PART 1 – FINANCIAL INFORMATION

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30,

December 31,


2020

2019
ASSETS





CURRENT ASSETS




Cash and cash equivalents

$
—

$
355,399
Restricted cash

4,349,381

2,308,955
Short-term investments

—

103,886
Current portion of related party receivable

3,208,000

—
Accounts receivable, net of allowance of $19,250 for both periods

1,037,782

302,037
Inventory

293,998

390,118
Prepaid expenses

545,981

501,493
Income taxes receivable

1,947,939

—
Total current assets

11,383,081

3,961,888

LONG-TERM ASSETS




Deposits

49,500

49,500
Restricted cash - long-term portion

—

1,262,744
TIF receivable

10,374,482

9,708,856
Related party receivable

593,303

3,528,927
Operating lease right-of-use assets

62,275

74,832
Equity investment

2,842,994

2,992,633
Land, buildings and equipment, net

44,052,485

43,833,702
TOTAL ASSETS

$
69,358,120

$
65,413,082

LIABILITIES AND STOCKHOLDERS’ EQUITY





CURRENT LIABILITIES




Accounts payable

4,128,914

3,495,238
Line of credit

2,865,320

—
Card Casino accruals

1,699,997

2,167,056
Accrued wages and payroll taxes

1,466,122

2,254,379
Cash dividend payable

—

324,439
Accrued property taxes

1,019,657

1,019,658
Deferred revenue

1,061,322

1,482,130
Payable to horsepersons

2,874,308

557,696
Current portion of finance lease obligations

25,117

24,500
Current portion of operating lease obligations

26,066

29,776
Income taxes payable

—

120,960
Total current liabilities

15,166,823

11,475,832

LONG-TERM LIABILITIES




Deferred income taxes

5,325,700

4,404,300
Finance lease obligations, net of current portion

59,069

71,784
Operating lease obligations, net of current portion

36,209

45,056
Total long-term liabilities

5,420,978

4,521,140
TOTAL LIABILITIES

20,587,801

15,996,972

STOCKHOLDERS’ EQUITY


Common stock, $.01 par value, 10,000,000 shares authorized, 4,706,814 and 4,644,522 respectively, shares issued and outstanding

47,068

46,445
Additional paid-in capital

23,096,660

22,733,933
Retained earnings

25,626,591

26,635,732
Total stockholders’ equity

48,770,319

49,416,110
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
69,358,120

$
65,413,082

(Unaudited)
September 30, December 31,
2017 2016
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,685,291 $ 6,298,807
Restricted cash 2,758,635 1,990,013
Short-term investments 205,944 205,649
Accounts receivable, net of allowance of $28,000 for both periods 1,508,532 1,309,453
Current portion of notes receivable 1,048,654 1,048,654
Inventory 280,744 247,786
Prepaid expenses 439,960 466,993
Income taxes receivable - 511,170
Due from Minnesota horsemen associations 463,081 -
Total current assets 14,390,841 12,078,525

LONG-TERM ASSETS
Deposits 25,000 25,000
Notes receivable - long term portion 2,142,512 2,142,512
Land, buildings and equipment, net of accumulated depreciation of $29,112,870 and $27,642,027, respectively 36,767,333 35,378,917
$ 53,325,686 $ 49,624,954

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable 2,719,813 2,518,791
Card Casino accruals 3,101,959 2,231,907
Accrued wages and payroll taxes 1,505,297 2,034,550
Cash dividend payable 263,898 216,411
Due to MHBPA - 38,145
Accrued property taxes 1,052,558 932,030
Deferred revenue 1,031,685 568,921
Income taxes payable 355,583 -
Payable to horsepersons 185,215 176,652
Total current liabilities 10,216,008 8,717,407

LONG-TERM LIABILITIES
Deferred income taxes 4,310,000 4,357,000
Total long-term liabilities 4,310,000 4,357,000
TOTAL LIABILITIES 14,526,008 13,074,407

STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized, 4,398,303 and 4,325,154, respectively, shares issued and outstanding 43,983 43,252
Additional paid-in capital 19,591,467 18,780,070
Retained earnings 19,164,228 17,727,225
Total stockholders’ equity 38,799,678 36,550,547
$ 53,325,686 $ 49,624,954
See notes to condensed consolidated financial statements.

3
2

Table of Contents

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
OPERATING REVENUES:
Pari-mutuel $ 3,866,158 $ 3,554,975 $ 8,901,920 $ 7,971,295
Card Casino 7,979,614 7,324,936 23,796,820 21,445,127
Food and beverage 3,184,125 3,446,063 6,894,686 6,751,260
Other 2,682,434 2,347,464 5,483,541 4,801,471
Total Revenues 17,712,331 16,673,438 45,076,967 40,969,153
Less: Promotional allowances (45,490 ) (43,030 ) (120,577 ) (106,451 )
Net Revenues 17,666,841 16,630,408 44,956,390 40,862,702

OPERATING EXPENSES:
Purse expense 2,252,618 2,155,361 5,430,102 5,003,159
Minnesota Breeders’ Fund 285,577 252,465 805,748 636,268
Other pari-mutuel expenses 310,334 300,635 1,034,805 1,061,019
Salaries and benefits 6,549,250 6,218,896 17,806,828 17,068,272
Cost of food and beverage and other sales 1,420,725 1,537,438 3,130,105 3,180,245
Depreciation 646,050 672,465 1,869,048 1,866,975
Utilities 539,018 540,468 1,157,783 1,134,365
Advertising and marketing 1,298,818 1,012,905 2,191,197 1,950,611
Professional and contracted services 1,537,311 1,517,417 3,551,738 3,314,792
Gain on sale of land - - - (3,990,519 )
Gain on insurance recoveries - (592,276 ) - (592,276 )
Other operating expenses 1,290,327 1,455,729 4,389,243 4,250,366
Total Operating Expenses 16,130,028 15,071,503 41,366,597 34,883,277
INCOME FROM OPERATIONS 1,536,813 1,558,905 3,589,793 5,979,425
OTHER INCOME (EXPENSE):
Interest income (expense), net 13,575 538 37,178 (48,488 )
      Net Other Income (Expense) 13,575 538 37,178 (48,488 )
INCOME BEFORE INCOME TAXES 1,550,388 1,559,443 3,626,971 5,930,937
INCOME TAX EXPENSE (597,753 ) (633,606 ) (1,444,753 ) (2,419,447 )
NET INCOME $ 952,635 $ 925,837 $ 2,182,218 $ 3,511,490

Basic earnings per share $ .22 $ .22 $ .50 $ .82
Diluted earnings per share $ .22 $ .21 $ .50 $ .82
Weighted Average Basic Shares Outstanding 4,393,523 4,296,581 4,369,489 4,276,387
Weighted Average Diluted Shares Outstanding 4,419,436 4,322,801 4,395,534 4,294,153
Cash dividends declared per share $ .06 $ .05 $ .17 $ .30
~~See notes to condensed consolidated financial statements.~~
4

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

OPERATING REVENUES:









Pari-mutuel

$
1,420,583

$
3,208,076

$
2,716,609

$
4,698,886

Card Casino

795,195

8,891,005

8,356,367

16,790,968

Food and beverage

111,137

2,544,393

1,230,132

3,897,194

Other

440,940

1,789,703

1,413,706

2,636,826

Total Net Revenues

2,767,855

16,433,177

13,716,814

28,023,874

OPERATING EXPENSES:





Purse expense

601,674

1,960,635

1,705,068

3,356,172

Minnesota Breeders’ Fund

123,427

306,107

313,171

523,802

Other pari-mutuel expenses

58,691

451,685

279,540

720,051

Salaries and benefits

1,893,309

6,936,685

7,471,202

12,681,972

Cost of food and beverage and other sales

70,888

1,201,414

635,039

1,827,171

Depreciation and amortization

693,640

576,221

1,410,493

1,201,740

Utilities

202,021

376,803

492,632

698,918

Advertising and marketing

38,176

757,191

222,164

947,520

Professional and Contracted Services

610,405

1,338,353

1,582,729

2,304,739

Loss on disposal of assets

—

—

—

108,037

Gain on insurance recoveries

—

(204,274)

—

(198,974)

Other operating expenses

794,203

1,427,603

1,781,660

2,570,732

Total Operating Expenses

5,086,434

15,128,423

15,893,698

26,741,880

(LOSS) INCOME FROM OPERATIONS

(2,318,579)

1,304,754

(2,176,884)

1,281,994

OTHER OPERATING INCOME (LOSS)









Loss from equity investment

(149,639)

—

(149,639)

—

Interest income, net

169,358

45,319

333,048

108,558

Net Other Income

19,719

45,319

183,409

108,558

(LOSS) INCOME BEFORE INCOME TAXES

(2,298,860)

1,350,073

(1,993,475)

1,390,552

INCOME TAX BENEFIT (EXPENSE)

1,117,663

(392,316)

1,067,499

(376,223)

NET (LOSS) INCOME

$
(1,181,197)

$
957,757

$
(925,976)

$
1,014,329

Basic (loss) earnings per share

$
(0.25)

$
0.21

$
(0.20)

$
0.22

Diluted (loss) earnings per share

$
(0.25)

$
0.21

$
(0.20)

