# Canterbury Park Holding Corp: Form 10-Q for the period ended Jun 30, 2020

- Company: [Canterbury Park Holding Corp](/companies/cphc.md) (CIK 1672909)
- Form: 10-Q
- Filed: 2020-08-11
- Accepted by EDGAR: Aug 11, 2020, 18:07 ET
- Period: 2020-06-30
- Accession: 0001672909-20-000032
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1672909/000167290920000032/cphc-20200630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1672909/000167290920000032/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-04-01 to 2020-06-30 | $2.8m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 6 months, 2020-01-01 to 2020-06-30 | $13.7m | us-gaap:Revenues |
| Operating income | 3 months, 2020-04-01 to 2020-06-30 | −$2.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2020-01-01 to 2020-06-30 | −$2.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2020-04-01 to 2020-06-30 | −$1.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2020-01-01 to 2020-06-30 | −$1.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-04-01 to 2020-06-30 | −$1.2m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2020-01-01 to 2020-06-30 | −$926.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-04-01 to 2020-06-30 | −$0.25 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2020-01-01 to 2020-06-30 | −$0.20 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-04-01 to 2020-06-30 | −$0.25 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2020-01-01 to 2020-06-30 | −$0.20 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-04-01 to 2020-06-30 | 4,679,122 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2020-01-01 to 2020-06-30 | 4,672,447 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2020-01-01 to 2020-06-30 | −$379.3k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 6 months, 2020-01-01 to 2020-06-30 | $328.1k | us-gaap:PaymentsOfDividends |
| Current assets | at 2020-06-30 | $11.4m | us-gaap:AssetsCurrent |
| Total assets | at 2020-06-30 | $69.4m | us-gaap:Assets |
| Current liabilities | at 2020-06-30 | $15.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-06-30 | $20.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2020-06-30 | $48.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,401 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 March, and year-round wagering on races held at out-of-state racetracks that are televised simultaneously at the Racetrack (“simulcasting”). Unbanked card games, in which patrons compete against each other, are hosted in the Card Casino at the Racetrack. The Card Casino operates 24 hours a day, seven days a week. The Card Casino offers both poker and table games at up to 80 tables. The Company also derives revenues from related services and activities, such as concessions, parking, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack.

### COVID-19 Pandemic:

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

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

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

Despite a strong start to the year, the disruptions arising from the COVID-19 Pandemic had a significant impact on the Company's financial condition and operations during the three and six months ended June 30, 2020. The duration and intensity of this global health emergency and related disruptions is uncertain. Given the dynamic nature of these circumstances, the impact on the Company’s consolidated results of operations, cash flows and financial condition in 2020 will be material, but cannot be reasonably estimated at this time as it is unknown when the COVID-19 Pandemic will end, when or how quickly the current travel restrictions will be modified or cease to be necessary and the resulting impact on the Company’s business and the willingness of customers to spend on entertainment.

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

During the temporary closures and suspension of the Company’s operations described above, all Canterbury Park employees, except for a limited number of key personnel required for basic ongoing maintenance, security, and management needs, were placed on an unpaid furlough. The Company also implemented a salary reduction for all remaining non-furloughed employees based on a combination of the employee’s salary and the employee’s responsibilities during the temporary shutdown. Upon the Company’s reopening of operations, the Company has implemented a salary reduction for the management team, which is in effect through the remainder of 2020.

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

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

We expect these measures to partially mitigate the impacts of the COVID-19 Pandemic on our full year 2020 financial results. The Company has a strong consolidated balance sheet with no long-term debt and an $8.0 million credit line that is anticipated to provide the Company with the necessary liquidity and financial flexibility to manage through this challenging operating environment. Additionally, the Company expects to generate substantial cash inflows from its development operations in 2020. This is expected to be obtained from a land sale in 2020, as well as receiving approximately $3.2 million of its related party receivable in connection with the closing of the Doran Canterbury II project.

