Canterbury Park Holding Corp - Quarter Report: 2018 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

TERLY PERIOD ENDED SEPTEMBER 30, 2012.

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018.


☐		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)

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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).


	YES	☒		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 4,496,275 shares of common stock, $.01 par value, outstanding as of August 1, 2018.

Canterbury Park Holding Corporation

INDEX


			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements (unaudited)

		Condensed Consolidated Balance Sheets as of
		June 30, 2018 and December 31, 2017	2

		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017	3

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017	4

		Notes to Condensed Consolidated Financial Statements	6

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

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23

	Item 4.	Controls and Procedures	23


PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	24

	Item 1A.	Risk Factors	24

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

	Item 3.	Defaults Upon Senior Securities	24

	Item 4.	Mine Safety Disclosures	24

	Item 5.	Other Information	24

	Item 6.	Exhibits	25

	Signatures		26

PART 1 – FINANCIAL INFORMATION

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



	(Unaudited)
	June 30,		December 31,
	2018		2017
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	13,481,746	$	8,888,162
Restricted cash		7,541,504		3,137,391
Short-term investments		206,210		206,005
Accounts receivable, net of allowance of $19,250 for both periods		760,223		1,278,289
Current portion of notes receivable		1,048,654		1,048,654
Inventory		414,807		262,989
Prepaid expenses		253,894		588,634
Income taxes receivable		196,537		-
Total current assets		23,903,575		15,410,124

LONG-TERM ASSETS
Deposits		22,500		22,500
Notes receivable - long term portion		1,096,409		2,142,512
Land, buildings and equipment, net of accumulated depreciation of $29,971,794 and $29,670,916, respectively		38,651,312		36,962,188
	$	63,673,796	$	54,537,324

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		4,268,924		2,854,305
Card Casino accruals		2,579,666		2,931,205
Accrued wages and payroll taxes		2,154,017		2,291,261
Cash dividend payable		314,054		265,113
Accrued property taxes		972,561		936,562
Deferred revenue		2,105,738		905,030
Payable to horsepersons		5,314,177		630,921
Income taxes payable		-		3,830
Total current liabilities		17,709,137		10,818,227

LONG-TERM LIABILITIES
Deferred income taxes		3,206,000		3,002,000
Total long-term liabilities		3,206,000		3,002,000
TOTAL LIABILITIES		20,915,137		13,820,227

STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized, 4,482,567 and 4,414,492, respectively, shares issued and outstanding		44,826		44,145
Additional paid-in capital		20,816,671		19,865,273
Retained earnings		21,897,162		20,807,679
Total stockholders’ equity		42,758,659		40,717,097
	$	63,673,796	$	54,537,324

See notes to condensed consolidated financial statements

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
OPERATING REVENUES:
Pari-mutuel	$	3,504,767	$	3,454,737	$	5,045,711	$	4,960,674
Card Casino		8,480,489		8,112,734		16,757,470		15,817,205
Food and beverage		2,400,713		2,364,686		3,704,351		3,710,561
Other		2,126,755		1,914,318		3,225,140		2,801,106
Total Net Revenues		16,512,724		15,846,475		28,732,672		27,289,546

OPERATING EXPENSES:
Purse expense		2,102,873		2,004,688		3,347,759		3,137,111
Minnesota Breeders’ Fund		301,409		304,396		504,561		520,171
Other pari-mutuel expenses		484,754		452,583		763,276		724,471
Salaries and benefits		6,766,422		6,290,356		12,196,426		11,417,449
Cost of food and beverage and other sales		1,096,623		1,096,002		1,689,530		1,709,378
Depreciation		601,080		577,275		1,236,225		1,222,998
Utilities		382,365		337,857		700,226		618,763
Advertising and marketing		1,012,244		917,188		1,239,219		1,185,062
Professional and contracted services		1,159,925		1,152,893		2,020,218		2,014,427
Loss on disposal of assets		99,934		-		99,934		-
Gain on insurance recoveries		-		-		(21,064)		-
Other operating expenses		1,505,629		1,522,079		2,600,141		2,686,749
Total Operating Expenses		15,513,258		14,655,317		26,376,451		25,236,579
INCOME FROM OPERATIONS		999,466		1,191,158		2,356,221		2,052,967
OTHER INCOME
Interest income, net		5,048		11,415		17,455		23,603
Net Other Income		5,048		11,415		17,455		23,603
INCOME BEFORE INCOME TAXES		1,004,514		1,202,573		2,373,676		2,076,570
INCOME TAX EXPENSE		(279,163)		(486,000)		(658,633)		(847,000)
NET INCOME	$	725,351	$	716,573	$	1,715,043	$	1,229,570

Basic earnings per share	$	.16	$	.16	$	.39	$	.28
Diluted earnings per share	$	.16	$	.16	$	.38	$	.28
Weighted Average Basic Shares Outstanding		4,466,966		4,372,333		4,453,309		4,357,472
Weighted Average Diluted Shares Outstanding		4,515,648		4,395,009		4,502,397		4,378,481
Cash dividends declared per share	$	.07	$	.06	$	.14	$	.11

See notes to condensed consolidated financial statements.

