10-Q 1 cphc-20190630x10q.htm 10-Q cphc_Current_Folio_10Q

 

 

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 JUNE  30, 2019.

 

OR

 

☐           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

 

Picture 1

CANTERBURY PARK HOLDING CORPORATION


(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

Minnesota

             

47‑5349765

(State or Other Jurisdiction of Incorporation or
Organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

 

1100 Canterbury Road 

 

 

Shakopee, MN  55379

 

 

(Address of principal executive offices and zip code)

 

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

 

 

 

 

 

 

 

 

 

YES

 

NO

 

 

Indicate by check mark whether the Registrant has submitted electronically 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

 

NO

 

 

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

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

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

 

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

 

 

 

 

 

 

 

 

 

YES

 

NO

 

 

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

 

The Company had 4,604,107 shares of common stock, $.01 par value, outstanding as of August  1, 2019.

 

 

 

Canterbury Park Holding Corporation

INDEX

 

 

 

 

Page

 

 

 

 

PART I. 

FINANCIAL INFORMATION 

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited) 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

2

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018

3

 

 

 

 

 

 

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

4

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2019 and 2018

5

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

25

 

 

 

 

 

Item 4.

Controls and Procedures

25

 

 

 

 

PART II. 

OTHER INFORMATION 

 

 

 

 

 

 

Item 1.

Legal Proceedings

26

 

 

 

 

 

Item 1A.

Risk Factors

26

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

26

 

 

 

 

 

Item 4.

Mine Safety Disclosures

26

 

 

 

 

 

Item 5.

Other Information

26

 

 

 

 

 

Item 6.

Exhibits

27

 

 

 

 

 

Signatures

 

27

 

 

1

PART 1 – FINANCIAL INFORMATION

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

June 30, 

 

December 31, 

 

    

2019

    

2018

ASSETS

 

 

  

 

 

  

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

  

 

 

  

Cash and cash equivalents

 

$

442,811

 

$

4,895,359

Restricted cash

 

 

10,095,483

 

 

5,058,639

Short-term investments

 

 

103,886

 

 

206,545

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

 

 

1,002,757

 

 

241,743

Current portion of notes receivable

 

 

1,080,175

 

 

1,063,650

Inventory

 

 

458,594

 

 

297,209

Prepaid expenses

 

 

527,243

 

 

625,024

Income taxes receivable

 

 

1,097,180

 

 

417,004

Total current assets

 

 

14,808,129

 

 

12,805,173

 

 

 

 

 

 

 

LONG-TERM ASSETS

 

 

  

 

 

  

Deposits

 

 

49,500

 

 

49,500

Restricted cash - long-term portion

 

 

1,256,329

 

 

1,250,000

TIF receivable

 

 

6,751,773

 

 

1,908,065

Notes receivable - long-term portion

 

 

 —

 

 

1,078,861

Related party receivable

 

 

3,208,400

 

 

3,208,400

Operating lease right-of-use assets

 

 

91,577

 

 

 —

Equity investment

 

 

2,992,633

 

 

2,995,010

Land, buildings and equipment, net

 

 

43,185,410

 

 

38,131,052

TOTAL ASSETS

 

$

72,343,751

 

$

61,426,061

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

  

 

 

  

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

  

 

 

  

Accounts payable

 

 

4,817,013

 

 

3,587,328

Card Casino accruals

 

 

2,081,686

 

 

1,740,926

Accrued wages and payroll taxes

 

 

2,312,858

 

 

2,268,351

Cash dividend payable

 

 

321,153

 

 

316,938

Accrued property taxes

 

 

1,009,636

 

 

1,001,200

Deferred revenue

 

 

2,289,864

 

 

979,358

Payable to horsepersons

 

 

5,313,516

 

 

706,122

Line of credit

 

 

1,094,213

 

 

 —

Current portion of finance lease obligations

 

 

23,800

 

 

23,216

Current portion of operating lease obligations

 

 

29,302

 

 

 —

Total current liabilities

 

 

19,293,041

 

 

10,623,439

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

  

 

 

  

Deferred income taxes

 

 

5,054,400

 

 

3,970,000

Finance lease obligations, net of current portion

 

 

85,410

 

 

98,272

Operating lease obligations, net of current portion

 

 

62,275

 

 

 —

Total long-term liabilities

 

 

5,202,085

 

 

4,068,272

TOTAL LIABILITIES

 

 

24,495,126

 

 

14,691,711

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

  

Common stock, $.01 par value, 10,000,000 shares authorized, 4,604,107 and 4,527,685 respectively, shares issued and outstanding

 

 

46,041

 

 

45,277

Additional paid-in capital

 

 

22,223,470

 

 

21,420,886

Retained earnings

 

 

25,579,114

 

 

25,268,187

Total stockholders’ equity

 

 

47,848,625

 

 

46,734,350

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

72,343,751

 

$

61,426,061

See notes to condensed consolidated financial statements.