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

### Operations Review for the Three and Six Months Ended June 30, 2020:

### Revenues:

Total net revenues for the three months ended June 30, 2020 were $2,768,000, a decrease of $13,665,000, or 83.2%, compared to total net revenues of $16,433,000 for the three months ended June 30, 2019. Total net revenues for the six months ended June 30, 2020 were $13,717,000, a decrease of $14,307,000, or 51.1%, compared to total net revenues of $28,024,000 for the six months ended June 30, 2019. This decrease consists of decreases in pari-mutuel, card casino, food and beverage, and other revenues driven by the COVID-19 Pandemic. See below for a further discussion of our sources of revenues.

### Pari-Mutuel Data Revenue:

| ​ ​ ​ | ​ | ​ ​ Three Months Ended June 30, 2020 | ​ | ​ ​ 2019 | ​ ​ ​ | ​ ​ Six Months Ended June 30, 2020 | ​ | ​ ​ 2019 |
| --- | --- | --- | --- | --- | --- | ---: | --- | ---: |
| Simulcast | ​ | $219,000 | ​ | $1,634,000 | ​ | $1,234,000 | ​ | $2,852,000 |
| Live racing | ​ | ​ 122,000 | ​ | ​ 912,000 | ​ | ​ 122,000 | ​ | ​ 912,000 |
| Guest fees | ​ | ​ 557,000 | ​ | ​ 418,000 | ​ | ​ 557,000 | ​ | ​ 418,000 |
| Other revenue | ​ | ​ 522,000 | ​ | ​ 244,000 | ​ | 803,000 | ​ | 517,000 |
| **Total Pari-Mutuel Revenue** | ​ | $1,420,000 | ​ | $3,208,000 | ​ | $2,716,000 | ​ | $4,699,000 |
| **​** | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |

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

### Card Casino Revenue:

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

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

As indicated by the table above, total Card Casino revenue decreased $8,096,000, or 91.1%, and 8,435,000, or 50.2%, for the three and six months ended June 30, 2020, compared to the same periods in 2019. These decreases are due to the COVID-19 Pandemic described above. When the Company reopened its table games operations on June 15, 2020, this include reduced seating at table games and capacity limitations to follow Minnesota state guidelines. The Company did not resume poker operations until July 2020.

### Food and Beverage Revenue:

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

### Other Revenue:

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

### Operating Expenses:

Total operating expenses decreased $10,042,000, or 66.4%, and $10,848,000, or 40.6%, for the three and six months ended June 30, 2020 compared to the same periods in 2019. These decreases in operating expenses reflect reductions in the majority of the Company’s operating expense line items, primarily as a result of the Company’s temporary suspension of operations through June 9, 2020. The following paragraphs provide further detail regarding certain operating expenses.

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

Salaries and benefits decreased $5,043,000, or 72.7%, and $5,211,000, or 41.1%, for the three and six months ended June 30, 2020, compared to the same periods in 2019. The decreases are due primarily to the COVID-19 Pandemic, which resulted in the majority of Company employees being placed on an unpaid furlough during the temporary suspension of operations. The decrease is also due to a decrease in expenses related to our bonus plans, as these have been temporarily suspended, or converted into retention plans, as a result of the COVID-19 Pandemic.

Additionally, labor costs were unusually high as a percentage of revenues in 2019 as a result of inefficiencies caused by the Card Casino construction in January and February and re-opening in March 2019.

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

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

During the six months ended June 30, 2019, the Company recorded a loss on disposal of assets totaling $108,000. This primarily related to a write-off of assets disposed of in remodeling our Card Casino. Also, during the same period, the Company recorded a gain on insurance recoveries of $199,000 as a result of insurance proceeds related to flood damage incurred at the Racetrack

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

### EBITDA

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

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

### Summary of EBITDA Data

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

Adjusted EBITDA decreased $3,451,000, or 205.8%, for the three months ended June 30, 2020 as compared to the same period in 2019. Adjusted EBITDA decreased $3,309,000, or 138.3%, for the six months ended June 30, 2020 compared to the same period in 2020. The decreases are due to the COVID Pandemic described above and the temporary suspension of our operations.