$
0.22

Weighted Average Basic Shares Outstanding

4,679,122

4,586,734

4,669,350

4,573,106

Weighted Average Diluted Shares

4,679,122

4,595,716

4,672,447

4,588,327

Cash dividends declared per share

$
0.00

$
0.07

$
0.00

$
0.14

~~CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES~~
~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~
~~(Unaudited)~~
Nine Months Ended September 30,
2017 2016
Operating Activities:
Net income $ 2,182,218 $ 3,511,490
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 1,869,048 1,866,975
Stock-based compensation expense 264,357 179,141
Stock-based employee match contribution 349,244 -
Deferred income taxes (47,000 ) 1,215,433
Loss (gain) on sale of land and equipment 2,000 (3,990,519 )
Gain on insurance proceeds - (592,276 )
Tax benefit from exercise of stock-based awards - 1,050
Changes in operating assets and liabilities:
Increase in restricted cash (768,622 ) (574,208 )
Increase in accounts receivable (199,079 ) (260,259 )
Increase in inventory (32,958 ) (21,479 )
Decrease in prepaid expenses 27,033 88,662
Increase in other long term assets - (5,000 )
Decrease in income taxes receivable 511,170 355,060
Increase in due from Minnesota horsemen associations (463,081 ) (1,101,444 )
Increase in accounts payable 159,933 1,119,777
Increase in deferred revenue 462,764 513,905
Increase in Card Casino accruals 467,806 620,524
Decrease in accrued wages and payroll taxes (127,007 ) (250,147 )
Increase (decrease) in accrued property taxes 120,528 (181,060 )
Decrease in due to MHBPA (38,145 ) -
Increase in income taxes payable 355,583 204,969
Increase (decrease) in payable to horsepersons 8,563 (158,032 )
Net cash provided by operating activities 5,104,355 2,542,562

Investing Activities:
Additions to buildings and equipment (3,218,375 ) (3,777,239 )
Purchase of investments (295 ) (213 )
Net cash used in investing activities (3,218,670 ) (3,777,452 )

Financing Activities
Proceeds from issuance of common stock 198,528 371,564
Principal payments on capital lease obligations - (1,887,349 )
Cash dividends to shareholders (697,729 ) (1,072,470 )
Tax benefit from exercise of stock-based awards - (1,015 )
Net cash used in financing activities (499,201 ) (2,589,270 )

Net increase (decrease) in cash and cash equivalents 1,386,484 (3,824,160 )

Cash and cash equivalents at beginning of period 6,298,807 8,274,112

Cash and cash equivalents at end of period $ 7,685,291 $ 4,449,952

See notes to condensed consolidated financial statements.
5

3

Table of Contents

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

For the three months ended June 30, 2020

Number of

Common

Additional

Retained


Shares

Stock

Paid-in Capital

Earnings

Total
Balance at March 31, 2020

4,694,138

$
46,941

$
23,035,735

$
26,811,441

$
49,894,117

Stock-based compensation

—

10,058

—

10,058
Dividend distribution

—

—

—

(3,653)

(3,653)
401(K) stock match

1,318

13

14,696

—

14,709
Issuance of deferred stock awards

7,456

75

(75)

—

—
Shares issued under Employee Stock Purchase Plan

3,902

39

36,246

36,285
Net Loss

—

—

—

(1,181,197)

(1,181,197)

Balance at June 30, 2020

4,706,814

$
47,068

$
23,096,660

$
25,626,591

$
48,770,319

For the six months ended June 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

—

—

67,664

—

67,664
Dividend distribution

—

—

—

(3,653)

(3,653)
401(K) stock match

18,497

185

175,491

—

175,676
Issuance of deferred stock awards

25,563

256

(72,635)

—

(72,379)
Shares issued under Employee Stock Purchase Plan

3,902

39

36,246

—

36,285
Net Loss

—

—

—

(925,976)

(925,976)

Balance at June 30, 2020

4,706,814

$
47,068

$
23,096,660

$
25,626,591

$
48,770,319

For the three months ended June 30, 2019

Number of

Common

Additional

Retained


Shares

Stock

Paid-in Capital

Earnings

Total
Balance at March 31, 2019

4,574,658

$
45,747

$
21,783,690

$
24,942,510

$
46,771,947

Exercise of stock options

2,250

23

13,478

—

13,501
Stock-based compensation

—

—

73,450

—

73,450
Dividend distribution

—

—

—

(321,153)

(321,153)
401(K) stock match

21,480

215

292,917

—

293,132
Shares issued under Employee Stock Purchase Plan

5,719

57

59,935

—

59,992
Net Income

—

—

—

957,757

957,757

Balance at June 30, 2019

4,604,107

$
46,041

$
22,223,470

$
25,579,114

$
47,848,625

For the six months ended June 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

30,310

303

185,589

—

185,892
Other share retirements

(5,863)

(59)

(27,915)

(62,023)

(89,997)
Stock-based compensation

—

—

163,508

—

163,508
Dividend distribution

—

—

—

(641,379)

(641,379)
401(K) stock match

29,591

296

409,229

—

409,525
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

—

—

—

1,014,329

1,014,329

Balance at June 30, 2019

4,604,107

$
46,041

$
22,223,470

$
25,579,114

$
47,848,625

See notes to condensed consolidated financial statements.

Table of Contents

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(~~continued)~~

(Unaudited)


	Six Months Ended June 30,
	2020		2019
Operating Activities:
Net (loss) income	$	(925,976)	$	1,014,329
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		1,410,493		1,201,740
Stock-based compensation expense		67,664		163,508
Stock-based employee match contribution		175,676		409,229
Deferred income taxes		921,400		1,084,400
Loss from equity investment		149,639		2,377
Loss on disposal of assets		—		108,037
Gain on insurance recoveries		—		(198,974)
Changes in operating assets and liabilities:
Increase in accounts receivable		(1,008,121)		(556,740)
Decrease (increase) in other current assets		51,632		(63,603)
Increase (decrease) in income taxes receivable/payable		(2,505,635)		(680,177)
Decrease in operating lease right-of-use assets		12,557		11,535
Decrease in operating lease liabilities		(12,557)		(11,535)
Increase in accounts payable		206,665		531,433
(Decrease) increase in deferred revenue		(420,808)		1,310,506
(Decrease) increase in Card Casino accruals		(467,059)		340,760
(Decrease) increase in accrued wages and payroll taxes		(788,257)		44,507
(Decrease) increase in accrued property taxes		(1)		8,436
Increase in payable to horsepersons		2,753,348		4,607,394
Net cash (used in) provided by operating activities		(379,340)		9,327,162

Investing Activities:
Additions to land, buildings, and equipment		(1,349,849)		(5,671,183)
Additions for TIF eligible improvements		(518,042)		(4,843,708)
Decrease in notes receivable		—		1,062,336
Proceeds from sale of investments		103,886		102,659
Net cash used in investing activities		(1,764,005)		(9,349,896)

Financing Activities:
Proceeds from issuance of common stock		112,877		223,522
Payments against line of credit		(2,044,668)		(2,826,044)
Borrowings on line of credit		4,909,988		3,920,257
Cash dividend paid to shareholders		(328,092)		(637,164)
Payments for taxes related to net share settlement of equity awards		(72,379)		(54,934)
Principal payments on finance lease		(12,098)		(12,278)
Net cash provided by financing activities		2,565,628		613,359

Net increase in cash, cash equivalents, and restricted cash		422,283		590,625

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	$	4,349,381	$	11,794,623

Schedule of non-cash investing and financing activities
Additions to buildings and equipment funded through accounts payable	$	427,000	$	698,000
Transfer of future TIF reimbursed costs from PP&E		666,000		4,844,000
ROU assets obtained in exchange for operating lease obligations		—		103,000
Dividend declared		—		321,000

Supplemental disclosure of cash flow information:
Income taxes paid	$	—	$	440,000
Interest paid		16,000		14,000

See notes to condensed consolidated financial statements.

2017 2016
Schedule of non-cash investing and financing activities
Additions to buildings and equipment funded through accounts payable $ 41,000 $ 65,000
Dividend declared 264,000 215,000
Issuance of promissory notes receivable - 3,191,000
Insurance recoveries proceeds receivable - 592,000

Proceeds from land sale remitted to qualified intermediary $ - $ 1,051,000
Principal payments of capital lease obligation remitted from qualified intermediary - 1,051,000

Supplemental disclosure of cash flow information:
Income taxes paid, net of refunds $ 1,141,000 $ 2,121,000

Table of Contents

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~Overview; Reorganization~~ - Canterbury Park Holding Corporation (the “Company”) was incorporated as a Minnesota corporation in October 2015. The Company is a successor corporation to another corporation, also named Canterbury Park Holding Corporation, that was incorporated in 1994 (“CPHC”). Effective as of the close of business on June 30, 2016 CPHC’s business and operations were reorganized into a holding company structure (the “Reorganization”) pursuant to an Agreement and Plan of Merger dated as of March 1, 2016 that was approved by CPHC’s shareholders on June 28, 2016. Pursuant to the Reorganization:

●

The Company replaced CPHC as the public company owned by CPHC’s shareholders, with each shareholder at June 30, 2016 owning the same number of shares and having the same percentage ownership in the Company (and, indirectly, in all property and other assets then owned by CPHC) immediately after the Reorganization as that shareholder had in CPHC immediately before the Reorganization.

●

~~The Company became the holding company for and parent company of two subsidiaries, Canterbury Park Entertainment LLC (“EntertainmentCo”) and Canterbury Development LLC (“DevelopmentCo”).~~

●

EntertainmentCo is the surviving business entity in a merger with CPHC pursuant to the Reorganization and it became the direct owner of all land, facilities, and substantially all other assets related to the CPHC’s pari-mutuel wagering, Card Casino, concessions and other related businesses (“Racetrack Operations”), and EntertainmentCo continues to conduct these businesses consistent with CPHC’s past practices and will continue to be subject to direct regulation by the Minnesota Racing Commission (“MRC”).

●

DevelopmentCo will continue CPHC’s efforts to commercially develop approximately 140 acres of land currently owned or controlled that is not needed for our Racetrack Operations. DevelopmentCo is not subject to direct regulation by the MRC.

●

~~On July 1, 2016 the shares of the Company’s common stock began trading on the NASDAQ Global Market under the symbol “CPHC.”~~

For purposes of this Report on Form 10-Q, when the term “Company” is used with reference to information covering or related to periods up to and including June 30, 2016, such term refers to the operations of CPHC prior to the Reorganization.