 

2

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

2019

    

2018

 

2019

    

2018

OPERATING REVENUES:

 

 

  

 

 

  

 

 

  

 

 

  

Pari-mutuel

 

$

3,208,076

 

$

3,504,767

 

$

4,698,886

 

$

5,045,711

Card Casino

 

 

8,891,005

 

 

8,480,489

 

 

16,790,968

 

 

16,757,470

Food and beverage

 

 

2,544,393

 

 

2,400,713

 

 

3,897,194

 

 

3,704,351

Other

 

 

1,789,703

 

 

2,126,755

 

 

2,636,826

 

 

3,225,140

Total Net Revenues

 

 

16,433,177

 

 

16,512,724

 

 

28,023,874

 

 

28,732,672

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

  

 

 

  

 

 

  

 

 

 

Purse expense

 

 

1,960,635

 

 

2,102,873

 

 

3,356,172

 

 

3,347,759

Minnesota Breeders’ Fund

 

 

306,107

 

 

301,409

 

 

523,802

 

 

504,561

Other pari-mutuel expenses

 

 

451,685

 

 

484,754

 

 

720,051

 

 

763,276

Salaries and benefits

 

 

6,936,685

 

 

6,766,422

 

 

12,681,972

 

 

12,196,426

Cost of food and beverage and other sales

 

 

1,201,414

 

 

1,096,623

 

 

1,827,171

 

 

1,689,530

Depreciation and amortization

 

 

576,221

 

 

601,080

 

 

1,201,740

 

 

1,236,225

Utilities

 

 

376,803

 

 

382,365

 

 

698,918

 

 

700,226

Advertising and marketing

 

 

757,191

 

 

1,012,244

 

 

947,520

 

 

1,239,219

Professional and Contracted Services

 

 

1,338,353

 

 

1,159,925

 

 

2,304,739

 

 

2,020,218

Loss on disposal of assets

 

 

 —

 

 

99,934

 

 

108,037

 

 

99,934

Gain on insurance recoveries

 

 

(204,274)

 

 

 —

 

 

(198,974)

 

 

(21,064)

Other operating expenses

 

 

1,427,603

 

 

1,505,629

 

 

2,570,732

 

 

2,600,141

Total Operating Expenses

 

 

15,128,423

 

 

15,513,258

 

 

26,741,880

 

 

26,376,451

INCOME FROM OPERATIONS

 

 

1,304,754

 

 

999,466

 

 

1,281,994

 

 

2,356,221

OTHER INCOME

 

 

  

 

 

  

 

 

  

 

 

  

Interest income, net

 

 

45,319

 

 

5,048

 

 

108,558

 

 

17,455

Net Other Income

 

 

45,319

 

 

5,048

 

 

108,558

 

 

17,455

INCOME BEFORE INCOME TAXES

 

 

1,350,073

 

 

1,004,514

 

 

1,390,552

 

 

2,373,676

INCOME TAX EXPENSE

 

 

(392,316)

 

 

(279,163)

 

 

(376,223)

 

 

(658,633)

NET INCOME

 

$

957,757

 

$

725,351

 

$

1,014,329

 

$

1,715,043

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.21

 

$

0.16

 

$

0.22

 

$

0.39

Diluted earnings per share

 

$

0.21

 

$

0.16

 

$

0.22

 

$

0.38

Weighted Average Basic Shares Outstanding

 

 

4,586,734

 

 

4,466,966

 

 

4,573,106

 

 

4,453,309

Weighted Average Diluted Shares

 

 

4,595,716

 

 

4,515,648

 

 

4,588,327

 

 

4,502,397

Cash dividends declared per share

 

$

0.07

 

$

0.07

 

$

0.14

 

$

0.14

 

See notes to condensed consolidated financial statements.

