net revenues was 7.4% for the first six months ended June 30, 2012, as compared to 7.8% for the first six months ended June 30, 2011.

Total net revenues increased $1,599,464, or 8.0%, during the six months ended June 30, 2012 compared to the six months ended June 30, 2011, and increased $298,564, or 2.6%, for the three months ended June 30, 2012 compared to the three months ended June 30, 2011. The six month improvement was due primarily to an increase in Card Casino revenues of 7.3%, an increase in pari-mutuel revenues of 2.8% and an increase in concessions revenue of 15.5% compared to the same period in the prior year. The three month increase represented an increase in pari-mutuel revenues of 1.3% and an increase in concessions revenues of 9.6% offset by a reduction of 1.3% in Card Casino revenues for the three months ended June 30, 2012 compared to the same period in the prior year. See below for a further discussion of revenue.

Summary of Pari-mutuel Data:


	Six Months Ended June 30,
	2012		2011
Racing Days
Simulcast only		158		159
Live and Simulcast		24		22
Total Number of Racing Days		182		181

On-Track Handle
Simulcast racing handle on simulcast only days	$	13,853,000	$	13,912,000
Live and Simulcast days:
Live racing handle		4,279,000		3,755,000
Simulcast racing handle		3,894,000		3,633,000
Total On-Track Handle		22,026,000		21,300,000

Out-of-State Live Handle		5,197,000		4,321,000

Total Handle	$	27,223,000	$	25,621,000

On-Track Average Daily Handle
Simulcast only racing days	$	87,677	$	87,497
Live and simulcast racing days	$	340,542	^$	335,818

Pari-mutuel revenues increased $131,598, or 2.8%, in the six-month period ended June 30, 2012 compared to the same period in 2011, and increased $39,517, or 1.3%, for the three-month period ended June 30, 2012 compared to the same period in 2011. Total handle wagered for the first half of 2012 was up $1,602,000, or 6.3%, compared to the same period last year. The six-month increase is primarily attributable to unusually mild weather in the first quarter of 2012 compared to inclement weather during the first quarter of 2011, when Minnesota experienced one of the snowiest winters on record which discouraged customers from coming to the track and wagering. Similar harsh weather in other parts of the United States in the first quarter of 2011 caused the cancellation of a significant number of races at racetracks simulcasting their signal to our racetrack. The three-month increase is primarily attributable to the Company scheduling two more live race days in the 2012 second quarter, which contributed to an increase in live meet handle compared to the same period in 2011.

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Summary of Card Casino Data:


	Six Months Ended June 30,
	2012		2011
Poker Games	$	5,205,000	$	5,237,000
Table Games		6,164,000		5,367,000
Total Collection Revenue		11,369,000		10,604,000

Other Revenue		1,224,000		1,130,000
Total Card Casino Revenue	$	12,593,000	$	11,734,000

Number of Days Offered		182		181
Average Revenue per Day	$	69,192	$	64,829

Total Card Casino revenue increased $859,478, or 7.3%, for the first six months of 2012 and decreased $82,793, or 1.3%, for the second quarter of 2012 compared to the same periods in 2011. The primary source of Card Casino revenue is a percentage of the wagers received from the players as compensation for providing the Card Casino facility and services, which is referred to as the “collection revenue.” Other revenue includes fees collected for the administration of tournaments, and amounts earned as reimbursement of the administrative costs of maintaining jackpot funds. Poker collection revenue during the first six months of 2012 remained relatively stable, decreasing $31,487, or 0.6%, compared to the first six months of 2011, and also decreased $205,182, or 7.8%, for the quarter ended June 30, 2012 compared to the same period in 2011. The Company believes that the decrease is largely attributable to the ban on Internet poker that began on April 15, 2011 which resulted in increased play during the second quarter of 2011 which has since subsided. Table games collection revenue increased $796,933, or 14.8%, compared to the first half of 2011 and $162,484, or 5.6%, for the quarter ended June 30 compared to the same period in 2011. The Company believes these increases are primarily due to a strengthening economy that encouraged increased interest in card play and the unusually mild weather in 2012 described above. Total Card Casino revenues represented 58.4% and 50.6% of net revenues for the six-month and three-month periods ended June 30, 2012, respectively. The second quarter percentage is usually lower in every calendar year due to substantially increased revenue from live racing.

Concession revenues increased $367,172, or 15.5%, for the first six months of 2012 and $157,499, or 9.6%, for the second quarter of 2012 compared to the same periods in 2011. The increases are primarily attributable to an additional two days of live racing conducted in the second quarter of 2012 compared to 2011, which also contributed to an increase in concession sales.

Total operating expenses increased $1,499,324, or 7.7%, and $566,415, or 4.8%, for the six-month and three-month periods ended June 30, 2012, respectively, compared to the same period in the prior year. See below for a further discussion of operating expenses.

