UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013.

OR

o 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: 001-31569

CANTERBURY PARK HOLDING CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Minnesota	41-1775532
(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	X	NO
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
	YES	X	NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2).
Large accelerated filer	Accelerated filer
Non-accelerated filer	Smaller reporting company	X

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
	YES	NO	X

The Company had 4,176,952 shares of common stock, $.01 par value, outstanding as of November 12, 2013.

1

Canterbury Park Holding Corporation

INDEX

			Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements (unaudited)
		Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012	3
		Condensed Consolidated Statements of Operations for the periods Ended September 30, 2013 and 2012	4
		Condensed Consolidated Statements of Cash Flows for the periods Ended September 30, 2013 and 2012	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	24
	Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	25
	Item 1A.	Risk Factors	25
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
	Item 3.	Defaults upon Senior Securities	25
	Item 4.	Mine Safety Disclosures	25
	Item 5.	Other Information	25
	Item 6.	Exhibits	25
	Signatures		26
	Certifications		27

2

PART 1 – FINANCIAL INFORMATION

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2013 AND DECEMBER 31, 2012

	September 30,2013 (Unaudited)		December 31, 2012
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	7,499,762	$	9,384,983
Restricted cash		1,317,409		1,605,789
Short-term investments		203,780		203,195
Accounts receivable, net of allowance of $4,468 and $27,773, respectively		972,940		412,440
Inventory		218,797		212,072
Prepaid expenses		754,790		488,999
Deferred income taxes		380,800		425,100
Income taxes receivable		367,852		3,746
Due from Minnesota horsemen associations		846,525		16,829
Total current assets		12,562,655		12,753,153
LONG-TERM ASSETS
Deposits		26,400		26,400
Land, buildings and equipment, net of accumulated depreciation of $21,881,456 and $22,021,944, respectively		24,742,697		22,119,959
	$	37,331,752	$	34,899,512
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	3,674,668	$	2,785,534
Card Casino accruals		1,761,470		1,479,669
Accrued wages and payroll taxes		1,210,919		1,034,421
Due to MHBPA		—		548,300
Accrued property taxes		811,792		649,187
Payable to horsepersons		7,622		23,375
Total current liabilities		7,466,471		6,520,486
LONG-TERM LIABILITIES
Deferred income taxes		1,579,300		1,254,300
Stock appreciation rights		475,466		239,788
Total long-term liabilities		2,054,766		1,494,088
COMMITMENTS AND CONTINGENCIES (NOTE 6)
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized, 4,174,167 and 4,147,743, respectively, shares issued and outstanding		41,742		41,477
Additional paid-in capital		17,177,998		16,903,245
Retained earnings		10,590,775		9,940,216
Total stockholders’ equity		27,810,515		26,884,938
	$	37,331,752	$	34,899,512

See notes to condensed consolidated financial statements.

3

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED SEPTEMBER 30, 2013 AND 2012 (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
OPERATING REVENUES:
Pari-mutuel	$	4,058,977		$	3,581,235		$	9,327,663		$	8,452,552
Card Casino		6,061,877			6,413,018			18,941,554			19,006,129
Concessions		2,797,639			2,429,095			5,576,638			5,157,968
Other		1,459,766			1,514,233			3,056,812			2,987,664
Total Revenues		14,378,259			13,937,581			36,902,667			35,604,313
Less: Promotional Allowances		(103,800	)		(61,289	)		(202,690	)		(155,227	)
Net Revenues		14,274,459			13,876,292			36,699,977			35,449,086
OPERATING EXPENSES:
Purse expense		2,369,657			2,184,055			5,210,118			4,934,855
Minnesota Breeders’ Fund		263,992			249,582			663,069			644,230
Other pari-mutuel expenses		365,675			335,569			1,210,025			1,157,079
Salaries and benefits		5,639,944			5,444,389			15,496,465			14,806,038
Cost of sales		1,380,994			1,255,335			2,935,807			2,776,276
Depreciation		467,490			434,037			1,360,770			1,318,617
Utilities		513,886			460,244			1,094,092			963,183
Advertising and marketing		599,357			617,623			1,467,162			1,297,905
Gain on disposal of assets		(22,000	)		—			(23,752	)		—
Other operating expenses		2,420,759			2,508,879			6,173,564			6,452,715
		13,999,754			13,489,713			35,587,320			34,350,898
INCOME FROM OPERATIONS		274,705			386,579			1,112,657			1,098,188
NONOPERATING REVENUES:
Interest income		553			1,296			2,225			4,635
		553			1,296			2,225			4,635
INCOME BEFORE INCOME TAXES		275,258			387,875			1,114,882			1,102,823
INCOME TAX EXPENSE		(104,755	)		(185,841	)		(460,050	)		(534,821	)
NET INCOME	$	170,503		$	202,034		$	654,832		$	568,002
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING		4,159,588			4,118,880			4,160,149			4,124,345
WEIGHTED AVERAGE NUMBER OF DILUTIVE SHARES OUTSTANDING		4,177,124			4,150,131			4,182,426			4,169,643
BASIC NET INCOME PER COMMON SHARE	$	.04		$	.05		$	.16		$	.14
DILUTED NET INCOME PER COMMON SHARE	$	.04		$	.05		$	.16		$	.14

See notes to condensed consolidated financial statements.

4

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIODS ENDED SEPTEMBER 30, 2013 AND 2012 (Unaudited)

	Nine Months Ended September 30,
	2013			2012
Operating Activities:
Net income	$	654,832		$	568,002
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,360,770			1,318,617
Stock-based compensation expense		211,201			153,315
Increase (decrease) in deferred income taxes		369,300			(266,000	)
Tax expense (benefit) from exercise of stock options and restricted stock issuance		3,144			(31,265	)
Gain on disposal of assets		(23,752	)		—
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash		288,380			(775,093	)
Increase in accounts receivable		(560,500	)		(173,299	)
Increase in other current assets		(272,516	)		(118,855	)
Increase in income taxes receivable		(367,250	)		(299,180	)
Increase in accounts payable and accrued wages and payroll taxes		788,705			1,271,212
Increase in Card Casino accruals		281,801			1,132,117
Increase in stock appreciation rights		235,678			183,482
Increase in accrued property taxes		162,605			154,150
(Decrease) increase in payable to horsepersons		(15,753	)		13,200
Decrease in due to MHBPA		(1,377,996	)		(703,928	)
Net cash provided by operating activities		1,738,649			2,426,475
Investing Activities:
Additions to buildings and equipment		(3,711,528	)		(1,042,033	)
Proceeds from sale of assets		28,700			—
Purchase of investments		(585	)		(1,183	)
Net cash used in investing activities		(3,683,413	)		(1,043,216	)
Financing Activities
Cash dividend paid to shareholders		—			(1,035,475	)
Common stock repurchases		(7,509	)		—
Proceeds from issuance of common stock		70,196			222,408
Tax (expense) benefit from exercise of stock options and restricted stock issuance		(3,144	)		31,265
Net cash provided by (used in) financing activities		59,543			(781,802	)
Net (decrease) increase in cash and cash equivalents		(1,885,221	)		601,457
Cash and cash equivalents at beginning of period		9,384,983			8,268,779
Cash and cash equivalents at end of period	$	7,499,762		$	8,870,236
Supplemental disclosure of noncash investing and financing activities:
Additions to buildings and equipment funded through accounts payable	$	300,490		$	22,390
Supplemental disclosure of cash flow information:
Income taxes paid, net of refunds	$	458,000		$	1,100,000

See notes to condensed consolidated financial statements.

