Canterbury Park Holding (CPHC) 10-Q 2020 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

⌧           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020.

OR

◻           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: 001-37858

CANTERBURY PARK HOLDING CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Minnesota		47-5349765
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
	1100 Canterbury Road
	Shakopee, MN 55379

(Address of principal executive offices and zip code)

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

Title of Each Class	Trading Symbol	Name of each exchange on which registered
Common Stock Common stock, $.01 par value	CPHC	Nasdaq

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 ⌧ NO ◻

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

YES ⌧ NO ◻

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	◻	Accelerated filer	◻
Non-accelerated filer	⌧	Smaller reporting company	⌧
Emerging growth company	◻

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

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

YES ◻ NO ⌧

The Company had 4,718,825 shares of common stock, $.01 par value, outstanding as of November 1, 2020.

Canterbury Park Holding Corporation

INDEX

			Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements (unaudited)
		Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	2
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	3
		Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019	4
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	5
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27
	Item 4.	Controls and Procedures	27
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	28
	Item 1A.	Risk Factors	28
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
	Item 3.	Defaults Upon Senior Securities	28
	Item 4.	Mine Safety Disclosures	28
	Item 5.	Other Information	28
	Item 6.	Exhibits	29
	Signatures		29

1

PART 1 – FINANCIAL INFORMATION

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	September 30,		December 31,
	2020		2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	186,821	$	355,399
Restricted cash		4,057,079		2,308,955
Short-term investments		—		103,886
Current portion of related party receivable		568,027		—
Accounts receivable, net of allowance of $19,250 for both periods		1,596,559		302,037
Inventory		250,190		390,118
Prepaid expenses		463,648		501,493
Income taxes receivable		1,297,778		—
Total current assets		8,420,102		3,961,888
LONG-TERM ASSETS
Deposits		49,500		49,500
Restricted cash - long-term portion		—		1,262,744
TIF receivable		10,607,423		9,708,856
Related party receivable		937,528		3,528,927
Operating lease right-of-use assets		47,119		74,832
Equity investment		8,332,052		2,992,633
Land held for development		5,528,673		9,191,107
Property, plant, and equipment, net		33,718,236		34,642,595
TOTAL ASSETS	$	67,640,633	$	65,413,082
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		2,827,713		3,495,238
Card Casino accruals		2,849,564		2,167,056
Accrued wages and payroll taxes		1,787,149		2,254,379
Cash dividend payable		—		324,439
Accrued property taxes		1,093,921		1,019,658
Deferred revenue		542,033		1,482,130
Payable to horsepersons		1,538,809		557,696
Current portion of finance lease obligations		25,431		24,500
Current portion of operating lease obligations		24,333		29,776
Income taxes payable		—		120,960
Total current liabilities		10,688,953		11,475,832
LONG-TERM LIABILITIES
Deferred income taxes		5,935,200		4,404,300
Finance lease obligations, net of current portion		52,593		71,784
Operating lease obligations, net of current portion		22,786		45,056
Total long-term liabilities		6,010,579		4,521,140
TOTAL LIABILITIES		16,699,532		15,996,972
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized, 4,718,825 and 4,644,522 respectively, shares issued and outstanding		47,188		46,445
Additional paid-in capital		23,418,805		22,733,933
Retained earnings		27,475,108		26,635,732
Total stockholders’ equity		50,941,101		49,416,110
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	67,640,633	$	65,413,082

See notes to condensed consolidated financial statements.

2

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
OPERATING REVENUES:
Pari-mutuel	$	4,184,533	$	3,578,841	$	6,901,142	$	8,277,727
Card Casino		7,191,607		8,559,935		15,547,974		25,350,903
Food and beverage		861,723		3,838,792		2,091,855		7,735,986
Other		1,062,151		2,623,073		2,475,857		5,259,899
Total Net Revenues		13,300,014		18,600,641		27,016,828		46,624,515
OPERATING EXPENSES:
Purse expense		2,389,068		2,085,277		4,094,136		5,441,449
Minnesota Breeders’ Fund		268,887		290,104		582,058		813,906
Other pari-mutuel expenses		253,665		293,742		533,205		1,013,793
Salaries and benefits		5,449,631		7,147,203		12,920,833		19,829,175
Cost of food and beverage and other sales		425,296		1,571,048		1,060,335		3,398,220
Depreciation and amortization		655,003		785,327		2,065,496		1,987,067
Utilities		512,315		567,763		1,004,947		1,266,681
Advertising and marketing		108,628		947,377		330,792		1,894,898
Professional and Contracted Services		1,026,140		1,773,826		2,608,869		4,078,565
Loss on disposal of assets		13,407		6,376		13,407		114,413
Gain on insurance recoveries		—		—		—		(198,874)
Other operating expenses		1,143,359		1,659,236		2,925,019		4,229,849
Total Operating Expenses		12,245,399		17,127,279		28,139,097		43,869,142
Gain on transfer of land		2,275,458		—		2,275,458		—
INCOME FROM OPERATIONS		3,330,073		1,473,362		1,153,189		2,755,373
OTHER OPERATING INCOME (LOSS)
Loss from equity investment		(511,616)		—		(661,255)		—
Interest income, net		168,552		96,065		501,600		204,623
Net Other Operating (Loss) Income		(343,064)		96,065		(159,655)		204,623
INCOME BEFORE INCOME TAXES		2,987,009		1,569,427		993,534		2,959,996
INCOME TAX BENEFIT (EXPENSE)		(1,137,997)		(418,942)		(70,498)		(795,164)
NET INCOME	$	1,849,012	$	1,150,485	$	923,036	$	2,164,832
Basic earnings per share	$	0.39	$	0.25	$	0.20	$	0.47
Diluted earnings per share	$	0.39	$	0.25	$	0.20	$	0.47
Weighted Average Basic Shares Outstanding		4,708,966		4,604,562		4,688,282		4,583,591
Weighted Average Diluted Shares		4,708,966		4,608,987		4,691,378		4,596,314
Cash dividends declared per share	$	0.00	$	0.07	$	0.00	$	0.21

See notes to condensed consolidated financial statements.

3

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

For the three months ended September 30, 2020
	Number of	Common		Additional		Retained
	Shares	Stock		Paid-in Capital		Earnings		Total
Balance at June 30, 2020	4,706,814	$	47,068	$	23,096,660	$	25,626,591	$	48,770,319
Stock-based compensation			—		203,966		—		203,966
Dividend distribution	—		—		—		(495)		(495)
401(K) stock match	9,657		97		118,202		—		118,299
Issuance of deferred stock awards	2,354		23		(23)		—		—
Net income	—		—		—		1,849,012		1,849,012
Balance at September 30, 2020	4,718,825	$	47,188	$	23,418,805	$	27,475,108	$	50,941,101
For the nine months ended September 30, 2020
	Number of	Common		Additional		Retained
	Shares	Stock		Paid-in Capital		Earnings		Total
Balance at December 31, 2019	4,644,522	$	46,445	$	22,733,933	$	26,635,732	$	49,416,110
Exercise of stock options	24,250		242		200,548		—		200,790
Other share retirements	(9,920)		(99)		(44,587)		(79,512)		(124,198)
Stock-based compensation	—		—		271,631		—		271,631
Dividend distribution	—		—		—		(4,148)		(4,148)
401(K) stock match	28,154		282		293,693		—		293,975
Issuance of deferred stock awards	27,917		279		(72,659)		—		(72,380)
Shares issued under Employee Stock Purchase Plan	3,902		39		36,246		—		36,285
Net income	—		—		—		923,036		923,036
Balance at September 30, 2020	4,718,825	$	47,188	$	23,418,805	$	27,475,108	$	50,941,101
For the three months ended September 30, 2019
	Number of	Common		Additional		Retained
	Shares	Stock		Paid-in Capital		Earnings		Total
Balance at June 30, 2019	4,604,107	$	46,041	$	22,223,470	$	25,579,114	$	47,848,625
Exercise of stock options	2,500		25		20,675		—		20,700
Stock-based compensation	—		—		39,825		—		39,825
Dividend distribution	—		—		—		(322,845)		(322,845)
401(K) stock match	12,814		128		158,765		—		158,893
Net Income	—		—		—		1,150,485		1,150,485
Balance at September 30, 2019	4,619,421	$	46,194	$	22,442,735	$	26,406,754	$	48,895,683
For the nine months ended September 30, 2019
	Number of	Common		Additional		Retained
	Shares	Stock		Paid-in Capital		Earnings		Total
Balance at December 31, 2018	4,527,685	$	45,277	$	21,420,886	$	25,268,187	$	46,734,350
Exercise of stock options	32,810		328		206,264		—		206,592
Other share retirements	(5,863)		(59)		(27,915)		(62,023)		(89,997)
Stock-based compensation	—		—		203,333		—		203,333
Dividend distribution	—		—		—		(964,242)		(964,242)
401(K) stock match	42,405		424		567,994		—		568,418
Issuance of deferred stock awards	10,968		110		(55,044)		—		(54,934)
Shares issued under Employee Stock Purchase Plan	11,416		114		127,217		—		127,331
Net income	—		—		—		2,164,832		2,164,832
Balance at September 30, 2019	4,619,421	$	46,194	$	22,442,735	$	26,406,754	$	48,895,683

See notes to condensed consolidated financial statements.