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 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 ~~include:~~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 six months ended June 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 a consolidated balance sheet with no long-term debt and an $8.0 million credit line that the Company anticipates 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, reducing working capital, 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 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.

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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,~~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, ~~2016,~~2019, included in its Annual Report on Form 10-K (the ~~“2016~~“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~~June 30, ~~2017~~2020 and ~~2016~~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~~June 30, ~~2017~~2020 and ~~2016~~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 ~~filed~~ on Form 10-K for the fiscal year ended December 31, ~~2016.~~2019. There were no material changes in significant accounting policies during the quarter and six months ended ~~September~~June 30, ~~2017.~~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 ~~are~~is recognized when the related event occurs or services have been performed. Deferred revenue also includes advanced Cooperative Marketing Agreement (“CMA”) promotional funds, ~~and~~for which revenue is recognized when expenses are incurred. ~~The Company maintains a deferred gain on sale of land of $240,000 due~~

Payable to ~~a repurchase right.~~

~~Reclassifications –~~Horsepersons - ~~Prior period financial statement amounts have been reclassified to conform to current period presentations. Deferred revenue amounts have been reclassified on the December 31, 2016~~~~Consolidated Balance Sheets~~ to~~Deferred revenue~~ ~~from~~~~Accounts payable~~ in the amount of approximately $569,000. Also, certain amounts due to horsepersons have been reclassified from accounts payable to payable to horsepersons and certain amounts have been reclassified from card casino accruals to accrued wages and payroll taxes, which impacted the changes of these items on the~~Consolidated Statements of Cash Flows~~.

~~Due to Minnesota Horsemen’s Benevolent and Protective Association, Inc. (“MHBPA”)~~ – The Minnesota Pari-mutuel Horse Racing Act ~~specifies that~~requires 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,~~Minnesota Horsemen’s Benevolent and Protective Association (“MHBPA”), the Company transferred into a trust account or paid directly to the MHBPA, ~~$5,313,888~~$1,185,000 and ~~$6,273,000~~$2,864,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, related to thoroughbred races. Minnesota Statutes ~~specify~~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.

~~Recent Accounting Pronouncement~~ –~~In November 2016, the FASB issued ASU No. 2016-18, Statement~~Checks Written in Excess of Cash ~~Flows: Restricted Cash.~~Balance – For the six months ended June 30, 2020, the Company included $1,600,000 of checks written in excess of cash balance within accounts payable on the Condensed Consolidated Balance Sheet. There were no checks written in excess of cash balance as of December 31, 2019.

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Revenue Recognition – The ~~new standard requires~~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 ~~statement~~wagering process is complete. The transaction price for pari-mutuel wagering is the commission received on a wager, exclusive of ~~cash flows explain~~any track fees and is recognized upon occurrence of the ~~change during~~live race that is presented for wagering and after that live race is made official by the ~~period of cash, cash equivalents,~~respective state’s racing regulatory body. The transaction price for food and ~~amounts generally described~~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 ~~restricted cash. Entities will also be required to reconcile~~revenue as the good is transferred to the ~~balance sheet~~customer when delivery is made.

Contracts for Card Casino operations and ~~disclose~~pari-mutuel wagering involve two performance obligations for those customers earning points under the ~~nature~~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 ~~restrictions.~~ 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 ~~guidance will become effective~~Company offers certain promotional allowances at no charge to patrons who participate in ~~2018. While~~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 ~~continuing~~acting as the principal or as the agent when providing services, to ~~assess all potential impacts of~~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 ~~standard,~~principal because we ~~believe~~control the ~~most significant impact relates~~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 ~~presentation~~third party wagering site.

Table of our statement of cash flows where we will be required to reconcile to total cash, cash equivalents, and restricted cash. Currently, our statement of cash flows reconciles to total cash and cash equivalents.Contents

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The guidance will become effective in 2018. We are assessing the impact of the new accounting guidance and currently cannot estimate the financial statement impact of adoption.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. ASU 2016-02 is effective in our first quarter of fiscal 2019 on a modified retrospective basis and earlier adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2016-02 on our Condensed Consolidated Financial Statements.

2. STOCK-BASED COMPENSATION

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~,which provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance will become effective in 2018 and will be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. During 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net); and ASU No. 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients; which clarified the guidance on certain items such as reporting revenue gross versus net and presentation of sales tax, among other things.~~We are assessing the impact of the new accounting guidance and currently cannot estimate the financial statement impact of adoption.~~

~~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, ~~and~~ 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~~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~~On June 25, 2020, 17,975 shares of deferred stock awards were granted to non-employee members of the Board of ~~Directors’ unvested restricted stock as of September 30, 2017 was 11,264 shares~~Directors with a ~~weighted average fair value~~price per share equal to the market value on the date of ~~$10.65.~~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~~June 30, ~~2017 or December 31, 2016.~~

2020.

Employee Deferred Stock Awards

~~Prior~~On June 25, 2020, 47,000 shares of deferred stock awards were granted to ~~January 1, 2016~~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 ~~awarded~~of Directors designated those portions of the deferred ~~compensation to executive officers and key employees that were not performance-based,~~stock awards vesting in ~~the form of Deferred Stock~~2020 as awards under the Company’s ~~Stock~~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. ~~Such~~The compensation cost associated with this grant of 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~~is $466,000, which is being recognized over the respective vesting period. Compensation costs are recorded in “Salaries and benefits” on the Condensed Consolidated Statements of Operations. As of September 30, 2017, 4,500 shares were not vested with a weighted average fair value of $10.46 per share.

periods.

Stock-based compensation expense related to the LTI Plan, deferred stock awards and restricted stock awards ~~are~~is included on theCondensed Consolidated Statements of Operations and totaled ~~$264,000~~$68,000 and ~~$179,000~~$164,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively and $10,000 and $73,000 for the three months ended June 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~~June 30, ~~2017~~2020 and changes during the ~~nine~~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, 2020	33,250	$	9.64
Granted	-		-
Exercised	(24,250)		8.28
Expired/Forfeited	-		-
Outstanding at June 30, 2020	9,000	$	13.30		0.6 Years	$	119,700

Exercisable at June 30, 2020	9,000	$	13.30		0.6 Years	$	119,700

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

Outstanding at January 1, 2017 191,002 $ 9.08
Granted - -
Exercised (18,500 ) 7.23
Expired/Forfeited (15,000 ) 13.76
Outstanding at September 30, 2017 157,502 $ 8.17 2.0 Years $ 1,286,382

Exercisable at September 30, 2017 157,502 $ 8.17 2.0 Years $ 1,286,382

3. NET (LOSS) 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~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016:~~2019:


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net (loss) income (numerator) amounts used for basic and diluted per share computations:	$	(1,181,197)	$	957,757	$	(925,976)	$	1,014,329

Weighted average shares (denominator) of common stock outstanding:
Basic		4,679,122		4,586,734		4,669,350		4,573,106
Plus dilutive effect of stock options		—		8,982		3,097		15,221
Diluted		4,679,122		4,595,716		4,672,447		4,588,327

Net (loss) income per common share:
Basic	$	(0.25)	$	0.21	$	(0.20)	$	0.22
Diluted		(0.25)		0.21		(0.20)		0.22

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income (numerator) amounts used for basic and diluted per share computations: $ 952,635 $ 925,837 $ 2,182,218 $ 3,511,490

Weighted average shares (denominator) of common stock outstanding:
Basic 4,393,523 4,296,581 4,369,489 4,276,387
Plus dilutive effect of stock options 25,913 26,220 26,045 17,766
Diluted 4,419,436 4,322,801 4,395,534 4,294,153

Net income per common share:
Basic $ .22 $ .22 $ .50 $ .82
Diluted .22 .21 .50 .82

Options to purchase ~~30,000~~9,000 shares of common stock at an average price of ~~$12.33~~$13.30 per share were outstanding but not included in the computation of diluted net (loss) income per share for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2020 and June 30, 2019 because the exercise price of the options exceeded the market price of the Company’s common stock at ~~September~~June 30, ~~2017.~~2020 and June 30, 2019.

Options to purchase 45,000 shares of common stock at an average price of $12.80 per share were outstanding but not included in the computation of diluted net income per share for the three and nine months ended September 30, 2016 because the exercise price of the options exceeded the market price of the Company’s common stock at September 30, 2016.

~~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 consist of two promissory notes totaling $3,191,000 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 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.

4. GENERAL CREDIT AGREEMENT

The Company has a general credit and security agreement with ~~Bremer Bank,~~a financial institution, which provides a revolving credit line up to $8,000,000 and allows for letters of credit in the aggregate amount of up to ~~$6,000,000. This agreement was amended~~$2,000,000 to be issued under the credit agreement. As of June 30, 2020, the financial institution had issued a $1,250,000 letter of credit on ~~September 30, 2017~~the Company’s behalf, and therefore, the Company had an available credit line up to ~~extend the maturity date to September 30, 2018.~~$6,750,000. 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 nine months ended~~This agreement was amended as of September 30, ~~2017.~~2019 to extend the maturity date to September 30, 2020. As of June 30, 2020, the outstanding balance on the line of credit was $2,865,320.