5

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PERIODS ENDED SEPTEMBER 30, 2013 AND 2012 (Unaudited)

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, and, in the opinion of management, contain all adjustments necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (GAAP), the financial position of Canterbury Park Holding Corporation as of September 30, 2013 and December 31, 2012, the results of its operations for the three and nine months ended September 30, 2013 and 2012, and the results of its cash flows for the nine months ended September 30, 2013 and 2012. The condensed consolidated balance sheet as of December 31, 2012 was derived from the audited financial statements. All adjustments are of a normal, recurring nature, except as otherwise disclosed. Results for an interim period are not necessarily indicative of results for a full year.

The complete summary of significant accounting policies is included in the notes to consolidated financial statements in the Company’s 2012 Annual Report on Form 10-K.

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
	Business – Canterbury Park Holding Corporation (the “Company”) was incorporated under the laws of Minnesota and acquired land and buildings to conduct pari-mutuel horse racing operations (the “Racetrack”) in March 1994. The Racetrack is located in Shakopee, Minnesota, approximately 25 miles southwest of downtown Minneapolis. In May 1994, we commenced year-round horse racing simulcast operations and hosted the first annual live race meet during the summer of 1995. Our live racing operations are a seasonal business as we host live race meets each year from May until September. We earn additional pari-mutuel revenue by televising our 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, and, prior to May 4, 2012, the Company was limited by law to conducting card play on a maximum of 50 tables. The Card Casino currently offers a variety of poker and table games. Our three largest sources of revenues, Card Casino operations, pari-mutuel operations and concessions sales, generate cash revenues. We also derive revenues from related services and activities, such as advertising signage, parking and publication sales and from other entertainment events and activities held at the Racetrack.
	Revenue Recognition – Our revenues are derived primarily from the operations of a Card Casino, pari-mutuel wagering on simulcast and live horse races, concession sales, and related activities. Collection revenue from Card Casino operations, a set percentage of wagers, is recognized at the time that the wagering process is complete. Pari-mutuel revenues are 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. Revenues related to concession and publication sales and parking and admission fees are recognized as revenue when the service has been performed or the product has been delivered. All sales taxes are presented on a net basis and are excluded from revenue.
	Estimates – The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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. Actual results could differ from these estimates.
	Cash and Cash Equivalents – Cash and cash equivalents include all investments with original maturities of three months or less or which are readily convertible into known amounts of cash and are not legally restricted. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

6

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.

Short-term Investments – Securities are classified as held to maturity when the Company has the positive intent and ability to hold them to maturity, and are measured at amortized cost. At September 30, 2013 and December 31, 2012, all investments were classified as held-to-maturity. The Company continually reviews its investments to determine whether a decline in fair value below the cost basis is other than temporary. If the decline in fair value is judged to be other than temporary, the cost basis of the security is written down to fair value and the amount of the write-down is included in earnings. Short-term investments consist of certificates of deposits at September 30, 2013 and December 31, 2012. Amortized cost approximated fair value for both periods.

Accounts Receivable – Accounts receivable are initially recorded for amounts due from other tracks for simulcast revenue, net of amounts due to other tracks, and for amounts due from customers related to special events. Credit is granted in the normal course of business without collateral. Accounts receivable are stated net of allowances for doubtful accounts, which represent estimated losses resulting from the inability of customers to make the required payments. Accounts that are outstanding longer than the contractual terms are considered past due. When determining the allowances for doubtful accounts, we take several factors into consideration including the overall composition of the accounts receivable aging, our prior history of accounts receivable write-offs, the type of customers and our day-to-day knowledge of specific customers. We write off accounts receivable when they become uncollectible. Changes in the allowances for doubtful accounts are recorded as bad debt expense and are included in other operating expenses in our consolidated statements of operations.

Inventory – Inventory consists primarily of food and beverages, small wares and supplies and retail goods and is recorded at the lower of cost (first-in, first-out) or market.

Unredeemed Pari-mutuel Tickets – The Company records a liability for winning tickets and vouchers upon the completion of a race and when a voucher is printed, respectively. As uncashed winning tickets and vouchers are redeemed, this liability is reduced for the respective cash payment. We recognize revenue associated with the uncashed winning tickets and vouchers when the likelihood of redemption, based on historical experience, is remote. While we continue to honor all winning tickets and vouchers presented for payment, management may determine the likelihood of redemption to be remote due to the length of time that has elapsed since the ticket was issued. In these circumstances, if management also determines there is no requirement for remitting balances to government agencies under unclaimed property laws, uncashed winning tickets and vouchers may then be recognized as revenue in our Condensed Consolidated Statements of Operations. During the quarter ended June 30, 2013, the Company reevaluated the likelihood of redemption relating to outstanding vouchers and through this assessment, the Company decreased the projected redemption rate. The Company has determined that this adjustment to the likelihood of redemption relating to vouchers is a change in accounting estimate and has accounted for the change prospectively; i.e. the accounting change impacts interim reporting periods within fiscal year 2013 and future periods. For the nine months ended September 30, 2013, the change in accounting estimate decreased our liability for outstanding pari-mutuel vouchers and increased Pari-mutuel Revenue in our Condensed Consolidated Statements of Operations for the period by approximately $412,286 (pre-tax difference), increasing Income from Operations by this amount as well. Net Income increased approximately $239,150 (after taking income taxes into account), or by approximately $0.06 earnings per basic and diluted common share.

Promotional Allowances – The Company offers certain promotional allowances at no charge to patrons who participate in our player rewards program. The retail value of these promotional items is shown as a deduction from total revenues on the Company’s consolidated statements of operations.

Due to Minnesota Horsemen’s Benevolent and Protective Association, Inc. (“MHBPA”) – The Minnesota Pari-mutuel Horse Racing Act specifies that the Company is required to segregate a portion of funds (recorded as purse expense in the statements of operations), received from Card Casino operations and wagering on simulcast and live horse races, for future payment as purses for live horse races or other uses of the horsepersons’ associations. Pursuant to an agreement with the MHBPA, the Company transferred into a trust account or paid directly to the MHBPA, approximately $3,150,000 and $6,075,000 for the three and nine-month periods ended September 30, 2013, respectively, compared to $2,500,000 and $5,075,000 for the comparable periods in 2012 related to thoroughbred races. Minnesota Statutes specify that amounts transferred into the trust account are the property of the trust and not of the Company.

