# Canterbury Park Holding Corp: Form 10-Q for the period ended Sep 30, 2018

- Company: [Canterbury Park Holding Corp](/companies/cphc.md) (CIK 1672909)
- Form: 10-Q
- Filed: 2018-11-14
- Accepted by EDGAR: Nov 14, 2018, 17:16 ET
- Period: 2018-09-30
- Accession: 0001672909-18-000008
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1672909/000167290918000008/cphc-20180930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1672909/000167290918000008/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 9 months, 2018-01-01 to 2018-09-30 | $47.1m | us-gaap:Revenues |
| Operating income | 3 months, 2018-07-01 to 2018-09-30 | $2.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2018-01-01 to 2018-09-30 | $4.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2018-07-01 to 2018-09-30 | $407.4k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2018-01-01 to 2018-09-30 | $1.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-07-01 to 2018-09-30 | $1.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2018-01-01 to 2018-09-30 | $3.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-07-01 to 2018-09-30 | $0.36 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2018-01-01 to 2018-09-30 | $0.74 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-07-01 to 2018-09-30 | $0.36 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2018-01-01 to 2018-09-30 | $0.75 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-07-01 to 2018-09-30 | 4,533,514 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2018-01-01 to 2018-09-30 | 4,514,015 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2018-01-01 to 2018-09-30 | $4.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 9 months, 2018-01-01 to 2018-09-30 | $890.7k | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2018-09-30 | $12.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-09-30 | $17.2m | us-gaap:AssetsCurrent |
| Total assets | at 2018-09-30 | $57.1m | us-gaap:Assets |
| Current liabilities | at 2018-09-30 | $9.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-09-30 | $12.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2018-09-30 | $44.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,716 characters.

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

### Overview:

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

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

### Operations Review for the Three and Nine Months Ended September 30, 2018:

### EBITDA

EBITDA represents earnings before interest, income tax expense, and depreciation and amortization. EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”), and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance or cash flows from operating activities as a measure of liquidity. EBITDA is presented as a supplemental disclosure because it is a widely used measure of performance and a basis for valuation of companies in our industry. Moreover, other companies that provide EBITDA information may calculate EBITDA differently than we do. Adjusted EBITDA reflects additional adjustments to net income to eliminate unusual items. For the nine months ended September 30, 2018, adjusted EBITDA excluded the loss on disposal of assets and gain on insurance recoveries.

The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA and to adjusted EBITDA (defined above) which are non-GAAP financial measures, for the three and nine months ended September 30, 2018 and 2017:

| Summary of EBITDA Data | Three Months Ended September 30, 2018 | 2017 | Nine Months Ended September 30, 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: |
| NET INCOME | $1,632,845 | $952,635 | $3,347,890 | $2,182,218 |
| Interest income, net | (8,567) | (13,575) | (26,023) | (37,178) |
| Income tax expense | 407,367 | 597,753 | 1,066,000 | 1,444,753 |
| Depreciation | 659,498 | 646,050 | 1,895,723 | 1,869,048 |
| EBITDA | 2,691,143 | 2,182,863 | 6,283,590 | 5,458,841 |
| Gain on insurance recoveries | - | - | (21,064) | - |
| Loss on disposal of assets | - | - | 99,934 | - |
| Adjusted EBITDA | $2,691,143 | $2,182,863 | $6,362,460 | $5,458,841 |

Adjusted EBITDA increased $508,000 or 23.3% and increased as a percentage of net revenues to 14.6% from 12.4% for the three months ended September 30, 2018 as compared to the same period in 2017. Adjusted EBITDA increased $904,000 or 16.6% and increased as a percentage of net revenues to 13.5% from 12.1% for the nine months ended September 30, 2018 compared to the same period in 2017. The increase for the three and nine months ended September 30, 2018 is primarily due to the increase in revenues compared to the same periods in 2017.