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2018		2017
Operating Activities:
Net income	$	1,715,043	$	1,229,570
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,236,225		1,222,998
Stock-based compensation expense		203,866		192,135
Stock-based employee match contribution		276,953		240,597
Deferred income taxes		204,000		64,000
Loss on disposal of assets		99,934		1,998
Gain on insurance proceeds		(21,064)		-
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		539,130		(393,993)
Increase in inventory		(151,818)		(175,646)
Decrease in prepaid expenses		334,740		180,858
(Increase) decrease in income taxes receivable		(196,537)		528,000
Increase in accounts payable		1,261,658		1,254,158
Increase in deferred revenue		1,200,708		1,282,893
Decrease in Card Casino accruals		(351,539)		(82,965)
(Decrease) increase in accrued wages and payroll taxes		(137,244)		400,135
Increase (decrease) in accrued property taxes		35,999		(68,022)
Decrease in income taxes payable		(3,830)		-
Increase in payable to horsepersons		4,683,256		3,927,247
Net cash provided by operating activities		10,929,480		9,803,963

Investing Activities:
Additions to buildings and equipment		(2,872,322)		(2,732,105)
Decrease in notes receivable		1,046,103		-
Purchase of investments		(205)		(295)
Net cash used in investing activities		(1,826,424)		(2,732,400)

Financing Activities
Proceeds from issuance of common stock		471,163		149,803
Cash dividends to shareholders		(576,522)		(434,483)
Net cash used in financing activities		(105,359)		(284,680)

Net increase in cash, cash equivalents, and restricted cash		8,997,697		6,786,883

Cash, cash equivalents, and restricted cash at beginning of period		12,025,553		8,288,820

Cash, cash equivalents, and restricted cash at end of period	$	21,023,250	$	15,075,703

See notes to condensed consolidated financial statements.

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)


	2018		2017
Schedule of non-cash investing and financing activities
Additions to buildings and equipment funded through accounts payable	$	153,000	$	51,000
Dividend declared		314,000		481,000

Supplemental disclosure of cash flow information:
Income taxes paid	$	1,067,000	$	485,000

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. OVERVIEW AND BASIS OF PRESENTATION

Business – The Company’s 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 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 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 include: 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.

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, 2017, included in its Annual Report on Form 10-K (the “2017 Form 10-K”).

The condensed consolidated balance sheets and the related condensed consolidated statements of operations and the cash flows for the periods ended June 30, 2018 and 2017 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, and cash flows at June 30, 2018 and 2017 and for the periods then ended have been made.

Effective January 1, 2018, we adopted the requirements of Accounting Standards Update (“ASU”) No 2014-09, Revenue from Contracts with Customers and ASU No. 2016-18, Statement of Cash Flows, Restricted Cash as discussed in Note 2. All amounts and disclosures set forth in this Form 10-Q have been updated to comply with the new standards.

Deferred Revenue – Deferred revenue includes advance sales related to racing, events and corporate partnerships. Revenue from these advance billings are recognized when the related event occurs or services have been performed. Deferred revenue also includes advanced Cooperative Marketing Agreement (“CMA”) promotional funds and revenue is recognized when expenses are incurred. The Company maintains a deferred gain on sale of land of $240,000 due to a repurchase right.

Payable to Horsepersons - The Minnesota Pari-mutuel Horse Racing Act specifies that the Company is required to segregate a portion of funds (recorded as purse expense in the statements of operations) received from Card 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 MHBPA, the Company transferred into a trust account or paid directly to the MHBPA, $2,678,000 and $2,213,000 for the six months ended June 30, 2018 and 2017, respectively, related to thoroughbred races. Minnesota Statutes specify that amounts transferred into the trust account are the property of the trust and not of the Company, and therefore these amounts are not recorded on the Company’s Consolidated Balance Sheet.

