cphc20210331

cphc20210331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2021.

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____.

Commission File Number: 001-37858

CANTERBURY PARK HOLDING CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

	Minnesota		47-5349765
	(State or Other Jurisdiction of Incorporation or		(I.R.S. Employer
	Organization)		Identification No.)

	1100 Canterbury Road
	Shakopee, MN 55379

(Address of principal executive offices and zip code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES

☒

☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

YES

☒

☐

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

	Large accelerated filer	☐		Accelerated filer	☐
	Non-accelerated filer	☒		Smaller reporting company	☒	Emerging growth company	☐

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

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

YES

☐

☒

The Company had 4,764,942 shares of common stock, $.01 par value, outstanding as of May 1, 2021.

Canterbury Park Holding Corporation

INDEX

			Page

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements (unaudited)

		Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	2

		Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020	3

		Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020	4

		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020	5

		Notes to Condensed Consolidated Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27

	Item 4.	Controls and Procedures	27

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	28

	Item 1A.	Risk Factors	28

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

	Item 3.	Defaults Upon Senior Securities	28

	Item 4.	Mine Safety Disclosures	28

	Item 5.	Other Information	28

	Item 6.	Exhibits	29

	Signatures		29

PART 1 – FINANCIAL INFORMATION

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	March 31,		December 31,
	2021		2020
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	2,271,227	$	—
Restricted cash		3,855,368		4,471,712
Accounts receivable, net of allowance of $19,250 for both periods		322,135		231,255
Inventory		220,693		218,791
Prepaid expenses		711,149		498,642
Income taxes receivable		3,556,915		4,031,621
Total current assets		10,937,487		9,452,021

LONG-TERM ASSETS
Deposits		49,500		49,500
Other prepaid expenses		76,723		—
TIF receivable		12,041,157		11,888,570
Related party receivable		1,464,583		1,541,910
Operating lease right-of-use assets		45,057		45,057
Equity investment		6,877,405		7,515,108
Land held for development		4,805,417		4,805,417
Property, plant, and equipment, net		33,014,705		33,507,204
TOTAL ASSETS	$	69,312,034	$	68,804,787

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable		1,937,039		2,953,586
Card Casino accruals		2,889,285		2,327,994
Accrued wages and payroll taxes		2,146,481		1,150,102
Accrued property taxes		998,135		804,817
Deferred revenue		483,154		435,866
Payable to horsepersons		1,339,346		2,374,696
Current portion of finance lease obligations		26,071		25,749
Current portion of operating lease obligations		22,271		22,271
Total current liabilities		9,841,782		10,095,081

LONG-TERM LIABILITIES
Deferred income taxes		7,347,700		7,347,700
Finance lease obligations, net of current portion		39,395		46,035
Operating lease obligations, net of current portion		22,786		22,786
Total long-term liabilities		7,409,881		7,416,521
TOTAL LIABILITIES		17,251,663		17,511,602

STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized, 4,764,942 and 4,748,012 respectively, shares issued and outstanding		47,649		47,480
Additional paid-in capital		23,847,636		23,631,618
Retained earnings		28,165,086		27,614,087
Total stockholders’ equity		52,060,371		51,293,185
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	69,312,034	$	68,804,787

See notes to condensed consolidated financial statements.

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended March 31,
	2021			2020
OPERATING REVENUES:
Pari-mutuel	$	1,153,844		$	1,296,026
Card Casino		6,864,294			7,561,172
Food and beverage		374,471			1,118,995
Other		832,933			972,766
Total Net Revenues		9,225,542			10,948,959

OPERATING EXPENSES:
Purse expense		976,360			1,103,394
Minnesota Breeders’ Fund		175,140			189,744
Other pari-mutuel expenses		185,295			220,849
Salaries and benefits		3,967,348			5,577,893
Cost of food and beverage and other sales		205,637			564,151
Depreciation and amortization		689,585			716,853
Utilities		275,730			290,611
Advertising and marketing		56,452			183,988
Professional and Contracted Services		735,847			972,324
Other operating expenses		686,037			987,457
Total Operating Expenses		7,953,431			10,807,264
INCOME FROM OPERATIONS		1,272,111			141,695
OTHER (LOSS) INCOME
Loss from equity investment		(637,704	)		—
Interest income, net		169,310			163,690
Net Other (Loss) Income		(468,394	)		163,690
INCOME BEFORE INCOME TAXES		803,717			305,385
INCOME TAX EXPENSE		(252,224	)		(50,164	)
NET INCOME	$	551,493		$	255,221

Basic earnings per share	$	0.12		$	0.05
Diluted earnings per share	$	0.12		$	0.05
Weighted Average Basic Shares Outstanding		4,754,496			4,659,579
Weighted Average Diluted Shares		4,754,504			4,662,675
Cash dividends declared per share	$	0.00		$	0.00

See notes to condensed consolidated financial statements.