### Revenues:

Total net revenues for the three months ended September 30, 2018 were $18,371,000, an increase of $704,000, or 4.0%, compared to total net revenues of $17,667,000 for the three months ended September 30, 2017. This increase primarily consists of increases in pari-mutuel and card casino revenue of 3.5% and 8.3%, respectively. Total net revenues for the nine months ended September 30, 2018 were $47,103,000, an increase of $2,147,000, or 4.8%, compared to total net revenues of $44,956,000 for the nine months ended September 30, 2017. This increase results primarily from increases in other and card casino revenue of 4.8% and 6.7%, respectively. See below for a further discussion of our sources of revenues.

| Pari-Mutuel Data Revenue: | Three Months Ended September 30, 2018 | 2017 | Nine Months Ended September 30, 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: |
| Simulcast | $1,420,000 | $1,407,000 | $4,473,000 | $4,386,000 |
| Live Racing | 1,353,000 | 1,392,000 | 2,295,000 | 2,335,000 |
| Guest Fees | 926,000 | 783,000 | 1,483,000 | 1,279,000 |
| Other Revenue | 257,000 | 239,000 | 750,000 | 781,000 |
| **Total Pari-Mutuel Revenue** | $3,956,000 | $3,821,000 | $9,001,000 | $8,781,000 |
| **Racing Days** |  |  |  |  |
| Simulcast only racing days | 51 | 52 | 204 | 206 |
| Live and simulcast racing days | 41 | 40 | 69 | 67 |
| **Total Number of Racing Days** | 92 | 92 | 273 | 273 |

18

Total pari-mutuel revenue increased $135,000, or 3.5%, and $220,000, or 2.5% for the three and nine months, respectively, ended September 30, 2018 compared to the same periods in 2017. The increases are related to Guest Fees primarily due to increased out of state handle as a result of racing Wednesdays in August 2018 compared to Sundays in August 2017. Other factors contributing to the increase are two additional live race days in 2018 compared to 2017, as well as the possibility of a Triple Crown winner in 2018.

### Card Casino Revenue:

|  | Three Months Ended September 30, 2018 | 2017 | Nine Months Ended September 30, 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: |
| Poker Games | $1,955,000 | $2,172,000 | $6,187,000 | $6,719,000 |
| Table Games | 5,990,000 | 5,121,000 | 16,996,000 | 15,022,000 |
| Total Collection Revenue | 7,945,000 | 7,293,000 | 23,183,000 | 21,741,000 |
| Other Revenue | 694,000 | 687,000 | 2,214,000 | 2,056,000 |
| Total Card Casino Revenue | $8,639,000 | $7,980,000 | $25,397,000 | $23,797,000 |

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

As indicated in the table above, total Card Casino revenue increased $890,000, or 17%, and $1,975,000, or 13.1%, for the three and nine months, respectively, ended September 30, 2018 compared to the same periods in 2017. Effective March 2018, the Minnesota Racing Commission approved an amendment to the Canterbury Park Operating Plan that allowed the Company to increase the maximum percentage of table games buy-in that it can record as revenue from 18% to 20%. This amendment, combined with a higher than normal table games hold percentage during 2018, resulted in revenue percentages of 18.5% for March and April, 20% for May-August, and 18.5% in September. The comparable rate for 2017 during that period was 18%. The impact of this increase in revenue percentage was approximately $469,000 and $963,000 for the three and nine months ended September 30, 2018, respectively, which accounts for the majority of the increase in table games revenue for the periods. The remainder of the increase was due to increased table games play that the Company attributes to expanded promotional efforts, players wagering more due to a strong economy, and change in game mix. Also, higher jackpots on specific games contributed to increased play.

### Food and Beverage Revenue:

Food and beverage revenue increased $72,000, or 2.3%, and $66,000, or 1.0% for the three and nine months ended September 30, 2018 compared to the same periods in 2017. The increase is attributable to price increases on select menu items and two additional live racing days compared to 2017.

### Other Revenue:

Other revenue decreased $163,000, or 6.1%, and increased $261,000, or 4.8% for the three and nine months, respectively, ended September 30, 2018 compared to the same periods in 2017. For the three months ended September 30, 2018, the decrease is due to lower admission and publications revenue resulting from a decline in paid attendance on live racing days compared to the same period in 2017. For the nine months ended September 2018, the increase is primarily due to a short-term customer rental agreement in the first quarter of 2018, related to the Super Bowl held in Minneapolis. A portion of the revenues are reimbursed costs based on the terms of the contract. These costs are included as an expense in our Consolidated Statement of Operations.

