CANTERBURY PARK HOLDING CORP, 10KSB40, 1997-03-31

CANTERBURY PARK HOLDING CORP
10KSB40, 1997-03-31
RACING, INCLUDING TRACK OPERATION

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<PAGE>

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB
(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1996

[ ] 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: 0-24554

CANTERBURY PARK HOLDING CORPORATION
(Name of small business issuer in its charter)

Minnesota 41-1775532
- ----------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

1100 Canterbury Road
Shakopee, MN 55379
-----------------------------------
(Address of principal executive offices and zip code)

Registrant's telephone number, including area code: (612) 445-7223

<TABLE>
<S> <C>
Securities registered pursuant to Section None
12(b) of the Act:

Securities registered pursuant to Section Common Stock, $.01 par value
12(g) of the Act: Redeemable Common Stock Purchase Warrants
Units, each Unit consisting of one share of
Common Stock and one Redeemable Common Stock
Purchase Warrant.
</TABLE>

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
------- -------

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [x]

The Company's operating revenues for its most recent fiscal year were
$17,371,005.

On March 17, 1997, the Company had 2,966,382 shares of common stock, $.01
par value, outstanding.

The aggregate market value of the shares of voting stock held by
non-affiliates of the Company (persons other than directors and officers)
computed at an average of the NASDAQ closing bid and ask of $3.86 per share on
March 17, 1997 was approximately $5,965,000.

DOCUMENTS INCORPORATED BY REFERENCE

The Company's Proxy Statement for its 1997 Annual Meeting of Shareholders to
be held on June 5, 1997 is incorporated by reference into Part III of this Form
10-KSB.
<PAGE>
CANTERBURY PARK HOLDING CORPORATION
FORM 10-KSB ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1996

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
PART I PAGE

ITEM 1. Description of Business 1

ITEM 2. Description of Property 9

ITEM 3. Legal Proceedings 10

ITEM 4. Submission of Matters to a Vote of Security
Holders 10

PART II

ITEM 5. Market for Common Equity and Related
Stockholder Matters 11

ITEM 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12

ITEM 7. Financial Statements 17

ITEM 8. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure 29

PART III

ITEM 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section
16(a) of the Exchange Act 29

ITEM 10. Executive Compensation 29

ITEM 11. Security Ownership of Certain Beneficial
Owners and Management 29

ITEM 12. Certain Relationships and Related
Transactions 29

ITEM 13. Exhibits and Reports on Form 8-K 29

SIGNATURES 30

EXHIBIT INDEX 31

</TABLE>
<PAGE>

ITEM 1. DESCRIPTION OF BUSINESS

(a) BUSINESS DEVELOPMENT

Canterbury Park Holding Corporation (the "Company") is engaged in the
business of conducting live Thoroughbred and Quarter Horse racing and
pari-mutuel wagering operations related thereto at its facilities in
Shakopee, Minnesota (the "Racetrack"), as well as in conducting
"simulcasting", which is pari-mutuel wagering on races held at out-of-state
racetracks that are televised simultaneously at the Racetrack. The Company
also derives revenues from related services and activities, such as
concessions, parking, admissions and programs, and from other entertainment
events held at the Racetrack.

The Racetrack was constructed during 1984 and 1985. From 1985 to 1992,
two groups unsuccessfully attempted to profitably conduct horse racing and
pari-mutuel wagering operations at the Racetrack. All horse racing and
pari-mutuel wagering operations ceased at the end of 1992 and during 1993 and
early 1994 no material business activities were conducted at the Racetrack.
Further information regarding prior operations at the Racetrack can be
obtained by reference to the Company's registration statement on Form SB-2
(File No. 33-81262C) under "Business-History of the Racetrack", which
discussion is incorporated herein by reference.

The Company was incorporated under the laws of Minnesota on March 24,
1994 and on March 29, 1994 acquired the Racetrack. On May 6, 1994 the Company
commenced simulcasting operations. In August 1994 the Company conducted a
public offering of Units, consisting of one share of common stock and a
warrant to purchase one share of common stock. With the proceeds from the
public offering the Company retired debt associated with its acquisition of
the Racetrack. Since May 6, 1994 the Company has been principally engaged in
conducting its year-round simulcasting operations, five to seven days per
week and live horse racing ("live meets") on a seasonal basis, generally from
late May to mid-August. The Company plans 56 days of live racing in 1997.
Live racing in 1997 will consist of a 26-day mixed meet of Thoroughbred and
Quarter Horse racing, a 27-day Thoroughbred only meet, and three days of live
harness racing over Labor Day weekend.