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

For the three months ended March 31, 2021

	Number of		Common		Additional			Retained
	Shares		Stock		Paid-in Capital			Earnings			Total
Balance at December 31, 2020		4,748,012	$	47,480	$	23,631,618		$	27,614,087		$	51,293,185

Exercise of stock options		3,654		36		48,562			—			48,598
Stock-based compensation				—		103,130			—			103,130
Dividend distribution		—		—		—			(494	)		(494	)
401(K) stock match		6,575		66		90,341			—			90,407
Issuance of deferred stock awards		6,701		67		(26,015	)		—			(25,948	)
Net income		—		—		—			551,493			551,493

Balance at March 31, 2021		4,764,942	$	47,649	$	23,847,636		$	28,165,086		$	52,060,371

For the three months ended March 31, 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		—			—			57,606			—			57,606
401(K) stock match		17,179			172			160,795			—			160,967
Issuance of deferred stock awards		18,107			181			(72,560	)		—			(72,379	)
Net Income		—			—			—			255,221			255,221

Balance at March 31, 2020		4,694,138		$	46,941		$	23,035,735		$	26,811,441		$	49,894,117

See notes to condensed consolidated financial statements.

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2021			2020
Operating Activities:
Net income	$	551,493		$	255,221
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		689,585			716,853
Stock-based compensation expense		103,130			57,606
Stock-based employee match contribution		90,407			160,967
Deferred income taxes		—			259,200
Loss from equity investment		637,704			—
Changes in operating assets and liabilities:
Accounts receivable		(90,880	)		(67,218	)
Other current assets		(291,132	)		74,733
Income taxes receivable/payable		474,706			(645,771	)
Operating lease right-of-use assets		—			1,921
Operating lease liabilities		—			(1,921	)
Accounts payable		(1,084,383	)		960,781
Deferred revenue		47,288			(127,309	)
Card Casino accruals		561,291			(512,051	)
Accrued wages and payroll taxes		996,379			(1,364,320	)
Accrued property taxes		193,318			254,913
Payable to horsepersons		(1,035,350	)		327,215
Net cash provided by operating activities		1,843,556			350,820

Investing Activities:
Additions to property, plant, and equipment		(129,251	)		(825,937	)
Increase in TIF receivable		(152,587	)		(148,557	)
Decrease in related party receivable		77,327			—
Proceeds from sale of investments		—			103,886
Net cash used in investing activities		(204,511	)		(870,608	)

Financing Activities:
Proceeds from issuance of common stock		48,598			76,592
Payments against line of credit		—			(1,450,000	)
Borrowings on line of credit		—			1,450,000
Cash dividend paid to shareholders		(494	)		(324,439	)
Payments for taxes related to net share settlement of equity awards		(25,948	)		(72,379	)
Principal payments on finance lease		(6,318	)		(6,011	)
Net cash provided by (used in) financing activities		15,838			(326,237	)

Net increase in cash, cash equivalents, and restricted cash		1,654,883			(846,025	)

Cash, cash equivalents, and restricted cash at beginning of period		4,471,712			3,927,098

Cash, cash equivalents, and restricted cash at end of period	$	6,126,595		$	3,081,073

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

Schedule of non-cash investing and financing activities
Additions to buildings and equipment funded through accounts payable	$	68,000	$	298,000
Transfer of future TIF reimbursed costs from PP&E		153,000		149,000

Supplemental disclosure of cash flow information:
Income taxes paid	$	100,000	$	—
Interest paid		1,000		11,000

See notes to condensed consolidated financial statements.

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

On November 18, 2020, Minnesota state and regulatory bodies issued an executive order requiring closure of places of public accommodation as a measure to slow the spread of COVID-19. As a result, the Company temporarily suspended all card casino, simulcast, and food and beverage operations from November 21, 2020 through January 10, 2021.

The disruptions arising from the COVID-19 Pandemic had a significant impact on the Company's financial condition and operations during the three months ended March 31, 2021. 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 both 2020 and the first quarter of 2021 has been material, and the Company expects it will continue to be material in the balance of 2021. 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, or to what extent visitors will feel comfortable returning to the Company's Card Casino, simulcast, and special events operations. 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 in venues such as ours.

The Company has no long-term debt and a $10,000,000 credit line, of which $8,750,000 is available as of March 31, 2021. The Company anticipates that its existing cash balance, any cash generated from operations and availability under its credit line will provide the Company with the necessary liquidity and financial flexibility to manage through this challenging operating environment. We have taken significant actions to mitigate the effects of the COVID-19 Pandemic on our operations, including initiating workforce reductions and furloughs, implementing reductions in executive pay and board cash retainer, suspending the Company’s quarterly cash dividend, postponing non-essential capital expenditures, reducing operating costs, and substantially reducing discretionary spending. We expect these countermeasures to partially mitigate the impact of COVID-19 on our full year 2021 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.

Basis of Presentation and Preparation – The accompanying condensed consolidated financial statements include the accounts of the Company (Canterbury Park Holding Corporation and its direct and indirect subsidiaries Canterbury Park Entertainment, LLC; Canterbury Park Concessions, 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, 2020, included in its Annual Report on Form 10-K (the “2020 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 March 31, 2021 and 2020 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 March 31, 2021 and 2020 and for the periods then ended have been made.