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5. OPERATING SEGMENTS

The Company has ~~three~~four reportable operating segments: horse racing, Card Casino, ~~and~~ food and ~~beverage.~~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, ~~and~~ the food and beverage segment represents food and beverage operations provided during simulcast and live racing, in the Card Casino, and during special ~~and other catering and events~~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 ~~provide information about~~represent a disaggregation of revenues from contracts with customers along with the Company’s operating segments (in 000’s):

	Nine Months Ended September 30, 2017
	Horse Racing			Card Casino		Food and Beverage		Total


										Six Months Ended June 30, 2020
										Horse Racing		Card Casino		Food and Beverage		Development		Total
Net revenues from external customers	$	13,952		$	23,797	$	7,207	$	44,956	$	4,056	$	8,356	$	1,293	$	12	$	13,717

Intersegment revenues		682					1,106		1,788		74		—		274		—		348

Net interest income (expense)		37							37

Net interest (expense) income											(16)		—		—		199		183
Depreciation		1,428			317		124		1,869		1,038		261		111		—		1,410

Segment (loss) income before income taxes		(801	)		4,828		1,407		5,434		(2,167)		(167)		(419)		61		(2,692)

Segment tax expense (benefit)											(786)		(89)		(224)		33		(1,066)

										June 30, 2020
Segment Assets										$	35,880	$	3,177	$	25,040	$	28,600	$	92,697

At September 30, 2017
Segment Assets $ 52,421 $ 55 $ 20,968 $ 73,444


	Six Months Ended June 30, 2019
	Horse Racing		Card Casino		Food and Beverage		Development		Total
Net revenues from external customers	$	7,207	$	16,791	$	4,026	$	—	$	28,024
Intersegment revenues		416		—		678		—		1,094
Net interest income		(4)		—		—		113		109
Depreciation		1,079		35		88		—		1,202
Segment (loss) income before income taxes		(1,432)		2,695		154		(15)		1,402
Segment tax expense (benefit)		(391)		729		42		(4)		376

	December 31, 2019
Segment Assets	$	31,618	$	3,327	$	25,430	$	29,074	$	89,449

Nine Months Ended September 30, 2016
Horse Racing Card Casino Food and Beverage Total

Net revenues from external customers $ 12,389 $ 21,445 $ 7,029 $ 40,863

Intersegment revenues 653 - 1,015 1,668

Net interest income (48 ) - - (48 )

Depreciation 1,430 317 120 1,867

Segment (loss) income before income taxes (1) 1,229 5,317 890 7,436

At December 31, 2016
Segment Assets $ 48,302 $ 478 $ 19,039 $ 67,819

~~1 – For the nine months ended September 30, 2016,~~~~Segment (loss) income before income taxes~~ ~~for Horse Racing includes the gain on sale~~Table of ~~land and gain on insurance recoveries of approximately $3,990,000 and $592,000, respectively.~~Contents

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, 2020
	2020		2019
Revenues
Total net revenue for reportable segments	$	14,065	$	29,118
Elimination of intersegment revenues		(348)		(1,094)
Total consolidated net revenues	$	13,717	$	28,024


(Loss) income before income taxes
Total segment (loss) income before income taxes	$	(2,692)	$	1,402
Elimination of intersegment income (loss) before income taxes		699		(11)
Total consolidated (loss) income before income taxes	$	(1,993)	$	1,391


	June 30,		December 31,
	2020		2019
Assets
Total assets for reportable segments	$	92,697	$	89,449
Elimination of intercompany balances		(23,339)		(24,036)
Total consolidated assets	$	69,358	$	65,413

Nine Months Ended September 30,
2017 2016
Revenues
Total net revenues for reportable segments $ 46,745 $ 42,531
Elimination of intersegment revenues (1,789 ) (1,668 )
Total consolidated net revenues $ 44,956 $ 40,863

Income before income taxes
Total segment income before income taxes $ 5,434 $ 7,436
Elimination of intersegment income before income taxes (1,807 ) (1,505 )
Total consolidated income before income taxes $ 3,627 $ 5,931

September 30, December 31,
2017 2016
Assets
Total assets for reportable segments $ 73,444 $ 67,819
Elimination of intercompany receivables (20,118 ) (18,194 )
Total consolidated assets $ 53,326 $ 49,625

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,~~Operating Year, as defined, or (b) 20% of the ~~net pretax profit,~~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~~would be required to pay these amounts is remote. At the date (if any) that these two conditions are met, the five minimum payments ~~will~~would be discounted back to their present value and the sum of those discounted payments ~~will~~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 ~~is to~~would be ~~made~~due 90 days after the end of the third ~~operating year~~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.~~

Operating Years.

The Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community (“SMSC”), which became effective ~~June~~March 4, 2012, ~~and~~ was amended in the first quarter of each of ~~January~~ 2015, 2016, 2017, 2018, and ~~2017,~~in June 2020 (as described below in Note 7) and will expire on December 31, 2022. The CMA contains certain covenants ~~which,~~that, if breached, would trigger an obligation to repay a specified amount related to such covenant. At this time, management believes it unlikely that ~~the likelihood that the~~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 ~~such~~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~~June 30, ~~2017~~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.

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

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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 7,6, on ~~June~~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. ~~Such~~These payments have no direct impact on the Company’s consolidated financial statements or operations.

Because the Company is conducting 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 $7,280,000 per year.

Under the terms of the CMA, as amended, the SMSC ~~paid the horsemen $7.2~~made payments of $1.1 million and ~~$6.7~~$7.4 million induring the first ~~nine~~six months of ~~2017~~2020 and ~~2016,~~2019, respectively, primarily for purse enhancements for the respective live race ~~meets in the respective years.~~

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 ~~CMA,~~Fifth Amendment, the SMSC ~~paid~~is not required to pay the Company ~~$1,581,000~~a 2020 annual marketing payment, but the Company will use previously paid but unspent funds for these purposes.

As noted above and ~~$1,197,000 for marketing purposes during~~affirmed in the ~~nine months ended September 30, 2017 and 2016, respectively.~~

~~In each of January 2015, 2016, and 2017 the CMA was amended to adjust the payment amounts between the “Purse Enhancement Payments to Horsemen” and “Marketing Payments to Canterbury Park.”~~Fifth Amendment, SMSC is ~~currently~~ obligated to make the following purse enhancement and marketing payments for ~~2018~~2021 through 2022:

Year Purse Enhancement Payments to Horsemen 1 Marketing Payments to Canterbury Park
2018 $ 7,380,000 $ 1,620,000
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


1Includes $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~~six months ended ~~September~~June 30, ~~2017,~~2020, the Company recorded ~~$672,000~~$253,000 and ~~$1,298,000~~$321,000 in other revenue, respectively, incurred $215,000 and ~~incurred $569,000 and $1,128,000~~$245,000 in advertising and marketing expense, respectively, and ~~$57,000~~incurred $38,000 and ~~$170,000~~$76,000 in depreciation, respectively, related to the SMSC marketing ~~payment.~~funds. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2019, the Company recorded ~~$366,000~~$378,000 and ~~$610,000~~$453,000 in other revenue, respectively, incurred $321,000 and ~~incurred $312,000 and $440,000~~$340,000 in advertising and marketing expense, respectively, and incurred $57,000 and ~~$170,000~~$113,000 in depreciation, respectively, related to the SMSC marketing ~~payment. The excess of amounts received over revenue is reflected as deferred revenue which is included on the consolidated balance sheets.~~

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.

~~INCOME TAXES~~

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8. REAL ESTATE DEVELOPMENT

~~In March 2016,~~Equity Investment

On April 2, 2018, the ~~FASB issued ASU 2016-09, “Improvements~~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 ~~Employee Share-Based Payment Accounting”, which requires companies to recognize additional tax benefits or expenses related~~construct an upscale apartment complex on land adjacent to the ~~vesting or settlement~~Company’s Racetrack (the “Project”). Doran Canterbury I is developing Phase I of ~~employee share based awards~~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 ~~income tax provision or benefit~~its equity contribution in the income statement in the reporting period in which they occur. In addition, ASU 2016-09 requires that all tax related cash flows resulting from share-based payments, including the excess tax benefits related to settlement of stock-based awards, be classified as cash flows from operating activities in the statement of cash flows. The Company adopted this ASU at March 31, 2017. The adoption of ASU 2016-09 required no retrospective adjustments to the financial statements. In addition thereDoran Canterbury I joint venture and became a 27.4% equity member. On December 20, 2018, financing for Doran Canterbury I was ~~no material cumulative-effect adjustment to retained earnings. Upon adoption,~~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, which is expected to begin upon rental stabilization of Phase I. 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. See Note 11. In connection with its contribution, Canterbury Development became a 27.4% equity member in Doran Canterbury II with Doran owning the remaining 72.6%.

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 ~~recognize all excess~~be substantially complete on or before December 31, 2019 and December 31, 2020, respectively. As of June 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.

Under the Redevelopment Agreement, the City of Shakopee has agreed that a portion of the tax ~~benefits~~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.

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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 June 30, 2020, the Company recorded a TIF receivable of $10,374,000, which represents $9,967,000 of principal and $407,000 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 2020.

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.

On June 16, 2020, the Company’s subsidiary Canterbury Development LLC, 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. The Company closed on this transaction in July 2020. As the land was not transferred to the joint venture as of June 30, 2020, the Company did not record an investment in the ~~statement~~joint venture for the 2020 second quarter.

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.

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 ~~earnings.~~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 $13,440 and $15,132 for the six months ended June 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 $147,119 and $282,464 for the six months ended June 30, 2020 and 2019, respectively.

Lease costs included in depreciation and amortization related to our finance leases were $11,898 and $12,473 for the six months ended June 30, 2020 and 2019. Interest expense related to our finance leases was immaterial.

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


		Six Months Ended June 30,
	Balance Sheet Location	2020		2019
Assets
Finance	Land, buildings and equipment, net (1)	$	84,186	$	$ 109,210
Operating	Operating lease right-of-use assets		62,275		91,577
Total Leased Assets		$	146,461	$	$ 200,787

1 – Finance lease assets are net of accumulated amortization of $41,955 and $12,464 as of June 30, 2020 and 2019, respectively.