Reclassifications – Prior period financial statement amounts have been reclassified to conform to current period presentations. Certain amounts due to horsepersons have been reclassified on the December 31, 2017 Consolidated Balance Sheets to Payable to Horsepersons from Due to MHBPA. This reclassification has also been reflected on the Consolidated Statements of Cash Flows for the six months ended June 30, 2017. Workers compensation amounts have been reclassified from other operating expenses to salaries and benefits on the Consolidated Statement of Operations for the three and six months ended June 30, 2017. Additionally, amounts related to RiverSouth have been reclassified from other operating expenses to advertising and marketing for the three and six months ended June 30, 2017.

2. ACCOUNTING STANDARDS AND SIGNIFICANT ACCOUNTING POLICIES

Recently Adopted Accounting Pronouncements

In November 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash. ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. As a result of the adoption of ASU 2016-18 on January 1, 2018, we began combining amounts generally described as restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the condensed consolidated statement of cash flows. See the table at the end of this note for the effects of the adoption of ASU 2016-18 on our condensed consolidated statement of cash flows for the six months ended June 30, 2017.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606"). Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition ("Topic 605"), and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the considerations to which the entity expects to be entitled to in exchange for those goods or services. Collectively, we refer to Topic 606 as the "new standard."

We adopted the requirements of the new standard as of January 1, 2018, using the full retrospective method. Adoption of the new standard resulted in changes to our accounting policies for revenue recognition and promotional allowances as detailed below. We applied the new standard using a practical expedient where the consideration allocated to the remaining performance obligations or an explanation of when we expect to recognize that amount as revenue for all reporting periods presented before the date of the initial application is not disclosed.

The impact of adopting the new standard on our fiscal 2018 and fiscal 2017 revenues is not material and resulted in no cumulative effect adjustment on net income or cash flows. The primary impact of adopting the new standard is the removal of the promotional allowance line item on the condensed consolidated statement of operations. The amounts previously included as promotional allowance will now be presented on a net basis within Pari-mutuel revenues.

We adjusted our condensed consolidated financial statements from amounts previously reported due to the adoption of ASU No. 2014-09 and ASU No. 2016-18. Select unaudited condensed consolidated statement of operations line items, which reflect the adoption of ASU No. 2014-09 are as follows:


	Three months ended June 30, 2017
	As previously reported	Adjustments	As Adjusted
OPERATING REVENUES:
Pari-mutuel	$ 3,503,897	$ (49,160)	$ 3,454,737
Promotional allowances	(49,160)	(49,160)	-


	Six months ended June 30, 2017
	As previously reported	Adjustments	As Adjusted
OPERATING REVENUES:
Pari-mutuel	$ 5,035,761	$ (75,087)	$ 4,960,674
Promotional allowances	(75,087)	(75,087)	-

Select unaudited condensed consolidated statement of cash flow line items, which reflects the adoption of ASU No. 2016-18 are as follows:


	Six months ended June 30, 2017
	As previously reported	Adjustments	As Adjusted
Net cash provided by operating activities	5,494,800	4,309,163	9,803,963
Net increase in cash and cash equivalents	2,477,720	4,309,163	6,786,883
Cash, cash equivalents and restricted cash at beginning of period	6,298,807	1,990,013	8,288,820
Cash, cash equivalents and restricted cash at end of period	$ 8,776,527	$ 6,299,176	$ 15,075,703

Summary of Significant Accounting Policies

Except for the accounting policies for revenue recognition, promotional allowances, and restricted cash that were updated as a result of our recently adopted accounting pronouncements, there have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 27, 2018, that have had a material impact on our condensed consolidated financial statements and related notes.

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 such 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 don’t 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 to not differ materially from that which would result if applying the guidance to 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 selling price 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. Therefore, we do not recognize any contract revenue associated with future performance obligations.

The Company offers certain promotional allowances at no charge to patrons who participate in its player rewards program. The retail value of these promotional items is included as a deduction from pari-mutuel revenues and no longer shown as a separate line item on the Company’s condensed consolidated statements of operations.

We evaluate our on-track revenue, export revenue, and import revenue contracts in order to determine whether we are acting as the principal or as the agent when providing services, which we consider in determining if revenue should be reported gross or net. An entity is a principal if it controls the specified service before that service is transferred to a customer.

The revenue we recognize for on-track revenue and import revenue is the commission we are entitled to retain for providing a wagering service to our customers. For these arrangements, we are the principal as 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, our customer is the third party wagering site such as a race track, OTB, or advance deposit wagering 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.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires that lessees recognize assets and liabilities for leases with lease terms greater than 12 months in the statement of financial position and also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The update is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years. Early adoption is permitted. We are currently analyzing the impact of this ASU and, at this time, we are unable to determine the impact on the new standard, if any, on our consolidated financial statements.