Summary of Significant Accounting Policies – A detailed description of our significant accounting policies can be found in our most recent Annual Report on the 2020 Form 10-K. There were no material changes in significant accounting policies during the three months ended March 31, 2021.

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

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

Payable to Horsepersons - The Minnesota Pari-mutuel Horse Racing Act requires the Company to segregate a portion of funds (recorded as purse expense in the statements of operations) received from Card Casino operations and wagering on simulcast and live horse races, for future payment as purses for live horse races or other uses of the horsepersons’ association. Pursuant to an agreement with the Minnesota Horsemen’s Benevolent and Protective Association (“MHBPA”), the Company transferred into a trust account or paid directly to the MHBPA, $2,000,000 and $1,185,000 for the three months ended March 31, 2021 and 2020, respectively, related to thoroughbred races. Minnesota Statutes provide that amounts transferred into the trust account are the property of the trust and not of the Company, and therefore these amounts are not recorded on the Company’s Condensed Consolidated Balance Sheet.

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

●

Identification of the contract, or contracts, with a customer

●

Identification of the performance obligations in the contract

●

Determination of the transaction price

●

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

●

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

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

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

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

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

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

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

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

In the quarter ended March 31, 2021, the Company recorded as other revenue $515,000 of COVID-19 relief grants, including a lump sum grant of $500,000 from the Convention Center Relief Grant Program, which is overseen by the Minnesota Department of Employment and Economic Development. There were no grants in the quarter ended March 31, 2020.

2. STOCK-BASED COMPENSATION

Long Term Incentive Plan and Award of Deferred Stock

The Long Term Incentive Plan (the “LTI Plan”) authorizes the grant of Long Term Incentive Awards that provide an opportunity to Named Executive Officers (“NEOs”) and other Senior Executives to receive a payment in cash or shares of the Company’s common stock to the extent of achievement at the end of a period greater than one year (the “Performance Period”) as compared to Performance Goals established at the beginning of the Performance Period. Currently, there is one award outstanding for the three-year period ending December 31, 2021. Beginning in 2020, and 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 deferred stock awards designed to retain NEOs and other Senior Executives.

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

The Company’s Stock Plan currently authorizes annual grants of restricted stock, deferred stock, stock options, or any combination of the three, to non-employee members of the Board of Directors at the time of the Company’s annual shareholders’ meeting as determined by the Board prior to each such meeting. Options granted under the Plan generally expire 10 years after the grant date. Restricted stock and deferred stock grants generally vest 100% one year after the date of the annual meeting at which they were granted, are subject to restrictions on resale for an additional year, and are subject to forfeiture if a board member terminates his or her board service prior to the shares vesting. The Board of Directors' unvested deferred stock awards as of March 31, 2021 consisted of 20,073 shares with a weighted average fair value per share of $11.17. There were no unvested restricted stock or stock options outstanding at March 31, 2021.

Employee Deferred Stock Awards

The Company's Stock Plan permits its Compensation Committee to grant stock-based awards, including deferred stock awards, to key employees and non-employee directors. The Company has made deferred stock grants that vest over one to three years.

During the three months ended March 31, 2021, the Company granted employees deferred stock awards totaling 27,900 shares of common stock, with a vesting term of approximately three years and a fair value of $13.33 per share. There were no deferred stock awards granted during the three months ended March 31, 2020.

Deferred stock transactions during the three months ended March 31, 2021 are summarized as follows:

				Weighted
				Average
	Deferred			Fair Value
	Stock			Per Share
Non-Vested Balance, December 31, 2020		18,800		$	11.07
Granted		27,900			13.33
Vested		—			—
Forfeited		(1,050	)		11.43
Non-Vested Balance, March 31, 2021		45,650		$	12.43

Stock-based compensation expense related to the LTI Plan, deferred stock awards, and restricted stock awards is included on the Condensed Consolidated Statements of Operations and totaled $103,000 and $58,000 for the three months ended March 31, 2021 and 2020.

Stock Option Grants

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

A summary of stock option activity as of March 31, 2021 and changes during the three months then ended is presented below:

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

Outstanding at January 1, 2021		9,000		$	13.30
Granted		-			-
Exercised		(3,654	)		13.30
Expired/Forfeited		(5,346	)		13.30
Outstanding at March 31, 2021		-		$	-		-	$	-

Exercisable at March 31, 2021		-		$	-		-	$	-

3. NET INCOME PER SHARE COMPUTATIONS

The following is a reconciliation of the numerator and denominator of the earnings per common share computations for the three months ended March 31, 2021 and 2020:

	Three Months Ended March 31,
	2021		2020
Net income (numerator) amounts used for basic and diluted per share computations:	$	551,493	$	255,221

Weighted average shares (denominator) of common stock outstanding:
Basic		4,754,496		4,659,579
Plus dilutive effect of stock options		8		3,096
Diluted		4,754,504		4,662,675

Net income per common share:
Basic	$	0.12	$	0.05
Diluted		0.12		0.05

Options to purchase 9,000 shares of common stock at an average price of $13.30 per share were outstanding but not included in the computation of diluted net income per share for the three months ended March 31, 2020 because the exercise price of the options exceeded the market price of the Company’s common stock at March 31, 2020. There were no out-of-the money stock options at March 31, 2021.