4

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2020		2019
Operating Activities:
Net income	$	923,036	$	2,164,832
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,065,496		1,987,067
Stock-based compensation expense		271,631		203,333
Stock-based employee match contribution		293,975		567,994
Deferred income taxes		1,530,900		486,200
Loss from equity investment		661,255		2,377
Loss on disposal of assets		13,407		114,413
Gain on transfer of land		(2,275,458)		—
Gain on insurance recoveries		—		(198,874)
Changes in operating assets and liabilities:
Increase in accounts receivable		(1,294,522)		(166,082)
Decrease in other current assets		177,773		54,370
Increase (decrease) in income taxes receivable		(1,418,738)		136,965
Increase in due from Minnesota horsemen associations		—		(1,093,742)
Decrease in operating lease right-of-use assets		27,713		26,296
Decrease in operating lease liabilities		(27,713)		(26,296)
Increase in accounts payable		(739,214)		(189,665)
(Decrease) increase in deferred revenue		(940,097)		652,960
Increase in Card Casino accruals		682,508		448,842
Decrease in accrued wages and payroll taxes		(467,230)		(753,114)
Increase in accrued property taxes		213,812		235,706
Increase (decrease) in payable to horsepersons		981,113		(706,122)
Net cash provided by operating activities		679,647		3,947,460
Investing Activities:
Additions to property, plant, and equipment		(1,432,770)		(6,686,126)
Additions for TIF eligible improvements		(750,983)		(6,013,782)
Decrease (increase) in related party receivable		2,023,372		(178,100)
Decrease in notes receivable		—		1,058,508
Proceeds from sale of investments		103,886		102,659
Net cash used in investing activities		(56,495)		(11,716,841)
Financing Activities:
Proceeds from issuance of common stock		112,876		244,350
Payments against line of credit		(5,866,416)		(3,920,256)
Borrowings on line of credit		5,866,416		5,592,246
Cash dividend paid to shareholders		(328,586)		(958,317)
Payments for taxes related to net share settlement of equity awards		(72,380)		(54,934)
Principal payments on finance lease		(18,260)		(17,304)
Net cash (used in) provided by financing activities		(306,350)		885,785
Net increase in cash, cash equivalents, and restricted cash		316,802		(6,883,596)
Cash, cash equivalents, and restricted cash at beginning of period		3,927,098		11,203,998
Cash, cash equivalents, and restricted cash at end of period	$	4,243,900	$	4,320,402

5

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

Schedule of non-cash investing and financing activities
Additions to buildings and equipment funded through accounts payable	$	72,000	$	339,000
Transfer of future TIF reimbursed costs from PP&E		899,000		6,014,000
ROU assets obtained in exchange for operating lease obligations		—		103,000
Transfer of assets to Doran Canterbury II		1,786,997		—
Transfer of assets to Canterbury DBSV		2,133,618		—
Dividend declared		—		323,000
Supplemental disclosure of cash flow information:
Income taxes paid	$	80,000	$	640,000
Interest paid		39,000		30,000

See notes to condensed consolidated financial statements.

6

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.    OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business – Canterbury Park Holding Corporation’s (the “Company,” “we,” “our,” or “us”) Racetrack operations are conducted at facilities located in Shakopee, Minnesota, approximately 25 miles southwest of downtown Minneapolis. In May 1994, the Company commenced year-round horse racing simulcast operations and hosted the first annual live race meet during the summer of 1995. The Company’s live racing operations are a seasonal business as it typically hosts live race meets each year from May until September. The Company earns additional pari-mutuel revenue by televising its live racing to out-of-state racetracks around the country. Canterbury Park’s Card Casino typically operates 24 hours a day, seven days a week and is limited by Minnesota State law to conducting card play on a maximum of 80 tables. The Card Casino currently offers a variety of poker and table games. The Company’s three largest sources of revenues are from Card Casino operations, pari-mutuel operations, and food and beverage sales. The Company also derives revenues from related services and activities, such as admissions, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack. Additionally, the Company is developing approximately 140 acres of underutilized land surrounding the Racetrack in a project known as Canterbury Commons^TM. The Company is pursuing several mixed-use development opportunities for this land, directly and through joint ventures.

In January 2020, an outbreak of a respiratory illness caused by a new strain of coronavirus was identified. The disease has since spread rapidly across the world, causing the World Health Organization to declare the outbreak a pandemic (the “COVID-19 Pandemic”) on March 12, 2020. Since that time, governments and businesses have taken measures to limit the impact of the COVID-19 Pandemic, including the issuance of shelter-in-place orders, social distancing measures, travel bans and restrictions and business shutdowns.

On March 16, 2020, the Company announced that, based on the advice of Minnesota state and regulatory bodies, it was temporarily suspending all card casino, simulcast, and special events operations at Canterbury Park in response to concerns about the COVID-19 Pandemic. Canterbury Park determined this voluntary suspension of activities was in the best interest of the health and safety of its guests and team members and would provide the Company an opportunity to review and update operational best practices and strategies based on what was currently known about this public health situation and future developments. On June 10, 2020, the Company reopened and resumed simulcast, live racing, and food and beverage operations. The Company also resumed table games and poker operations in the Company’s Card Casino on June 15, 2020 and July 9, 2020, respectively. These reopenings were done in compliance with Minnesota state guidelines on capacity limitations.

Despite a strong start to the year, the disruptions arising from the COVID-19 Pandemic had a significant impact on the Company's financial condition and operations during the three and nine months ended September 30, 2020. The duration and intensity of this global health emergency and related disruptions is uncertain. Given the dynamic nature of these circumstances, the impact on the Company’s consolidated results of operations, cash flows and financial condition in 2020 has been material, and the Company expects it will continue to be material. The Company cannot reasonably estimate at this time when the COVID-19 Pandemic will end, or when or how quickly the current travel restrictions and capacity restrictions will be modified or cease to be necessary. As a result, it is difficult to predict the continuing and future impact on the Company’s business and the willingness of customers to spend on entertainment.

The Company has no long-term debt and a $6.0 million credit line. The Company anticipates that its existing cash balance, any cash generated from operations and availability under its credit line will provide the Company with the necessary liquidity and financial flexibility to manage through this challenging operating environment. We have taken significant actions to mitigate the effects of the COVID-19 Pandemic on our operations, including initiating workforce reductions and furloughs, suspending the Company’s quarterly cash dividend, postponing non-essential capital expenditures, reducing operating costs, and substantially reducing discretionary spending. We expect these countermeasures to partially mitigate the impact of COVID-19 on our full year 2020 financial results. As the impact

7

of the COVID-19 Pandemic on the economy and our operations evolves, we will continue to assess the impact on the Company and respond accordingly.

Basis of Presentation and Preparation – The accompanying condensed consolidated financial statements include the accounts of the Company (Canterbury Park Holding Corporation and its subsidiaries Canterbury Park Entertainment, LLC; Canterbury Park Concession, Inc.; and Canterbury Development, LLC). Intercompany accounts and transactions have been eliminated. The preparation of these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2019, included in its Annual Report on Form 10-K (the “2019 Form 10-K”).

The condensed consolidated balance sheets and the related condensed consolidated statements of operations, stockholders’ equity, and the cash flows for the periods ended September 30, 2020 and 2019 have been prepared by Company management. In the opinion of management, all adjustments (which include only normal recurring adjustments, except where noted) necessary to present fairly the financial position, results of operations, statement of stockholders’ equity, and cash flows at September 30, 2020 and 2019 and for the periods then ended have been made.

Summary of Significant Accounting Policies – A detailed description of our significant accounting policies can be found in our most recent Annual Report on the 2019 Form 10-K. There were no material changes in significant accounting policies during the three and nine months ended September 30, 2020.

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.

Deferred Revenue – Deferred revenue includes advance sales related to racing, events and corporate partnerships. Revenue from these advance billings is recognized when the related event occurs or services have been performed. Deferred revenue also includes advanced Cooperative Marketing Agreement (“CMA”) promotional funds, for which revenue is recognized when expenses are incurred.