7

Impairment of Long-Lived Assets – Management of the Company 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. Should the sum of the related expected future net cash flows be less than the carrying value, management will determine whether an impairment loss should be recognized. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. Management has determined that no impairment of these assets exists at September 30, 2013.

Advertising and Marketing – Advertising and marketing costs are charged to expense as incurred. The related amounts are presented separately in the Company’s consolidated statements of operations.

Land, Buildings, and Equipment – Land, buildings, equipment, and building improvements are capitalized at a level of $1,000 or greater and are recorded at cost. Repair and maintenance costs are charged to operations when incurred. Furniture, fixtures, and equipment are depreciated using the straight-line method over estimated useful lives ranging from 5 – 7 years, while buildings are depreciated over 15 – 39 years. Building improvements are amortized using the straight-line method over the useful life of the assets.

Card Casino Accruals – Minnesota law allows the Company to collect amounts from patrons to fund progressive jackpot pools in the Card Casino. These amounts, along with amounts earned by the player pool, promotional pools and the outstanding chip liability, are accrued as short-term liabilities at each balance sheet date.

Income Taxes – Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to reverse.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

Interest and penalties associated with uncertain income tax positions are presented in income tax expense. For the nine months ended September 30, 2013 and 2012, we did not recognize any expense related to interest and penalties. Additionally, we do not have any amounts accrued at September 30, 2013 for the payment of interest and penalties.

Net Income Per Share – Basic net income per common share is based on the weighted average number of common shares outstanding during each year. Diluted net income per common share takes into effect the dilutive effect of potential common shares outstanding. The Company’s only potential common shares outstanding are stock options.

Fair Values of Financial Instruments – Due to the current classification of all financial instruments of the Company and given the short-term nature of the related account balances, carrying amounts reported in the consolidated balance sheets approximate fair value.

Stock-Based Employee Compensation – The Company accounts for share-based compensation awards on a fair value basis. The estimated grant date fair value of each stock-based award is recognized as expense over the requisite service period (generally the vesting period). The estimated fair value of each option is calculated using the Black-Scholes option-pricing model.

8

2.	STOCK-BASED COMPENSATION
	Stock-based compensation is recorded at fair value as of the date of grant and included in the salaries and benefits expense line item on the consolidated statements of operations and amounted to $70,638 and $211,201 for the three and nine months ended September 30, 2013, respectively, compared to $61,757 and $153,315 for the three and nine months ended September 30, 2012, respectively.
	Board of Director Restricted Stock Grants
	Pursuant to Board action taken on April 15, 2011 and shareholder approval on June 2, 2011, the Company’s Stock Plan was amended to authorize annual grants of restricted stock or stock options, or both, as determined by the Board. Pursuant to the amended Stock Plan, on June 7, 2012, 2,364 shares of restricted stock were granted to each of the five non-employee members of the Board of Directors. The restricted stock vested after one year and is subject to restrictions on resale for an additional year. The compensation cost associated with the total grant of 11,820 shares was $149,996 and was recognized as expense over the one-year vesting period. As of September 30, 2013, there was no unrecognized compensation cost related to this restricted stock grant.
	Additionally, on January 4, 2013, 1,250 shares of restricted stock were granted to a newly named non-employee member of the Board of Directors. The restricted stock will vest 100% after one year and will be subject to restrictions on resale for an additional year. The compensation cost associated with this restricted stock grant of 1,250 shares for the nine months ended September 30, 2013 was $9,375. As of September 30, 2013, there was $3,125 of total unrecognized compensation cost related to this restricted stock grant which is expected to be recognized over 0.2 years.
	Finally, on May 30, 2013, 2,840 shares of restricted stock were granted to each of the six non-employee members of the Board of Directors. The restricted stock will vest 100% after one year and will be subject to restrictions on resale for an additional year. The compensation cost associated with the total grant of 17,040 shares for the nine months ended September 30, 2013 was $59,981. As of September 30, 2013, there was $119,962 of total unrecognized compensation cost related to this restricted stock grant which is expected to be recognized over 0.7 years.
	Employee Stock Option and Deferred Stock Award Grants
	On February 25, 2010, 86,500 incentive stock options were granted to employees with an exercise price equal to the market price on the date of grant of $8.28. The options vested over a 42-month period and expire in ten years. The compensation cost associated with this grant of employee options was $282,355 and was recognized as expense over the 42-month vesting period. The compensation cost associated with these options included in salaries and benefits expense for the nine months ended September 30, 2013 and 2012 was $47,059 and $52,942, respectively. As of September 30, 2013, there was no unrecognized compensation cost related to these stock options.
	Additionally, on December 13, 2012, 20,500 shares of deferred stock awards were granted to employees with a price per share equal to the market price on the date of grant of $9.84. The awards vest ratably over a four-year period. The compensation cost associated with this grant of employee awards is $172,200 to be recognized as expense over the four-year vesting period. The compensation cost related to these awards included in salaries and benefits expense for the nine months ended September 30, 2013 was $32,288. As of September 30, 2013, there was $138,119 of total unrecognized compensation cost related to these deferred stock awards which is expected to be recognized over 3.2 years.

9

The number of shares that may be issued pursuant to restricted stock granted and the weighted average fair value during the periods presented were:

	Nine Months Ended
	September 30, 2013				September 30, 2012
			Weighted				Weighted
			Average				Average
			Fair Value				Fair Value
	Grant		Per Share		Grant		Per Share
Board restricted stock		18,290	$	10.52		11,820	$	12.69
Total shares		18,290				11,820

A summary of stock option activity as of September 30, 2013 and changes during the nine months then ended is presented below:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Grant Date
Stock Options	Shares			Price		Term		Fair Value
Outstanding at January 1, 2013		292,267		$	10.13
Granted		—			—
Exercised		(3,265	)	$	6.87
Expired/Forfeited		(15,000	)	$	13.86
Outstanding at September 30, 2013		274,002		$	9.97		4.9 Years	$	2,731,257
Exercisable at September 30, 2013		274,002		$	9.97		4.9 Years	$	2,731,257

10

A summary of stock option activity as of September 30, 2012 and changes during the nine months then ended is presented below:

Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Grant Date Fair Value
Outstanding at January 1, 2012		318,002		$	9.21
Granted		—			—
Exercised		(22,750	)	$	7.07
Expired/Forfeited		(250	)		8.28
Outstanding at September 30, 2012		295,002		$	10.10		5.6 Years	$	2,980,782
Exercisable at September 30, 2012		266,377		$	10.40		5.5 Years	$	2,769,987

Employee Stock Ownership Plan

Prior to 2008, the Company contributed shares of its common stock to its Employee Stock Ownership Plan (the “ESOP”). However, no contributions have been made from January 1, 2008 to date, and the Company has not taken any action to reinstate contributions to the ESOP. During the first quarter of 2013, the Company’s Board of Directors approved an action to combine the ESOP with the 401(k) Plan to create a KSOP Plan. This KSOP Plan will allow the Company to use Company stock to match contributions from its employees should it so choose. This combination became effective on July 15, 2013.