4. GENERAL CREDIT AGREEMENT

The Company has a general credit and security agreement with a financial institution, which provides a revolving credit line up to $10,000,000 and allows for letters of credit in the aggregate amount of up to $2,000,000 to be issued under the credit agreement. As of March 31, 2021, the bank issued a $1,250,000 letter of credit on behalf of the Company and therefore, the Company has an available credit line up to $8,750,000. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. The line of credit also includes collateral in the form of a Mortgage, Security Agreement, Fixture Financing Statement and Assignment of Leases and Rents. As of March 31, 2021, the outstanding balance on the line of credit was $0.

5. OPERATING SEGMENTS

The Company has four reportable operating segments: horse racing, Card Casino, food and beverage, and development. The horse racing segment primarily represents simulcast and live horse racing operations. The Card Casino segment represents operations of Canterbury Park’s Card Casino, the food and beverage segment represents food and beverage operations provided during simulcast and live racing, in the Card Casino, and during special events. The development segment represents our real estate development operations. The Company’s reportable operating segments are strategic business units that offer different products and services. They are managed separately because the segments differ in the nature of the products and services provided as well as process to produce those products and services. The Minnesota Racing Commission regulates the horse racing and Card Casino segments.

Depreciation, interest, and income taxes are allocated to the segments, but no allocation is made to the food and beverage segment for shared facilities. However, the food and beverage segment pays approximately 25% of gross revenues earned on live racing and special event days to the horse racing segment for use of the facilities. Starting in 2020, the food and beverage segment has not paid a commission to the horse racing segment subsequent to the Company's first temporary shutdown of operations starting March 16, 2020.

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

	Three Months Ended March 31, 2021
	Horse Racing			Card Casino		Food and Beverage			Development			Total
Net revenues from external customers	$	1,972		$	6,864	$	390		$	—		$	9,226
Intersegment revenues		1			—		95			—			96
Net interest (expense) income		2			—		—			167			169
Depreciation		564			75		51			—			690
Segment (loss) income before income taxes		(430	)		1,135		(203	)		(527	)		(25	)
Segment tax expense (benefit)		125			356		(64	)		(165	)		252

		March 31, 2021
Segment Assets		$	36,455			$	2,951			$	24,824			$	28,433			$	92,663

	Three Months Ended March 31, 2020
	Horse Racing			Card Casino		Food and Beverage			Development		Total
Net revenues from external customers	$	2,197		$	7,561	$	1,182		$	9	$	10,949
Intersegment revenues		70			—		262			—		332
Net interest (expense) income		(9	)		—		—			173		164
Depreciation		398			261		58			—		717
Segment (loss) income before income taxes		(896	)		965		(160	)		74		(17	)
Segment tax expense (benefit)		(94	)		158		(26	)		12		50

		December 31, 2020
Segment Assets		$	35,620			$	3,027			$	24,862			$	29,475			$	92,984

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

	Three Months Ended March 31, 2021
	2021			2020
Revenues
Total net revenue for reportable segments	$	9,322		$	11,281
Elimination of intersegment revenues		(96	)		(332	)
Total consolidated net revenues	$	9,226		$	10,949

Income before income taxes
Total segment income before income taxes	$	(25	)	$	(17	)
Elimination of intersegment loss before income taxes		829			322
Total consolidated income before income taxes	$	804		$	305

	March 31,			December 31,
	2021			2020
Assets
Total assets for reportable segments	$	92,663		$	92,984
Elimination of intercompany balances		(23,351	)		(24,179	)
Total consolidated assets	$	69,312		$	68,805

6. COMMITMENTS AND CONTINGENCIES

In accordance with an Earn Out Promissory Note given to the prior owner of the Racetrack as part of the consideration paid by the Company to acquire the Racetrack in 1994, if (i) off-track betting becomes legally permissible in the State of Minnesota and (ii) the Company begins to conduct off-track betting with respect to or in connection with its operations, the Company will be required to pay to the IMR Fund, L.P. the greater of (a) $700,000 per Operating Year, as defined, or (b) 20% of the Net Pretax Profit, as defined for each of five operating years. At this time, management believes that the likelihood that these two conditions will be met and that the Company would be required to pay these amounts is remote. At the date (if any) that these two conditions are met, the five minimum payments would be discounted back to their present value and the sum of those discounted payments would be capitalized as part of the purchase price in accordance with GAAP. The purchase price will be further increased if payments become due under the “20% of Net Pretax Profit” calculation. The first payment would be due 90 days after the end of the third Operating Year in which off-track betting is conducted by the Company. Remaining payments would be made within 90 days of the end of each of the next four Operating Years.