3. 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 three awards outstanding that are for three-year periods ending December 31, 2018, 2019, and 2020.

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

The Company’s Stock Plan was amended to authorize 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. The Board of Directors’ unvested deferred stock awards as of June 30, 2018 consisted of 7,456 shares with a weighted average fair value per share of $16.10. There were no unvested restricted stock or stock options outstanding at June 30, 2018.

Employee Deferred Stock Awards

Prior to January 1, 2016 the Company’s Board awarded deferred compensation to executive officers and key employees, that were not performance-based, in the form of deferred stock awards under the Company’s Stock Plan. These deferred stock awards are subject to forfeiture if an employee terminates employment prior to the vesting. Generally, the awards vest ratably over a four-year period and compensation costs are recognized over the vesting period. Compensation costs are recorded in “Salaries and benefits” on the Condensed Consolidated Statements of Operations. There were no unvested deferred stock awards outstanding at June 30, 2018.

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 $204,000 and $192,000 for the six months ended June 30, 2018 and 2017.

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.

A summary of stock option activity as of June 30, 2018 and changes during the six 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, 2018		142,502	$	8.19
Granted		-		-
Exercised		(44,525)		8.90
Expired/Forfeited		-		-
Outstanding at June 30, 2018		97,977	$	7.86		1.4 Years	$	770,295

Exercisable at June 30, 2018		97,977	$	7.86		1.4 Years	$	770,295

4. 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 six months ended June 30, 2018 and 2017:




	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Net income (numerator) amounts used for basic and diluted per share computations:	$	725,351	$	716,573	$	1,715,043	$	1,229,570

Weighted average shares (denominator) of common stock outstanding:
Basic		4,466,966		4,372,333		4,453,309		4,357,472
Plus dilutive effect of stock options		48,682		22,676		49,088		21,009
Diluted		4,515,648		4,395,009		4,502,397		4,378,481

Net income per common share:
Basic	$	.16	$	.16	$	.39	$	.28
Diluted		.16		.16		.38		.28

There were no out of-the-money options at June 30, 2018; thus, all outstanding options to purchase shares of common stock were included in the computation of diluted net income per share.

Options to purchase 30,000 shares of common stock at an average price of $12.33 per share were outstanding but not included in the computation of diluted net income per share for the six months ended June 30, 2017 because the exercise price of the options exceeded the market price of the Company’s common stock at June 30, 2017.

5. PROMISSORY NOTES RECEIVABLE

In May 2016, the Company sold approximately 24 acres of land adjacent to the Racetrack for a total consideration of approximately $4.3 million. Promissory notes receivable consists of two promissory notes totaling $2,145,000 bearing interest at 1.43%. On May 31, 2017, the Company signed an amendment extending the maturity date of the notes to May 2020. Payments totaling $1,094,000 are due annually on May 13th until the notes mature. The promissory notes are secured by the mortgage on approximately 24 acres and management believes no allowance for doubtful accounts is necessary.

6. GENERAL CREDIT AGREEMENT

The Company has a general credit and security agreement with a financial institution, which provides a revolving credit line of up to $6,000,000, and expires September 30, 2018. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. The Company had no borrowings under the credit line during the three months ended June 30, 2018.

7. 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):



	Six Months Ended June 30, 2018
	Horse Racing		Card Casino		Food and Beverage		Development		Total

Net revenues from external customers	$	8,112	$	16,758	$	3,863	$	-	$	28,733

Intersegment revenues		368		-		671		-		1,039

Net interest (expense) income		(4)		-		-		21		17

Depreciation		1,153		5		78		-		1,236

Segment (loss) income before income taxes		(456)		3,040		177		(2)		2,759

Segment income tax (benefit) expense		(231)		842		49		(1)		659

	At June 30, 2018
Segment Assets	$	50,077	$	633	$	23,006	$	10,547	$	84,263



	Six Months Ended June 30, 2017
	Horse Racing		Card Casino		Food and Beverage		Development		Total