Payable to Horsepersons - The Minnesota Pari-mutuel Horse Racing Act requires the Company to segregate a portion of funds (recorded as purse expense in the statements of operations) received from Card Casino operations and wagering on simulcast and live horse races, for future payment as purses for live horse races or other uses of the horsepersons’ association. Pursuant to an agreement with the Minnesota Horsemen’s Benevolent and Protective Association (“MHBPA”), the Company transferred into a trust account or paid directly to the MHBPA, $2,885,000 and $6,299,000 for the nine months ended September 30, 2020 and 2019, respectively, related to thoroughbred races. Minnesota Statutes provide that amounts transferred into the trust account are the property of the trust and not of the Company, and therefore these amounts are not recorded on the Company’s Condensed Consolidated Balance Sheet.

Reclassifications – Prior period financial statements have been reclassified to conform to current period presentations. Certain land costs have been reclassified on the December 31, 2019 Consolidated Balance Sheets from Property, plant, and equipment, net to Land held for development.

8

Revenue Recognition – The Company’s primary revenues with customers consist of Card Casino operations, pari-mutuel wagering on simulcast and live horse races, and food and beverage transactions. We determine revenue recognition through the following steps:

●      Identification of the contract, or contracts, with a customer

●      Identification of the performance obligations in the contract

●      Determination of the transaction price

●      Allocation of the transaction price to the performance obligation in the contract

●      Recognition of revenue when, or as, we satisfy a performance obligation

The transaction price for a Card Casino contract is a set percentage of wagers and is recognized at the time that the wagering process is complete. The transaction price for pari-mutuel wagering is the commission received on a wager, exclusive of any track fees and is 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. The transaction price for food and beverage contracts is the net amount collected from the customer for these goods. Food and beverage services have been determined to be separate, stand-alone performance obligations and the transaction price is recorded as revenue as the good is transferred to the customer when delivery is made.

Contracts for Card Casino operations and pari-mutuel wagering involve two performance obligations for those customers earning points under the Company’s loyalty program and a single performance obligation for customers who do not participate in the program. The Company applies a practical expedient by accounting for its gaming contracts on a portfolio basis as these wagers have similar characteristics and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio would not differ materially from what would result if the guidance were applied on an individual wagering contract. For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with the loyalty points earned, the Company allocates an amount to the loyalty point contract liability based on the stand-alone redemption value of the points earned, which is determined by the value of a point that can be redeemed for a cash voucher, food and beverage voucher, racing admission, valet parking, or racing forms. Based on past experience, the majority of customers redeem their points for cash vouchers. Therefore, there are no further performance obligations by the Company.

We have two general types of liabilities related to contracts with customers: (1) our MVP Loyalty Program and (2) outstanding chip liability. These are included in the line item Card Casino accruals on the consolidated balance sheet. We defer the full retail value of these complimentary reward items until the future revenue transaction occurs.

The Company offers certain promotional allowances at no charge to patrons who participate in its player rewards program.

We evaluate our on-track revenue, export revenue (as described below), and import revenue (as described below) contracts to determine whether we are acting as the principal or as the agent when providing services, to determine if we should report revenue on a gross or net basis. An entity acts as a principal if it controls a specified service before that service is transferred to a customer.

For on-track revenue and “import revenue,” that is revenue we generate for racing held elsewhere that our patrons wager on, we are entitled to retain a commission for providing a wagering service to our customers. For these arrangements, we are the principal because we control the wagering service; therefore, any charges, including simulcast fees, we incur for delivering the wagering service are presented as operating expenses.

For “export revenue,” when the wagering occurs outside our premises, our customer is the third party wagering site such as a racetrack, Off Track Betting (“OTB”), or advance deposit wagering (“ADW”) provider. Therefore, the revenue we recognize for export revenue is the simulcast host fee we earn for exporting our racing signal to the third party wagering site.

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2.    STOCK-BASED COMPENSATION

Long Term Incentive Plan and Award of Deferred Stock

The Long Term Incentive Plan (the “LTI Plan”) authorizes the grant of Long Term Incentive Awards that provide an opportunity to Named Executive Officers (“NEOs”) and other Senior Executives to receive a payment in cash or shares of the Company’s common stock to the extent of achievement at the end of a period greater than one year (the “Performance Period”) as compared to Performance Goals established at the beginning of the Performance Period. Currently, there are two awards outstanding that are for three-year periods ending December 31, 2020 and 2021. As a result of the COVID-19 Pandemic, the Company temporarily suspended the granting of performance awards under its LTI Plan until there is more certainty about the Company’s future operations, and instead granted other awards designed to retain NEOs and other Senior Executives as described below under “Employee Deferred Stock Awards.”

Board of Directors Stock Option, Deferred Stock Awards, and Restricted Stock Grants

The Company’s Stock Plan currently authorizes annual grants of restricted stock, deferred stock, stock options, or any combination of the three, to non-employee members of the Board of Directors at the time of the Company’s annual shareholders’ meeting as determined by the Board prior to each such meeting. Options granted under the Plan generally expire 10 years after the grant date. Restricted stock and deferred stock grants generally vest 100% one year after the date of the annual meeting at which they were granted, are subject to restrictions on resale for an additional year, and are subject to forfeiture if a board member terminates his or her board service prior to the shares vesting. On June 25, 2020, 17,975 shares of deferred stock awards were granted to non-employee members of the Board of Directors with a price per share equal to the market value on the date of grant of $11.07. The vesting schedule of these awards is described above. There were no unvested restricted stock or stock options outstanding at September 30, 2020.

Employee Deferred Stock Awards

On June 25, 2020, 47,000 shares of deferred stock awards were granted to employees pursuant to the Company’s Stock Plan with a price per share equal to the market price on the date of grant of $11.07. The vesting schedule of the awards is as follows: (i) 60% vesting and being issued in December 2020, (ii) 20% vesting and being issued in March 2022, and (iii) 20% vesting and being issued in March 2023. The Company’s Board of Directors designated those portions of the deferred stock awards vesting in 2020 as awards under the Company’s 2020 annual incentive plan and designed those portions of the awards scheduled to vest in 2022 and 2023 as 2020 awards under the Company’s LTI Plan. The compensation cost associated with this grant of deferred stock awards is $466,000, which is being recognized over the respective vesting periods.

Stock-based compensation expense related to the LTI Plan, deferred stock awards and restricted stock awards is included on the Condensed Consolidated Statements of Operations and totaled $272,000 and $203,000 for the nine months ended September 30, 2020 and 2019, respectively and $204,000 and $40,000 for the three months ended September 30, 2020 and 2019, respectively.

Employee Stock Option Grants

The Company has granted incentive stock options to employees pursuant to the Company’s Stock Plan with an exercise price equal to the market price on the date of grant. The options vest over a 42-month period and expire in 10 years.

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A summary of stock option activity as of September 30, 2020 and changes during the nine months then ended is presented below:

				Weighted
		Weighted		Average
		Average		Remaining		Aggregate
	Number of	Exercise		Contractual		Grant Date
Stock Options	Options	Price		Term		Fair Value
Outstanding at January 1, 2020	33,250	$	9.64
Granted	-		-
Exercised	(24,250)		8.28
Expired/Forfeited	-		-
Outstanding at September 30, 2020	9,000	$	13.30		0.3 Years	$	119,700
Exercisable at September 30, 2020	9,000	$	13.30		0.3 Years	$	119,700

3.    NET INCOME PER SHARE COMPUTATIONS

The following is a reconciliation of the numerator and denominator of the earnings per common share computations for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income (numerator) amounts used for basic and diluted per share computations:	$	1,849,012	$	1,150,485	$	923,036	$	2,164,832
Weighted average shares (denominator) of common stock outstanding:
Basic		4,708,966		4,604,562		4,688,282		4,583,591
Plus dilutive effect of stock options		—		4,425		3,096		12,723
Diluted		4,708,966		4,608,987		4,691,378		4,596,314
Net income per common share:
Basic	$	0.39	$	0.25	$	0.20	$	0.47
Diluted		0.39		0.25		0.20		0.47

Options to purchase 9,000 shares of common stock at an average price of $13.30 per share were outstanding but not included in the computation of diluted net income per share for the nine months ended September 30, 2020 and September 30, 2019 because the exercise price of the options exceeded the market price of the Company’s common stock at September 30, 2020 and September 30, 2019.