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

The Company is periodically involved in various claims and legal actions arising in the normal course of business. Management believes that the resolution of any pending claims and legal actions at March 31, 2021 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 as reimbursement under the TIF program for these improvements is not guaranteed and will depend on future tax revenues generated from the developed property.

7. COOPERATIVE MARKETING AGREEMENT

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

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

Under the 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.

As noted above and affirmed in the Fifth Amendment, SMSC is obligated to make an annual purse enhancement of $7,380,000 and annual marketing payment of $1,620,000 for 2022.

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 months ended March 31, 2021, the Company recorded $47,000 in other revenue, incurred $23,000 in advertising and marketing expense, and incurred $24,000 in depreciation related to the SMSC marketing funds. For the three months ended March 31, 2020, the Company recorded $68,000 in other revenue, incurred $30,000 in advertising and marketing expense, and incurred $38,000 in depreciation related to the SMSC marketing funds.

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

8. REAL ESTATE DEVELOPMENT

Equity Investments

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

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

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

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

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 City of Shakopee has agreed that a portion of the tax increment revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing public 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 June 30, 2018. The total amount of funding that Canterbury will be paid as reimbursement under the TIF program for these improvements is not guaranteed, however, and will depend on future tax revenues generated from the developed property. As of March 31, 2021, the Company recorded a TIF receivable of approximately $12,041,000, which represents $11,193,000 of principal and $848,000 of interest. Management believes future tax revenues generated from current development activity will exceed the Company's development costs and thus, management believes no allowance related to this receivable is necessary. As of December 31, 2020, the Company recorded a TIF receivable of approximately $11,889,000, which represented $11,191,000 of principal and $698,000 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.

The City of Shakopee has authorized changes to the Redevelopment Agreement and the responsibilities of the Company, but the Company, the City of Shakopee and other parties have not formally entered into an agreement that memorializes these changes. The Company will provide updated disclosure when the parties enter into a new agreement. As part of the authorized changes regarding the responsibilities of the Company and the city of Shakopee, improvements on Unbridled Avenue will be primarily constructed by the City of Shakopee. As a result, should Canterbury enter into the agreement that memorializes these changes, the total estimated cost of TIF eligible improvements to be borne by the Company will be reduced by $7,670,000. These improvements were substantially complete as of the date of this filing.

Development Agreements

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. The Company closed on the first phase of this transaction in April 2021, which totaled 7.8 acres of land. The closing of phase two is subject to the satisfaction of certain conditions, and we expect this to occur in 2022.

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. The Company closed on this transaction in April 2021.

9. LEASES

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

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

Lease costs related to operating leases were $0 and $2,031 for the three months ended March 31, 2021 and 2020, 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 $61,671 and $80,680 for the three months ended March 31, 2021 and 2020, respectively.

Lease costs included in depreciation and amortization related to our finance leases were $6,319 for the three months ended March 31, 2021 and 2020. Interest expense related to our finance leases was immaterial.

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

		March 31,		December 31,
	Balance Sheet Location	2021		2020
Assets
Finance	Land, buildings and equipment, net (1)	$	65,466	$	71,784
Operating	Operating lease right-of-use assets		45,057		45,057
Total Leased Assets		$	110,523	$	116,841

1 – Finance lease assets are net of accumulated amortization of $60,172 and $53,853 as of March 31, 2021 and December 31, 2020, respectively.

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

	March 31,			December 31,
	2021			2020
Weighted average remaining lease term (in years):
Finance		2.4			2.7
Operating		0.8			0.8
Weighted average discount rate (%):
Finance		5.0	%		5.0	%
Operating		5.5	%		5.5	%

The maturity of operating leases and finance leases as of March 31, 2021 are as follows:

Three Months Ended March 31, 2021	Operating leases			Finance leases
2021 remaining	$	23,100		$	21,557
2022		23,100			28,743
2023		—			19,332
Total minimum lease obligations		46,200			69,632
Less: amounts representing interest		(1,143	)		(4,166	)
Present value of minimum lease payments		45,057			65,466
Less: current portion		(22,271	)		(26,071	)
Lease obligations, net of current portion	$	22,786		$	39,395

10. RELATED PARTY RECEIVABLES

In 2019, 2020, and 2021, the Company loaned money to the Doran Canterbury I and II joint ventures in member loans totaling approximately $1,367,000. These member loans bear interest at the rate equal to the Prime Rate plus two percent per annum and totaled $58,000 as of March 31, 2021. The Company expects to be fully reimbursed for these member loans when the joint venture achieves positive cash flow.

The Company has also recorded related party receivables of approximately $40,000 as of March 31, 2021, for various related costs incurred by the Company. The Company expects to be fully reimbursed for these costs by the related party in 2021.