Net revenues from external customers	$	7,639	$	15,817	$	3,834	$	-	$	27,290

Intersegment revenues		360		734		-		-		1,094

Net interest income		24		-		-		-		24

Depreciation		822		317		84		-		1,223

Segment (loss) income before income taxes		(890)		3,081		664		-		2,855

Segment income tax (benefit) expense		(692)		1,266		273		-		847

	At December 31, 2017
Segment Assets	$	41,077	$	642	$	21,583	$	11,436	$	74,738

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



	Six Months Ended June 30,
	2018		2017
Revenues
Total net revenues for reportable segments	$	29,773	$	28,384
Elimination of intersegment revenues		(1,040)		(1,094)
Total consolidated net revenues	$	28,733	$	27,290



Income before income taxes
Total segment income before income taxes	$	2,759	$	2,855
Elimination of intersegment income before income taxes		(385)		(778)
Total consolidated income before income taxes	$	2,374	$	2,077



	June 30,		December 31,
	2018		2017
Assets
Total assets for reportable segments	$	84,263	$	74,738
Elimination of intercompany receivables		(20,589)		(20,201)
Total consolidated assets	$	63,674	$	54,537

8. 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 $700,000 per operating year, as defined, or 20% of the net pretax profit, as defined for each of five operating years. At this time, management believes that the likelihood that these two conditions will be met and that the Company will be required to pay these amounts is remote. At the date (if any) that these two conditions are met, the five minimum payments will be discounted back to their present value and the sum of those discounted payments will be capitalized as part of the purchase price in accordance with GAAP. The purchase price will be further increased if payments become due under the “20% of Net Pretax Profit” calculation. The first payment is to be made 90 days after the end of the third operating year in which off-track betting is conducted by the Company. Remaining payments would be made within 90 days of the end of each of the next four operating years.

The Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community (“SMSC”), which became effective June 4, 2012 and was amended in each of January 2015, 2016, 2017, and 2018, and will expire on December 31, 2022. The CMA contains certain covenants which, if breached, would trigger an obligation to repay a specified amount related to such covenant. At this time, management believes that the likelihood that the breach of a covenant will occur and that the Company will be required to pay the specified amount related to such covenant 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 June 30, 2018, 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.

9. COOPERATIVE MARKETING AGREEMENT

As discussed in Note 8, 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.

Under the terms of the CMA, as amended, the SMSC paid the horsemen $7.4 million and $7.2 million in the first three months of 2018 and 2017, respectively, primarily for purse enhancements for the live race meets in the respective years.

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 CMA, the SMSC paid the Company $1,620,000 and $1,581,000 for marketing purposes during the six months ended June 30, 2018 and 2017.

In each of January 2015, 2016, 2017, and 2018 the CMA was amended to adjust the payment amounts between the “Purse Enhancement Payments to Horsemen” and “Marketing Payments to Canterbury Park.” SMSC is currently obligated to make the following purse enhancement and marketing payments for 2019 through 2022:



Year	Purse Enhancement Payments to Horsemen		1	Marketing Payments to Canterbury Park
2019		$ 7,380,000			$ 1,620,000
2020		7,380,000			1,620,000
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 six months ended June 30, 2018, the Company recorded $572,000 and $678,000 in other revenue and incurred $515,000 and $565,000 in advertising and marketing expense and $57,000 and $113,000 in depreciation related to the SMSC marketing funds. For the three and six months ended June 30, 2017, the Company recorded $468,000 and $625,000 in other revenue and incurred $458,000 and $558,000 in advertising and marketing expense and $57,000 and $113,000 in depreciation related to the SMSC marketing payment.

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.

10. REAL ESTATE DEVELOPMENT

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. The Operating Agreement has a stated effective date of March 1, 2018. Doran Canterbury I, LLC 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, LLC will pursue development of Phase I of the Project, which will include approximately 300 units, a heated parking ramp, and a clubhouse. Under the Operating Agreement, Doran will lead the development, design and construction of the Phase I apartment complex, provide property management and leasing services, and be responsible for the day-to-day operations of the Project. Further information about the Operating Agreement and Project is presented under Item 1.01 of the Company’s Form 8-K dated April 2, 2018 and filed with the Commission on April 6, 2018.

11. SUBSEQUENT EVENTS

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 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. More specifically, the Company is obligated to construct improvements on Shenandoah Drive and Barenscheer Boulevard with these improvements required to be substantially complete on or before December 31, 2019 and December 31, 2020, respectively.

If the Company does not proceed with the improvements to Shenandoah Drive on or before December 15, 2018 or the improvements to Barenscheer Boulevard on or before December 15, 2019, the City of Shakopee has the right to construct the improvements itself and assess the Company for the costs of these improvements.

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 costs of TIF eligible improvements 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. 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. A copy of the Redevelopment Agreement is attached as Exhibit 10.1 to this Form 10-Q.