4.    GENERAL CREDIT AGREEMENT

The Company has a general credit and security agreement with a financial institution, which provides a revolving credit line up to $6.0 million and allows for letters of credit in the aggregate amount of up to $2.0 million to be issued under the credit agreement. As of September 30, 2020, the bank issued a $1,250,000 letter of credit on behalf of the Company and therefore, the Company has an available credit line up to $4,750,000. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. This agreement was amended as of September 30, 2020 to extend the maturity date to December 31, 2020. As of September 30, 2020, the outstanding balance on the line of credit was $0.

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5.    OPERATING SEGMENTS

The Company has four reportable operating segments: horse racing, Card Casino, food and beverage, and development. The horse racing segment primarily represents simulcast and live horse racing operations. The Card Casino segment represents operations of Canterbury Park’s Card Casino, the food and beverage segment represents food and beverage operations provided during simulcast and live racing, in the Card Casino, and during special events. The development segment represents our real estate development operations. 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 process to produce those products and services. The Minnesota Racing Commission regulates the horse racing and Card Casino segments.

Depreciation, interest and income taxes are allocated to the segments, but no allocation is made to the food and beverage segment for shared facilities. However, the food and beverage 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.

The following tables represent a disaggregation of revenues from contracts with customers along with the Company’s operating segments (in 000’s):

	Nine Months Ended September 30, 2020
	Horse Racing		Card Casino		Food and Beverage		Development		Total
Net revenues from external customers	$	9,284	$	15,548	$	2,161	$	24	$	27,017
Intersegment revenues		72		—		374		—		446
Net interest (expense) income		(36)		—		—		538		502
Depreciation		1,491		411		163		—		2,065
Segment (loss) income before income taxes		(2,697)		3,322		(528)		1,968		2,065
Segment tax expense (benefit)		(267)		235		(37)		139		70
	September 30, 2020
Segment Assets	$	34,295	$	3,102	$	25,028	$	30,324	$	92,749

	Nine Months Ended September 30, 2019
	Horse Racing		Card Casino		Food and Beverage		Development		Total
Net revenues from external customers	$	13,018	$	25,351	$	8,244	$	12	$	46,625
Intersegment revenues		909		—		1,088		—		1,997
Net interest (expense) income		(20)		—		—		225		205
Depreciation		1,702		111		174		—		1,987
Segment (loss) income before income taxes		(1,863)		4,765		855		80		3,837
Segment tax expense (benefit)		(736)		1,280		230		21		795
	December 31, 2019
Segment Assets	$	31,618	$	3,327	$	25,430	$	29,074	$	89,449

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

	Nine Months Ended September 30, 2020
	2020		2019
Revenues
Total net revenue for reportable segments	$	27,463	$	48,622
Elimination of intersegment revenues		(446)		(1,997)
Total consolidated net revenues	$	27,017	$	46,625

Income before income taxes
Total segment income before income taxes	$	2,065	$	3,837
Elimination of intersegment loss before income taxes		(1,071)		(877)
Total consolidated income before income taxes	$	994	$	2,960

	September 30,		December 31,
	2020		2019
Assets
Total assets for reportable segments	$	92,749	$	89,449
Elimination of intercompany balances		(25,108)		(24,036)
Total consolidated assets	$	67,641	$	65,413

6.    COMMITMENTS AND CONTINGENCIES

In accordance with an Earn Out Promissory 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 (a) $700,000 per Operating Year, as defined, or (b) 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 would be required to pay these amounts is remote. At the date (if any) that these two conditions are met, the five minimum payments would be discounted back to their present value and the sum of those discounted payments would be capitalized as part of the purchase price in accordance with GAAP. The purchase price will be further increased if payments become due under the “20% of Net Pretax Profit” calculation. The first payment would be due 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 entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community (“SMSC”), which became effective March 4, 2012, was amended in the first quarter of each of 2015, 2016, 2017, 2018, and in June 2020 (as described below in Note 7) and will expire on December 31, 2022. The CMA contains certain covenants that, if breached, would trigger an obligation to repay a specified amount related to such covenant. At this time, management believes it unlikely that any breach of a covenant will occur, and that therefore the possibility that the Company will be required to pay the specified amount related to any covenant breach is remote.

The Company is periodically involved in various claims and legal actions arising in the normal course of business. Management believes that the resolution of any pending claims and legal actions at September 30, 2020 and as of the date of this report, will not have a material impact on the Company’s consolidated financial positions or results of operations.

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In August 2018, the Company entered into a Contract for Private Redevelopment with the City of Shakopee in connection with a Tax Increment Financing District (“TIF District”). The Company is obligated to construct certain infrastructure improvements within the TIF District, and will be reimbursed by the City of Shakopee by future tax increment revenue generated from the developed property. The total amount of funding that Canterbury will be paid as reimbursement under the TIF program for these improvements is not guaranteed and will depend on future tax revenues generated from the developed property. 

7.    COOPERATIVE MARKETING AGREEMENT

As discussed above in Note 6, on March 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse industry. Under the CMA, as amended, this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. These payments have no direct impact on the Company’s consolidated financial statements or operations.

Because the Company conducted a more limited 2020 live race meet due to the COVID-19 Pandemic, the Company and SMSC entered into the Fifth Amendment Agreement (“Fifth Amendment”) to the CMA effective June 8, 2020. Under the Fifth Amendment, the SMSC agreed to provide up to $5,620,000 for the annual purse enhancement for the year 2020. The annual purse enhancement that the SMSC is obligated to pay under the CMA for 2021 and 2022 was not changed and remains at $7,380,000 per year.

Under the terms of the CMA, as amended, the SMSC made payments of $5.6 million and $7.4 million during the first nine months of 2020 and 2019, respectively, primarily for purse enhancements for the respective live race meets.

Under the CMA, as amended, SMSC also agreed to make “Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits, and events. Under the Fifth Amendment, the SMSC is not required to pay the Company a 2020 annual marketing payment, but the Company will use previously paid but unspent funds for these purposes.

As noted above and affirmed in the Fifth Amendment, SMSC is obligated to make the following purse enhancement and marketing payments for 2021 through 2022:

	Purse Enhancement Payments to		Marketing Payments to
Year	Horsemen (1)		Canterbury Park
2021		$ 7,380,000		$ 1,620,000
2022		$ 7,380,000		$ 1,620,000

(1) Includes $100,000 each year payable to various horsemen associations.

The amounts earned from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s condensed consolidated statements of operations. For the three and nine months ended September 30, 2020, the Company recorded $490,000 and $811,000 in other revenue, respectively, incurred $449,000 and $694,000 in advertising and marketing expense, respectively, and incurred $41,000 and $117,000 in depreciation, respectively, related to the SMSC marketing funds. For the three and nine months ended September 30, 2019, the Company recorded $569,000 and $1,031,000 in other revenue, respectively, incurred $512,000 and $861,000 in advertising and marketing expense, respectively, and incurred $57,000 and $170,000 in depreciation, respectively, related to the SMSC marketing funds.

Under the CMA, the Company agreed for the term of the CMA, which is currently scheduled to terminate on December 31, 2022, that it would not promote or lobby the Minnesota legislature for expanded gambling authority and will support the SMSC’s lobbying efforts against expanding gambling authority.

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8.  REAL ESTATE DEVELOPMENT

Equity Investments

On April 2, 2018, the Company’s subsidiary Canterbury Development LLC, entered into an Operating Agreement (“Operating Agreement”) with an affiliate of Doran Companies (“Doran”), a national commercial and residential real estate developer, as the two members of a Minnesota limited liability company named Doran Canterbury I, LLC (“Doran Canterbury I”). Doran Canterbury I was formed as part of a joint venture between Doran and Canterbury Development LLC to construct an upscale apartment complex on land adjacent to the Company’s Racetrack (the “Project”). Doran Canterbury I is developing Phase I of the Project, which will include approximately 300 units, a heated parking ramp, and a clubhouse.

On September 27, 2018, Canterbury Development LLC contributed approximately 13 acres of land as its equity contribution in the Doran Canterbury I joint venture and became a 27.4% equity member. On December 20, 2018, financing for Doran Canterbury I was secured. As the Company is able to assert significant influence, but not control, over Doran Canterbury I’s operational and financial policies, the Company accounts for the joint venture as an equity method investment.

In connection with the execution of the Amended Doran Canterbury I Agreement, on August 18, 2018, Canterbury Development LLC entered into an Operating Agreement with Doran Shakopee, LLC as the two members of a Minnesota limited liability company entitled Doran Canterbury II, LLC (“Doran Canterbury II”). Under the Doran Canterbury II Operating Agreement, Doran Canterbury II will pursue development of Phase II of the Project. Phase II will include an additional 300 apartment units. Canterbury Development’s equity contribution to Doran Canterbury II for Phase II was approximately 10 acres of land, which were contributed to Doran Canterbury II on July 30, 2020. In connection with its contribution, Canterbury Development became a 27.4% equity member in Doran Canterbury II with Doran owning the remaining 72.6%. As the Company is able to assert significant influence, but not control, over Doran Canterbury II’s operational and financial policies, the Company accounts for the joint venture as an equity method investment.