11. SUBSEQUENT EVENTS

In April 2021, the Company closed on two land sales totaling approximately 10 acres of land on the west side of the Racetrack. Total consideration received by the Company for these land sale agreements was approximately $2,500,000.

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

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

Overview:

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

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

COVID-19 Pandemic:

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

The disruptions arising from the COVID-19 Pandemic had a significant impact on the Company's financial condition and operations during the three months ended March 31, 2021 and 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 2021 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 restrictions will be modified or cease to be necessary and the resulting impact on the Company’s business and the willingness of customers to spend on entertainment in venues such as ours.

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

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

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

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

We expect these measures to partially mitigate the impacts of the COVID-19 Pandemic on our full year 2021 financial results. The Company has no long-term debt and a $10.0 million credit line that, when combined with the Company’s existing cash and any cash generated from operations, is anticipated to provide the Company with the necessary liquidity and financial flexibility to manage through this challenging operating environment. As the impact of the COVID-19 Pandemic on the economy and our operations evolves, we will continue to assess the impact on the Company and respond accordingly.

Operations Review for the Three Months Ended March 31, 2021:

Revenues:

Total net revenues for the three months ended March 31, 2021 were $9,226,000, a decrease of $1,723,000, or 15.7%, compared to total net revenues of $10,949,000 for the three months ended March 31, 2020. 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 Revenue:

	Three Months Ended March 31,
	2021		2020
Simulcast	$	839,000	$	1,015,000
Other Pari-Mutuel Revenue		315,000		281,000
Total Pari-Mutuel Revenue	$	1,154,000	$	1,296,000

Total pari-mutuel revenue for the three months ended March 31, 2021 was $1,154,000, a decrease of $142,000, or 11%, from $1,296,000 for the three months ended March 31, 2020. Simulcast revenue decreased $176,000, or 17.3% in 2021 compared to 2020 primarily due to the COVID-19 Pandemic described above, including the fact that these operations were operating in a limited capacity in the first quarter of 2021. Other revenue increased $34,000, or 12.1% compared to 2020 primarily due to an increase in Advanced Deposit Wagering (ADW) revenue.

Card Casino Revenue:

	Three Months Ended March 31,
	2021		2020
Poker Games	$	1,326,000	$	1,658,000
Table Games		4,903,000		5,076,000
Total Collection Revenue		6,229,000		6,734,000
Other Poker Revenue		314,000		484,000
Other Table Games Revenue		321,000		343,000
Total Card Casino Revenue	$	6,864,000	$	7,561,000

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 for the three months ended March 31, 2021 was $6,864,000, a decrease of $697,000, or 9.2%, from $7,561,000 for the three months ended March 31, 2020. The decrease is due to the COVID-19 Pandemic described above. When the Company reopened its Card Casino operations on January 11, 2021, this included reduced seating at tables and capacity limitations to follow Minnesota state guidelines.

Food and Beverage Revenue:

Food and beverage revenue for the three months ended March 31, 2021 was $374,000, a decrease of $745,000, or 66.5%, from $1,119,000 for the three months ended March 31, 2020. The decrease is primarily due to decreased attendance and special events, primarily due to capacity limitations mandated across the Company’s operations as a result of the COVID-19 Pandemic described above.

Other Revenue:

Other revenue for the three months ended March 31, 2021 was $833,000, a decrease of $140,000, or 14.4%, from $973,000 for the three months ended March 31, 2020. The decrease is primarily related to limited special event operations due to capacity limitations mandated across the Company’s operations as a result of the COVID-19 Pandemic described above. Offsetting this decrease is the receipt of $515,000 of COVID-19 relief grants that the Company recorded as other revenue in the 2021 first quarter.

Operating Expenses:

Total operating expenses for the three months ended March 31, 2021 were $7,953,000, a decrease of $2,854,000, or 26.4%, compared to total operating expenses of $10,807,000 for the three months ended March 31, 2020. The decrease in operating expenses reflect reductions in all of the Company’s operating expense line items, primarily as a result of the Company’s limited operations and efforts to manage expenses in light of revenue declines due to the COVID-19 Pandemic. The following paragraphs provide further detail regarding certain operating expenses.

Purse expense for the three months ended March 31, 2021 was $976,000, a decrease of $127,000, or 11.5%, from $1,103,000 for the three months ended March 31, 2020. The decrease is due to a reduction in pari-mutuel and Card Casino revenues.

Salaries and benefits for the three months ended March 31, 2021 was $3,967,000, a decrease of $1,611,000, or 28.9%, from $5,578,000 for the three months ended March 31, 2020. The decrease is due 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 through January 10, 2021. Labor costs have also significantly declined upon reopening in January due to the Company’s limited operations requiring significantly reduced number of personnel.

Cost of food and beverage sales for the three months ended March 31, 2021 was $206,000, a decrease of $359,000, or 63.5%, from $564,000 for the three months ended March 31, 2020. The decrease is due to lower food and beverage revenues due to decreased attendance and special events, primarily due to capacity limitations mandated across the Company’s operations as a result of the COVID-19 Pandemic.