### Contingencies:

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

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

### Liquidity and Capital Resources:

The Company has a general credit and security agreement with a financial institution, which provides a revolving credit line up to $8.0 million and allows for letters of credit in the aggregate amount of up to $2.0 million to be issued under the credit agreement. As of June 30, 2020, the bank issued a $1,250,000 letter of credit on behalf of the Company and therefore, the Company has an available credit line up to $6,750,000. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. This agreement was amended as of September 30, 2019 to extend the maturity date to September 30, 2020. As of June 30, 2020, the outstanding balance on the line of credit was $2,865,000. Subsequent to the end of the quarter, the Company was repaid $2,940,000 as part of the transaction with Doran as described in Note 10 and Note 11 and used a portion of these funds to make a payment on its line of credit.

The Company’s cash, cash equivalents, and restricted cash balance at June 30, 2020 was $4,349,000 compared to $3,927,000 as of December 31, 2019. The Company believes that unrestricted funds available in its cash accounts, amounts available under its revolving line of credit, along with funds generated from operations and future land sales, will be sufficient to satisfy its liquidity and capital resource requirements for regular operations, as well as its planned development expenses during 2020. However, if the Company engages in any additional significant real estate development, additional financing would more than likely be required.

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

#### Operating Activities

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

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

#### Investing Activities

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

#### Financing Activities

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

### Critical Accounting Policies and Estimates:

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

Our significant accounting policies are included in Note 2 to our consolidated financial statements in our 2019 Annual Report on Form 10-K. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

*Property and Equipment* - We have significant capital invested in our property and equipment, which represents 63.5% of our total assets at June 30, 2020. We use our judgment in various ways including: determining whether an expenditure is considered a maintenance expense or a capital asset; determining the estimated useful lives of assets; and determining if or when an asset has been impaired or has been disposed. Management periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected undiscounted future net cash flows. If the sum of the related expected future net cash flows is less than the carrying value, management would determine how much of an impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. We have determined that no impairment of these assets exists at June 30, 2020.

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

### Commitments and Contractual Obligations:

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

### Legislation:

#### Minimum Wage Legislation

In 2014, Minnesota legislation enacted into law an increase in the minimum wage that must be paid to most Company employees. Beginning January 1, 2018, the minimum wage was set to increase at the beginning of each year by the rate of inflation with a maximum increase of up to 2.5% per year. The minimum wage for 2020 is $10.00 per hour. Prior to August 1, 2014, the Company employed a large number of individuals who received an hourly wage equal to or slightly above $7.25 per hour. As a result, this legislation had an adverse financial impact on the Company in 2014 through 2019, and will continue to have an adverse impact on the Company. 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 higher prices and diminished service levels may discourage customers from visiting the Racetrack.

### Cooperative Marketing Agreement:

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

Because the Company is conducting a more limited 2020 live race meet due to the COVID-19 Pandemic, the Company and SMSC entered into the Fifth Amendment Agreement (“Fifth Amendment”) to the CMA effective June 8, 2020. Under the Fifth Amendment, the SMSC agreed to provide up to $5,620,000 for the annual purse enhancement for the year 2020. The annual purse enhancement that the SMSC is obligated to pay under the CMA for 2021 and 2022 was not changed and remains at $7,280,000 per year.

Under the terms of the CMA, as amended, the SMSC made payments of $1.1 million and $7.4 million during the first six months of 2020 and 2019, respectively, primarily for purse enhancements for the respective live race meets.