On June 16, 2020, Canterbury Development, entered into an Operating Agreement with an affiliate of Greystone Construction, as the two members of a Minnesota limited liability company named Canterbury DBSV Development, LLC (Canterbury DBSV). Canterbury DBSV was formed as part of a joint venture between Greystone and Canterbury Development LLC for a multi-use development on the 13-acre land parcel located on the southwest portion of the Company’s racetrack. Canterbury Development’s equity contribution to Canterbury DBSV was approximately 13 acres of land, which were contributed to Canterbury DBSV on July 1, 2020. In connection with its contribution, Canterbury Development became a 61.87% equity member in Canterbury DBSV. As the Company is able to assert significant influence, but not control, over Canterbury DBSV’s operational and financial policies, the Company accounts for the joint venture as an equity method investment.

In accordance with ASC 610-20, we determined that we do not have a controlling financial interest in the Doran Canterbury II and Canterbury DBSV joint ventures and the arrangements meet the criteria to be accounted for as a contract. Therefore, we derecognized the land and recognized a full gain (approximately $2,275,000) between the carrying amount of the land and the estimated fair value of the land transferred. In future periods, the Company will recognize its proportionate share of Doran Canterbury II and Canterbury DBSV’s earnings (after the effect of basis differences) as an increase or decrease in its Equity investment and as Income or Loss from Investment in these joint ventures.

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Tax Increment Financing

On August 8, 2018, the City Council of the City of Shakopee, Minnesota approved a Contract for Private Redevelopment (“Redevelopment Agreement”) between the City of Shakopee Economic Development Authority (“Shakopee EDA”) and Canterbury Park Holding Corporation and its subsidiary Canterbury Development LLC in connection with a Tax Increment Financing District (“TIF District”) that the City had approved in April 2018. The City of Shakopee, the Shakopee EDA and the Company entered into the Redevelopment Agreement on August 10, 2018.

Under the Redevelopment Agreement, the Company agreed to undertake a number of specific infrastructure improvements within the TIF District, including the development of public streets, utilities, sidewalks, and other public infrastructure. More specifically, the Company is obligated to construct improvements on Shenandoah Drive and Unbridled Avenue (formerly Barenscheer Boulevard) with these improvements required to be substantially complete on or before December 31, 2019 and December 31, 2020, respectively. As of September 30, 2020, improvements to Shenandoah Drive were substantially complete. The City of Shakopee has authorized changes to the Redevelopment Agreement and the responsibilities of the Company, but the Company, the City of Shakopee and other parties have not formally entered into an agreement that memorializes these changes. The Company will provide updated disclosure when the parties enter into a new agreement. As part of the authorized changes regarding the responsibilities of the Company and the city of Shakopee, improvements on Unbridled Avenue will be primarily constructed by the City of Shakopee. These improvements were well underway as of the date of this filing.

Under the Redevelopment Agreement, the City of Shakopee has agreed that a portion of the tax increment revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing infrastructure improvements. The total estimated cost of TIF eligible improvements to be borne by the Company is $23,336,500. A detailed Schedule of the Public Improvements under the Redevelopment Agreement, the timeline for their construction and the source and amount of funding is set forth on Exhibit C of the Redevelopment Agreement, which was filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2018. The total amount of funding that Canterbury will be paid as reimbursement under the TIF program for these improvements is not guaranteed, however, and will depend on future tax revenues generated from the developed property. As of September 30, 2020, the Company recorded a TIF receivable of $10,607,000, which represents $10,056,000 of principal and $551,000 of interest. The Company expects to finance its improvements under the Redevelopment Agreement with funds from its current operating resources and existing credit facility and, potentially, third-party financing sources.

Development Agreements

On March 13, 2020, the Company entered into an agreement to sell approximately 12 acres of land on the east side of the Racetrack to a third party for total consideration of approximately $2,500,000. Closing is subject to the satisfaction of certain customary conditions. The Company expects the transaction to close in 2021.  

On April 7, 2020, the Company entered into an agreement to sell approximately 11.3 acres of land on the west side of the Racetrack to a third party for total consideration of approximately $2,400,000. Closing is subject to the satisfaction of certain customary conditions. The Company expects the transaction to close in 2021. 

On April 15, 2020, the Company entered into an agreement to sell approximately 2.4 acres of land on the west side of the Racetrack to a third party for total consideration of approximately $1,100,000. Closing is subject to the satisfaction of certain customary conditions. The Company expects the transaction to close in 2021.

9.  LEASES

The Company determines if an arrangement is a lease or contains a lease at inception. The Company leases some office equipment under finance leases. We also lease equipment related to our horse racing operations under operating leases. For lease accounting purposes, we do not separate lease and nonlease components, nor do we record operating or finance lease assets and liabilities for short term leases.

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As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. We recognize expense for operating leases on a straight-line basis over the lease term. The Company’s lease agreements do not contain any variable lease payments, material residual value guarantees or any restrictive covenants.

Lease costs related to operating leases were $19,974 and $31,463 for the nine months ended September 30, 2020 and 2019, respectively. The total lease expenses for leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or liability was $256,967 and $434,332 for the nine months ended September 30, 2020 and 2019, respectively.

Lease costs included in depreciation and amortization related to our finance leases were $18,701 and $18,701 for the nine months ended September 30, 2020 and 2019. Interest expense related to our finance leases was immaterial.

The following table shows the classification of the right of use assets on our consolidated balance sheets:

		Nine Months Ended September 30,
	Balance Sheet Location	2020		2019
Assets
Finance	Land, buildings and equipment, net (1)	$	78,024	$	$ 104,184
Operating	Operating lease right-of-use assets		47,119		76,816
Total Leased Assets		$	125,143	$	$ 181,000

1 – Finance lease assets are net of accumulated amortization of $50,208 and $18,701 as of September 30, 2020 and 2019, respectively.

The following table shows the lease terms and discount rates related to our leases:

	Nine Months Ended September 30,
	2020	2019
Weighted average remaining lease term (in years):
Finance	2.9	4.0
Operating	0.8	1.3
Weighted average discount rate (%):
Finance	5.0%	5.0%
Operating	5.5%	5.4%

The maturity of operating leases and finance leases as of September 30, 2020 are as follows:

Nine Months Ended September 30, 2020	Operating leases		Finance leases
2020 remaining	$	2,079	$	7,185
2021		23,100		28,743
2022		23,100		28,743
2023		—		19,332
Total minimum lease obligations		48,279		84,003
Less: amounts representing interest		(1,160)		(5,979)
Present value of minimum lease payments		47,119		78,024
Less: current portion		(24,333)		(25,431)
Lease obligations, net of current portion	$	22,786	$	52,593

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10. RELATED PARTY RECEIVABLES

On December 20, 2018, the Company entered into a loan agreement with Doran Family Holdings, which is the controlling partner in the Doran Canterbury I joint venture. The Company loaned Doran Family Holdings $2,910,000 net of loan origination fees, and received a promissory note totaling $2,940,000 bearing interest at 5%. On August 3, 2020, the Company received payment for this promissory note of $2,940,000.

In 2018, the Company incurred $268,000 of costs for preliminary grading work on parcels of land the Company had designated for Doran Canterbury II. The Company was to be fully reimbursed for these costs upon the commencement of the Doran Canterbury II project and thus, recorded the amount as a receivable. On August 3, 2020, the Company received payment for this receivable of $268,000.

In 2019 and 2020, the Company loaned money to the Doran Canterbury I joint venture in five separate loans in the amounts of $178,100, $137,000, $232,900, $171,250, and $191,800. These member loans bear interest at the rate equal to the Prime Rate plus two percent per annum. The Company expects to be fully reimbursed for these member loans when the joint venture achieves positive cash flow.

In 2020, the Company recorded a related party receivable of $143,000 for landscaping and irrigation costs incurred by the Company on parcels of land the Company had designated for Doran Canterbury II. The Company expects to be fully reimbursed for these costs by Doran Canterbury II in the 2020 fourth quarter.

In 2020, the Company recorded a related party receivable of $408,000 for various development related costs incurred by the Company on parcels of land the Company had designed for Canterbury DBSV. The Company expects to be fully reimbursed for these costs by Canterbury DBSV in the 2020 fourth quarter.