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


	Six Months Ended June 30,
	2020	2019
Weighted average remaining lease term (in years):
Finance	3.2	4.3
Operating	1.0	1.5
Weighted average discount rate (%):
Finance	5.0%	5.0%
Operating	5.5%	5.4%

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


Six Months Ended June 30, 2020	Operating leases		Finance leases
2020 remaining	$	18,018	$	14,371
2021		23,100		28,743
2022		23,100		28,743
2023		—		19,332
Total minimum lease obligations		64,218		91,189
Less: amounts representing interest		(1,943)		(7,003)
Present value of minimum lease payments		62,275		84,186
Less: current portion		(26,066)		(25,117)
Lease obligations, net of current portion	$	36,209	$	59,069

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%. The note stated it would mature at the earliest of (i) the date of closing by Doran Canterbury II, LLC on Phase II Project Financing; (ii) the closing on any purchase of the Phase II Land by Doran Shakopee, LLC pursuant to its option under Section 3.9(a) of the Doran Canterbury II Operating Agreement; (iii) the date of final determination that the Phase II Project will not be developed by Doran Canterbury II, LLC; or (iv) three years following the date of the note. Management believes no allowance for doubtful accounts is necessary.

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 will be fully reimbursed for these costs upon the commencement of the Doran Canterbury II project and thus, recorded the amount as a receivable. Although there is a possibility Doran Canterbury II will not materialize, the Company currently believes this likelihood is remote.

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In 2019 and 2020, the Company loaned money to the Doran Canterbury I joint venture in three separate loans in the amounts of $178,100, $137,000, and $232,900. 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.

11. SUBSEQUENT EVENTS

On July 30, 2020, Canterbury Park Development LLC, contributed approximately 10 acres of land to the Doran Canterbury II project as described in Note 8. In connection with its contribution, Canterbury Development became a 27.4% equity member in Doran Canterbury II with Doran owning the remaining 72.6%. Also, in connection with this contribution, the Company received a portion of its related party receivable of $2,940,000 as described in Note 10. This occurred on August 3, 2020. Therefore, the Company has designated this amount as short term on the Condensed Consolidated Balance Sheet as of June 30, 2020.

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

~~Recent Reorganization~~.COVID-19 Pandemic:

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 ~~was incorporated as a Minnesota corporation in October 2015. The Company is a successor corporation to another corporation,~~ also ~~named Canterbury Park Holding Corporation, that was incorporated in 1994 (“CPHC”). Effective as of the close of business on June 30, 2016, CPHC’s business~~resumed table games and poker operations were reorganized into a holding company structure (the “Reorganization”) pursuant to an Agreement and Plan of Merger dated as of March 1, 2016 that was approved by CPHC’s shareholders on June 28, 2016.

~~Further information regarding the Reorganization is set forth at Note 1 in the Notes to Condensed Consolidated Financial Statements under Part I above and~~ in the Company’s ~~Registration Statement~~Card Casino on ~~Form S-4 (File No. 333-210877) filed~~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.

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 six months ended June 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 will end, when or how quickly the current travel 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.

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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.

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 a strong consolidated balance sheet with no long-term debt and an $8.0 million credit line that is anticipated to provide the Company with the ~~SEC~~necessary liquidity and financial flexibility to manage through this challenging operating environment. Additionally, the Company expects to generate substantial cash inflows from its development operations in 2020. This is expected to be obtained from a land sale in 2020, as well as 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 ~~April 22, 2016, which information is incorporated herein by reference.~~

~~For purposes of this Report~~the economy and our operations evolves, we will continue to assess the impact on ~~Form 10-Q, when~~ the ~~term “Company” is used with reference to information covering or related to periods up to~~Company and ~~including June 30, 2016, such term refers to the operations of CPHC prior to the Reorganization.~~

respond accordingly.

Operations Review for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017:~~2020:

~~EBITDA~~Revenues:

Total net revenues for the three months ended June 30, 2020 were $2,768,000, a decrease of $13,665,000, or 83.2%, compared to total net revenues of $16,433,000 for the three months ended June 30, 2019. Total net revenues for the six months ended June 30, 2020 were $13,717,000, a decrease of $14,307,000, or 51.1%, compared to total net revenues of $28,024,000 for the six months ended June 30, 2019. This decrease consists of decreases in pari-mutuel, card casino, food and beverage, and other revenues driven by the COVID-19 Pandemic. 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,
	2020		2019		2020		2019
Simulcast	$	219,000	$	1,634,000	$	1,234,000	$	2,852,000
Live racing		122,000		912,000		122,000		912,000
Guest fees		557,000		418,000		557,000		418,000
Other revenue		522,000		244,000		803,000		517,000
Total Pari-Mutuel Revenue	$	1,420,000	$	3,208,000	$	2,716,000	$	4,699,000

Total pari-mutuel revenue decreased $1,788,000, or 55.7%, and $1,983,000, or 42.2%, for the three and six months ended June 30, 2020 compared to the same periods in 2019. The decreases in simulcast and live racing revenue are due to the COVID-19 Pandemic described above, including the fact that these operations were closed from March 16, 2020 until June 10, 2020. Slightly offsetting these decreases are increases in guest fees and other revenue. Guest fees increased due to increased out of state handle as a result of racing weekdays in June 2020 upon reopening the pari-mutuel operations on June 10, 2020. The increase in other revenue is due to an increase in Advanced Deposit Wagering (ADW).

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Card Casino Revenue:


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Poker Games	$	-	$	1,823,000	$	1,657,000	$	3,753,000
Table Games		750,000		6,195,000		5,826,000		11,391,000
Total Collection Revenue		750,000		8,018,000		7,483,000		15,144,000
Other Poker Revenue		-		520,000		483,000		948,000
Other Table Games Revenue		45,000		353,000		390,000		699,000
Total Card Casino Revenue	$	795,000	$	8,891,000	$	8,356,000	$	16,791,000

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 $8,096,000, or 91.1%, and 8,435,000, or 50.2%, for the three and six months ended June 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, this include reduced seating at table games and capacity limitations to follow Minnesota state guidelines. The Company did not resume poker operations until July 2020.

Food and Beverage Revenue:

Food and beverage revenue decreased $2,433,000, or 95.6%, and $2,667,000, or 68.4%, for the three and six months ended June 30, 2020 compared to the same periods in 2019. These decreases are due to the COVID-19 Pandemic described above.

Other Revenue:

Other revenue decreased $1,349,000, or 75.4%, and $1,223,000, or 46.4% for the three and six months ended June 30, 2020 compared to the same periods in 2019. These decreases are due to the COVID-19 Pandemic described above.

Operating Expenses:

Total operating expenses decreased $10,042,000, or 66.4%, and $10,848,000, or 40.6%, for the three and six months ended June 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. The following paragraphs provide further detail regarding certain operating expenses.

Purse expense decreased $1,359,000, or 69.3%, and $1,651,000, or 49.2% for the three and six months ended June 30, 2020 compared to the same periods in 2019. The decrease for both periods is due to lower pari-mutuel and Card Casino revenues. The decrease for the six months ended June 30, 2020 compared to the same period in 2019 is also due to the change in the purse payment structure related to changes in our horsemen contract for 2019.

Salaries and benefits decreased $5,043,000, or 72.7%, and $5,211,000, or 41.1%, for the three and six months ended June 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. The decrease is also due to a decrease in expenses related to our bonus plans, as these have been temporarily suspended, or converted into retention plans, as a result of the COVID-19 Pandemic.

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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 $1,131,000 or 94.1%, and $1,192,000, or 65.2%, for the three and six months ended June 30, 2020, compared to the same periods in 2019. The decreases are due to lower food and beverage revenues as a result of the COVID-19 Pandemic.

Advertising and marketing decreased $719,000 or 95.0%, and $725,000, or 76.6%, for the three and six months ended June 30, 2020, compared to the same periods in 2019. The decreases are due to a reduction in advertising and marketing spend as a result from the COVID-19 Pandemic.

During the six months ended June 30, 2019, the Company recorded a loss on disposal of assets totaling $108,000. 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

The Company recorded a net loss of $1,181,000 and $926,000, for the three and six months ended June 30, 2020. Net income for the three and six months ended June 30, 2020 and 2019 was $958,000 and $1,014,000, respectively.

EBITDA

To supplement our financial statements, we also provide investors with information about our EBITDA ~~represents~~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 insurance recoveries and loss from disposal of assets. Neither EBITDA nor adjusted EBITDA is ~~not~~ a measure of performance ~~or liquidity~~ calculated in accordance with ~~generally accepted accounting principles in the United States of America (“GAAP”),~~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.~~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 ~~net income~~EBITDA to eliminate unusual ~~items. For~~items and we believe the ~~three months ended September 30, 2016, adjusted EBITDA excluded the gain on insurance recoveries. For the nine months ended September 30, 2016, adjusted EBITDA excluded the gain on sale~~exclusion of ~~land and gain on insurance recoveries.~~

these items allows for better comparability of our performance between periods.