 

 

 

 

 

3

 

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

    

Common

    

Additional

    

Retained

    

 

 

 

 

Shares

 

Stock

 

Paid-in Capital

 

Earnings

 

Total

Balance at December 31, 2018

 

4,527,685

 

$

45,277

 

$

21,420,886

 

$

25,268,187

 

$

46,734,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

30,310

 

 

303

 

 

185,589

 

 

 —

 

 

185,892

Other share retirements

 

(5,863)

 

 

(59)

 

 

(27,915)

 

 

(62,023)

 

 

(89,997)

Stock-based compensation

 

 —

 

 

 —

 

 

163,508

 

 

 —

 

 

163,508

Dividend distribution

 

 —

 

 

 —

 

 

 —

 

 

(641,379)

 

 

(641,379)

401(K) stock match

 

29,591

 

 

296

 

 

409,229

 

 

 —

 

 

409,525

Issuance of deferred stock awards

 

10,968

 

 

110

 

 

(55,044)

 

 

 —

 

 

(54,934)

Shares issued under Employee Stock Purchase Plan

 

11,416

 

 

114

 

 

127,217

 

 

 —

 

 

127,331

Net Income

 

 —

 

 

 —

 

 

 —

 

 

1,014,329

 

 

1,014,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

4,604,107

 

$

46,041

 

$

22,223,470

 

$

25,579,114

 

$

47,848,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

    

Common

    

Additional

    

Retained

    

 

 

 

 

Shares

 

Stock

 

Paid-in Capital

 

Earnings

 

Total

Balance at March 31, 2019

 

4,574,658

 

$

45,747

 

$

21,783,690

 

$

24,942,510

 

$

46,771,947

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

2,250

 

 

23

 

 

13,478

 

 

 —

 

 

13,501

Stock-based compensation

 

 —

 

 

 —

 

 

73,450

 

 

 —

 

 

73,450

Dividend distribution

 

 —

 

 

 —

 

 

 —

 

 

(321,153)

 

 

(321,153)

401(K) stock match

 

21,480

 

 

215

 

 

292,917

 

 

 —

 

 

293,132

Shares issued under Employee Stock Purchase Plan

 

5,719

 

 

57

 

 

59,935

 

 

 —

 

 

59,992

Net Income

 

 —

 

 

 —

 

 

 —

 

 

957,757

 

 

957,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

4,604,107

 

$

46,041

 

$

22,223,470

 

$

25,579,114

 

$

47,848,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

    

Common

    

Additional

    

Retained

    

 

 

 

 

Shares

 

Stock

 

Paid-in Capital

 

Earnings

 

Total

Balance at December 31, 2017

 

4,414,492

 

$

44,145

 

$

19,865,273

 

$

20,807,679

 

$

40,717,097

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

44,525

 

 

445

 

 

414,606

 

 

 —

 

 

415,051

Stock-based compensation

 

 —

 

 

 —

 

 

203,866

 

 

 —

 

 

203,866

Dividend distribution

 

 —

 

 

 —

 

 

 —

 

 

(625,560)

 

 

(625,560)

401(K) stock match

 

16,708

 

 

167

 

 

276,953

 

 

 —

 

 

277,120

Issuance of deferred stock awards

 

2,788

 

 

28

 

 

28

 

 

 —

 

 

56

Shares issued under Employee Stock Purchase Plan

 

4,054

 

 

41

 

 

55,945

 

 

 —

 

 

55,986

Net income

 

 —

 

 

 —

 

 

 —

 

 

1,715,043

 

 

1,715,043

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

4,482,567

 

$

44,826

 

$

20,816,671

 

$

21,897,162

 

$

42,758,659

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

    

Common

    

Additional

    

Retained

    

 

 

 

 

Shares

 

Stock

 

Paid-in Capital

 

Earnings

 

Total

Balance at March 31, 2018

 

4,449,987

 

$

44,500

 

$

20,366,083

 

$

21,485,870

 

$

41,896,453

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

22,525

 

 

225

 

 

189,316

 

 

 —

 

 

189,541

Stock-based compensation

 

 —

 

 

 —

 

 

100,645

 

 

 —

 

 

100,645

Dividend distribution

 

 —

 

 

 —

 

 

 —

 

 

(314,059)

 

 

(314,059)

401(K) stock match

 

10,055

 

 

101

 

 

160,627

 

 

 —

 

 

160,728

Net income

 

 —

 

 

 —

 

 

 —

 

 

725,351

 

 

725,351

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

4,482,567

 

$

44,826

 

$

20,816,671

 

$

21,897,162

 

$

42,758,659

 

See notes to condensed consolidated financial statements.