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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, our financial results and financial condition 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,” “we,” “our,” or “us”) conducts pari-mutuel wagering operations and hosts “unbanked” card games at its Canterbury Park Racetrack and Card Casino facility (the “Racetrack”) in Shakopee, Minnesota, which is approximately 25 miles southwest of downtown Minneapolis. The Racetrack is the only facility in the State of Minnesota that offers live pari-mutuel thoroughbred and quarter horse racing.

The Company’s pari-mutuel wagering operations include both wagering on thoroughbred and quarter horse races during live meets at the Racetrack each year from May through March, and year-round wagering on races held at out-of-state racetracks that are televised simultaneously at the Racetrack (“simulcasting”). Unbanked card games, in which patrons compete against each other, are hosted in the Card Casino at the Racetrack. The Card Casino operates 24 hours a day, seven days a week. The Card Casino offers both poker and table games at up to 80 tables. The Company also derives revenues from related services and activities, such as concessions, parking, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack.

COVID-19 Pandemic:

In January 2020, an outbreak of a respiratory illness caused by a new strain of coronavirus was identified. The disease has since spread rapidly across the world, causing the World Health Organization to declare the outbreak a pandemic (the “COVID-19 Pandemic”) on March 12, 2020. Since that time, governments and businesses have taken measures to limit the impact of the COVID-19 Pandemic, including the issuance of shelter-in-place orders, social distancing measures, travel bans and restrictions and business shutdowns.

On March 16, 2020, the Company announced that, based on the advice of Minnesota state and regulatory bodies, it was temporarily suspending all card casino, simulcast, and special events operations at Canterbury Park in response to concerns about the COVID-19 Pandemic. Canterbury Park determined this voluntary suspension of activities was in the best interest of the health and safety of its guests and team members and would provide the Company an opportunity to review and update operational best practices and strategies based on what was currently known about this public health situation and future developments. On June 10, 2020, the Company reopened and resumed simulcast, live racing, and food and beverage operations. The Company also resumed table games and poker operations in the Company’s Card Casino on June 15, 2020 and July 9, 2020, respectively. These reopenings were done in compliance with Minnesota state guidelines on capacity limitations.

In connection with reopening our pari-mutuel, food and beverage, and Card Casino operations, we are adhering to social distancing requirements, which include reduced seating at table games and poker and capacity limitations to follow Minnesota state guidelines. Additionally, there is uncertainty around the impact the COVID-19 Pandemic will have on operations in the months that follow reopening, including the impact to changes in attendance driven by concerns about COVID-19.

Despite a strong start to the year, the disruptions arising from the COVID-19 Pandemic had a significant impact on the Company's financial condition and operations during the three and nine months ended September 30, 2020. The duration and intensity of this global health emergency and related disruptions is uncertain. Given the dynamic nature of these circumstances, the impact on the Company’s consolidated results of operations, cash flows and financial condition in 2020 will be material, but cannot be reasonably estimated at this time as it is unknown when the COVID-19 Pandemic

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will end, when or how quickly the current restrictions will be modified or cease to be necessary and the resulting impact on the Company’s business and the willingness of customers to spend on entertainment in venues such as ours.

We are mitigating negative impacts to our operating results by taking signification actions, as discussed below.

During the temporary closures and suspension of the Company’s operations described above, all Canterbury Park employees, except for a limited number of key personnel required for basic ongoing maintenance, security, and management needs, were placed on an unpaid furlough. The Company also implemented a salary reduction for all remaining non-furloughed employees based on a combination of the employee’s salary and the employee’s responsibilities during the temporary shutdown. Upon the Company’s reopening of operations, the Company has implemented a salary reduction for the management team, which is in effect through the remainder of 2020. Additionally, pandemic-related restrictions on our special events and group sales operations will impact our non-gaming business for at least the next several months. To address this near-term challenge, the Company recently made the very difficult decision to align staffing levels with the current level of our non-gaming business. These actions included leaving vacant positions unfilled, furloughing team members, pay reductions for senior leadership and some job eliminations.

On March 16, 2020, the Company announced that the Company’s Board of Directors had suspended the Company’s quarterly cash dividend until the Company’s business operations return to normal.

Other additional measures taken by the Company include postponing non-essential capital expenditures, reducing operating costs, and substantially reducing discretionary spending.

We expect these measures to partially mitigate the impacts of the COVID-19 Pandemic on our full year 2020 financial results. The Company has no long-term debt and a $6.0 million credit line that, when combined with the Company’s existing cash and any cash generated from operations, is anticipated to provide the Company with the necessary liquidity and financial flexibility to manage through this challenging operating environment. Additionally, the Company generated substantial cash inflows from its development operations in 2020 with receiving approximately $3.2 million of its related party receivable in connection with the closing of the Doran Canterbury II project.

As the impact of the COVID-19 Pandemic on the economy and our operations evolves, we will continue to assess the impact on the Company and respond accordingly.

Operations Review for the Three and Nine Months Ended September 30, 2020:

Revenues:

Total net revenues for the three months ended September 30, 2020 were $13,300,000, a decrease of $5,301,000, or 28.5%, compared to total net revenues of $18,601,000 for the three months ended September 30, 2019. Total net revenues for the nine months ended September 30, 2020 were $27,017,000, a decrease of $19,608,000, or 42.1%, compared to total net revenues of $46,625,000 for the nine months ended September 30, 2019. This decrease consists of decreases in card casino, food and beverage, and other revenues, partially offset by an increase in pari-mutuel revenues. See below for a further discussion of our sources of revenues.

Pari-Mutuel Revenue:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Simulcast	$	1,056,000	$	1,257,000	$	2,290,000	$	4,108,000
Live racing		600,000		1,239,000		723,000		2,151,000
Guest fees		2,108,000		785,000		2,665,000		1,203,000
Other revenue		420,000		298,000		1,223,000		816,000
Total Pari-Mutuel Revenue	$	4,184,000	$	3,579,000	$	6,901,000	$	8,278,000

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Total pari-mutuel revenue increased $605,000, or 16.9%, for the three months ended September 30, 2020 compared to the same period in 2019. The increase is due to an increase in guest fees due to increased out of state handle as a result of racing weekdays in 2020 and other revenue due to an increase in Advanced Deposit Wagering (ADW). These increases are partially offset by a decrease in simulcast and live racing revenue due to decreased attendance, primarily due to capacity limitations caused by the COVID-19 Pandemic as described above. Pari-mutuel revenue decreased $1,377,000, or 16.6%, for the nine months ended September 30, 2020 compared to the same period in 2019. The decreases are due to a reduction in simulcast and live racing revenue due to the COVID-19 Pandemic described above, including the fact that these operations were closed from March 16, 2020 until June 10, 2020. These decreases are partially offset by an increase in guest fees and other revenue.

Card Casino Revenue:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Poker Games	$	1,291,000	$	1,789,000	$	2,949,000	$	5,542,000
Table Games		5,331,000		5,821,000		11,156,000		17,212,000
Total Collection Revenue		6,622,000		7,610,000		14,105,000		22,754,000
Other Poker Revenue		245,000		594,000		729,000		1,542,000
Other Table Games Revenue		325,000		356,000		714,000		1,055,000
Total Card Casino Revenue	$	7,192,000	$	8,560,000	$	15,548,000	$	25,351,000

The primary source of Card Casino revenue is a percentage of the wagers received from players as compensation for providing the Card Casino facility and services, which is referred to as “collection revenue.” Other Revenue presented above includes fees collected for the administration of tournaments, amounts earned as reimbursement of the administrative costs of maintaining jackpot funds, and amounts related to the outstanding chip liability that we expect will not be redeemed in the future.

As indicated by the table above, total Card Casino revenue decreased $1,368,000, or 16.0%, and $9,803,000, or 38.7%, for the three and nine months ended September 30, 2020, compared to the same periods in 2019. These decreases are due to the COVID-19 Pandemic described above. When the Company reopened its table games operations on June 15, 2020 and poker operations on July 9, 2020, this included reduced seating at tables and capacity limitations to follow Minnesota state guidelines.

Food and Beverage Revenue:

Food and beverage revenue decreased $2,977,000, or 77.6%, and $5,644,000, or 73.0%, for the three and nine months ended September 30, 2020 compared to the same periods in 2019. These decreases are primarily due to decreased attendance, primarily due to capacity limitations mandated across the Company’s operations as a result of the COVID-19 Pandemic described above.

Other Revenue:

Other revenue decreased $1,561,000, or 59.5%, and $2,784,000, or 52.9% for the three and nine months ended September 30, 2020 compared to the same periods in 2019. These decreases are primarily due to decreased attendance, primarily due to capacity limitations mandated across the Company’s operations as a result of the COVID-19 Pandemic described above.