Advertising and marketing for the three months ended March 31, 2021 was $56,000, a decrease of $128,000, or 69.3%, from $184,000 for the three months ended March 31, 2020. The decrease is due to a reduction in advertising and marketing spend due to capacity limitations mandated across the Company’s operations as a result of the COVID-19 Pandemic.

The Company recorded a provision for income taxes of $252,000 and $50,000 for the three months ended March 31, 2021 and 2020, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The increase in our tax expense of $202,000 during the quarter ended March 31, 2021 over the quarter ended March 31, 2020 is primarily due to an increase in income before taxes from operations. The increase in the effective tax rate to 31.4% for the quarter ended March 31, 2021 from 16.4% for the quarter ended March 31, 2020 is primarily due to the discrete benefit realized from the estimated NOL carryback calculated in the 2020 tax provision, which resulted in a lower effective tax rate for the quarter ended March 31, 2020.

Net income for the three months ended March 31, 2021 and 2020 was $551,000 and $255,000, respectively.

EBITDA

To supplement our financial statements, we also provide investors with information about our EBITDA and Adjusted EBITDA, each of which is a non-GAAP measure, which excludes certain items from net income (loss), a GAAP measure. We define EBITDA as earnings before interest, income tax (benefit) expense, and depreciation and amortization. We also compute Adjusted EBITDA, which reflects additional adjustments to Net Income to eliminate unusual or non-recurring items, as well as items relating to our real estate development operations and we believe the exclusion of these items allows for better comparability of our performance between periods. For the three months ended March 31, 2021, Adjusted EBITDA excluded depreciation, amortization, and interest expense related to equity investments, as well as $515,000 of COVID-19 relief grants included in other revenue. Neither EBITDA nor adjusted EBITDA is a measure of performance calculated in accordance with GAAP and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance. EBITDA is presented as a supplemental disclosure because it is a widely used measure of performance and a basis for valuation of companies in our industry. Moreover, other companies that provide EBITDA information may calculate EBITDA differently than we do.

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 months ended March 31, 2021 and 2020:

Summary of EBITDA Data

	Three Months Ended March 31,
	2021			2020
NET INCOME	$	551,493		$	255,221
Interest income, net		(169,310	)		(163,690	)
Income tax expense		252,224			50,164
Depreciation		689,585			716,853
EBITDA		1,323,992			858,548
Depreciation and amortization related to equity investments		393,673			—
Interest expense related to equity investments		219,195			—
Other revenue, COVID-19 relief grants		(515,000	)		—
ADJUSTED EBITDA	$	1,421,860		$	858,548

Adjusted EBITDA increased $563,000, or 65.6%, for the three months ended March 31, 2021 as compared to the same period in 2020. The increase is a result of increased labor efficiencies and overall reduction in operating expenses to help mitigate the effects of the COVID-19 Pandemic. For the three months ended March 31, 2021, Adjusted EBITDA as a percentage of net revenue, excluding $515,000 other revenue from COVID-19 relief grants, was 16.3%. This compares to Adjusted EBITDA as a percentage of net revenue calculated on a GAAP basis for the three months ended March 31, 2020 of 7.8%.

Contingencies:

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

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

Liquidity and Capital Resources:

The Company’s cash, cash equivalents, and restricted cash balance at March 31, 2021 was $6,127,000 compared to $4,472,000 as of December 31, 2020. The Company believes that unrestricted funds available in its cash accounts, amounts available under its revolving line of credit, along with funds generated from operations and future land sales, will be sufficient to satisfy its liquidity and capital resource requirements for regular operations, as well as its planned development expenses during 2021. However, if the Company engages in any additional significant real estate development, additional financing would more than likely be required and the Company may seek this additional financing through joint venture arrangements, through incurring debt, or through an equity financing, or a combination of any of these.

Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2021 was $1,844,000 primarily as a result of the following: The Company reported net income of $551,000, depreciation of $690,000, loss from equity investment of $638,000, and stock-based compensation and 401(k) match totaling $194,000. The Company also experienced an increase in accrued wages and payroll taxes of $996,000 for the three months ended March 31, 2021 due to the timing of our payroll dates as well as the fact the Company's operations were temporarily suspended as of December 31, 2020 resulting in a reduction in payroll costs. This was partially offset by a decrease in payables to horsemen of $1,035,000.

Net cash provided by operating activities for the three months ended March 31, 2020 was $351,000 primarily as a result of the following: The Company reported net income of $255,000, depreciation of $717,000, and stock-based compensation and 401(k) match totaling $219,000. The Company also experienced an increase in accounts payable of $961,000 for the three months ended March 31, 2020. This was partially offset by a decrease in accrued wages and payroll taxes of $1,400,000 and Card Casino accruals of $512,000.

Investing Activities

Net cash used in investing activities for the first three months of 2021 and 2020 was $205,000 and $871,000, respectively, primarily for additions to property, plant, and equipment and additions for TIF eligible improvements. This is partially offset by a decrease in related party receivables in the first quarter of 2021 of $77,000 and proceeds from sale of investments in the first quarter of 2020 of $104,000.