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~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016:~~2019:

Summary of EBITDA Data
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
NET INCOME $ 952,635 $ 925,837 $ 2,182,218 $ 3,511,490
  Interest (income) expense, net (13,575 ) (538 ) (37,178 ) 48,488
  Income tax expense 597,753 633,606 1,444,753 2,419,447
  Depreciation 646,050 672,465 1,869,048 1,866,975
EBITDA 2,182,863 2,231,370 5,458,841 7,846,400
  Gain on insurance recoveries 0 (592,276 ) 0 (592,276 )
  Gain on sale of land 0 0 0 (3,990,519 )
ADJUSTED EBITDA $ 2,182,863 $ 1,639,094 $ 5,458,841 $ 3,263,605

Summary of EBITDA Data


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
NET (LOSS) INCOME	$	(1,181,197)	$	957,757	$	(925,976)	$	1,014,329
Interest income, net		(169,358)		(45,319)		(333,048)		(108,558)
Income tax (benefit) expense		(1,117,663)		392,316		(1,067,499)		376,223
Depreciation		693,640		576,221		1,410,493		1,201,740
EBITDA		(1,774,578)		1,880,975		(916,030)		2,483,734
Gain on insurance recoveries		—		(204,274)		—		(198,974)
Loss on disposal of assets		—		—		—		108,037
ADJUSTED EBITDA	$	(1,774,578)	$	1,676,701	$	(916,030)	$	2,392,797

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Adjusted EBITDA ~~increased $544,000~~decreased $3,451,000, or ~~33.2%~~205.8%, ~~and increased as a percentage of net revenues to 12.4% from 9.9%~~ for the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the same period in ~~2016.~~2019. Adjusted EBITDA ~~increased $2,195,000,~~decreased $3,309,000, or ~~67.3%~~138.3%, ~~and increased as a percentage of net revenues to 12.2% from 8.0%~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017 as~~2020 compared to the same period in ~~2016.~~2020. The ~~increase for the three and nine months ended September 30, 2017 is primarily~~decreases are due to the ~~increase in revenues compared to~~COVID Pandemic described above and the ~~same periods in 2016.~~

~~Revenues:~~

Total net revenues for the three months ended September 30, 2017 were $17,667,000, an increase of $1,036,000, or 6.2%, compared to total net revenues of $16,630,000 for the three months ended September 30, 2016. This increase primarily consists of increases in pari-mutuel and card casino revenue of 8.8% and 8.9%, respectively, partially offset by a decrease in food and beverage revenue of 7.6%. Total net revenues for the nine months ended September 30, 2017 were $44,956,000, an increase of $4,094,000, or 10.0%, compared to total net revenues of $40,863,000 for the nine months ended September 30, 2016. This increase primarily consists of increases in pari-mutuel, food and beverage and card casino revenue of 11.7%, 2.1% and 11.0%, respectively. See below for a further discussiontemporary suspension of our ~~sources of revenues.~~

Pari-Mutuel Data Revenue:
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016

    Simulcast $ 1,407,000 $ 1,315,000 $ 4,386,000 $ 4,422,000
    Live Racing 1,392,000 1,349,000 2,335,000 2,086,000
    Guest Fees 783,000 772,000 1,279,000 1,210,000
    Other Revenue (1) 284,000 119,000 902,000 253,000
   Total Pari-Mutuel Revenue $ 3,866,000 $ 3,555,000 $ 8,902,000 $ 7,971,000

Racing Days
     Simulcast only racing days 52 46 206 205
     Live and simulcast racing days 40 46 67 69
Total Number of Racing Days 92 92 273 274

~~1 – Includes source market fees received pursuant to Advanced Deposit Wagering (ADW) legislation effective November 1, 2016.~~

Total pari-mutuel revenue increased $311,000, or 8.8%, for the three months ended September 30, 2017, compared to the same period in 2016. The increase in other pari-mutuel revenue is due to receipt of $155,000 in source market fees received under Advanced Deposit Wagering (ADW) legislation that took effect on November 1, 2016. The ADW legislation allows Minnesota residents to engage in pari-mutuel wagering on out-of-state horse races online with a prefunded account through an ADW provider. The Company receives a percentage of monies wagered (generally 3.25% to 5.0%) by Minnesota residents through the ADW provider as a source market fee. The Company receives 72% of the gross source market fees less the amount of at least 50% for purses and breeders’ awards. The percentage of source marketing fee retained by the Company is recorded as operating revenue and the percentage to the purses and breeders’ awards are recorded as operating expenses. Simulcast revenue increased $92,000 primarily due to a small group of individual players who placed a significantly high volume of bets in the quarter. Total pari-mutuel revenue increased $931,000, or 11.7%, for the nine months ended September 30, 2017 compared to the same period in 2016 primarily due to $655,000 received in ADW source market fees in the first nine months of 2017. Additionally, on-track live racing revenue increased $249,000 primarily due to an increase in statutory take-out levels as compared to 2016 when the Company reduced the take-out on its live races as a promotion to increase wagering dollars (“handle”), but also resulted in substantially reduced revenue.

operations.

~~Card Casino Revenue:~~ Contingencies:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Poker Games $ 2,172,000 $ 2,238,000 $ 6,719,000 $ 6,953,000
Table Games 5,121,000 4,475,000 15,022,000 12,557,000
Total Collection Revenue 7,293,000 6,713,000 21,741,000 19,510,000
Other Revenue 687,000 612,000 2,056,000 1,935,000
Total Card Casino Revenue $ 7,980,000 $ 7,325,000 $ 23,797,000 $ 21,445,000

The primary source of Card Casino revenue is a percentage of the wagers received from the players as compensation for providing the Card Casino facility and services, which is referred to as “collection revenue.” Other Revenue presented above includes fees collected for the administration of tournaments and amounts earned as reimbursement of the administrative costs of maintaining jackpot funds.

As indicated in the table above, total Card Casino revenue increased $655,000, or 8.9%, and $2,352,000 or 11.0%, for the three and nine months, respectively, ended September 30, 2017 compared to the same periods in 2016. The increases are a result of increased play on table games. In management’s judgement, increased play is attributable to players spending more money due to a stronger economy, as well as an overall increase in card casino marketing initiatives. Also, higher jackpots on certain games drove increased play.

~~Food and Beverage Revenue:~~

Food and beverage revenue decreased $262,000, or 7.6%, for the three months ended September 30, 2017 compared to the same period in 2016. The decrease is attributable to six less live racing days compared to the 2016 third quarter. Additionally, there was a decline in attendance for a concert conducted in the 2017 third quarter compared to the 2016 third quarter. Food and beverage revenue increased $143,000, or 2.1%, for the nine months ended September 30, 2017 compared to the same period in 2016 due to hosting more special events in the nine months ended September 30, 2017 compared to the same period in 2016.

~~Other Revenue:~~

Compared to the same periods in 2016, other revenue increased $335,000, or 14.3%, and $682,000, or 14.2% for the three and nine months, respectively, ended September 30, 2017 compared to the same periods in 2016. The increases are due to increased admission revenue from a greater number of premium priced live racing days during 2017 and event admission revenue from a greater number of special events hosted. Also, the Company received higher payments under the CMA for joint marketing efforts with the SMSC. See “Cooperative Marketing Agreement” below. The amounts earned from the marketing payments are offset by an increase in other expenses related to RiverSouth, which is an area wide marketing association that promotes Shakopee entertainment venues.

~~Operating Expenses:~~

The Company’s operating expenses during the 2017 third quarter were $16,130,000, an increase of $1,058,000, or 7.0%, from the third quarter 2016 expenses of $15,072,000, and the Company’s operating expenses during the nine months ended September 30, 2017 were $41,367,000, an increase of $6,483,000, or 18.6%, from $34,883,000 in the nine months ended September 30, 2016. Operating expenses in the 2016 third quarter included an insurance recovery of $592,276 related to storm damage in 2014 that was accounted for as a reduction in operating expense. The 2016 year-to-date operating expenses reflect the previously reported $3,990,519 pretax gain on sale of land in the 2016 second quarter that was also accounted for as a reduction in operating expense. Excluding insurance recoveries from 2016, operating expenses for the third quarter 2017 increased $396,000 or 2.5%. Excluding insurance recoveries and gain on sale of land from 2016, operating expenses for the nine month period ended September 30, 2017 increased $1,781,000 or 4.5%. The following paragraphs provide further detail regarding certain operating expenses.

Purse expense increased $97,000, or 4.5%, and $427,000, or 8.5% for the three and nine months, respectively, ended September 30, 2017 compared to the same periods in 2016. Also, Minnesota Breeders’ Fund expense increased $33,000, or 13.1%, and $169,000, or 26.6%, for the three and nine months, respectively, ended September 30, 2017 compared to the same periods in 2016. The increases are primarily due to increased Card Casino revenues and increased purse fund payments due to ADW source market arrangements.

Salaries and benefits increased $330,000, or 5.3%, and $739,000, or 4.3%, for the three and nine months, respectively, ended September 30, 2017 compared to the same periods in 2016. The increases are partially due to the State of Minnesota mandated increase of $0.50 in the minimum wage effective August 2016, as well as an increase in employee incentive compensation resulting from an increase in performance from operations.

~~The gain on sale of land is due to the sale of approximately 24 acres of land adjacent to the Racetrack for a total consideration of $4.3 million.~~

During 2014, the Company incurred damage to buildings from multiple severe storms at the Racetrack. As of September 30, 2016, the Company recognized a $592,000 insurance recoveries gain in the Consolidated Statements of Operations as “Gain on insurance recoveries.”

Professional and contracted services increased $20,000, or 1.3%, and $237,000, or 7.1%, for the three and nine months, respectively, ended September 30, 2017 compared to the same periods in 2016. The nine month increase is primarily due to increased live racing contracted services as a result of additional live racing weeks and increased consulting fees, primarily related to development initiatives.

Advertising and marketing increased $286,000, or 28.2% and other expenses decreased $165,000, or 11.4%, for the three months ended September 30, 2017 compared to the same period in 2016. This is due to a reclassification of expenses associated with RiverSouth.

Income tax expense decreased $36,000, or 5.7%, and $975,000, or 40.3% for the three and nine months, respectively, ended September 30, 2017 compared to the same periods in 2016. The decreases related to tax expense associated with the gain on sale of land and gain on insurance recoveries in 2016 that did not recur in 2017. The effective rate was approximately 41% for both periods ended September 30, 2017 and 2016.

Net income for the three months ended September 30, 2017 and 2016 was $953,000 and $926,000, respectively. Net income for the nine months ended September 30, 2017 and 2016 was $2,182,000 and $3,511,000, respectively.

~~Contingencies:~~

The Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community, which became effective on ~~June~~March 4, 2012, and was amended in ~~January~~the respective first quarters of 2015, 2016, 2017, 2018, and ~~2017,~~June 2020 and will expire December 31, 2022. The CMA contains ~~certain~~specific covenants ~~which,~~that, if breached, would trigger an obligation to repay a specified amount related to ~~such covenant.~~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 ~~such~~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 nine months ended September 30, 2017 was $5,104,000 primarily from net income of $2,182,000, depreciation of $1,869,000, and stock-based compensation and 401(k) match totaling $614,000. The Company also experienced an increase in accounts payable and deferred revenue of $623,000 and a decrease in income taxes receivable of $511,000. This was partially offset by an increase in restricted cash of $769,000.