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Summary of Purse and Breeders’ Fund Expense:


	Purse Expense				Minnesota Breeders’ Fund Expense
	Purse Expense				Minnesota Breeders’ Fund Expense
	Six Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011

Card Casino	$	1,371,000	$	1,263,000	$	152,000	$	140,000

Simulcast Horse Racing		951,000		954,000		200,000		199,000

Live Horse Racing		429,000		371,000		43,000		37,000

	$	2,751,000	$	2,588,000	$	395,000	$	376,000

Due to the increases in pari-mutuel and Card Casino revenues, total expense for statutory purses and the Minnesota Breeders’ Fund increased 6.1% to $3,145,448 for the first six months ended June 30, 2012 compared to the first six months ended June 30, 2011.

Salaries and benefits increased $751,741, or 8.7%, in the 2012 six-month period ended June 30, 2012 and $274,768, or 5.6%, in the three-month period ended June 30, 2012 compared to the same periods last year. The increases are partially due to supporting the increased revenue from all revenue categories during the three and six-month periods ending June 30, 2012 compared to the same periods in 2011. Additionally, there were increased salary and benefit costs as compared to the first six months of last year due to annual increases in wage rate.

Advertising and marketing costs increased $154,573, or 29.4%, in the 2012 six-month period ended June 30, 2012 and $61,309, or 14.5%, in the three-month period ended June 30, 2012 compared to the same periods last year primarily as a result of increased radio and billboard expenditures promoting the Card Casino and Racetrack.

Other operating expenses increased $317,971, or 8.8%, in the six-month period ended June 30, 2012 and $211,131, or 9.7%, in the three-month period ended June 30, 2012 compared to the same periods last year. The increases are primarily due to increased professional fees associated with the creation and signing of the Cooperative Marketing Agreement (the “Agreement”) entered into with the Shakopee Mdewakanton Sioux Community (the “SMSC”). The increases are also attributable to the fair value of the stock appreciation rights that were granted on June 14, 2012 as part of the Agreement with the SMSC. This is further discussed in “Cooperative Marketing Agreement” below.

Income before income taxes was $714,948 for the six months ended June 30, 2012 compared to $613,499 for the six months ended June 30, 2011. After income tax expense of $348,980 for the six months ended June 30, 2012, the Company reported net income of $365,968 in 2012 compared to a net loss of $137,501 in 2011. For the quarter ended June 30, 2011, the Company recorded a net loss of $291,125 before income tax benefit compared to a loss before income tax expense of $24,822 for the quarter ended June 30, 2011. After income tax benefit of $124,589, the net loss in the second quarter of 2012 was $166,536 compared to a net loss of $348,056 for the second quarter of 2011. The significant level of income taxes estimated for the second quarter and six-month periods ending June 30, 2012 is primarily due to the non-deductibility of lobbying expenses incurred by the Company.

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Contingencies:

As noted below, on June 4, 2012, the Company entered into a Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community, a federally recognized Indian tribe. If the Company breaches certain obligations as a result of the Agreement, that became effective on June 15, 2012, the Company will be forced to repay various amounts (depending on the breach).

Liquidity and Capital Resources:

Cash provided by operating activities for the six months ended June 30, 2012 was $1,765,502 and was due to several factors. First, the Company reported net income of $365,968. Additionally, the Company recorded depreciation of $884,580. The Company also experienced an increase in accounts payable and accrued wages and payroll taxes of $2,899,089, caused primarily by a seasonal increase of $1.43 million in horsemen payables. These items were somewhat offset by an increase in other current assets of $389,749 and an increase in restricted cash of $1,369,351, resulting primarily from the increase in horsemen payables of $1.34 million. Cash provided by operating activities for the six months ended June 30, 2011 was $3,046,371 and was the result of several factors. Depreciation during the first six months of 2011 was $937,230, and the Company experienced an increase in accounts payable and accrued wages and payroll taxes of $3,011,184, caused primarily by a seasonal increase of $1.33 million in horsemen payables. These items were somewhat offset by a net loss of $137,501 and an increase in restricted cash of $1,329,973, resulting primarily from the increase in horsemen payables of $1.33 million.

Net cash used in investing activities for the first six months of 2012 was $754,510 and was used primarily for a variety of equipment purchases. Net cash used in investing activities for the first six months of 2011 was $418,035 due to purchasing a variety of fixtures and equipment for operational purposes.

During the period January 1, 2012 through June 30, 2012, cash provided by financing activities consisted of proceeds and excess tax benefits received upon the exercise of stock options of $210,300. During the period January 1, 2011 through June 30, 2011, cash provided by financing activities consisted of proceeds and excess tax benefits received upon the exercise of stock options of $225,495.