The Company expects to finance its improvements under the Redevelopment Agreement with funds from its current operating resources and existing credit facility.

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 September, 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.

Operations Review for the Three and Six Months Ended June 30, 2018:

EBITDA

EBITDA represents earnings before interest, income tax expense, and depreciation and amortization. EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”), and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance or cash flows from operating activities as a measure of liquidity. EBITDA 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 net income to eliminate unusual items. For the three months ended June 30, 2018, adjusted EBITDA excluded the loss on disposal of assets. For the six months ended June 30, 2018, adjusted EBITDA excluded the loss on disposal of assets and gain on insurance recoveries.

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 six months ended June 30, 2018 and 2017:


Summary of EBITDA Data
	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
NET INCOME	$	725,351	$	716,573	$	1,715,043	$	1,229,570
Interest income, net		(5,048)		(11,415)		(17,455)		(23,603)
Income tax expense		279,163		486,000		658,633		847,000
Depreciation		601,080		577,275		1,236,225		1,222,998
EBITDA		1,600,546		1,768,433		3,592,446		3,275,965
Gain on insurance recoveries		-		-		(21,064)		-
Loss on disposal of assets		99,934		-		99,934		-
Adjusted EBITDA	$	1,700,480	$	1,768,433	$	3,671,316	$	3,275,965

Adjusted EBITDA decreased $68,000 or 3.8% and decreased as a percentage of net revenues to 10.3% from 11.2% for the three months ended June 30, 2018 as compared to the same period in 2017. Adjusted EBITDA increased $395,000 or 12.1% and increased as a percentage of net revenues to 12.8% from 12.0% for the six months ended June 30, 2018 compared to the same period in 2017. The decrease for the three months ended June 30, 2018 is primarily due to expenses increasing more than revenues compared to the same period in 2017. The increase for the six months ended June 30, 2018 is primarily due to the increase in revenues compared to the same period in 2017.

Revenues:

Total net revenues for the three months ended June 30, 2018 were $16,513,000, an increase of $666,000, or 4.2%, compared to total net revenues of $15,846,000 for the three months ended June 30, 2017. This increase primarily consists of increases in other and card casino revenue of 11.1% and 4.5%, respectively. Total net revenues for the six months ended June 30, 2018 were $28,733,000, an increase of $1,443,000, or 5.3%, compared to total net revenues of $27,290,000 for the six months ended June 30, 2017. This increase primarily consists of increases in other and card casino revenue of 15.1% and 5.9%, respectively. See below for a further discussion of our sources of revenues.


Pari-Mutuel Data Revenue:

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017

Simulcast	$	1,780,000	$	1,733,000	$	3,052,000	$	2,979,000
Live Racing		943,000		943,000		943,000		943,000
Guest Fees		557,000		496,000		558,000		496,000
Other Revenue		225,000		283,000		493,000		543,000
Total Pari-Mutuel Revenue	$	3,505,000	$	3,455,000	$	5,046,000	$	4,961,000

Racing Days
Simulcast only racing days		63		63		153		154
Live and simulcast racing days		28		27		28		27
Total Number of Racing Days		91		90		181		181

Total pari-mutuel revenue increased $50,000, or 1.4%, and $85,000, or 1.7% for the three and six months, respectively, ended June 30, 2018 compared to the same periods in 2017. The increases are related to Simulcast revenue and Guest Fees due to the possibility of a triple crown winner in 2018, as well as an additional live race day in the 2018 second quarter compared to the same period in 2017. These increases are partially offset by pari-mutuel wagering being impacted by inclement weather and a decline in Advanced Deposit Wagering (ADW) revenue for the three and six month periods.

Card Casino Revenue:


	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Poker Games	$	2,053,000	$	2,211,000	$	4,231,000	$	4,547,000
Table Games		5,651,000		5,195,000		11,007,000		9,901,000
Total Collection Revenue		7,704,000		7,406,000		15,238,000		14,448,000
Other Revenue		776,000		707,000		1,519,000		1,369,000
Total Card Casino Revenue	$	8,480,000	$	8,113,000	$	16,757,000	$	15,817,000

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 in the table above, total Card Casino revenue increased $367,000, or 4.5%, and $940,000, or 5.9%, for the three and six months, respectively, ended June 30, 2018 compared to the same periods in 2017. The increase is primarily a result of the Company increasing the percentage of wagers received from the players from 18% in 2017 to 18.5% in April and 20% in May and June 2018. This percentage increase attributed to approximately $439,000 of additional revenue for the three and six months ended June 30, 2018. The increase for the six months ended June 30, 2018 is also a result of increased play on table games. In management’s judgement, increased play is attributable to expanded promotional efforts and players wagering more due to a strong economy. Also, higher jackpots on specific games contributed to increased play.