(b) BUSINESS OF ISSUER

(i) Racing Operations

The Company's racing operations consist of year-round pari-mutuel
wagering on simulcast horse races ("simulcasting") and live meets held on a
seasonal basis beginning in May and concluding in August. Live race meets
have included both Thoroughbred and Quarter Horse races.

Simulcasting.

Simulcasting is the process by which live horse races held at one
facility (the "host track") are transmitted simultaneously to other locations
that allow patrons at each receiving location (the "guest track") to place
wagers on the race being broadcast. Monies are collected at the guest track
and the information with respect to the total amount wagered is
electronically transmitted to the host track. In effect, all of the amounts
wagered at the guest track are combined into the appropriate pools at the
host track with the final odds and payouts determined based upon all the
monies in the pools.

Throughout the year the Company offers simulcast wagering from
out-of-state racetracks, generally five to seven days a week depending on the
time of the year. The Company offers "full card" simulcast racing
(broadcasting of another racetrack's entire daily live racing program) from a
number of racetracks, including Churchill Downs, Hollywood Park, Santa Anita,
Gulfstream Park, Arlington Park and Sportsman's Park. In addition, races of
national interest, such as the Kentucky Derby, Preakness Stakes and Breeders'
Cup, supplement the regular simulcast program. The Company regularly
evaluates its agreements with other racetracks in order to offer the most
popular simulcast signals of live horse racing which is feasible to offer at
the Racetrack.

1
<PAGE>

Under applicable provisions of federal and state law, the Racetrack must
obtain the consent of the organization which represents the owners and trainers
of the breed of horse which predominately races at the Racetrack with respect to
simulcast operations both as a host and guest track. In Minnesota such consent
must be obtained from the Minnesota Horsemen's Benevolent and Protective
Association (the "MHBPA").

Live Racing.

The Company conducted its first year of live racing in 1995 by operating 55
days of live horse racing which began on May 18 and concluded August 18. In 1996
the Company hosted a 51-day live meet commencing on May 25 and concluding on
August 18. The Company plans 56 days of live racing in 1997. Live racing in 1997
will consist of a 26-day mixed meet of Thoroughbred and Quarter Horse racing, a
27-day Thoroughbred only meet, and three days of live harness racing over Labor
Day weekend. Post times on Thursdays, Fridays, and Saturdays will be 6:30 pm and
2:00 pm on Sundays and holidays.

Currently, Minnesota law requires the Racetrack to schedule a minimum of 125
days of live racing annually, unless the MHBPA agrees to a lesser number of live
racing days. The MHBPA has agreed to waive the 125-day requirement for 1995,
1996 and 1997 and allow the Company to run a minimum of 50 days of live racing
each year. After 1997, no assurance can be given that the MHBPA will agree to a
shorter live meet than the 125-day statutory minimum.

(ii) Special Events

While pari-mutuel horse racing is the Company's principal business, the
Company's facilities are capable of being used for multiple purposes. In an
effort to more fully utilize the property and to generate additional revenues,
the Company has, in each year of its operations, expanded the use of the
grandstand, grounds and parking lot for special events.

Since 1995 a number of non-racing events were held, including snowmobile
races, two major arts and crafts shows per year, trade shows, the Bloomington
Ferry Bridge Grand Opening Celebration, fund raisers, automobile shows and
competitions and several private parties. Special events are scheduled to occur
every month during 1997.

During 1995 and 1996 Canterbury Park hosted four major three-day snowmobile
racing events and several trade shows. To date in 1997, the facility has hosted
two additional successful snowmobile races with attendance over 10,000 for each
event. Canterbury Park maintains a reputation as one of the premier snowmobile
racing venues in the world.

<PAGE>

(iii) Sources of Revenue

General.

The Company's revenues are principally derived from pari-mutuel wagering. In
pari-mutuel wagering, bettors wager against each other in a pool, rather than
against the operator of the facility or with preset odds. From the total amount
wagered or "handle," the Minnesota Pari-Mutuel Horse Racing Act (the "Racing
Act") specifies the maximum percentage, referred to as the "takeout," which may
be withheld by the Racetrack, with the balance returned to the winning bettors.
The takeout constitutes the Racetrack's primary source of operating revenue.
From the takeout, funds are paid to the State of Minnesota for pari-mutuel
taxes, with additional amounts set aside for purses and for the "Breeders'
Fund," which is a fund apportioned by the Minnesota Racing Commission ("Racing
Commission") among various purposes related to Minnesota's horse breeding and
horse racing industries. The balance of the takeout remaining after these
deductions is commonly referred to as the "retainage."