The Company has a general credit agreement with Bremer Bank, which provides a revolving credit line of up to $3,000,000 until May 5, 2013 with interest at the prime rate but not less than 4.5% per annum. The Company had no borrowings under the line of credit at June 30, 2012 or December 31, 2011. This credit agreement contains covenants requiring the Company to maintain certain financial ratios. The Company was in compliance with these requirements at all times throughout the quarter ended June 30, 2012.

Unrestricted cash balances at June 30, 2012 were $9,490,071 compared to $8,268,779 at December 31, 2011. The Company believes that funds available in its cash accounts, amounts available under the general credit and security agreement, along with funds generated from operations, will be sufficient to satisfy its liquidity and capital resource requirements during 2012 for regular operations.

Critical Accounting Policies and Estimates:

The preparation of consolidated financial statements in conformity with generally accepted accounting principles 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time the consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with generally accepted accounting principles. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

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Our significant accounting policies are included in Note 1 to our consolidated financial statements in our 2011 Annual Report on Form 10-K. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Property and Equipment - We have significant capital invested in our property and equipment, which represents approximately 60.1% of our total assets at June 30, 2012. We utilize our judgment in various ways including: determining whether an expenditure is considered a maintenance expense or a capital asset; determining the estimated useful lives of assets; and determining if or when an asset has been impaired or has been disposed. Management periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected future net cash flows. If the sum of the related expected future net cash flows is less than the carrying value, we will determine whether an impairment loss should be recognized. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. To date, we have determined that no impairment of these assets exists.

Stock Based Employee Compensation – ASC 718, Compensation – Stock Compensation (“ASC 718”), requires recognition of services provided in exchange for a share-based payment based on the grant date fair market value. We utilize our judgment in determining the assumptions used to determine the fair value of options granted using a Black-Scholes model.

Commitments and Contractual Obligations:

On June 4, 2012, the Company entered into a Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community, a federally recognized Indian tribe that expires December 31, 2022. See “Cooperative Marketing Agreement” below.

Legislation:

On May 4, 2012, Minnesota Governor Mark Dayton signed legislation approved by the Minnesota Legislature that amended laws governing the Company’s Card Casino. The amendments, which were effective immediately, will increase the Company’s flexibility to operate its Card Casino which should lead to increased revenues, as well as increased purses for live races at Canterbury Park’s Racetrack.

As amended, the law authorizes the Company to increase the number of tables in its Card Casino from 50 to 80 and increases the poker bet limit from $60 to $100. It also removes limits on the number of poker tournaments the Company can conduct, as well as limits on the number of tables used in poker tournaments. In addition, it allows Canterbury to conduct “banked” card games, in which customers play against the house, along with the unbanked games it currently conducts. In a separate provision, the amended law establishes a framework for the possible implementation of pari-mutuel simulcasting of horse races conducted at Canterbury and other racetracks to Tribal casinos in Minnesota.

Implementation of the amended law will occur in stages. The Company has increased the number of tables hosting live play from 50 to approximately 60 to accommodate customers during peak periods. Additional expansion, higher betting limits and expanded poker tournaments will be implemented based on market demand. While it will take some time to determine the incremental revenue and purse enhancements from the amended law, management believes it will enable the Company to better meet customer demand and grow Card Casino revenues.

Cooperative Marketing Agreement:

On June 4, 2012, the Company entered into a Cooperative Marketing Agreement (the “Agreement”) with the Shakopee Mdewakanton Sioux Community (“SMSC”), a federally recognized Indian tribe. The primary purpose of the Agreement is to increase purses paid during live horse racing at the Canterbury Park racetrack. Under the terms of the Agreement, SMSC will make purse enhancement payments in order to strengthen Minnesota’s horse industry. Under the Agreement, SMSC has agreed to contribute $2.7 million for purse enhancements in 2012 and, after 2012, the additional amounts listed below.

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In addition, the Company and SMSC have also agreed to partner in joint marketing efforts for their mutual benefit, including events, cross promotions, cooperative poker tournaments, shared promotions and player benefits and signage. Under the agreement, SMSC has agreed to pay the Company an additional $300,000 for 2012 marketing purposes and, after 2012, the additional amounts listed below.

After 2012, under the Agreement, SMSC has agreed to make the following purse enhancement and marketing payments in the years 2013 through 2022:


Year	Purse Enhancement	Marketing Payment
2013	5,300,000	600,000
2014	5,840,000	660,000
2015	6,434,000	726,000
2016	7,087,400	798,600
2017	7,806,140	878,460
2018	8,000,000	900,000
2019	8,000,000	900,000
2020	8,000,000	900,000
2021	8,000,000	900,000
2022	8,000,000	900,000

The Company will not receive any part of any purse enhancement payment. As the Company will not directly be handling these funds, there will be no impact on the Company’s financial statements.