Operating Expenses:

Total operating expenses decreased $4,882,000, or 28.5%, and $15,730,000, or 35.9%, for the three and nine months ended September 30, 2020 compared to the same periods in 2019. These decreases in operating expenses reflect reductions in the majority of the Company’s operating expense line items, primarily as a result of the Company’s temporary suspension of operations through June 9, 2020, limited operations upon reopening and efforts to manage

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expenses in light of revenue declines due to the COVID-19 Pandemic. The following paragraphs provide further detail regarding certain operating expenses.

Purse expense increased $304,000, or 14.6%, for the three months ended September 30, 2020 compared to the same period in 2019. The increase is due to a substantial increase in out of state wagering, partially offset by decreases in simulcast, live racing, and Card Casino revenues. Purse expense decreased $1,347,000, or 24.8%, for the nine months ended September 30, 2019 compared to the same period in 2019. The decrease is due to a reduction in Pari-Mutuel and Card Casino revenues.

Salaries and benefits decreased $1,698,000, or 23.8%, and $6,908,000, or 34.8%, for the three and nine months ended September 30, 2020, compared to the same periods in 2019. The decreases are due primarily to the COVID-19 Pandemic, which resulted in the majority of Company employees being placed on an unpaid furlough during the temporary suspension of operations. Labor costs have also significantly declined upon reopening in June due to the Company’s limited operations requiring significantly reduced number of personnel. Additionally, labor costs were unusually high as a percentage of revenues in 2019 as a result of inefficiencies caused by the Card Casino construction in January and February and re-opening in March 2019.

Cost of food and beverage sales decreased $1,146,000 or 72.9%, and $2,338,000, or 68.8%, for the three and nine months ended September 30, 2020, compared to the same periods in 2019. The decreases are due to lower food and beverage revenues due to decreased attendance, primarily due to capacity limitations mandated across the Company’s operations as a result of the COVID-19 Pandemic.

Advertising and marketing decreased $839,000 or 88.5%, and $1,564,000, or 82.5%, for the three and nine months ended September 30, 2020, compared to the same periods in 2019. The decreases are due to a reduction in advertising and marketing spend due to capacity limitations mandated across the Company’s operations as a result of the COVID-19 Pandemic.

During the nine months ended September 30, 2019, the Company recorded a loss on disposal of assets totaling $114,000. This primarily related to a write-off of assets disposed of in remodeling our Card Casino. Also, during the same period, the Company recorded a gain on insurance recoveries of $199,000 as a result of insurance proceeds related to flood damage incurred at the Racetrack.

During the 2020 third quarter, the Company recorded a gain on transfer of land of $2,275,000 as a result of transferring land to the Doran Canterbury II and Canterbury DBSV joint ventures.

Net income for the three months ended September 30, 2020 and 2019 $1,849,000 and $1,150,000, respectively. Net income for the nine months ended September 30, 2020 and 2019 was $923,000 and $2,165,000, respectively.

EBITDA

To supplement our financial statements, we also provide investors with information about our EBITDA and Adjusted EBITDA, each of which is a non-GAAP measure, which excludes certain items from net income (loss), a GAAP measure. We define EBITDA as earnings before interest, income tax (benefit) expense, and depreciation and amortization. We define Adjusted EBITDA as earnings before interest income, income tax (benefit) expense, depreciation and amortization, as well as excluding gain on transfer of land, gain on insurance recoveries, and loss from disposal of assets. Neither EBITDA nor adjusted EBITDA is a measure of performance calculated in accordance with GAAP and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance. EBITDA is presented as a supplemental disclosure because it is a widely used measure of performance and a basis for valuation of companies in our industry. Moreover, other companies that provide EBITDA information may calculate EBITDA differently than we do. Adjusted EBITDA reflects additional adjustments to EBITDA to eliminate unusual items and we believe the exclusion of these items allows for better comparability of our performance between periods.

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The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA and to adjusted EBITDA (defined above) which are non-GAAP financial measures, for the three and nine months ended September 30, 2020 and 2019:

Summary of EBITDA Data

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
NET INCOME	$	1,849,012	$	1,150,485	$	923,036	$	2,164,832
Interest income, net		(168,552)		(96,065)		(501,600)		(204,623)
Income tax expense		1,137,997		418,942		70,498		795,164
Depreciation		655,003		785,327		2,065,496		1,987,067
EBITDA		3,473,460		2,258,689		2,557,430		4,742,440
Gain on insurance recoveries		—		—		—		(198,874)
Gain on transfer of land		(2,275,458)		—		(2,275,458)		—
Loss on disposal of assets		13,407		6,376		13,407		114,413
ADJUSTED EBITDA	$	1,211,409	$	2,265,065	$	295,379	$	4,657,979

Adjusted EBITDA decreased $1,054,000, or 46.5%, for the three months ended September 30, 2020 as compared to the same period in 2019. Adjusted EBITDA decreased $4,363,000, or 93.7%, for the nine months ended September 30, 2020 compared to the same period in 2019. The decreases are due to the effects of the COVID-19 Pandemic described above.

Contingencies:

The Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community, which became effective on March 4, 2012, and was amended in the respective first quarters of 2015, 2016, 2017, 2018, and June 2020 and will expire December 31, 2022. The CMA contains specific covenants that, if breached, would trigger an obligation to repay a specified amount related to these covenants. At this time, management believes that the likelihood that the breach of a covenant would occur and that the Company would be required to pay the specified amount related to a covenant is remote.

The Company continues to analyze the feasibility of various options related to the development of our underutilized land. The Company may incur substantial costs during the feasibility and predevelopment process, but the Company believes available funds are sufficient to cover the near-term costs. See Liquidity and Capital Resources for more information on liquidity and capital resource requirements.

Liquidity and Capital Resources:

The Company has a general credit and security agreement with a financial institution, which provides a revolving credit line up to $6.0 million and allows for letters of credit in the aggregate amount of up to $2.0 million to be issued under the credit agreement. As of September 30, 2020, the bank issued a $1,250,000 letter of credit on behalf of the Company and therefore, the Company has an available credit line up to $4,750,000. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. This agreement was amended as of September 30, 2020 to extend the maturity date to December 31, 2020. As of September 30, 2020, there were no amounts outstanding on the line of credit.

The Company’s cash, cash equivalents, and restricted cash balance at September 30, 2020 was $4,244,000 compared to $3,927,000 as of December 31, 2019. The Company believes that unrestricted funds available in its cash accounts, amounts available under its revolving line of credit, along with funds generated from operations and future land sales, will be sufficient to satisfy its liquidity and capital resource requirements for regular operations, as well as its planned development expenses during 2020. However, if the Company engages in any additional significant real estate development, additional financing would more than likely be required and the Company may seek this additional financing through joint venture arrangements, through incurring debt, or through an equity financing, or a combination of any of these.

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Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2020 was $680,000 primarily as a result of the following: The Company reported net income of $923,000, depreciation of $2,065,000, loss from equity investment of $661,000, and stock-based compensation and 401(k) match totaling $566,000. Cash used in operations was reduced by a gain on transfer of land of $2,275,000. The Company also experienced an increase in accounts receivable of $1,295,000.

Net cash provided by operating activities for the nine months ended September 30, 2019 was $3,947,000 primarily as a result of the following: The Company reported net income of $2,165,000, which included a loss on disposal of assets of $114,000. Cash from operating activities was increased by noncash charges from depreciation of $1,987,000 and stock-based compensation and 401(k) match totaling $771,000. The Company also experienced an increase in deferred revenue of $653,000 and card casino accruals of $449,000, slightly offset by an increase in an amount due from Minnesota horsemen associations of $1,094,000 and accrued wages and payroll taxes of $753,000.

Investing Activities

Net cash used in investing activities for the first nine months of 2020 and 2019 was $56,000 and $11,717,000, respectively, primarily for additions to property, plant, and equipment and additions for TIF eligible improvements. This is partially offset by a decrease in related party receivables in 2020 and a decrease in notes receivable in 2019.

Financing Activities

Net cash used in financing activities during the first nine months of 2020 was $306,000, primarily due to cash dividends paid to shareholders. Net used provided by financing activities during the first nine months of 2019 was $886,000, relating primarily to borrowings on the line of credit and proceeds from the issuance of common stock, partially offset by cash dividends paid to shareholders.

In March 2020, the Company’s Board of Directors suspended the Company’s quarterly cash dividend, beginning with the cash dividend that would normally have been paid in April 2020.

Critical Accounting Policies and Estimates:

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 GAAP. 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.