The various forms of pari-mutuel wagering can be divided into two
categories: straight wagering pools and multiple wagering pools, which are also
referred to as "exotic" wagering pools. Examples of straight wagers include:
"win" (a wager on one specific horse to finish first); "place" (a wager on one
specific horse to finish first or second); and "show" (a wager on one specific
horse to finish first, second or third). Examples of exotic wagers include:
"daily double" (a wager in which the bettor selects the horses that will win two
consecutive races); "quinella" (a wager in which the bettor selects the horses
that will finish first and second, in either order); "exacta" (a wager in which
the bettor selects the horses that will finish first and second, in order);
"trifecta" (a wager in which the bettor selects the horses that will finish
first, second and third, in order); and "pick six" (a wager in which the bettor
selects the horses that will finish first in six consecutive races).

The amount of takeout earned by the Company depends on where the race is run
and the form of wager (straight or exotic). Net revenues from pari-mutuel
wagering on live races run at the Racetrack consist of the total amount wagered,
less the amounts paid (i) to winning patrons, (ii) for purses, (iii) to the
Breeders' Fund and (iv) for pari-mutuel taxes to the State of Minnesota. Net
revenues from pari-mutuel wagering on races being run at out-of-state racetracks
and simulcast to the Racetrack have similar expenses, but also include a host
fee payment to the host track. The host fee is calculated as a percentage of
monies wagered (generally 2.50% to 4.00%) and is negotiated with the host track
and must comply with each host track's state statute.

Wagering on Live Races.

The Racing Act establishes the maximum takeout that may be deducted from the
handle. The takeout percentage on live races depends on the type of wager. The
total maximum takeouts are 17% from straight wagering pools and 23% from exotic
wagering pools. From this takeout, Minnesota law requires deductions for purses,
pari-mutuel taxes and the Breeders' Fund.

While the Racing Act provides that a minimum of 8.4% of the live racing
handle is to be paid as purses to the owners of the horses, the size of the
purse is subject to further agreement with the horsepersons' associations. The
Breeders' Fund receives 1% of the handle. As of July 1, 1996 the pari-mutuel tax
applicable to wagering on all live races is 6% of takeout in excess of $12
million during the twelve month period beginning July 1 and ending the following
June 30. This pari-mutuel tax structure became effective July 1, 1996 and
continues through July 1, 1999. Assuming no additional legislation, the
pari-mutuel tax rate will return to 6% of takeout (as it had been prior to July
1, 1996) effective July 1, 1999.

<PAGE>

The following table sets forth the percentage distribution of each dollar
wagered on live races at the Racetrack, as established by the Racing Act, and
the Racetrack's retainage:

<TABLE>
<CAPTION>
LIVE RACING
--------------------------

<S> <C> <C>
STRAIGHT EXOTIC
----------- -----------

Returned to Winning Patrons................................................ 83.00% 77.00%

Purse (1)................................................................. 8.40% 8.40%

Minnesota Breeders' Fund.................................................. 1.00 1.00

Minnesota Pari-Mutuel Taxes (2)........................................... .10 .14

Racetrack Retainage (1)................................................... 7.50 13.46

Total Takeout.............................................................. 17.00 23.00
----------- -----------

Total Handle............................................................... 100.00% 100.00%
----------- -----------
----------- -----------
</TABLE>

- ------------------------

(1) Minnesota law provides that the 8.40% purse payment is a minimum. The actual
percentage, if any, above the minimum is determined between the Racetrack
and the MHBPA. Any additional amounts paid for purses decrease the
Racetrack's retainage.

(2) This amount assumes the pari-mutuel tax structure in effect as of July 1,
1996 (which exempts the first $12 million of takeout during a statutorily
mandated twelve-month period). This amount will depend upon the total
takeout during the twelve-month period, which is estimated to be $13.3
million.

Wagering on Simulcast Races.

The amount of takeout from simulcast wagering is determined by the laws of
the state in which the host track is located. In addition, the Racing Act
established a minimum that must be set aside from simulcasting for purse
payments on racing within Minnesota. Different amounts are deducted for purses
from the takeout depending on whether simulcasting occurs during the "Racing
Season," a statutorily defined 25 week period beginning in early May each year,
or outside of the Racing Season. If simulcasting occurs during the Racing
Season, the amount set aside for purses further depends on whether the
simulcasting is part of a full racing card that occurs during the part of the
day that live races are conducted at the Racetrack. For races that are part of a
full simulcast racing card that takes place within the time of live races at the
Racetrack, the amount reserved for purse payout is 8.4%. For simulcasting
conducted during the Racing Season that does not occur within the time period of
live races, the purse is equal to 50% of the takeout remaining after deductions
for pari-mutuel taxes, payments to the Breeders' Fund and payments to the host
racetrack for host track fees. For simulcasting conducted outside of the Racing
Season, the amount that must be contributed to the purses is 25% of the takeout
after deducting an 8% expense factor, pari-mutuel taxes, payments to the
Breeders' Fund and host fee payments to the host racetrack.