Employee Stock Purchase Plan

On April 3, 1995, the Board of Directors adopted an Employee Stock Purchase Plan (the “ESPP”). Pursuant to Board action taken in September 2011, the ESPP was amended so that stock is issued in three-month phases. The plan issued 2,003 shares during the third quarter of 2013 and 2,102 shares during the third quarter of 2012. The ESPP has issued a total of 258,418 shares since its inception. Pursuant to Board action taken on June 2, 2012, and effective during the third quarter of 2012, the discount offered to employees as part of the ESPP was raised from 5% to 10%.

Stock Appreciation Rights (“SARs”)

As part of the Cooperative Marketing Agreement (the “Agreement”) discussed in Note 7, on June 14, 2012, the Company signed a Stock Appreciation Rights Agreement (the “SAR Agreement”) and issued SARs to non-employees. The SAR Agreement granted rights to non-employees to benefit from the appreciation in the value of 165,000 shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately and the remaining rights vest at the rate of 16,500 per year beginning in January 2013. The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s common stock price on the date of exercise over the grant price. SARs have no effect on dilutive shares or shares outstanding as any appreciation of the Company’s common stock value over the grant price is paid in cash and not in common stock. The SAR Agreement and all rights granted expire on December 31, 2022.

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The fair value of SARs is revalued (mark-to-market) each reporting period using the Black-Scholes valuation model based on the Company’s period-end stock price. The expected term of the SARs granted is based on the contractual term. Expected volatility is based on the historical volatility of the Company’s stock for the length of time corresponding to the expected term of the SARs. The expected dividend yield is based on the Company’s anticipated dividend payments. The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the reporting date for the length of time corresponding to the expected term of the SARs.

The following weighted-average assumptions were used in calculating the fair value of SARs during the nine-month period ended September 30, 2013, using the Black-Scholes valuation model:

	September 30, 2013
Expected dividend yield		0.00	%
Expected weighted-average volatility		48.7	%
Risk-free interest rate		2.49	%
Expected term of SARs (in years)		9.25

There were no exercises during the three or nine-month periods ended September 30, 2013. The total liability of the SARs at September 30, 2013 was $475,466.

Changes to the Company’s non-vested SARs during the nine-month period ended September 30, 2013, are as follows:

	SARs			Fair Value (*)
Non-vested SARs at December 31, 2012		148,500		$	5.24
Granted		—			—
Vested		(16,500	)	$	5.03
Cancellations		—			—
Non-vested SARs at September 30, 2013		132,000		$	5.03
* Weighted-average

3.

EARNINGS PER SHARE COMPUTATIONS

Basic net income per common share is based on the weighted average number of common shares outstanding during each period. Diluted net income per common share takes into effect the dilutive effect of potential common shares outstanding. The Company’s potential common shares outstanding are stock options. Options to purchase 104,500 shares of common stock at an average price of $14.44 per share were outstanding but not included in the computation of diluted earnings per share for both the three and nine-month periods ended September 30, 2013 because the options were out of the money at September 30, 2013. Options to purchase 119,500 shares of common stock at an average price of $14.36 per share were outstanding but not included in the computation of diluted earnings per share for both the three and nine-month periods ended September 30, 2012 because the options were out of the money at September 30, 2012.

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The following is a reconciliation of the numerator and denominator of the earnings per common share computations for the three and nine-month periods ended September 30, 2013 and 2012:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Net income (numerator) amounts used for basic and diluted per share computations:	$	170,503	$	202,034	$	654,832	$	568,002
Weighted average shares (denominator) of common stock outstanding:
Basic		4,159,588		4,118,880		4,160,149		4,124,345
Plus dilutive effect of stock options		17,536		31,251		22,277		45,298
Diluted		4,177,124		4,150,131		4,182,426		4,169,643
Net income per common share:
Basic	$	.04	$	.05	$	.16	$	.14
Diluted		.04		.05		.16		.14

4.	GENERAL CREDIT AGREEMENT
	The Company has a general credit agreement with Bremer Bank, which provides a revolving credit line of up to $3,000,000. On May 6, 2013, the Company signed an amendment with Bremer Bank extending the expiration date from May 5, 2013 to May 5, 2014, while keeping previous provisions intact. The Company had no borrowings under this credit line at September 30, 2013 or December 31, 2012. The credit agreement contains certain covenants requiring the Company to maintain certain financial ratios. The Company was in compliance with these requirements as of September 30, 2013.
5.	OPERATING SEGMENTS
	The Company has three reportable operating segments: horse racing, Card Casino, and concessions. The horse racing segment primarily represents simulcast and live horse racing operations and the operation of an RV park. The Card Casino segment represents operations of Canterbury Park’s Card Casino, and the concessions segment represents food and beverage operations provided during simulcast and live racing, in the Card Casino, and during special events. The Company’s reportable operating segments are strategic business units that offer different products and services. They are managed separately because the segments differ in the nature of the products and services provided as well as processes to produce those products and services. The Minnesota Racing Commission regulates the horse racing and Card Casino segments.
	The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the 2012 Annual Report on Form 10-K.
	Depreciation, interest expense and income taxes are allocated to the segments but no allocation is made to concessions for shared facilities. However, the concessions segment pays approximately 25% of gross revenues earned on live racing and special event days to the horse racing segment for use of the facilities.

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The following tables provide information about the Company’s operating segments (in 000’s):

	Nine Months Ended September 30, 2013
	Horse Racing			Card Casino		Concessions		Total
Net revenues from external customers	$	12,166		$	18,942	$	5,592	$	36,700
Intersegment revenues		585			—		1,143		1,728
Net interest income		2			—		—		2
Depreciation		860			405		96		1,361
Segment (loss) income before income taxes		(1,757	)		3,517		622		2,382
	At September 30, 2013
Segment Assets	$	34,950		$	1,775	$	13,901	$	50,626

	Nine Months Ended September 30, 2012
	Horse Racing			Card Casino		Concessions		Total
Net revenues from external customers	$	11,276		$	19,006	$	5,167	$	35,449
Intersegment revenues		459			—		1,142		1,601
Net interest income		5			—		—		5
Depreciation		793			426		100		1,319
Segment (loss) income before income taxes		(1,855	)		3,514		668		2,327
	At December 31, 2012
Segment Assets	$	31,950		$	2,337	$	12,538	$	46,825

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

	Nine Months Ended September 30,
	2013			2012
Revenues
Total net revenue for reportable segments	$	38,428		$	37,050
Elimination of intersegment revenues		(1,728	)		(1,601	)
Total consolidated net revenues	$	36,700		$	35,449