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

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

| ​ ​ Year | ​ ​ ​ | ​ Purse Enhancement Payments to Horsemen (1) | ​ ​ ​ ​ | ​ Marketing Payments to Canterbury Park |
| --- | --- | ---: | --- | ---: |
| 2021 | ​ | 7,380,000 | ​ | 1,620,000 |
| 2022 | ​ | 7,380,000 | ​ | 1,620,000 |
| ​ | ​ | ​ | ​ | ​ |

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

The amounts earned from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s condensed consolidated statements of operations. For the three and six months ended June 30, 2020, the Company recorded $253,000 and $321,000 in other revenue, respectively, incurred $215,000 and $245,000 in advertising and marketing expense, respectively, and incurred $38,000 and $76,000 in depreciation, respectively, related to the SMSC marketing funds. For the three and six months ended June 30, 2019, the Company recorded $378,000 and $453,000 in other revenue, respectively, incurred $321,000 and $340,000 in advertising and marketing expense, respectively, and incurred $57,000 and $113,000 in depreciation, respectively, related to the SMSC marketing funds.

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

### Redevelopment Agreement:

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

### Forward-Looking Statements:

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

- material fluctuations in attendance at the Racetrack;
- any short-term or long-term effect that the COVID-19 Pandemic may have on the economy generally, or us as an entertainment venue, including reluctance from customers to visit our Racetrack or Card Casino or social distancing measures that we may voluntarily take that would limit attendance at our facilities;
- the fact that due to the COVID-19 Pandemic, our non-real estate development operations were closed from March 16, 2020 to mid-June and early July 2020, when we resumed these operations on a more limited basis in light of restrictions imposed by Minnesota regulatory bodies;
- decline in interest in wagering on horse races at the Racetrack, at other tracks, or on unbanked card games offered at the Card Casino;
- competition from other venues offering unbanked card games or other forms of wagering;
- greater-than-anticipated expenses or a lower-than-anticipated return on the development of our underutilized land, including our joint venture to develop a luxury apartment complex;
- competition from other sports and entertainment options;
- increases in compensation and employee benefit costs;
- increases in the percentage of revenues allocated for purse fund payments;
- higher-than-expected expenses related to new marketing initiatives;
- the impact of wagering products and technologies introduced by competitors;
- legislative and regulatory decisions and changes, including decision or actions related to sports betting that would adversely affect our betting environment;
- any legal, judicial, legislative or regulatory action or event that would adversely affect our ten-year Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community, which enhances the purses for daily racing at Canterbury Park and supports cooperative marketing programs for the two organizations, benefiting the stability and quality of live horse racing;
- the fact that under the Redevelopment Agreement with the City of Shakopee, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, and the amounts that Canterbury Park will be paid as reimbursement under the TIF program for these improvements is not guaranteed, but will depend in part on future tax revenues generated from the developed property;
- the success of the Company’s Canterbury Commons real estate development, including our reliance upon our joint venture partner Doran Companies to construct and profitably operate the upscale apartment complex;
- our success in our joint ventures and pending real estate developments;
- the fact that 2019 first quarter construction activity in our Card Casino resulted in a decline in Card Casino revenues and any future construction activity may result in similar decline;
- the fact the infrastructure improvements that we are making pursuant to the Redevelopment Agreement with the City of Shakopee together with improvements we are making to our parking facilities may disrupt traffic flow in a manner that discourages our customers from visiting our facilities, thereby affecting our revenue and profitability;
- our ability to develop and maintain high-quality food and beverage offerings that we can market and sell to our Racetrack and Card Casino patrons, as well as future residents of the new Triple Crown Apartments at Canterbury that are being developed by the Doran–Canterbury joint ventures;
- the general health of the gaming sector; and
- other factors that are beyond our ability to control or predict.

## Controls and procedures

As filed, 870 characters.

(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 June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### PART II

### OTHER INFORMATION

Filed Aug 11, 2020.
Source: SEC EDGAR, the filing index for accession 0001672909-20-000032. Last ingested by Listed: Oct 24, 2026, 15:07 ET. No prices; not investment advice.