### Operating Expenses:

Total operating expenses increased $209,000, or 1.3%, and $1,348,000, or 3.3%, for the three and nine months, respectively, ended September 30, 2018 compared to the same periods in 2017. The following paragraphs provide further detail regarding certain operating expenses.

Purse expense increased $87,000, or 3.9%, and $257,000, or 4.7% for the three and nine months, respectively ended September 30, 2018 compared to the same periods in 2017. The increases are primarily due to increased Card Casino and Pari-Mutuel revenues.

Salaries and benefits increased $750,000, or 4.2% for the nine months ended September 30, 2018. The increase is partially due to the State of Minnesota mandated increase of $0.15 in the minimum wage effective January 1, 2018. Additionally, two executive positions were open and unfilled during the majority of the 2017 first quarter and one executive position was open and unfilled for the majority of the 2017 second quarter. Furthermore, several new positions were added in 2018 due to the continued growth of the Company.

Utilities expense increased $37,000, or 6.8%, and $118,000, or 10.2% for the three and nine months, respectively, ended September 30, 2018, compared to the same periods in 2017. This is due to an increase in electricity, water and sewer rates.

Professional and contracted services increased $138,000, or 9.0%, and $143,000, or 4.0% for the three and nine months ended September 30, 2018 compared to the same periods in 2017. The increases are due to an increase in legal and consulting fees due in part to the higher level of Company development activities in the 2018 periods.

Other operating expenses increased $296,000, or 24.5% for the three months ended September 30, 2018 compared to the same periods in 2017. The increase is due to a reclassification in 2017 between other operating expenses and advertising and marketing related to RiverSouth expenses.

Net income for the three months ended September 30, 2018 and 2017 was $1,633,000 and $953,000, respectively. Net income for the nine months ended September 30, 2018 and 2017 was $3,348,000 and $2,182,000.

### Contingencies:

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

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

### Liquidity and Capital Resources:

Net cash provided by operating activities for the nine months ended September 30, 2018 was $4,276,000, due in part to net income of $3,348,000, depreciation of $1,895,723, and stock-based compensation and 401(k) match totaling $671,000. The Company also experienced an increase in accounts payable of $233,000 and deferred revenue of $380,000. This was partially offset by a decrease in card casino accruals of $1,100,000 and accrued wages and payroll taxes of $944,000.

Net cash provided by operating activities for the nine months ended September 30, 2017 was $5,873,000 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.

Net cash used in investing activities for the first nine months of 2018 and 2017 was $2,510,000 and $3,219,000, respectively, primarily for building remodel projects. The 2018 amount was partially offset by a decrease in notes receivable.

Net cash used in financing activities during the first nine months of 2018 and 2017 was $288,000 and $499,000, respectively, relating to cash dividends paid to shareholders, partially offset by proceeds from purchases of stock through the Employee Stock Purchase Plan and the exercise of stock options.

The Company has a general credit and security agreement with a financial institution. This agreement was amended and restated effective as of September 30, 2018 to extend the maturity date to September 30, 2019, increase the revolving credit line to $8,000,000, and allow for letters of credit in the aggregate amount of up to $2,000,000 to be issued under the credit agreement. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. The Company had no borrowings under the credit line during the three months ended September 30, 2018.

The Company’s cash and cash equivalent balance at September 30, 2018 was $11,953,000 compared to $8,888,000 at December 31, 2017. The Company believes that unrestricted funds available in its cash accounts, amounts available under its revolving line of credit, along with funds generated from operations, will be sufficient to satisfy its liquidity and capital resource requirements for regular operations, as well as its planned development expenses during 2018 and 2019. However, if the Company engages in any additional significant real estate development, additional financing would more than likely be required.