<PAGE>

The following table sets forth the approximate percentage distribution of
each dollar wagered for races simulcast at the Racetrack and the Racetrack's
retainage:

<TABLE>
<CAPTION>
DURING RACING SEASON
--------------------------------

<S> <C> <C> <C>
NOT CONCURRENT
CONCURRENT WITH WITH OUTSIDE OF
LIVE CARD LIVE CARD RACING SEASON
--------------- --------------- ---------------

Returned to Winning Patrons (1).................................. 80.50% 80.50% 80.50%

Minnesota Breeders' Fund........................................ 1.00% 1.10% 1.10%

Minnesota Pari-Mutuel Taxes (2)................................. .12 .12 .12

Purse (3)....................................................... 8.40 7.39 1.70

Host Track Fees (4)............................................. 3.50 3.50 3.50

Racetrack Retainage (3)......................................... 6.48 7.39 13.08

Total Takeout.................................................... 19.50 19.50 19.50
------ ------ ------

Total Handle..................................................... 100.00% 100.00% 100.00%
------ ------ ------
------ ------ ------

</TABLE>

- ------------------------

(1) This amount will depend upon the takeout at the host racetrack. This
percentage will be determined by local and state law applicable to the host
track and ranges from 75.0% to 85.0%.

(3) Although Minnesota law specifies a minimum, the actual percentage is
determined by agreement between the Racetrack and the MHBPA. Any additional
amounts paid for purses reduce the Racetrack's retainage.

(4) Payments to the host track generally range from 2.5% to 4.0% of total
handle, subject to negotiation with each host track. For purposes of this
table, the host track fee is assumed to be 3.5%.

OTHER REVENUE

The Company also derives revenue from other activities such as admissions
and parking fees, as well as from the sale of food and beverage, programs,
and other racing publications. The Company offers advertising signage space
similar to that appearing at many sports stadiums and advertising space is
sold in the printed live racing program. Finally, additional revenues are
derived from use of the facilities for events such as trade and craft shows,
business meetings, private parties, horse expositions and sales, snowmobile
racing, rodeos, boat storage, community events, and rental of the parking lot
for various automobile activities.

(iv) Competition

The Company competes with other forms of gaming in the State of
Minnesota, particularly Native American casino-style gambling located
throughout the State of Minnesota, including a large casino located
approximately three miles from the Racetrack. In addition, the Company
competes against charitable gambling (bingo and pulltabs) and various state
lottery products. Finally, the Company competes with a greyhound racetrack
located approximately 40 miles from the Racetrack at the eastern end of the
Minneapolis-Saint Paul metropolitan area. This greyhound track offers
wagering on live and simulcast dog racing, as well as wagering on
simulcasting of Thoroughbred horse racing.

<PAGE>

The Racetrack also competes with other forms of entertainment in the
Minneapolis-Saint Paul metropolitan area, including a wide range of live and
televised professional and collegiate sporting events. Finally, live horse
racing competes with a wide variety of summer attractions, including
amusements parks, sporting events and other local activities.

The Company competes with racetracks located throughout the United States
in securing the better quality horses to run at the Racetrack. Attracting the
owners and trainers of better quality horses is largely influenced by the
ability to offer large purses. By reducing the number of racing days and
utilizing purse monies derived from simulcast and live race wagering, the
Company has been able to offer purses during its 1995 and1996 live racing
seasons which are comparable to other midwestern racetracks. However, the
Company expects that it will experience increased competition for better
quality horses from a racetrack located near Des Moines, Iowa which is
expected to offer substantially larger purses than the Company in 1997.

(v) Marketing

The Company's primary market is the seven county Minneapolis-Saint Paul
metropolitan area which in 1990 contained approximately 1.7 million people 18
years and older.

To support its primary business of pari-mutuel horse racing, the Company
has developed a marketing strategy which is directed to both simulcast and
live racing patrons. This strategy was initiated in January 1995 with the
official name change of the facility to Canterbury Park. The Company's
year-round simulcast marketing efforts are focused on maintaining the loyalty
of live and simulcast patrons and attracting new customers. Using newspapers,
other print media, radio and direct mail, the Company is concentrating its
marketing efforts on communicating the excitement of wagering on high caliber
horse racing from around the country. In addition to its regular advertising
program, the Company conducts numerous special promotions and Open Houses to
increase simulcast patronage.