Income before income taxes
Total segment income before income taxes	$	2,382		$	2,327
Elimination of intersegment income before income taxes		(1,267	)		(1,224	)
Total consolidated income before income taxes	$	1,115		$	1,103

	September 30,			December 31,
	2013			2012
Assets
Total assets for reportable segments	$	50,626		$	46,825
Elimination of intercompany receivables		(13,294	)		(11,925	)
Total consolidated assets	$	37,332		$	34,900

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6.	COMMITMENTS AND CONTINGENCIES
	In accordance with an Earn Out Note, given to the prior owner of the Racetrack as part of the consideration paid by the Company to acquire the Racetrack in 1994, if (i) off-track betting becomes legally permissible in the State of Minnesota and (ii) the Company begins to conduct off-track betting with respect to or in connection with its operations, the Company will be required to pay to the IMR Fund, L.P. the greater of $700,000 per operating year, as defined, or 20% of the net pretax profit, as defined for each of five operating years. At this time, management believes that the likelihood that these two conditions will be met and that the Company will be required to pay these amounts is remote. At the date (if any) that these two conditions are met, the five minimum payments will be discounted back to their present value and the sum of those discounted payments will be capitalized as part of the purchase price in accordance with generally accepted accounting principles. The purchase price will be further increased if payments become due under the “20% of Net Pretax Profit” calculation. The first payment is to be made 90 days after the end of the third operating year in which off-track betting is conducted by the Company. Remaining payments would be made within 90 days of the end of each of the next four operating years.
	Additionally, the Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community which became effective on June 15, 2012. The CMA contains certain covenants which, if breached, would trigger an obligation to repay a specified amount related to such covenant. At this time, management believes that the likelihood that the breach of a covenant will occur and that the Company will be required to pay the specified amount related to such covenant is remote.
	The Company entered into multiple agreements with various vendors to both construct and put into service improved digital signage and customer relationship management software at the Racetrack in 2013. The cost of these enhancements was approximately $2,225,000. The Company anticipates that some of these expenses will be paid for using a portion of the marketing payments received from the SMSC (these payments are described in greater detail in Note 7 “Cooperative Marketing Agreement”). The Company has an agreement in principle that a portion of the marketing payments received annually will be applied to capital expenditures supporting the purposes of the CMA. The Company believes that unrestricted funds available in its cash accounts, funds generated from operations, and portions of marketing payments received from the SMSC will be sufficient to satisfy these obligations.
	The Company periodically is subject to claims or involved in legal proceedings arising in the normal course of business. At September 30, 2013, management believes that the resolution of any pending claims or legal proceedings will not have a material impact on the consolidated financial statements.
7.	COOPERATIVE MARKETING AGREEMENT
	On June 4, 2012, the Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community (“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 horse industry. Under the terms of the CMA, the SMSC paid the horsemen $2.7 million in June 2012 and $5.3 million in February 2013 for purse enhancements. After 2013, the SMSC plans to contribute the additional amounts listed below.
	In addition, the Company and the SMSC have also agreed in the CMA to partner in joint marketing efforts for their mutual benefit, including signage, joint promotions, player benefits and events. Under the CMA, the SMSC paid the Company $300,000 in June 2012 and $600,000 in February 2013 for marketing purposes. After 2013, the SMSC plans to pay the additional amounts listed below.

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The SMSC has agreed to make the following purse enhancement and marketing payments in the years 2014 through 2022:

Year	Purse Enhancement Payments to Horsemen	Marketing Payments to Canterbury Park
2014	$5,840,000	$660,000
2015	6,434,000	726,000
2016	7,087,400	798,600
2017	7,806,140	878,460
2018	8,000,000	900,000
2019	8,000,000	900,000
2020	8,000,000	900,000
2021	8,000,000	900,000
2022	8,000,000	900,000

The Company will not have any financial interest in any part of purse enhancement payments. Therefore, purse enhancement payments will have no impact on the Company’s financial statements.

The amounts earned from the marketing payments will be recorded as a component of other revenue and the related expenses will be recorded as a component of marketing and advertising expense in the Company’s financial statements. For the nine months ended September 30, 2013, the Company recorded $397,344 in revenues and incurred $397,344 in expenses related to the marketing payment. The excess of amounts received over revenues is reflected as deferred revenue which is included in accounts payable on the consolidated balance sheet.

As part of the CMA and pursuant to a Stock Appreciation Rights Agreement (the “SAR Agreement”) dated June 14, 2012, the Company issued stock appreciation rights to the SMSC. The SAR Agreement granted rights to the SMSC to benefit from the appreciation in the value of 165,000 shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately and the remaining rights vest at the rate of 16,500 per year beginning in January 2013. The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s common stock price on the date of exercise over the grant price. The SAR Agreement and all rights granted expire on December 31, 2022. The liability related to these stock appreciation rights is recorded as a long-term liability and the Company recognizes the income or expense related to the fluctuation in the value of the stock appreciation rights against the revenues recorded relating to the marketing payment due to the nature of the agreement. Any excess expenses will be recognized as a component of other operating expenses. For the nine months ended September 30, 2013, the Company recognized $235,678 of expense related to these stock appreciation rights, of which $235,678 was recorded as an offset to revenue. In the future, changes in the fair value of these stock appreciation rights will increase or decrease the stock appreciation rights liability, and the Company will recognize an additional offset to revenue or other operating expense related to these changes.

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

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

Overview:

          Canterbury Park Holding Corporation (the “Company”) owns and operates the Canterbury Park Racetrack and Card Casino in Shakopee, Minnesota (the “Racetrack”). The primary businesses of the Company are simulcast and live pari-mutuel horse racing, hosting unbanked card games, and food and beverage operations.

          The Racetrack is the only facility in the State of Minnesota that offers live pari-mutuel thoroughbred and quarter horse racing. The Racetrack earns revenues from pari-mutuel take-out on races simulcast year-round to Canterbury Park from racetracks throughout the country and from live race meets featuring thoroughbred and quarter horse racing. Live race meets commence in the month of May and conclude in September. During the live race meet, the Company televises its races to out-of-state racetracks around the country, and earns additional pari-mutuel revenue on wagers placed on its races at the out-of-state racetracks.

          The Card Casino at Canterbury Park currently hosts “unbanked” card games in which players compete against each other and not against the house, although 2012 changes to the law governing Card Casino operations authorize the Company to offer banked games in the future should it so choose. The Card Casino is open 24 hours a day, seven days a week. Under Minnesota law, the Company is required to pay up to 14% of gross Card Casino revenues to the Racetrack’s purse fund and the State of Minnesota Breeders’ Fund.

          The Company also generates significant revenues from other activities such as food and beverage operations, parking and admission fees, the sale of programs and other racing publications, and corporate sponsorships. Additional revenues are derived from the use of the Racetrack facilities for special events, such as concerts and craft shows. 