Food and Beverage Revenue:

Food and beverage revenue increased $36,000, or 1.5%, for the three months ended June 30, 2018 compared to the same periods in 2017. The increase is attributable to price increases on select menu items and an additional live racing day held during the second quarter 2018 compared to 2017. Food and beverage revenue decreased $6,000, or 0.2% for the six months ended June 30, 2018 compared to the same period in 2017.

Other Revenue:

Other revenue increased $212,000, or 11.1%, and $424,000, or 15.1% for the three and six months, respectively, ended June 30, 2018 compared to the same periods in 2017. For the three months ended June 30, 2018, the increase is due to an increase in advertising revenue as well as increased rental fees from a special event held in the spring. For the six months ended June 2018, the increase is primarily due to a short-term customer rental agreement in the first quarter of 2018, related to the Super Bowl held in Minneapolis. A portion of the revenues are reimbursed costs based on the terms of the contract. These costs are included as an expense in our Consolidated Statement of Operations.

Operating Expenses:

Total operating expenses increased $858,000, or 5.9%, and $1,140,000, or 4.5%, for the three and six months, respectively, ended June 30, 2018 compared to the same periods in 2017. The following paragraphs provide further detail regarding certain operating expenses.

Purse expense increased $98,000, or 4.9%, and $211,000, or 6.7% for the three and six months, respectively ended June 30, 2018 compared to the same periods in 2017. The increases are primarily due to increased payments into the purse fund because of increased Card Casino and Pari-Mutuel revenues.

Salaries and benefits increased $476,000, or 7.6%, and $779,000, or 6.8% for the three and six months, respectively, ended June 30, 2018 compared to the same periods in 2017. The increases are partially due to the State of Minnesota mandated increase of $0.15 in the minimum wage effective January 1, 2018. Additionally, two executive positions were open and unfilled during the majority of the 2017 first quarter and one executive position was open and unfilled for the majority of the 2017 second quarter. Furthermore, several new positions were added in 2018 due to the continued growth of the Company.

Utilities expense increased $46,000, or 13.2%, and $81,000, or 13.2% for the three and six months, respectively, ended June 30, 2018, compared to the same periods in 2017. This is due to an increase in electricity, water and sewer rates.

In June 2018, the Company recorded a loss on disposal of assets of $99,000 related to the write off of horse racing equipment.

Other operating expenses decreased $87,000, or 3.2% for the six months ended June 30, 2018, compared to the same periods in 2017. This is primarily due to a decline in repairs and maintenance expense and insurance costs.

Net income for the three months ended June 30, 2018 and 2017 was $725,000 and $717,000, respectively. Net income for the six months ended June 30, 2018 and 2017 was $1,715,000 and $1,230,000.

Contingencies:

The Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community which became effective on June 4, 2012, and was amended in January 2015, 2016, 2017 and 2018, 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:

Net cash provided by operating activities for the six months ended June 30, 2018 was $10,929,000, due in part to net income of $1,715,000, depreciation of $1,236,000, and stock-based compensation and 401(k) match totaling $481,000. The Company also experienced an increase in accounts payable of $1,262,000, deferred revenue of $1,200,000, and purse amounts due to Minnesota horsemen organizations totaling $4,683,000.

Net cash provided by operating activities for the six months ended June 30, 2017 was $9,804,000 due in part to net income of $1,230,000, depreciation of $1,223,000, and stock-based compensation and 401(k) match of $241,000. The Company also experienced an increase in accounts payable and deferred revenue of $2,537,000 and purse amounts due to Minnesota horsemen organizations totaling $3,927,000.

Net cash used in investing activities for the first six months of 2018 and 2017 was $1,826,000 and $2,732,000, respectively, primarily for building remodel projects. The 2018 amount was partially offset by a decrease in notes receivable.

Net cash used in financing activities during the first six months of 2018 and 2017 was $105,000 and $285,000, respectively, relating to cash dividends paid to shareholders, partially offset by proceeds from purchases of stock through the Employee Stock Purchase Plan and the exercise of stock options.