Net cash provided by operating activities for the nine months ended September 30, 2016 was $2,543,000 primarily as a result of the following: The Company reported net income of $3,511,000, depreciation of $1,867,000, and deferred income taxes of $973,000. The Company also experienced an increase in accounts payable and deferred revenue of $1,634,000 and Card Casino accruals of $621,000. This was partially offset by an increase in restricted cash of $574,000 and due from Minnesota horsemen associations of $1,101,000, and partially offset by the gain on disposal of assets relating to the sale of land of $3,990,000 and gain on insurance recoveries of $592,000.

Net cash used in investing activities for the first nine months of 2017 was $3,219,000, primarily for building remodel projects. Net cash used in investing activities for the first nine months of 2016 was $3,777,000, primarily for building remodel projects and the purchase of land.

Net cash used in financing activities during the first nine months of 2017 was $499,000, primarily for cash dividends to shareholders, partially offset by proceeds from purchases of stock through the Employee Stock Purchase Plan and proceeds received upon the exercise of stock options. Net cash used in financing activities during the first nine months of 2016 was $2,589,000, primarily for principal payments of capital lease obligations and payment of cash dividends to shareholders.

The Company has a general credit and security agreement with ~~Bremer Bank,~~a financial institution, which provides a revolving credit line up to $8.0 million and allows for letters of credit in the aggregate amount of up to ~~$6,000,000. This agreement was amended~~$2.0 million to be issued under the credit agreement. As of June 30, 2020, the bank issued a $1,250,000 letter of credit on ~~September 30, 2017~~behalf of the Company and therefore, the Company has an available credit line up to ~~extend the maturity date to September 30, 2018.~~$6,750,000. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. AsThis agreement was amended as of September 30, ~~2017, there were no borrowings under this agreement~~

2019 to extend the maturity date to September 30, 2020. As of June 30, 2020, the outstanding balance on the line of credit was $2,865,000. Subsequent to the end of the quarter, the Company was repaid $2,940,000 as part of the transaction with Doran as described in Note 10 and Note 11 and used a portion of these funds to make a payment on its line of credit.

The Company’s cash, cash equivalents, and restricted cash ~~equivalent~~ balance at ~~September~~June 30, ~~2017~~2020 was ~~$7,685,000~~$4,349,000 compared to ~~$6,299,000 at~~$3,927,000 as of December 31, ~~2016.~~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 ~~predevelopment~~its planned development expenses during ~~2017.~~2020. However, if the Company engages in any additional significant real estate development, additional financing would more than likely be required.

Given its number of employees and the nature of its primary operations, the Company does not currently qualify for any of the federal lending assistance offered by the CARES Act that was passed in late March and April 2020, including the Paycheck Protection Program or other CARES Acts small business lending programs.

Operating Activities

Net cash used in operating activities for the six months ended June 30, 2020 was $379,000 primarily as a result of the following: The Company reported a net loss of $926,000, depreciation of $1,410,000, loss from equity investment of $150,000, and stock-based compensation and 401(k) match totaling $243,000. The Company also experienced an increase in payable to horseperson of $2,753,000. This was offset by an increase in accounts receivable of $1,008,000 and income taxes receivable of $2,506,000 and decrease in accrued wages and payroll taxes of $788,000.

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Net cash provided by operating activities for the six months ended June 30, 2019 was $9,327,000 primarily as a result of the following: The Company reported net income of $1,014,000, which included a loss on disposal of assets of $108,000. Cash from operating activities was increased by noncash charges from depreciation of $1,202,000 and stock-based compensation and 401(k) match totaling $573,000. The Company also experienced an increase in deferred revenue of $1,311,000, payable to horsepersons of $4,607,000, and Card Casino accruals of $341,000.

Investing Activities

Net cash used in investing activities for the first six months of 2020 and 2019 was $1,764,000 and $9,350,000, respectively, primarily for additions to land, buildings, and equipment and additions for TIF eligible improvements.

Financing Activities

Net cash provided by financing activities during the first six months of 2020 and 2019 was $2,566,000 and $613,000, primarily due to borrowings on the line of credit and proceeds from purchases of stock through the Employee Stock Purchase Plan and the exercise of stock options, partially offset by cash dividends paid to shareholders.

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 12 to our consolidated financial statements in our ~~2016~~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 ~~68.9%~~63.5% of our total assets at ~~September~~June 30, ~~2017.~~2020. We ~~utilize~~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. ~~To date, we~~We have determined that no impairment of these assets ~~exists.~~

exists at June 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 ~~utilize~~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.

Table of Contents

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 ~~2017~~June 2020 and expires December 31, 2022. See “Cooperative Marketing Agreement” below.

Legislation:

Minimum Wage Legislation

~~Legislation that was~~In 2014, Minnesota legislation enacted into law an increase in ~~2014 increased~~ the minimum wage that must be paid to most company employees from $7.25 to $8.00 on August 1, 2014, and from $8.00 to $9.00 per hour on August 1, 2015. A further increase from $9.00 to $9.50 per hour went into effect on August 1, 2016. In addition, startingCompany employees. Beginning January 1, 2018, the minimum wage ~~will~~was set to 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 2020 is $10.00 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 ~~has~~ had an adverse financial impact on the Company in ~~2016 and 2017~~2014 through 2019, and will continue to have an adverse ~~impact.~~impact on the Company. We have implemented measures to partially mitigate the impact of this increase by raising our prices ~~and/or~~and reducing our employee count. ~~However, these~~These measures could themselves have an adverse effect because higher prices and 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. ~~Such~~These payments have no direct impact on the Company’s consolidated financial statements or operations.

meets.

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As noted above and ~~$1,197,000 for marketing purposes during~~affirmed in the ~~three months ended September 30, 2017 and 2016, respectively.~~

In each of January 2015, 2016, and 2017 the CMA was amended three times to adjust the payment amounts between the “Purse Enhancement Payments to Horsemen” and “Marketing Payments to Canterbury Park.”Fifth Amendment, SMSC is ~~currently~~ obligated to make the following purse enhancement and marketing payments for ~~2018~~2021 through 2022:

Year Purse Enhancement Payments to Horsemen 1 Marketing Payments to Canterbury Park
2018 7,380,000 1,620,000
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


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

funds.

Under the CMA, the Company has agreed for the ~~10 ½ year~~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 ~~which~~that are typically preceded by words such as “believes,” “expects,” “anticipates,” “intends” or similar expressions. For ~~such~~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 ~~such~~these forward-looking statements are subject to risks and uncertainties ~~which~~that could affect our actual results and cause actual results to differ materially from those indicated in the forward-looking statements. ~~Such~~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

●

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;

Table of ~~wagering, greater than anticipated expenses or a lower than anticipated~~Contents

●

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;

●

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;

Table of our underutilized land, 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, the general health of the gaming sector, and other factors that are beyond our ability to control or predict.Contents

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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

Note applicable.

~~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 September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 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 June 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 the Form 10-K for the year ended December 31, 2019.

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

~~Item 1.~~	(a)	~~Legal Proceedings~~

		Not Applicable.

	(b)
~~Item 1A.~~		~~Risk Factors~~

		There have been no material changes to the Risk Factors reported under Item 1A in the Form 10-K for the year ended December 31, 2016, and the risk factors presented therein are incorporated by reference herein.

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

	~~(a)~~	Not Applicable.

~~(b)~~

~~Not Applicable.~~

(c)

On 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~~10b-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~~that 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 ~~third~~first quarter of ~~2017.~~2020. The maximum number of shares that may yet be purchased under the above authorizations is 128,781 as of ~~September~~June 30, ~~2017.~~2020.

Item 3. Defaults upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Table of Contents

Not Applicable.

Item 5. Other Information

Not Applicable.

Table of Contents

Item 6. Exhibits


~~Item 3.~~			~~Defaults upon Senior Securities~~

			~~Not Applicable.~~

~~Item 4.~~			~~Mine Safety Disclosures~~

			~~Not Applicable.~~

~~Item 5.~~			~~Other Information~~

			~~Not Applicable.~~

~~Item 6.~~			~~Exhibits~~

	31.1	11	~~Statement re computation of per share earnings – See Net Income Per Share under Note 3 of Notes to Consolidated Financial Statements under Part 1, Item 1, which is incorporated herein by reference.~~

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

	31.2	~~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		32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
		~~101~~
99.1		Press Release dated August 10, 2020 announcing 2020 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 ~~September~~June 30, ~~2017,~~2020, formatted in eXtensible Business Reporting Language XBRL: (i) Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, (ii) Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016,~~2019, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months ended June 30, 2020 and June, 2019, (iv) Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016,~~2019, and ~~(iv)~~(v) Notes to Financial Statements.