Operations Review for the Three and Nine Months Ended September 30, 2013 and September 30, 2012: 

EBITDA

          EBITDA represents earnings before interest income, income tax expense, and depreciation and amortization. EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles (“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 has been presented as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry. Moreover, other companies that provide EBITDA information may calculate EBITDA differently than we do.

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          The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA (defined above), which is a non-GAAP measure, for the nine-month periods ended September 30, 2013 and 2012:

Summary of EBITDA Data:
	Nine Months Ended September 30,
	2013			2012
Net income	$	654,832		$	568,002
Interest income		(2,225	)		(4,635	)
Income tax expense		460,050			534,821
Depreciation		1,360,770			1,318,617
EBITDA	$	2,473,427		$	2,416,805

          EBITDA as a percentage of net revenues was 6.7% for the nine months ended September 30, 2013, slightly less than the 6.8% for the nine months ended September 30, 2012.

Revenues

          Total net revenues increased $1,250,891 or 3.5%, during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 and increased $398,167, or 2.9%, for the three months ended September 30, 2013 compared to the three months ended September 30, 2012. The nine-month improvement was due to an increase in Pari-mutuel revenues of 10.4%, a decrease in Card Casino revenues of .3%, and an increase in Concessions revenue of 8.1% compared to the same period in the prior year. The three-month increase represented an increase in Pari-mutuel revenues of 13.3%, a decrease in Card Casino revenues of 5.5%, and an increase in concessions revenue of 15.2% for the three months ended September 30, 2013 compared to the same period in 2012. See below for a further discussion of revenue.

Summary of Pari-mutuel Data:

	Nine Months Ended September 30,
	2013		2012
Racing Days
Simulcast racing days		204		212
Live and Simulcast racing days		69		62
Total Number of Racing Days		273		274
On-Track Handle
Simulcast racing handle on simulcast only days	$	16,041,000	$	16,836,000
Live and Simulcast days:
Live racing handle		13,299,000		11,406,000
Simulcast racing handle		9,758,000		8,688,000
Total On-Track Handle		39,098,000		36,930,000
Out-of-State Live Handle		24,412,000		16,643,000
Total Handle	$	63,510,000	$	53,573,000
On-Track Average Daily Handle
Simulcast only racing days	$	78,632	$	79,415
Live and simulcast racing days	$	334,159	$	324,097

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          Pari-mutuel revenues increased $875,111, or 10.4%, in the nine-month period ended September 30, 2013 compared to the same period in 2012, and increased $477,742, or 13.3%, for the three-month period ended September 30, 2013 compared to the same period in 2012. In addition, total handle wagered for the first nine months of 2013 was up $9,937,000, or 18.5%, compared to the same period last year and was up $7,849,000, or 29.8% for the third quarter of 2013 compared to the same period last year. Almost half of the nine-month increase in revenue is attributable to the change in accounting estimate that was made in the second quarter of 2013 regarding the Company’s unredeemed pari-mutuel tickets. During the quarter ended June 30, 2013, the Company reevaluated the likelihood of redemption relating to outstanding vouchers and through this assessment, the Company decreased the projected redemption rate. For the nine months ended September 30, 2013, the change in accounting estimate decreased our liability for outstanding pari-mutuel vouchers and increased Pari-mutuel revenue in our Condensed Consolidated Statements of Operations for the period by approximately $412,000 (pre-tax difference), increasing Income from Operations by this amount as well. Net Income increased approximately $239,000 (after taking income taxes into account), or by approximately $0.06 earnings per basic and diluted common share. Handle and pari-mutuel revenue increases are also attributable to six additional days of live racing being conducted in the third quarter of 2013 compared to 2012. In addition, purse supplements provided under the Cooperative Marketing Agreement described below which enabled the Company to offer higher quality racing and larger fields that created excellent wagering opportunities for our local race fans as well as handicappers around the country.

Summary of Card Casino Data:

	Nine Months Ended September 30,
	2013		2012
Poker Games	$	7,320,000	$	7,906,000
Table Games		9,523,000		9,212,000
Total Collection Revenue		16,843,000		17,118,000
Other Revenue		2,099,000		1,888,000
Total Card Casino Revenue	$	18,942,000	$	19,006,000
Number of Days Offered		273		274
Average Revenue per Day	$	69,385	$	69,365

          Total Card Casino revenues slightly decreased by $64,000, or .3%, for the first nine months of 2013 and also decreased $351,141, or 5.5%, for the third quarter of 2013 compared to the same periods in 2012. The primary source of Card Casino revenue is a percentage of the wagers received from the players as compensation for providing the Card Casino facility and services, referred to as the “collection revenue.” Other revenue includes fees collected for the administration of tournaments, and amounts earned as reimbursement of the administrative costs of maintaining jackpot funds. Poker collection revenue during the first nine months of 2013 decreased $586,000, or 7.4%, and also decreased $309,071, or 11.4% for the third quarter of 2013 compared to the same periods in 2012. The Company believes that the nine-month year-over-year decrease in poker revenues is attributable to inclement weather in Minnesota during the first quarter of 2013 compared to unusually mild weather experienced during the first quarter of 2012 and a significant increase in competition due to additional midwest poker tournaments. The three-month decrease was compounded by significant road construction in the southwest metro area. Table games collection revenue increased $311,000, or 3.4%, compared to the first nine months of 2012 and slightly decreased $31,996, or 1.0%, for the quarter ended September 30 compared to the same period in 2012. The Company believes the nine-month year-over-year increase was primarily due to an increased number of tables being used for card play during the entire nine-month period pursuant to favorable legislation enacted into law in May 2012. This is described in greater detail in “Legislation” below. In addition, the three-month decrease was due to the increase in tables being offered which was offset by the impact of significant road construction in the southwest metro area. Total Card Casino revenues represented 51.3% and 41.8% of net revenues for the nine-month and three-month periods ended September 30, 2013, respectively. The third quarter percentage is usually lower in every calendar year due to substantially increased revenue from live racing.

          Concessions revenues increased $418,670 or 8.1% for the first nine months of 2013 and also increased $368,544 or 15.2% for the third quarter of 2013 compared to the same periods in 2012. The increase primarily reflects seven additional days of live racing being conducted in the first nine months of 2013 compared to 2012 and six additional days of live racing being conducted in the third quarter of 2013 compared to 2012. Also, the Company experienced higher special event attendance in 2013 that generated increased concessions sales.

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Operating Expenses

          Total operating expenses increased $1,236,422, or 3.6%, and $510,041, or 3.8%, for the nine-month and three-month periods ended September 30, 2013, respectively, compared to the same periods in the prior year. See below for a further discussion of operating expenses.