Beginning in May 1995, the Company expanded its advertising and marketing
to promote live horse racing as entertainment the entire family can enjoy.
The Company's 1995 marketing budget of $1,000,000 was utilized primarily for
television, radio and print advertising, as well as special promotions to
market the live meet. The 1995 marketing program was based on the theme
"We're Back in the Saddle Again" and was designed primarily to let the market
know live racing had returned again for the first time since 1992. The 1996
advertising campaign again utilized primarily television, print and radio
advertising to build live racing attendance by highlighting the attractive,
park-like atmosphere of Canterbury Park, as well as the fun and excitement of
live horse racing. In addition, the development of a customer data base in
1995 and 1996 will enable the Company to more effectively utilize direct mail
advertising in 1997.

Because wagering on horse racing is more complex than many other forms of
gaming, such as slot machines or the various lottery products, the Company is
developing various educational programs, such as tours of the Racetrack and
wagering classes, that it believes will make the sport of horse racing and
pari-mutuel wagering more understandable to the general public.

(vi) Regulation

General.

The ownership and operation of a horse racetrack in Minnesota is subject
to significant regulation by the Racing Commission under the Racing Act and
the rules adopted by the Racing Commission. The Racing Act provides for the
allocation of each wagering pool to winning bettors, the racetrack, purses,
the State of Minnesota and the Breeders' Fund and empowers the Racing
Commission to license and regulate substantially all aspects of horse racing
in the State. The Racing Commission, among other things, grants operating
licenses to racetracks after an application process and public hearings,
licenses all employees of a racetrack, jockeys, trainers, veterinarians and
other participants, regulates the transfer of ownership interests in
licenses, allocates live race days and simulcast-only race days, approves
race programs, regulates the conduct of races, sets specifications for

<PAGE>

the racing ovals, animal facilities, employee quarters and public areas of
racetracks, regulates the types of wagers on horse races and approves
significant contractual arrangements with racetracks, including management
agreements, simulcast arrangements, totalizator contracts and concessionaire
agreements. Decisions by the Racing Commission in regard to any one or more
of the foregoing matters could adversely affect the Company's operations.

A federal statute, the Interstate Horse Racing Act of 1978, also provides
that a racetrack must obtain the consent of the group representing the breed
of horses racing the majority of the time at the racetrack, and the consent
of the state agency regulating the racetrack, in order to transmit simulcast
signals of its live races or to receive and use simulcast signals from other
racetracks. The Company has obtained the consent of the MHBPA for receiving
and sending simulcasting signals.

Issuance of Class A and Class B Licenses to the Company.

The Racing Commission issued a Class A License to the Company on April
27, 1994. The Class A License allows the Company to own and operate the
Racetrack. The Class A License is effective until revoked or suspended by the
Racing Commission, or relinquished by the licensee. The fee for a Class A
License is $10,000 per calendar year.

The Racing Commission issued a Class B License to the Company on April
27, 1994. The Class B License allows the Company to sponsor and manage horse
racing on which pari-mutuel wagering is conducted at its Class A licensed
racetrack and on other horse races run at out-of-state locations as
authorized by the Racing Commission. The Class B License is renewable each
year by the Racing Commission after a public hearing (if required by the
Racing Commission). The Company's Class B License was renewed for the 1997
season in December 1996. The fee for a Class B License is $100 for each
assigned race day on which live racing is actually conducted and $50 for each
day on which simulcasting is authorized and actually takes place.

Limitation on the Number of Class A and Class B Licenses.

Pursuant to the Racing Act, so long as the Racetrack maintains its Class
A License, no other Class A License may be issued in the seven county
metropolitan area (the counties of Hennepin, Ramsey, Washington, Scott,
Dakota, Anoka and Carver), except the Racing Commission may issue an
additional Class A License within the seven county metropolitan area,
provided that the additional license may only be issued for a facility which,
among other conditions, is located more than 20 miles from the Racetrack,
contains a track no larger than five-eighths of a mile in circumference, and
is used exclusively for Standardbred (harness) racing. Therefore, as long as
the Company holds the Class A License, only the Company may own and operate a
racetrack in the seven county metropolitan area where Thoroughbred horses and
Quarter Horses may be raced.

Limitation on Ownership and Management of an Entity which holds a Class A
License and/or Class B License.

The Racing Act requires prior Racing Commission approval of all officers,
directors, 5% shareholders, or other persons having a present or future
direct or indirect financial or management interest in any person applying
for a Class A and Class B license, and if a change of ownership of more than
5% of the licensee's shares is made after an application is filed or the
license issued, the applicant or licensee must notify the Racing Commission
of the changes within five days of this occurrence and provide the
information required by the Racing Act.