Financing Activities

Net cash provided by financing activities during the first three months of 2021 was $16,000, primarily due proceeds from the issuance of common stock, partially offset by payments for taxes of equity awards. Net cash used in financing activities during the first three months of 2020 was $326,000, relating primarily to cash dividends paid to shareholders.

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

Critical Accounting Policies and Estimates:

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

Our significant accounting policies are included in Note 2 to our consolidated financial statements in our 2020 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 47.6% of our total assets at March 31, 2021. We use our judgment in various ways including: determining whether an expenditure is considered a maintenance expense or a capital asset; determining the estimated useful lives of assets; and determining if or when an asset has been impaired or has been disposed. Management periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected undiscounted future net cash flows. If the sum of the related expected future net cash flows is less than the carrying value, management would determine how much of an impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. We have determined that no impairment of these assets exists at March 31, 2021.

Stock-Based Compensation – Accounting guidance requires measurement of services provided in exchange for a share-based payment based on the grant date fair market value. We use our judgment in determining the assumptions used to determine the fair value of equity instruments granted using a Black-Scholes model. The Company also has historically granted Long Term Incentive Awards under the Long Term Incentive Plan (the “LTI Plan”) under which Company executive officers and other senior executives have had 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. Currently, awards are outstanding under the LTI Plan only for the three-year period ending December 31, 2021.

Commitments and Contractual Obligations:

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

Cooperative Marketing Agreement:

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

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

As noted above and affirmed in the Fifth Amendment, SMSC is obligated to make an annual purse enhancement of $7,380,000 and annual marketing payment of $1,620,000 for 2022.

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

Redevelopment Agreement:

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

Forward-Looking Statements:

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

●

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

●

the fact that due to the COVID-19 Pandemic, our non-real estate development operations were closed from March 16, 2020 through June 9, 2020 and from November 21, 2020 through January 10, 2021, when we resumed these operations on a more limited basis in light of restrictions imposed by Minnesota regulatory bodies;

●

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

●

competition from other sports and entertainment options;

●

attracting a sufficient number of horses and trainers to achieve above average field sizes;

●

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

●

material fluctuations in attendance at the Racetrack;

●

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;

●

inclement weather and other conditions that may affect our ability to conduct live racing;

●

the fact that horse racing is an inherently dangerous sport and our racetrack is subject to personal injury litigation;

●

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;

●

our ability to obtain, on acceptable terms, an extension to the ten-year Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community, which expires in 2022;

●

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

●

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

●

the success of the Company’s Canterbury Commons real estate development, including our reliance upon our joint venture partners Doran Companies and Greystone Construction to construct, and profitably operate our development projects;

●

greater-than-anticipated expenses or lower-than-anticipated return on the development of our underutilized land;

●

the fact the public 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 customers from visiting our facilities, thereby affecting our revenue and profitability;

●

payments and amount of future dividends is subject to Board of Director discretion and to various risks and uncertainties;

●

increases in compensation and employee benefit costs;

●

the general health of the gaming sector; and

●

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

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4: CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures:

The Company’s President and Chief Executive Officer, Randall D. Sampson and Chief Financial Officer, Randy J. Dehmer, have reviewed the Company’s disclosure controls and procedures pursuant to Exchange Act 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 March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Not Applicable.

Item 1A. Risk Factors

There have been no changes to the Risk Factors listed in our Annual Report on Form 10-K for the year ended December 31, 2020, as updated by our subsequently filed Quarterly Reports on Form 10-Q.

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

In the three months ending March 31, 2021, the Company repurchased shares of stock as follows:

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan		Shares That May Yet Be Purchased Under the Program (1)
January 1-31, 2021		-	$	-		-		128,781
February 1-28, 2021		-	$	-		-		128,781
March 1-31, 2021		1,894	$	13.70		-		128,781
Total		1,894	$	13.70		-		128,781

(1) Amount remaining from the aggregate 350,000 repurchase authorizations approved by the Company's Board of Directors in August 2012.

In the three months ending March 31, 2021, the Company repurchased a total of 1,894 shares in connection with payment of taxes upon issuance of deferred stock awards issued to employees.

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

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

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

99.1	Press Release dated May 10, 2021 announcing 2021 First Quarter Results.

101	The following financial information from Canterbury Park Holding Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, formatted in eXtensible Business Reporting Language XBRL: (i) Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, (ii) Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and March 31, 2020, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and March 31, 2020, (iv) Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and March 31, 2020, and (v) Notes to Financial Statements.

SIGNATURES

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


	Canterbury Park Holding Corporation

Dated: May 11, 2021	/s/ Randall D. Sampson
	Randall D. Sampson
	President and Chief Executive Officer (principal executive officer)


Dated: May 11, 2021	/s/ Randy J. Dehmer
	Randy J. Dehmer
	Chief Financial Officer (principal financial officer, principal accounting officer)