Summary of Purse and Breeders’ Fund Expense:

	Purse Expense Nine Months Ended September 30,				Minnesota Breeders’ Fund Expense Nine Months Ended September 30,
	2013		2012		2013		2012
Card Casino	$	2,171,000	$	2,179,000	$	241,000	$	242,000
Simulcast Horse Racing		1,587,000		1,570,000		289,000		288,000
Live Horse Racing		1,452,000		1,186,000		133,000		114,000
	$	5,210,000	$	4,935,000	$	663,000	$	644,000

          Due to the increases in pari-mutuel revenues, total expense for statutory purses and the Minnesota Breeders’ Fund increased $294,102, or 5.3%, and $200,013, or 8.2%, for the nine and three-month periods ended September 30, 2013 compared to the same periods in 2012. Both purse and Breeders’ Fund expenses are determined by wagering levels in our Card Casino and on live and simulcast racing.

          Salaries and benefits increased $690,427, or 4.7%, in the nine-month period ended September 30, 2013 and $195,555, or 3.6%, in the three-month period ended September 30, 2013 compared to the same periods last year. The increases are partially due to supporting the increased revenue during the three and nine-month periods ended September 30, 2013 compared to the same periods in 2012. Additionally, there were increased salary costs as compared to the first nine months of last year due to annual increases in salaries and wages.

          Cost of sales increased $159,531 or 5.7% in the nine-month period ended September 30, 2013 and $125,658 or 10.0% in the three-month period ended September 30, 2013 compared to the same periods last year. The increases reflect costs incurred to support increased revenues during the three and nine-month periods ended September 30, 2013 compared to the same periods last year.

          Utilities increased $130,909, or 13.6%, in the nine-month period ended September 30, 2013 and $53,643, or 11.7%, in the three-month period ended September 30, 2013 compared to the same periods last year. The increases are primarily attributable to rising utility rates and increased utilities expense due to inclement weather during the first quarter of 2013 as compared to the unusually mild weather in the first quarter of 2012.

          Advertising and marketing costs increased $169,257 or 13.0%, in the nine-month period ended September 30, 2013 and decreased $18,266, or 3.0%, in the three-month period ended September 30, 2013 compared to the same periods last year. The nine-month increase is primarily a result of increased upfront expenditures to promote live racing both locally and to simulcast markets around the country, as well as increased expenses related to the SMSC Cooperative Marketing Agreement.

          Other operating expenses decreased $279,151 or 4.3%, in the nine-month period ended September 30, 2013 and decreased $88,120, or 3.5%, in the three-month period ended September 30, 2013 compared to the same periods last year. The three-month increase is primarily due to rising insurance costs and an increase in repairs and maintenance.

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          Income before income taxes was $1,114,882 for the nine months ended September 30, 2013 compared to $1,102,823 for the nine months ended September 30, 2012. After income tax expense of $460,050 for the nine months ended September 30, 2013, the Company reported net income of $654,832 in 2013 compared to net income of $568,002 in 2012. For the quarter ended September 30, 2013, the Company recorded income before income tax expense of $275,258 compared to $387,875 for the same period last year. After income tax expense of $104,755, net income in the third quarter of 2013 was $170,503 compared to net income of $202,034 for the third quarter of 2012. The significant level of income taxes estimated for the third quarter and nine-month periods ended September 30, 2012 is primarily due to the non-deductibility of lobbying expenses incurred by the Company.

Contingencies:

          As further discussed below, the Company entered into a Cooperative Marketing Agreement (CMA) with the Shakopee Mdewakanton Sioux Community (SMSC) that became effective on June 15, 2012. The CMA contains certain covenants which, if breached, would trigger an obligation to repay a specified amount related to such covenant. At this time, management believes that the likelihood that the breach of a covenant in the CMA will occur and that the Company will be required to pay the specified amount related to such covenant is remote.

Liquidity and Capital Resources:

          Cash provided by operating activities for the nine months ended September 30, 2013 was $1,738,649 and was due to several factors. First, the Company reported net income of $654,832. Additionally, the Company recorded depreciation of $1,360,770. The Company also experienced an increase in accounts payable and accrued wages and payroll taxes of $788,705. These items were somewhat offset by a seasonal increase in accounts receivable of $560,500 and a decrease in due to MHBPA of $1,377,966 resulting primarily from the payment of purses during the third quarter. Cash provided by operating activities for the nine months ended September 30, 2012 was $2,426,475 and was the result of several factors. The Company reported net income of $568,002 and depreciation of $1,318,617. Additionally, the Company experienced an increase in accounts payable and accrued wages and payroll taxes of $1,271,212, caused primarily by a seasonal increase in payables due to the live racing season extending into September. Finally, the Company experienced an increase in Card Casino accruals of $1,132,117 primarily due to the seasonality of the player pool. These items were somewhat offset by an increase in restricted cash of $775,093 and a decrease in due to MHBPA of $703,926, resulting primarily from the payment of purses during the third quarter.

          Net cash used in investing activities for the first nine months of 2013 was $3,683,413 and was used primarily for the purchase of technology upgrades and enhancements, including digital signage and customer relationship management equipment, and building improvements. Net cash used in investing activities for the first nine months of 2012 was $1,043,216 due to purchasing a variety of fixtures and equipment for operational purposes.

          Net cash provided by financing activities during the first nine months of 2013 was $59,543, and consisted of proceeds received upon the issuance of common stock relating to ESPP and stock option purchases of $70,196, slightly offset by common stock repurchases and tax expense from the exercise of stock options and issuance of restricted stock of $10,653. During the period January 1, 2012 through September 30, 2012, cash used in financing activities consisted of a cash dividend that was declared and paid for $1,035,475, somewhat offset by proceeds and excess tax benefits received upon the exercise of stock options of $253,673.

          The Company has a general credit agreement with Bremer Bank, which provides a revolving credit line of up to $3,000,000 until May 5, 2014 with interest at the prime rate but not less than 4.5% per annum. The Company had no borrowings under the line of credit at September 30, 2013 or December 31, 2012. This credit agreement contains covenants requiring the Company to maintain certain financial ratios. The Company was in compliance with these requirements at all times throughout the quarter ended September 30, 2013.

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          The Company’s cash and cash equivalent balance at September 30, 2013 was $7,499,762 compared to $9,384,983 at December 31, 2012 primarily reflecting an increase in capital expenditures in the first nine months of 2013 compared to the same period in 2012. The Company believes that funds available in its cash accounts, amounts available under the general credit agreement, along with funds generated from operations, will be sufficient to satisfy its liquidity and capital resource requirements for regular operations during 2013.

Critical Accounting Policies and Estimates:

          The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America 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 generally accepted accounting principles. 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 2012 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 approximately 66.2% of our total assets at September 30, 2013. We utilize 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 undiscounted expected future net cash flows. If the sum of the related expected future net cash flows is less than the carrying value, we will determine whether an impairment loss should be recognized. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. To date, we have determined that no impairment of these assets exists.

          Stock-based Compensation – Accounting guidance requires recognition of services provided in exchange for a share-based payment based on the grant date fair market value. We utilize our judgment in determining the assumptions used to determine the fair value of equity instruments granted using a Black-Scholes model.