The amounts earned from the marketing payments will be recorded as a component of other revenue and the related expenses will be recorded as a component of marketing and advertising expense in the Company’s financial statements. For the period ended June 30, 2012, the Company did not earn any revenues and did not incur any expenses related to the 2012 marketing payment.

The Agreement also requires that the Company and Minnesota Horse Associations (as defined in the Agreement) will not promote or lobby the Minnesota legislature in the media or in other forums for expanded gambling authority and will support SMSC’s lobbying efforts against expanding gaming authority. Under the agreement, the Company and SMSC also agree to work together to assist SMSC to implement simulcast horse racing on their property, to the extent allowed by Minnesota’s Gaming Compacts, state law and applicable court decisions.

As part of the Agreement, on June 14, 2012, the Company signed a Stock Appreciation Rights Agreement (the “SAR Agreement”) and issued stock appreciation rights to SMSC. The SAR Agreement granted rights to SMSC to benefit from the appreciation in the value of 165,000 shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately and the remaining rights vest at the rate of 16,500 per year beginning in 2013. The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s common stock price on the date of exercise over the grant price. The SAR Agreement and all rights granted expire on December 31, 2022. The liability related to these stock appreciation rights is recorded as a long-term liability and the Company will recognize the expense related to these stock appreciation rights as a component of other operating expenses due to the nature of the agreement. During the period ended June 30, 2012, the Company recognized $117,226 of expense related to these stock appreciation rights. In the future, changes in the fair value of these stock appreciation rights will increase or decrease the stock appreciation rights liability, and the Company will recognize additional expense or income related to these changes.

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Forward-Looking Statements:

From time to time, in reports filed with the Securities and Exchange Commission, in press releases, and in other communications to shareholders or the investing public, the Company may make forward-looking statements concerning possible or anticipated future financial performance, business activities or plans which are typically preceded by the words “believes,” “expects,” “anticipates,” “intends” or similar expressions. For such forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that such forward-looking statements are subject to risks and uncertainties which could cause actual performance, activities or plans to differ significantly from those indicated in the forward-looking statements. Such risks and uncertainties include, but are not limited to: fluctuations in attendance at the Racetrack, material changes in the level of wagering by patrons, decline in interest in the unbanked card games offered in the Card Casino, legislative and regulatory changes, the impact of wagering products and technologies introduced by competitors; increases in the percentage of revenues allocated for purse fund payments; increase in compensation and employee benefit costs; the economic health of the gaming sector; higher than expected expense related to new marketing initiatives; and other factors discussed under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2011 and in the Company’s other filings with the Securities and Exchange Commission.


ITEM 3:	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Canterbury Park is not required to provide the information requested by this Item as it qualifies as a smaller reporting company.


ITEM 4:	CONTROLS AND PROCEDURES

(a)	Evaluation of Disclosure Controls and Procedures:

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

(b)	Changes in Internal Control Over Financial Reporting:

	There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934) that occurred during our fiscal quarter ended June 30, 2012 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II
OTHER INFORMATION


Item 1.	Legal Proceedings

	Not Applicable.

Item 1A.	Risk Factors

	There have been no material changes to the Risk Factors reported under Item 1A in the Form 10-K for the year ended December 31, 2011, and the statement of risk factors presented therein are incorporated by reference herein.

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds


	(a)	Not Applicable.
	(b)	Not Applicable.
	(c)	On January 16, 2008, the Company announced that its Board of Directors had authorized a program to repurchase up to an additional 250,000 shares of the Company’s common stock. During the first six months of 2012, the Company did not repurchase any shares of common stock. As of June 30, 2012, there are 33,457 shares at maximum that the Company may buy back as a result of this repurchase program.


Item 3.	Defaults Upon Senior Securities

	Not Applicable.

Item 4.	Mine Safety Disclosures

	Not Applicable.

Item 5.	Other Information

	Not Applicable.

Item 6.	Exhibits


(a)	The following exhibits are included herein:

(b)

	11	Statement re computation of per share earnings – See Net Income Per Share under Note 3 of Notes to Consolidated Financial Statements under Part 1, Item 1, which is incorporated herein by reference.

	31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (rules 13a-14 and 15d-14 of the Exchange Act).

	31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (rules 13a-14 and 15d-14 of the Exchange Act).

	32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

	99.1	Cooperative Marketing Agreement signed on June 4, 2012.

	99.2	Stock Appreciation Rights Agreement signed on June 14, 2012.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Canterbury Park Holding Corporation

Dated: August 14, 2012		/s/ Randall D. Sampson
		Randall D. Sampson,
		President, and Chief Executive Officer

Dated: August 14, 2012		/s/ David C. Hansen
		David C. Hansen,
		Vice President, and Chief Financial Officer

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