Our significant accounting policies are included in Note 2 to our consolidated financial statements in our 2019 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 49.8% of our total assets at September 30, 2020. We use 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 undiscounted future net cash flows. If the sum of the related expected future net cash flows is less than the carrying value, management would determine how much of an impairment loss would be measured by the amount by

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which the carrying value of the asset exceeds the fair value of the asset. We have determined that no impairment of these assets exists at September 30, 2020.

Stock-Based Compensation – Accounting guidance requires measurement of services provided in exchange for a share-based payment based on the grant date fair market value. We use our judgment in determining the assumptions used to determine the fair value of equity instruments granted using a Black-Scholes model. The Company also grants Long Term Incentive Awards under the Long Term Incentive Plan (the “LTI Plan”) under which Company executive officers and other senior executives have the opportunity to receive a payout of shares of the Company’s common stock at the end of a three-year period. Management must make a number of assumptions to estimate future results to determine the compensation expense of the LTI Plan. As a result of the COVID-19 Pandemic, the Company has temporarily suspended its LTI Plan until there is more certainty about the Company’s future operations.

Commitments and Contractual Obligations:

The Company entered into the CMA with the SMSC on June 4, 2012, that was amended in January 2015, 2016, 2017, March 2018, and June 2020 and expires December 31, 2022. See “Cooperative Marketing Agreement” below.

Cooperative Marketing Agreement:

On June 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse industry. Under the CMA, as amended, this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. These payments have no direct impact on the Company’s consolidated financial statements or operations.

Because the Company conducted a more limited 2020 live race meet due to the COVID-19 Pandemic, the Company and SMSC entered into the Fifth Amendment Agreement (“Fifth Amendment”) to the CMA effective June 8, 2020. Under the Fifth Amendment, the SMSC agreed to provide up to $5,620,000 for the annual purse enhancement for the year 2020. The annual purse enhancement that the SMSC is obligated to pay under the CMA for 2021 and 2022 was not changed and remains at $7,380,000 per year.

Under the terms of the CMA, as amended, the SMSC made payments of $5.6 million and $7.4 million during the first nine months of 2020 and 2019, respectively, primarily for purse enhancements for the respective live race meets.

Under the CMA, as amended, SMSC also agreed to make “Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits, and events. Under the Fifth Amendment, the SMSC is not required to pay the Company a 2020 annual marketing payment, but the Company will use previously paid but unspent funds for these purposes.

As noted above and affirmed in the Fifth Amendment, SMSC is obligated to make the following purse enhancement and marketing payments for 2021 through 2022:

	Purse Enhancement Payments to		Marketing Payments to
Year	Horsemen (1)		Canterbury Park
2021		$ 7,380,000		$ 1,620,000
2022		$ 7,380,000		$ 1,620,000

(1) Includes $100,000 each year payable to various horsemen associations.

The amounts earned from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s condensed consolidated statements of operations. For the three and nine months ended September 30, 2020, the Company recorded $490,000 and $811,000 in other revenue, respectively, incurred $449,000 and $694,000 in

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advertising and marketing expense, respectively, and incurred $41,000 and $117,000 in depreciation, respectively, related to the SMSC marketing funds. For the three and nine months ended September 30, 2019, the Company recorded $569,000 and $1,031,000 in other revenue, respectively, incurred $512,000 and $861,000 in advertising and marketing expense, respectively, and incurred $57,000 and $170,000 in depreciation, respectively, related to the SMSC marketing funds.

Under the CMA, the Company has agreed for the 10-year term of the CMA expiring December 31, 2022 that it will not promote or lobby the Minnesota legislature for expanded gambling authority and will support the SMSC’s lobbying efforts against expanding gambling authority.

Redevelopment Agreement:

As mentioned above in note 8 of Notes to Financial Statements, on August 10, 2018, the City of Shakopee, the City of Shakopee Economic Development Authority, and the Company entered into a Redevelopment Agreement in connection with a Tax Increment Financing District (“TIF District”) that the City had approved in April 2018. Under the Redevelopment Agreement, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, including the development of public streets, utilities, sidewalks, and other public infrastructure and the City of Shakopee agreed that a portion of the tax revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing these improvements. The Company expects to finance its improvements under the Redevelopment Agreement with funds from its current operating resources and existing credit facility and, potentially, third-party financing sources.

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, we may make forward-looking statements concerning possible or anticipated future financial performance, prospective business activities or plans that are typically preceded by words such as “believes,” “expects,” “anticipates,” “intends” or similar expressions. For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that these forward-looking statements are subject to risks and uncertainties that could affect our actual results and cause actual results to differ materially from those indicated in the forward-looking statements. These risks and uncertainties include, but are not limited to:

● material fluctuations in attendance at the Racetrack;

● any short-term or long-term effect that the COVID-19 Pandemic may have on the economy generally, or us as an entertainment venue, including reluctance from customers to visit our Racetrack or Card Casino or social distancing measures that we may voluntarily take that would limit attendance at our facilities;

● the fact that due to the COVID-19 Pandemic, our non-real estate development operations were closed from March 16, 2020 to mid-June and early July 2020, when we resumed these operations on a more limited basis in light of restrictions imposed by Minnesota regulatory bodies;

● decline in interest in wagering on horse races at the Racetrack, at other tracks, or on unbanked card games offered at the Card Casino;

● competition from other venues offering unbanked card games or other forms of wagering;

● greater-than-anticipated expenses or a lower-than-anticipated return on the development of our underutilized land, including our joint venture to develop a luxury apartment complex;

● competition from other sports and entertainment options;

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● increases in compensation and employee benefit costs;

● increases in the percentage of revenues allocated for purse fund payments;

● higher-than-expected expenses related to new marketing initiatives;

● the impact of wagering products and technologies introduced by competitors;

● legislative and regulatory decisions and changes, including decision or actions related to sports betting that would adversely affect our betting environment;

● any legal, judicial, legislative or regulatory action or event that would adversely affect our ten-year Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community, which enhances the purses for daily racing at Canterbury Park and supports cooperative marketing programs for the two organizations, benefiting the stability and quality of live horse racing;

● the fact that under the Redevelopment Agreement with the City of Shakopee, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, and the amounts that Canterbury Park will be paid as reimbursement under the TIF program for these improvements is not guaranteed, but will depend in part on future tax revenues generated from the developed property;

● the success of the Company’s Canterbury Commons real estate development, including our reliance upon our joint venture partner Doran Companies to construct and profitably operate the upscale apartment complex;

● our success in our joint ventures and pending real estate developments;

● the fact that 2019 first quarter construction activity in our Card Casino resulted in a decline in Card Casino revenues and any future construction activity may result in similar decline;

● the fact the infrastructure improvements that we are making pursuant to the Redevelopment Agreement with the City of Shakopee together with improvements we are making to our parking facilities may disrupt traffic flow in a manner that discourages our customers from visiting our facilities, thereby affecting our revenue and profitability;

● our ability to develop and maintain high-quality food and beverage offerings that we can market and sell to our Racetrack and Card Casino patrons, as well as future residents of the new Triple Crown Apartments at Canterbury that are being developed by the Doran–Canterbury joint ventures;

● the general health of the gaming sector; and

● other factors that are beyond our ability to control or predict.

ITEM 3:    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4:    CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures:

The Company’s President and Chief Executive Officer, Randall D. Sampson and Chief Financial Officer, Randy J. Dehmer, have reviewed the Company’s disclosure controls and procedures pursuant to Exchange Act

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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.

(b)      Changes in Internal Control over Financial Reporting:

There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) that occurred during our fiscal quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1.      Legal Proceedings

Not Applicable.

Item 1A.   Risk Factors

There have been no changes to the Risk Factors listed in our Annual Report on Form 10-K for the year ended December 31, 2019, as updated by our subsequently filed Quarterly Reports on Form 10-Q.

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

Not Applicable.

Item 3.     Defaults upon Senior Securities

Not Applicable.

Item 4.     Mine Safety Disclosures

Not Applicable.

Item 5.     Other Information

Not Applicable.

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Item 6.     Exhibits

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	Press Release dated November 9, 2020 announcing 2020 Third Quarter Results.
101	The following financial information from Canterbury Park Holding Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020, formatted in eXtensible Business Reporting Language XBRL: (i) Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, (ii) Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2020 and September 30, 2019, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months ended September 30, 2020 and September 30, 2019, (iv) Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2020 and September 30, 2019, and (v) Notes to Financial Statements.

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: November 10, 2020	/s/ Randall D. Sampson
	Randall D. Sampson,
	Executive Chairman, President, and Chief Executive Officer (Principal Executive Officer)
Dated: November 10, 2020	/s/ Randy J. Dehmer
	Randy J. Dehmer, Chief Financial Officer (Principal Financial and Accounting Officer)

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