Commitments and Contractual Obligations:

          On June 4, 2012, the Company entered into the CMA with the SMSC that expires December 31, 2022. See “Cooperative Marketing Agreement” below.

Legislation:

          In May 2012, the Minnesota law governing the Card Casino was amended in several respects, all of which amendments increased the Company’s flexibility to operate its Card Casino, thereby creating opportunities to earn increased revenues and pay increased purses for live races at Canterbury Park’s Racetrack.

          Under the amended law, the Company can conduct card play on up to 80 tables in its Card Casino. It also increased the poker betting limit from $60 to $100. The amended law also removed limits on the number of poker tournaments the Company can conduct, as well as limits on the number of tables used in poker tournaments and allows Canterbury to conduct “banked” card games, in which customers play against the house, along with the unbanked games it currently conducts. In a separate provision, the amended law established a framework for the possible implementation of pari-mutuel simulcasting of horse races conducted at Canterbury and other racetracks to Tribal casinos in Minnesota.

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          The amended law is being implemented in stages. The Company has increased the number of tables hosting live play from 50 to approximately 66 to accommodate customers during peak periods, has offered higher betting limits to accommodate demand, and has also expanded the number of poker tournaments it conducts. Additional changes will be implemented based on market demand.

Cooperative Marketing Agreement:

          On June 4, 2012, the Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community (“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 horse industry. Under the terms of the CMA, the SMSC paid the horsemen $2.7 million in June 2012 and $5.3 million in February 2013 for purse enhancements. After 2013, the SMSC plans to contribute the additional amounts listed below.

          In addition, the Company and the SMSC have also agreed in the CMA to partner in joint marketing efforts for their mutual benefit, including signage, joint promotions, player benefits and events. Under the CMA, the SMSC paid the Company $300,000 in June 2012 and $600,000 in February 2013 for marketing purposes. After 2013, the SMSC plans to pay the additional amounts listed below.

The SMSC has agreed to make the following purse enhancement and marketing payments in the years 2014 through 2022: 

Year	Purse Enhancement Payments to Horsemen			Marketing Payments to Canterbury Park
2014		$	5,840,000		$	660,000
2015			6,434,000			726,000
2016			7,087,400			798,600
2017			7,806,140			878,460
2018			8,000,000			900,000
2019			8,000,000			900,000
2020			8,000,000			900,000
2021			8,000,000			900,000
2022			8,000,000			900,000

          The Company will not have any financial interest in any part of purse enhancement payments. Therefore, purse enhancement payments will have no impact on the Company’s financial statements.

          The amounts earned from the marketing payments will be recorded as a component of other revenue and the related expenses will be recorded as a component of marketing and advertising expense in the Company’s financial statements. For the nine months ended September 30, 2013, the Company recorded $397,344 in revenues and incurred $397,344 in expenses related to the marketing payment. The excess of amounts received over revenues is reflected as deferred revenue which is included in accounts payable on the consolidated balance sheet.

          As part of the CMA and pursuant to a Stock Appreciation Rights Agreement (the “SAR Agreement”) dated June 14, 2012, the Company issued stock appreciation rights to the SMSC. The SAR Agreement granted rights to the SMSC to benefit from the appreciation in the value of 165,000 shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately and the remaining rights vest at the rate of 16,500 per year beginning in January 2013. The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s common stock price on the date of exercise over the grant price. The SAR Agreement and all rights granted expire on December 31, 2022. The liability related to these stock appreciation rights is recorded as a long-term liability and the Company recognizes the income or expense related to the fluctuation in the value of the stock appreciation rights against the revenues recorded relating to the marketing payment due to the nature of the agreement. Any excess expenses will be recognized as a component of other operating expenses. For the nine months ended September 30, 2013, the Company recognized $235,678 of expense related to these stock appreciation rights, of which $235,678 was recorded as an offset to revenue. In the future, changes in the fair value of these stock appreciation rights will increase or decrease the stock appreciation rights liability, and the Company will recognize an additional offset to revenue or other operating expense related to these changes.

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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, the Company may make forward-looking statements concerning possible or anticipated future financial performance, business activities or plans which are typically preceded by the words “believes,” “expects,” “anticipates,” “intends” or similar expressions. For such forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that such forward-looking statements are subject to risks and uncertainties which could cause actual performance, activities or plans to differ significantly from those indicated in the forward-looking statements. Such risks and uncertainties include, but are not limited to: fluctuations in attendance at the Racetrack, material changes in the level of wagering by patrons, decline in interest in the card games offered in the Card Casino, legislative and regulatory changes, the impact of wagering products and technologies introduced by competitors; increases in the percentage of revenues allocated for purse fund payments; increase in compensation and employee benefit costs; the economic health of the gaming sector; higher than expected expense related to new marketing initiatives; and other factors discussed under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2012 and in the Company’s other filings with the Securities and Exchange Commission. 

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4: CONTROLS AND PROCEDURES

(a)	Evaluation of Disclosure Controls and Procedures:
	The Company’s Chief Executive Officer, Randall D. Sampson, and Chief Financial Officer, David C. Hansen, have reviewed the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based upon this review, these officers have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that the disclosure controls are also effective to ensure that information required to be disclosed in the Company’s Exchange Act reports is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.
(b)	Changes in Internal Control over Financial Reporting:
	There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934) that occurred during our fiscal quarter ended September 30, 2013 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II
OTHER INFORMATION

Item 1.	Legal Proceedings
	Not Applicable.
Item 1A.	Risk Factors
	There have been no material changes to the Risk Factors reported under Item 1A in the Form 10-K for the year ended December 31, 2012, and the risk factors presented therein are incorporated by reference herein.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	(a)	Not Applicable.
	(b)	Not Applicable.
	(c)	On December 17, 2007, the Company’s Board of Directors adopted a plan that authorized the repurchase of up to 250,000 shares of the Company’s common stock pursuant to Exchange Act Rule 12b-18 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 2013. The maximum number of shares that may yet be purchased under the above authorizations is 128,781 as of September 30, 2013.
Item 3.	Defaults upon Senior Securities
	Not Applicable.
Item 4.	Mine Safety Disclosures
	Not Applicable.
Item 5.	Other Information
	Not Applicable.
Item 6.	Exhibits
	(a)	The following exhibits are included herein:
		11	Statement re computation of per share earnings – See Net Income Per Share under Note 1 of Notes to Consolidated Financial Statements under Part 1, Item 1, which is incorporated herein by reference.
		31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (rules 13a-14 and 15d-14 of the Exchange Act).
		31.2	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).

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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, 2013	/s/ Randall D. Sampson
	Randall D. Sampson,
	President and Chief Executive Officer
Dated: November 14, 2013	/s/ David C. Hansen
	David C. Hansen,
	Vice President and Chief Financial Officer

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