4

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

 

    

Six Months Ended June 30,

 

 

2019

    

2018

Operating Activities:

 

 

 

  

 

  

Net income

 

$

1,014,329

 

$

1,715,043

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

  

 

 

Depreciation

 

 

1,201,740

  

 

1,236,225

Stock-based compensation expense

 

 

163,508

  

 

203,866

Stock-based employee match contribution

 

 

409,229

  

 

276,953

Deferred income taxes

 

 

1,084,400

  

 

204,000

Loss from equity investment

 

 

2,377

 

 

 —

Loss on disposal of assets

 

 

108,037

  

 

99,934

Gain on insurance recoveries

 

 

(198,974)

  

 

(21,064)

Changes in operating assets and liabilities:

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

 

(556,740)

 

 

539,130

(Increase) decrease in other current assets

 

 

(63,603)

 

 

182,922

Decrease in income taxes receivable/payable

 

 

(680,177)

 

 

(200,367)

Decrease in operating lease right-of-use assets

 

 

11,535

 

 

 —

Decrease in operating lease liabilities

 

 

(11,535)

 

 

 —

Increase in accounts payable

 

 

531,433

 

 

1,261,658

Increase in deferred revenue

 

 

1,310,506

 

 

1,200,708

Increase (decrease) in Card Casino accruals

 

 

340,760

 

 

(351,539)

Increase (decrease) in accrued wages and payroll taxes

 

 

44,507

 

 

(137,244)

Increase in accrued property taxes

 

 

8,436

 

 

35,999

Increase in payable to horsepersons

 

 

4,607,394

 

 

4,683,256

Net cash provided by operating activities

 

 

9,327,162

  

 

10,929,480

 

 

 

 

 

 

 

Investing Activities:

 

 

 

  

 

  

Additions to land, buildings, and equipment

 

 

(10,514,891)

  

 

(2,872,322)

Decrease in notes receivable

 

 

1,062,336

 

 

1,046,103

Sale (purchase) of investments

 

 

102,659

  

 

(205)

Net cash used in investing activities

 

 

(9,349,896)

  

 

(1,826,424)

 

 

 

 

 

 

 

Financing Activities:

 

 

 

  

 

  

Proceeds from issuance of common stock

 

 

223,522

  

 

471,163

Borrowings on line of credit

 

 

3,920,257

 

 

 —

Payments against line of credit

 

 

(2,826,044)

 

 

 —

Cash dividend paid to shareholders

 

 

(637,164)

  

 

(576,522)

Payments for taxes related to net share settlement of equity awards

 

 

(54,934)

 

 

 —

Principal payments on finance lease

 

 

(12,278)

  

 

 —

Net cash provided by (used in) financing activities

 

 

613,359

  

 

(105,359)

 

 

 

 

 

 

 

Net increase in cash, cash equivalents, and restricted cash

 

 

590,625

  

 

8,997,697

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

11,203,998

  

 

12,025,553

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash at end of period

 

$

11,794,623

 

$

21,023,250

 

 

 

 

 

 

 

Schedule of non-cash investing and financing activities

 

 

 

 

 

 

Additions to buildings and equipment funded through accounts payable

 

$

698,000

 

$

153,000

Transfer of future TIF reimbursed costs from PP&E

 

 

4,844,000

 

 

 —

ROU assets obtained in exchange for operating lease obligations

 

 

103,000

 

 

 —

Dividend declared

 

 

321,000

 

 

314,000

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Income taxes paid

 

$

440,000

 

$

1,067,000

Interest paid

 

 

14,000

 

 

 —

 

See notes to condensed consolidated financial statements.

 

5

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.    OVERVIEW AND BASIS OF PRESENTATION

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

Basis of Presentation and Preparation – The accompanying condensed consolidated financial statements include the accounts of the Company (Canterbury Park Holding Corporation and its subsidiaries Canterbury Park Entertainment, LLC; Canterbury Park Concession, Inc.; and Canterbury Development, LLC). Intercompany accounts and transactions have been eliminated. The preparation of these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2018, included in its Annual Report on Form 10‑K (the “2018 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 June  30, 2019 and 2018 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 June 30, 2019 and 2018 and for the periods then ended have been made.