Local Regulation.

The Racetrack is subject to state and local laws, regulations, ordinances
and other provisions affecting zoning and other matters which may have the
effect of restricting the uses to which the Company's land and other assets
may be used. The Canterbury Park property was originally zoned "Racetrack
District," but the City of Shakopee has revised its zoning ordinances and as
of January 1, 1995 has zoned the Company's property as "Major Recreation
Zone." The Company believes such rezoning has not adversely affected the
current uses of the

<PAGE>

Racetrack and believes the rezoning will not adversely affect the Racetrack
in the future. Also, any development of the Racetrack site will, among other
things, be subject to applicable zoning ordinances and require approval by
the City of Shakopee and other authorities and there can be no assurance such
approvals will be obtained.

(vii) Employees

At March 13, 1997, the Company had approximately 45 full-time employees
and 150 part-time employees. When the Company commences live racing in May
1997, the Company expects to employ approximately 130 additional full-time
seasonal employees and approximately 450 additional part-time seasonal
employees. The Company's management believes its employee relations are good.

(viii) Executive Officers

The executive officers and other members of management of the Company, their
ages and their positions with the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>

Randall D. Sampson 38 Chief Executive Officer, President and Treasurer, and
General Manager

Michael J. Garin 41 President, Canterbury Park Concessions, Inc.

Troy J. Mertens 29 Assistant General Manager and Director of Mutuels and
Simulcasting Operations

Mark A. Erickson 40 Director of Facilities

</TABLE>

- ------------------------

Randall D. Sampson has been CEO, President and Treasurer since the
formation of the Company in March 1994 and General Manager since September
1995. Mr. Sampson has served as President of Sampson Racing, Inc. since 1989
and managed the Thoroughbred racing and breeding operations of the Curtis
Sampson family. Mr. Sampson has been active in horse racing industry
associations, serving on the Board of Directors of the Minnesota Thoroughbred
Association from 1989 to 1993, and as Treasurer in 1990 to 1991 and its
President in 1992. Mr. Sampson has also been a member of the Minnesota
Horsemen's Benevolent and Protective Association serving as Vice President of
the organization from 1993 to 1994. Mr. Sampson served on the 1992 Governor's
Commission on Canterbury Downs and has been a member of the Minnesota Racing
Commission Breeders' Fund Advisory Board since 1991. In 1995 he also served
as a director of the Thoroughbred Racing Association of North America.

Michael J. Garin has been Director of Concessions since April 1994 and
President of Canterbury Park Concessions, Inc. since September 1995. From
September 1993 to April 1994, Mr. Garin was employed as Food and Beverage
Supervisor of Little Six, Inc. During March 1992 to September 1993 he served
as a Training Program District Manager for Arby's.

Troy J. Mertens has directed the Mutuels and Simulcasting Operations since
April 1994 and was appointed Assistant General Manager in September 1995.
Previously, he worked for the prior owners of the Racetrack as a mutuel
teller, mutuels supervisor, assistant to the Mutuels Manager and an
operations accountant.

Mark A. Erickson has served as Director of Facilities since April 1994.
From May 1992 until employment with the Racetrack, Mr. Erickson served as
Maintenance Supervisor for the Mall of America in Bloomington, Minnesota.

<PAGE>

Item 2. DESCRIPTION OF PROPERTY

General.

The Racetrack, which is being operated under the name "Canterbury Park,"
is a modern facility, generally comparable to other major racetracks located
throughout the country. The Racetrack has an average patron capacity of
approximately 10,000 within the enclosed grandstand and a maximum patron
capacity of approximately 30,000 including the outside areas around the
grandstand. The grandstand and most public outdoor areas contain numerous
pari-mutuel windows, odds information boards, video monitors, concessions
stands and other amenities. The audio/visual system includes over 600
television monitors with most areas providing multi-screen viewing of the
races.

The Racetrack is located approximately 25 miles southwest of downtown
Minneapolis. The area immediately surrounding the Racetrack consists
primarily of partially developed industrial park and farm land. However, the
Racetrack is in reasonable proximity to a number of major entertainment
destinations including: Valleyfair, an amusement park about two miles from
the Racetrack which annually attracts approximately one million visitors
during the spring and summer; the Renaissance Festival, a seven-weekend late
summer attraction attracting approximately 315,000 visitors, located about
five miles from the Racetrack; and Mystic Lake Casino, located about three
miles from the Racetrack, which draws approximately 4.5 million patrons
annually. Approximately 20 miles from the Racetrack is the Mall of America,
the largest enclosed shopping mall in the United States, which attracts
approximately 40 million visitors per year.