SIGNATURES~~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 11, 2020
~~Dated: November 14, 2017~~	~~/s/~~ /s/ Randall D. Sampson


	Randall D. Sampson,
	Executive Chairman, President, and Chief Executive Officer

Dated: August 11, 2020	/s/ Randy J. Dehmer
~~Dated: November 14, 2017~~	~~/s/ Robert M. Wolf~~
	~~Robert M. Wolf,~~
	Randy J. Dehmer, Chief Financial Officer


Title of Each Class	~~(Address~~ Trading Symbol	Name of ~~principal executive offices and zip code)~~each exchange on which registered
Common Stock Common stock, $.01 par value	CPHC	Nasdaq

~~YES~~x
	YES	⌧		NO¨	◻

~~YES~~x
	YES	⌧		NO¨	◻


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

			Page
			~~Page~~
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements (unaudited)

		Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019	3 2

		Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	4 3

		Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019	4

		Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	5

		Notes to Condensed Consolidated Financial Statements	7 6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14 18

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20 27

	Item 4.	Controls and Procedures	20 27

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	21 27

	Item 1A.	Risk Factors	21 27

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21 27

	Item 3.	Defaults Upon Senior Securities	21 27

	Item 4.	Mine Safety Disclosures	21 27

	Item 5.	Other Information	21 28

	Item 6.	Exhibits	21 29

	Signatures		22

	~~Certifications~~

	(Unaudited)
	September 30,		December 31,
	2017		2016
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	7,685,291	$	6,298,807
Restricted cash		2,758,635		1,990,013
Short-term investments		205,944		205,649
Accounts receivable, net of allowance of $28,000 for both periods		1,508,532		1,309,453
Current portion of notes receivable		1,048,654		1,048,654
Inventory		280,744		247,786
Prepaid expenses		439,960		466,993
Income taxes receivable		-		511,170
Due from Minnesota horsemen associations		463,081		-
Total current assets		14,390,841		12,078,525

LONG-TERM ASSETS
Deposits		25,000		25,000
Notes receivable - long term portion		2,142,512		2,142,512
Land, buildings and equipment, net of accumulated depreciation of $29,112,870 and $27,642,027, respectively		36,767,333		35,378,917
	$	53,325,686	$	49,624,954

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		2,719,813		2,518,791
Card Casino accruals		3,101,959		2,231,907
Accrued wages and payroll taxes		1,505,297		2,034,550
Cash dividend payable		263,898		216,411
Due to MHBPA		-		38,145
Accrued property taxes		1,052,558		932,030
Deferred revenue		1,031,685		568,921
Income taxes payable		355,583		-
Payable to horsepersons		185,215		176,652
Total current liabilities		10,216,008		8,717,407

LONG-TERM LIABILITIES
Deferred income taxes		4,310,000		4,357,000
Total long-term liabilities		4,310,000		4,357,000
TOTAL LIABILITIES		14,526,008		13,074,407

STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized, 4,398,303 and 4,325,154, respectively, shares issued and outstanding		43,983		43,252
Additional paid-in capital		19,591,467		18,780,070
Retained earnings		19,164,228		17,727,225
Total stockholders’ equity		38,799,678		36,550,547
	$	53,325,686	$	49,624,954

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
OPERATING REVENUES:
Pari-mutuel	$	3,866,158		$	3,554,975		$	8,901,920		$	7,971,295
Card Casino		7,979,614			7,324,936			23,796,820			21,445,127
Food and beverage		3,184,125			3,446,063			6,894,686			6,751,260
Other		2,682,434			2,347,464			5,483,541			4,801,471
Total Revenues		17,712,331			16,673,438			45,076,967			40,969,153
Less: Promotional allowances		(45,490	)		(43,030	)		(120,577	)		(106,451	)
Net Revenues		17,666,841			16,630,408			44,956,390			40,862,702

OPERATING EXPENSES:
Purse expense		2,252,618			2,155,361			5,430,102			5,003,159
Minnesota Breeders’ Fund		285,577			252,465			805,748			636,268
Other pari-mutuel expenses		310,334			300,635			1,034,805			1,061,019
Salaries and benefits		6,549,250			6,218,896			17,806,828			17,068,272
Cost of food and beverage and other sales		1,420,725			1,537,438			3,130,105			3,180,245
Depreciation		646,050			672,465			1,869,048			1,866,975
Utilities		539,018			540,468			1,157,783			1,134,365
Advertising and marketing		1,298,818			1,012,905			2,191,197			1,950,611
Professional and contracted services		1,537,311			1,517,417			3,551,738			3,314,792
Gain on sale of land		-			-			-			(3,990,519	)
Gain on insurance recoveries		-			(592,276	)		-			(592,276	)
Other operating expenses		1,290,327			1,455,729			4,389,243			4,250,366
Total Operating Expenses		16,130,028			15,071,503			41,366,597			34,883,277
INCOME FROM OPERATIONS		1,536,813			1,558,905			3,589,793			5,979,425
OTHER INCOME (EXPENSE):
Interest income (expense), net		13,575			538			37,178			(48,488	)
Net Other Income (Expense)		13,575			538			37,178			(48,488	)
INCOME BEFORE INCOME TAXES		1,550,388			1,559,443			3,626,971			5,930,937
INCOME TAX EXPENSE		(597,753	)		(633,606	)		(1,444,753	)		(2,419,447	)
NET INCOME	$	952,635		$	925,837		$	2,182,218		$	3,511,490

Basic earnings per share	$	.22		$	.22		$	.50		$	.82
Diluted earnings per share	$	.22		$	.21		$	.50		$	.82
Weighted Average Basic Shares Outstanding		4,393,523			4,296,581			4,369,489			4,276,387
Weighted Average Diluted Shares Outstanding		4,419,436			4,322,801			4,395,534			4,294,153
Cash dividends declared per share	$	.06		$	.05		$	.17		$	.30


For the three months ended June 30, 2020
	Number of	Common		Additional		Retained
	Shares	Stock		Paid-in Capital		Earnings		Total
Balance at March 31, 2020	4,694,138	$	46,941	$	23,035,735	$	26,811,441	$	49,894,117

Stock-based compensation			—		10,058		—		10,058
Dividend distribution	—		—		—		(3,653)		(3,653)
401(K) stock match	1,318		13		14,696		—		14,709
Issuance of deferred stock awards	7,456		75		(75)		—		—
Shares issued under Employee Stock Purchase Plan	3,902		39		36,246				36,285
Net Loss	—		—		—		(1,181,197)		(1,181,197)

Balance at June 30, 2020	4,706,814	$	47,068	$	23,096,660	$	25,626,591	$	48,770,319

For the six months ended June 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	—		—		67,664		—		67,664
Dividend distribution	—		—		—		(3,653)		(3,653)
401(K) stock match	18,497		185		175,491		—		175,676
Issuance of deferred stock awards	25,563		256		(72,635)		—		(72,379)
Shares issued under Employee Stock Purchase Plan	3,902		39		36,246		—		36,285
Net Loss	—		—		—		(925,976)		(925,976)

Balance at June 30, 2020	4,706,814	$	47,068	$	23,096,660	$	25,626,591	$	48,770,319

For the three months ended June 30, 2019
	Number of	Common		Additional		Retained
	Shares	Stock		Paid-in Capital		Earnings		Total
Balance at March 31, 2019	4,574,658	$	45,747	$	21,783,690	$	24,942,510	$	46,771,947

Exercise of stock options	2,250		23		13,478		—		13,501
Stock-based compensation	—		—		73,450		—		73,450
Dividend distribution	—		—		—		(321,153)		(321,153)
401(K) stock match	21,480		215		292,917		—		293,132
Shares issued under Employee Stock Purchase Plan	5,719		57		59,935		—		59,992
Net Income	—		—		—		957,757		957,757

Balance at June 30, 2019	4,604,107	$	46,041	$	22,223,470	$	25,579,114	$	47,848,625

For the six months ended June 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	30,310		303		185,589		—		185,892
Other share retirements	(5,863)		(59)		(27,915)		(62,023)		(89,997)
Stock-based compensation	—		—		163,508		—		163,508
Dividend distribution	—		—		—		(641,379)		(641,379)
401(K) stock match	29,591		296		409,229		—		409,525
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	—		—		—		1,014,329		1,014,329

Balance at June 30, 2019	4,604,107	$	46,041	$	22,223,470	$	25,579,114	$	47,848,625

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

Outstanding at January 1, 2017		191,002		$	9.08
Granted		-			-
Exercised		(18,500	)		7.23
Expired/Forfeited		(15,000	)		13.76
Outstanding at September 30, 2017		157,502		$	8.17		2.0 Years	$	1,286,382

Exercisable at September 30, 2017		157,502		$	8.17		2.0 Years	$	1,286,382

	Nine Months Ended September 30, 2016
	Horse Racing			Card Casino		Food and Beverage		Total

Net revenues from external customers	$	12,389		$	21,445	$	7,029	$	40,863

Intersegment revenues		653			-		1,015		1,668

Net interest income		(48	)		-		-		(48	)

Depreciation		1,430			317		120		1,867

Segment (loss) income before income taxes (1)		1,229			5,317		890		7,436

Income before income taxes
Total segment income before income taxes	$	5,434		$	7,436
Elimination of intersegment income before income taxes		(1,807	)		(1,505	)
Total consolidated income before income taxes	$	3,627		$	5,931

Year	Purse Enhancement Payments to Horsemen		1	Marketing Payments to Canterbury Park
2018	$	7,380,000		$	1,620,000
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

Summary of EBITDA Data
	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
NET INCOME	$	952,635		$	925,837		$	2,182,218		$	3,511,490
Interest (income) expense, net		(13,575	)		(538	)		(37,178	)		48,488
Income tax expense		597,753			633,606			1,444,753			2,419,447
Depreciation		646,050			672,465			1,869,048			1,866,975
EBITDA		2,182,863			2,231,370			5,458,841			7,846,400
Gain on insurance recoveries		0			(592,276	)		0			(592,276	)
Gain on sale of land		0			0			0			(3,990,519	)
ADJUSTED EBITDA	$	2,182,863		$	1,639,094		$	5,458,841		$	3,263,605

Pari-Mutuel Data Revenue:
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016

Simulcast	$	1,407,000	$	1,315,000	$	4,386,000	$	4,422,000
Live Racing		1,392,000		1,349,000		2,335,000		2,086,000
Guest Fees		783,000		772,000		1,279,000		1,210,000
Other Revenue (1)		284,000		119,000		902,000		253,000
Total Pari-Mutuel Revenue	$	3,866,000	$	3,555,000	$	8,902,000	$	7,971,000

Racing Days
Simulcast only racing days		52		46		206		205
Live and simulcast racing days		40		46		67		69
Total Number of Racing Days		92		92		273		274

	1100 Canterbury Road
	Shakopee, MN 55379

Purse Enhancement Payments to

Marketing Payments to

Horsemen (1)

Canterbury Park