Effective January 1, 2019, we adopted the requirements of Accounting Standards Update (“ASU”) No 2016‑02, Leases as discussed in Note 2. All amounts and disclosures set forth in this Form 10‑Q have been updated to comply with the new standards.

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. Restricted cash also includes two deposits related to its development operations. One deposit is an escrow account with a bank to fund the road construction on Shenandoah Drive. This account is to ensure the Company completes the construction of the road that allows access to the first phase of the Doran Canterbury I apartment complex. Funds from the escrow account will be released to the Company as progress billings from the contractor are received. The Company also recorded a deposit with a bank to assist Doran Canterbury I  to complete financing for a construction loan. The bank will release the deposit back to the Company when the construction loan is repaid by Doran Canterbury I and converted into a term loan. Because the Company expects this to occur in 2021 or 2022, the Company classified this as long term restricted cash on its consolidated balance sheet.

6

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, $2,864,000 and $2,678,000 for the six months ended June 30, 2019 and 2018, 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 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.

7

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

The revenue we recognize for on-track revenue and import revenue is the commission we are entitled to retain for providing a wagering service to our customers. For these arrangements, we are the principal as we control the wagering service; therefore, any charges, including simulcast fees, we incur for delivering the wagering service are presented as operating expenses.

For export revenue, our customer is the third party wagering site such as a racetrack, OTB, or advance deposit wagering provider. Therefore, the revenue we recognize for export revenue is the simulcast host fee we earn for exporting our racing signal to the third party wagering site. 

2.    ACCOUNTING STANDARDS AND SIGNIFICANT ACCOUNTING POLICIES

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02 codified as Accounting Standards Codification (“ASC”) 842, Leases, (“ASC 842”) which addresses the recognition and measurement of leases. Under the new guidance, for all leases (with the exception of short-term leases), at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to control the use of a specified asset for the lease term. The effective date for this update is for the annual and interim periods beginning after December 15, 2018 with early adoption permitted. ASC 842 requires a transition adoption election using either (1) a modified retrospective approach with periods prior to the adoption date being recast or (2) a prospective adoption approach with a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods continuing to be reported under previous lease accounting guidance.

The Company adopted ASC 842 on January 1, 2019 using the prospective adoption approach, and therefore, comparative periods will continue to be reported under previous lease accounting guidance consistent with previously issued financial statements. The Company also elected to adopt the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allows us to carry forward the historical lease identification, lease classification and treatment of initial direct costs for leases entered into prior to January 1, 2019. We have also made an accounting policy election to not record short-term leases with an initial term of 12 months or less on the balance sheet for all classes of underlying assets. The adoption of ASC 842 did not have a material impact on our consolidated financial statements.  Refer to Note 11 for further detail.

Summary of Significant Accounting Policies

Except for the accounting policies for leases that were updated as a result of our recently adopted accounting pronouncements, there have been no changes to our significant accounting policies described in the Annual Report on Form 10‑K for the year ended December 31, 2018 filed with the SEC on March 29, 2019, that have had a material impact on our condensed consolidated financial statements and related notes.

 

8

3.    STOCK-BASED COMPENSATION

Long Term Incentive Plan and Award of Deferred Stock

The Long Term Incentive Plan (the “LTI Plan”) authorizes the grant of Long Term Incentive Awards that provide an opportunity to Named Executive Officers (“NEOs”) and other Senior Executives to receive a payment in cash or shares of the Company’s common stock to the extent of achievement at the end of a period greater than one year (the “Performance Period”) as compared to Performance Goals established at the beginning of the Performance Period. Currently, there are three awards outstanding that are for three-year periods ending December 31, 2019, 2020, and 2021.

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 June 30, 2019 consisted of 9,416 shares with a weighted average fair value per share of $12.74. There were no unvested restricted stock or stock options outstanding at June 30, 2019.

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 $164,000 and $204,000 for the six months ended June 30, 2019 and 2018, respectively, and $73,000 and $101,000 for the three months ended June 30, 2019 and 2018, respectively.

Employee Stock Option Grants

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

A summary of stock option activity as of June 30, 2019 and changes during the six months then ended is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

 

Exercise

 

Contractual

 

Grant Date

Stock Options

 

 

 

Price

 

Term

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2019

 

75,062

 

$

7.95

 

 

 

 

 

 

Granted

 

 -

 

 

 -