Racing Surfaces.

The racing surfaces consist of a one-mile oval dirt/limestone track and a 7/8
mile oval turf track. The dirt track is lighted for night racing. The dirt
track includes a mile and one-quarter front stretch chute, a 6-1/2 furlong
backstretch chute and a quarter horse chute.

Grandstand.

The grandstand is a modern, air-conditioned, enclosed structure of
approximately 275,000 square feet with a variety of facilities on six levels.
The Lower Level contains space for support functions such as jockey quarters,
administrative offices, Racing Commission offices, the mutuels department,
concession and maintenance offices, first aid, mechanical and electrical
rooms. The Track Level includes mutuels windows, restrooms, a variety of
concession stands and other services. A large area of the track level is used
as a simulcast center during live racing and is utilized for banquets and
other events during the off-season. The Mezzanine Level contains 1,320 fixed
seats in a glass-enclosed, air-conditioned area and an additional 3,000 seats
located outside. In addition to the seats, the Mezzanine Level contains
mutuel windows, restrooms, concession stands and other guest facilities. The
Kitchen Level is an intermediate level located between the Mezzanine and
Clubhouse floors; it contains a full-service kitchen which can support a full
dining menu for the track-side dining terraces on the Clubhouse Level and to
prepare food for the other concession areas. The Clubhouse Level is a
multi-purpose area serving as a simulcast center during wagering sessions on
televised races, as well as a full-service dining area during the live racing
season. The Clubhouse Level includes 325 trackside tables, each equipped with
a television set, with a total seating capacity of 1,200 patrons and an
additional 1,000 seats are located in lounges located throughout the area. An
additional feature of the Clubhouse Level is a special club area which
includes 225 dining seats, a party room and a large bar and lounge. The Press
Box/Officials' Level is located in the roof trusses over the Clubhouse and
contains work areas for the press, racing officials, closed-circuit
television, photo-finish and the track announcer. In addition, the grandstand
was structurally built to accommodate skyboxes under the Press Box/Officials'
Level, although none have yet been constructed. Escalators and elevators are
available to move patrons among the various levels within the grandstand.

<PAGE>

Other Viewing Areas.

In addition to the grandstand, patrons can watch races from the following
outdoor areas: the apron, or standee ramp, between the grandstand and the
racetrack and a large picnic area immediately north of the grandstand. These
areas have concession stands and mutuel windows nearby.

Grounds; Saddling Paddock Area.

The grounds surrounding the grandstand are extensively landscaped. Located
near the main entrance behind the grandstand is a European-style paddock area
where patrons can observe the jockey mounting and the post parade.

Barn and Backside Facilities.

The stable area consists of 33 barns with a total of approximately 1,650
stalls. In the stable area, there are 216 dormitory rooms for the grooms and
others working at the Racetrack. The stable area also contains a combination
racing office and cafeteria/recreation building for stable personnel, two
blacksmith buildings and space for a future veterinarian hospital.

Parking.

Approximately 7,500 paved parking spaces are available for patron and
employee automobiles at the Racetrack, including parking spaces that are
reserved for physically challenged patrons. The Racetrack also has unpaved
areas available for overflow parking for approximately 5,000 additional
automobiles. Areas are also reserved for bus parking.

Insurance.

The Company maintains insurance on its facilities in amounts it believes are
sufficient.

Other Properties.

Approximately 50 acres of the 325 acres owned by the Company are not
necessary for racing operations. This property, adjacent to the Racetrack, is
undeveloped and could be sold in whole or in part, depending upon future
opportunities. The Company regularly evaluates other business activities that
would maximize the use of the real estate surrounding the Racetrack and which
would complement the Company's prime venture of horse racing.

Item 3. LEGAL PROCEEDINGS

Not Applicable.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not Applicable.

<PAGE>

PART II

Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) MARKET INFORMATION

The Company's Common Stock, Warrants and Units (each Unit consisting of
one share of common stock and one warrant to purchase one share of common
stock) are traded on the NASDAQ system under the symbols TRAK, TRAKW and
TRAKU, respectively. On August 25, 1994 the Company completed a public
offering of 1,250,000 Units at a price of $4.00. From August 17, 1994 through
December 5, 1994, only the Units traded on the NASDAQ system. Commencing
December 5, 1994, the Units, Common Stock and Warrants began trading
separately. The table set forth below indicates the low and high bid prices
for the Units, Common Stock and Warrants for the years ended December 31,
1996 and 1995. These prices indicate interdealer prices without retail
markup, markdowns or commissions.