The Company has a general credit and security agreement with a financial institution, which provides a revolving credit line of up to $6,000,000. This agreement was amended on September 30, 2017 to extend the maturity date to September 30, 2018. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. As of June 30, 2018, there were no borrowings under this agreement

The Company’s cash and cash equivalent balance at June 30, 2018 was $13.5 million compared to $8.9 million at December 31, 2017. 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, will be sufficient to satisfy its liquidity and capital resource requirements for regular operations, as well as predevelopment expenses during 2018. However, if the Company engages in any significant real estate development, additional financing would more than likely be required.

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 1 to our consolidated financial statements in our 2017 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 60.7% of our total assets at June 30, 2018. 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 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 June 30, 2018.

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.

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, and 2018 and expires December 31, 2022. See “Cooperative Marketing Agreement” below.

Legislation:

Minimum Wage Legislation

Minnesota legislation enacted into law in 2014 increased the minimum wage that must be paid to most company employees from $7.25 to $8.00 on August 1, 2014, from $8.00 to $9.00 per hour on August 1, 2015, and from $9.00 to $9.50 per hour on August 1, 2016. Starting January 1, 2018, the minimum wage will increase at the beginning of each year by the rate of inflation with a maximum increase of up to 2.5% per year. The minimum wage for 2018 is $9.65 per hour. Prior to August 1, 2014, the Company employed a large number of individuals who received an hourly wage equal to or slightly above $7.25 per hour. As a result, this legislation had an adverse financial impact on us in 2014 through 2017 and will continue to have an adverse impact on us. We have implemented measures to partially mitigate the impact of this increase by raising our prices and reducing our employee count. These measures could themselves have an adverse effect because either higher prices or diminished service levels may discourage customers from visiting the Racetrack.

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.



Year	Purse Enhancement Payments to Horsemen		1	Marketing Payments to Canterbury Park
2019		$ 7,380,000			$ 1,620,000
2020		7,380,000			1,620,000
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 consolidated statements of operations. For the three and six months ended June 30, 2018, the Company recorded $572,000 and $678,000 in other revenue and incurred $515,000 and $565,000 in advertising and marketing expense and $57,000 and $113,000 in depreciation related to the SMSC marketing funds. For the three and six months ended June 30, 2017, the Company recorded $468,000 and $625,000 in other revenue and incurred $458,000 and $558,000 in advertising and marketing expense and $57,000 and $113,000 in depreciation related to the SMSC marketing payment.

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 noted above in note 11 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.

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;

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;

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 success of the Company’s real estate development;

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 funding 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 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

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

ITEM 4: CONTROLS AND PROCEDURES


(a)	Evaluation of Disclosure Controls and Procedures:

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


(b)	Changes in Internal Control over Financial Reporting:

	There have been no 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 June 30, 2018 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


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

	(a)	Not Applicable.
	(b)	Not Applicable.
	(c)	On December 17, 2007, the Company’s Board of Directors adopted a plan that authorized the repurchase of up to 250,000 shares of the Company’s common stock pursuant to Exchange Act Rule 12b-18 in open market transactions, block purchases of privately negotiated transactions (the “2008 Stock Repurchase Plan”). From its adoption until August 13, 2012, the Company repurchased 216,543 shares under the 2008 Stock Repurchase Plan and, on such date, authorized the repurchase of an additional 100,000 shares of the Company’s common stock. The Company did not repurchase any shares during the second quarter of 2018. The maximum number of shares that may yet be purchased under the above authorizations is 128,781 as of June 30, 2018.

Item 3.		Defaults upon Senior Securities

		Not Applicable.

Item 4.		Mine Safety Disclosures

		Not Applicable.

Item 5.		Other Information

		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 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 total estimated cost of TIF eligible improvements 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. 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 in part on future tax revenues generated from the developed property. A more detailed description of the Redevelopment Agreement is set forth in Note 11 of Notes to Financial Statements, which is incorporated herein by reference

Item 6.		Exhibits

	10.1	Contract for Private Development between City of Shakopee, Minnesota, Economic Development Authority for the City of Shakopee, Minnesota, Canterbury Development LLC, and Canterbury Park Holding Corporation effective August, 2018.

	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 August 14, 2018 announcing 2018 Second Quarter Results.
	101	The following financial information from Canterbury Park Holding Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018, formatted in eXtensible Business Reporting Language XBRL: (i) Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017, (ii) Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2018 and June 30, 2017, (iii) Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2018 and June 30, 2017, and (iv) 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: August 14, 2018	/s/ Randall D. Sampson


	Randall D. Sampson,
	President and Chief Executive Officer


Dated: August 14, 2018	/s/ Robert M. Wolf


	Robert M. Wolf,
	Chief Financial Officer