### Critical Accounting Policies and Estimates:

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

Our significant accounting policies are included in Note 1 to our consolidated financial statements in our 2017 Annual Report on Form 10-K. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

*Property and Equipment* - We have significant capital invested in our property and equipment, which represents 68% of our total assets at September 30, 2018. We use our judgment in various ways including: determining whether an expenditure is considered a maintenance expense or a capital asset; determining the estimated useful lives of assets; and determining if or when an asset has been impaired or has been disposed. Management periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected undiscounted future net cash flows. If the sum of the related expected future net cash flows is less than the carrying value, management would determine how much of an impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. We have determined that no impairment of these assets exists at September 30, 2018.

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

### Commitments and Contractual Obligations:

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

### Legislation:

#### Minimum Wage Legislation

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

### Cooperative Marketing Agreement:

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

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

Under the CMA, as amended, SMSC also agreed to make “Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits and events. Under the CMA, the SMSC paid the Company $1,620,000 and $1,581,000 for marketing purposes during the nine months ended September 30, 2018 and 2017.

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

|  |  |  |  |
| --- | ---: | ---: | ---: |
| **Year** | **Purse Enhancement Payments to Horsemen** | **1** | **Marketing Payments to Canterbury Park** |
| 2019 | $ 7,380,000 |  | $ 1,620,000 |
| 2020 | 7,380,000 |  | 1,620,000 |
| 2021 | 7,380,000 |  | 1,620,000 |
| 2022 | 7,380,000 |  | 1,620,000 |
| 1 Includes $100,000 each year payable to various horsemen associations |  |  |  |

The amounts earned from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s condensed consolidated statements of operations. For the three and nine months ended September 30, 2018, the Company recorded $491,000 and $1,169,000 in other revenue and incurred $434,000 and $999,000 in advertising and marketing expense and $57,000 and $170,000 in depreciation related to the SMSC marketing funds. For the three and nine months ended September 30, 2017, the Company recorded $672,000 and $1,298,000 in other revenue and incurred $569,000 and $1,128,000 in advertising and marketing expense and $57,000 and $170,000 in depreciation related to the SMSC marketing payment.

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

### Redevelopment Agreement:

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

### Forward-Looking Statements:

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

- material fluctuations in attendance at the Racetrack;
- 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 funding that Canterbury Park will be paid as reimbursement under the TIF program for these improvements is not guaranteed, but will depend in part on future tax revenues generated from the developed property;
- the general health of the gaming sector; and
- other factors that are beyond our ability to control or predict.
- the success of the Company’s Canterbury Commons real estate development, including our reliance upon our joint venture partner Doran Companies to obtain financing for, construct, and profitably operate the upscale apartment complex.

## Market risk

As filed, 129 characters.

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

## Controls and procedures

As filed, 8,309 characters.

### (a) Evaluation of Disclosure Controls and Procedures:

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In connection with the filing of this Form 10-Q, management evaluated, under the supervision and with the participation of the Company’s Chief Executive Officer (CEO) Randall D. Sampson and Chief Financial Officer (CFO), Robert M. Wolf, the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2018. Based on this assessment, management identified a material weakness in our internal control over financial reporting as described below. As a result of this material weakness, management concluded that, as of September 30, 2018, our internal control over financial reporting was not effective. *Internal Control over Financial Reporting* The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Rule 13a-15(f) and 15d-15(f) of the Securities Exchange Act. Under the supervision and with the participation of the Company’s management, including the CEO and CFO, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the Framework. Based on management’s testing and evaluation, we concluded that our internal control over financial reporting was not effective, and as a result, resulted in a material weakness in internal controls. The identified material weakness arose as a result of management’s incorrect initial determination of the effective date to recognize the gain associated with the Company’s transfer of land to the Doran Canterbury I joint venture described in Note10 of Notes to Financial Statements in this Form 10-Q. As noted, on September 27, 2018, the Company’s subsidiary Canterbury Development LLC contributed approximately 13 acres of land to Doran Canterbury I as its equity contribution to the joint venture and became a 27.4% equity member. As stated in the Doran Canterbury I Operating Agreement, Doran is responsible for securing financing for Doran Canterbury I. If financing is not secured for Doran Canterbury I, however, the Company has the ability to withdraw from Doran Canterbury I. As long as the Company has the right to withdraw its land contribution, the Company is not able to recognize the gain. As of September 27, 2018, and as of November 14, 2018, financing for Doran Canterbury I has not been secured. Therefore, as of September 30, 2018, the Company is not recording (i) any gain associated with investment in this joint venture, or (ii) its interest in this joint venture Because management initially determined the Company would recognize a gain associated the Company’s transfer of land to the Doran Canterbury I joint venture and corrected this determination later in connection with finalizing this Form 10-Q, the Company has concluded that a reasonable possibility existed that a material misstatement in the Company’s consolidated financial statements would not have been prevented or detected on a timely basis. The Doran Canterbury I joint venture is the Company’s first significant venture into real estate development and the agreements associated with these transactions are complex. The Company initially erred in making and recording the gain for the contribution of land because management did not realize that its ability to reclaim the property if the financing is not secured prevented it from recognizing the income on a current basis. **Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting** During our 2018 fiscal fourth quarter, we intend to begin implementing the following remediation plan to address the material weakness described above: The Company believes that it needs to acquire additional technical expertise either within the Company or by engaging third party providers to understand the intricacies of some of the applicable revenue recognition rules in connection with the Doran joint venture and any future joint venture agreements or future Company development efforts. We have begun a process to acquire this expertise.

### (b) Changes in Internal Control over Financial Reporting:

There have been no changes in internal control over financial reporting that occurred during the fiscal 2018 third quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except as noted above. The Company is taking steps to ensure that it remediates the material weakness by implementing the measures described above.

26

### PART II

### OTHER INFORMATION

|  |  |  |  |
| --- | --- | ---: | --- |
| Item 1. |  |  | **Legal Proceedings** |
|  |  |  | Not Applicable. |
| Item 1A. |  |  | **Risk Factors** |
| Item 2. |  |  | **Unregistered Sales of Equity Securities and Use of Proceeds** |
|  | (a) |  | Not Applicable. |
|  | (b) |  | Not Applicable. |
|  | (c) |  | On December 17, 2007, the Company’s Board of Directors adopted a plan that authorized the repurchase of up to 250,000 shares of the Company’s common stock pursuant to Exchange Act Rule 12b-18 in open market transactions, block purchases of privately negotiated transactions (the “2008 Stock Repurchase Plan”). From its adoption until August 13, 2012, the Company repurchased 216,543 shares under the 2008 Stock Repurchase Plan and, on such date, authorized the repurchase of an additional 100,000 shares of the Company’s common stock. The Company did not repurchase any shares during the third quarter of 2018. The maximum number of shares that may yet be purchased under the above authorizations is 128,781 as of September 30, 2018. |
| Item 3. |  |  | **Defaults upon Senior Securities** |
|  |  |  | Not Applicable. |
| Item 4. |  |  | **Mine Safety Disclosures** |
|  |  |  | Not Applicable. |
| Item 5. |  |  | **Other Information** |
| Item 6. |  |  | **Exhibits** |
|  |  | 10.1 31.1 | Credit Amendment Agreement dated as of October 4, 2018, between and among Bremer Bank, National Association, Canterbury Park Holding Corporation, Canterbury Park Entertainment LLC and Canterbury Park Holding Corporation. Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (rules 13a-14 and 15d-14 of the Exchange Act). |
|  |  | 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (rules 13a-14 and 15d-14 of the Exchange Act). |
|  |  | 32 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
|  |  | 99.1 | Press Release dated November 14, 2018 announcing 2018 Third Quarter Results. |

27

101 The following financial information from Canterbury Park Holding Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018, formatted in eXtensible Business Reporting Language XBRL: (i) Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017, (ii) Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2018 and September 30, 2017, (iii) Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2018 and September 30, 2017, and (iv) Notes to Financial Statements.

### SIGNATURES

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

### Canterbury Park Holding Corporation

Dated: November 14, 2018 /s/ Randall D. Sampson

Randall D. Sampson,

President and Chief Executive Officer

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

Robert M. Wolf,

Chief Financial Officer

29

Filed Nov 14, 2018.
Source: SEC EDGAR, the filing index for accession 0001672909-18-000008. Last ingested by Listed: Oct 24, 2026, 15:07 ET. No prices; not investment advice.