<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------

<S> <C> <C> <C> <C>
LOW HIGH LOW HIGH
--------- --------- --------- ---------

Units

First Quarter................................................................. $ 1 1/2 $ 2 7/8 $ 2 $ 2 3/8

Second Quarter.................................................................... 2 3 3/4 2 1/4 3

Third Quarter................................................................. 2 1/2 3 3/4 2 1/2 3 1/4

Fourth Quarter................................................................ 2 1/16 2 3/4 1 1/2 2 1/2

Common Stock

First Quarter................................................................. 1 3/8 2 5/8 1 3/4 2 1/8

Second Quarter................................................................ 1 1/8 3 3/8 1 7/8 2 1/2

Third Quarter................................................................. 2 1/4 3 1/4 2 1/4 3

Fourth Quarter................................................................ 2 2 5/8 1 3/8 2 3/8

Warrants

First Quarter................................................................. 1/16 3/8 1/8 5/16

Second Quarter................................................................ 1/4 9/16 1/4 7/8

Third Quarter................................................................. 1/4 1/4 3/8 3/8

Fourth Quarter................................................................ 1/16 1/4 1/16 3/8

</TABLE>

(b) HOLDERS

At March 17, 1997, the Company had 322 holders of record of its common
stock. In addition, on that date two depository companies held approximately
1,345,020 shares as nominees for an undetermined number of additional
beneficial holders.

The Company has not paid any dividends on its common stock and does not
anticipate paying any in the foreseeable future.

<PAGE>

ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

Canterbury Park Holding Corporation (the "Company") owns and operates
Canterbury Park (the "Racetrack"), the only pari-mutuel horse racing facility
in the State of Minnesota. The Company's revenues for the years ended
December 31, 1996 and 1995 were derived primarily from pari-mutuel take-out
on races simulcast year-round to Canterbury Park from racetracks throughout
the country, and on live Thoroughbred and Quarter Horse races at the
Racetrack. During 1996 and 1995 the Company conducted 312 and 309 days of
simulcast racing, respectively. The Company hosted 55 and 51 day live race
meets in 1996 and 1995, respectively. These live race meets commenced in the
month of May and concluded in August. During these live race meets, the
Company earns additional pari-mutuel revenue from broadcasting
("simulcasting") its races to out-of-state racetracks around the country. In
addition to pari-mutuel revenues, the Company generates revenues from
admissions, parking, program sales, concession sales, special events,
advertising and other sources.

On April 11, 1996, legislation became effective in Minnesota which,
beginning July 1, 1996, exempted the first $12 million of pari-mutuel revenue
from the 6% pari-mutuel tax. The legislation is effective until July 1, 1999 and
benefits the horsepersons' purse fund as well as the Company during a
statutorily mandated twelve month period, beginning July 1 and ending the
following June 30. Effective July 1, 1996, pari-mutuel taxes have been estimated
for the 12 month period from July 1, 1996 through June 30, 1997, and an
estimated annual effective tax rate has been applied to pari-mutuel commission
and breakage revenues generated since July 1, 1996.

The legislation referred to above also provides that winning pari-mutuel
tickets which are not cashed within one year of the end of the respective race
meet will become the property of the Company. The legislation is effective
through December 31, 1999 after which uncashed winning tickets will again be
remitted to the State of Minnesota. The Company is recording revenue associated
with the uncashed winning tickets at the time, based on historical experience,
that management can reasonably estimate the amount of additional winning tickets
from a race meet that will be presented for payment. For the twelve months ended
December 31, 1996, total uncashed winning ticket revenue included in pari-mutuel
revenues totalled approximately $180,000.

Results of Operations for the years ended December 31, 1996 and December 31,
1995:

In 1996, the Company successfully completed its second live racing meet
featuring an entertaining and competitive stable of horses and jockey colony,
with the full cooperation of the horsepersons' organizations. Net income for the
year ended December 31, 1996 was $71,149, compared to a net loss of $889,100 for
the year ended December 31, 1995. This significant improvement in operations was
accomplished primarily due to reductions in expenses, particularly pari-mutuel
tax expense, salaries and benefits, costs of repairs, maintenance & supplies and
other operating expenses. Experience gained during the 1995 live race meet
enabled the Company to reduce expenses, particularly labor costs during the 1996
live race meet. The Company is the first owner of the Racetrack to ever report
net income for a fiscal year in which live racing was conducted.

<PAGE>

The following table summarizes operating data for the years ended
December 31, 1996 and December 31, 1995:

Summary of Operating Data:

<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>

Racing Days

Simulcast only days.................................... 261 254

Live and simulcast days................................ 51 55
----------- -----------
Total Racing Days...................................... 312 309

Attendance

Simulcast only days.................................... 132,000 135,000

Live and simulcast days................................ 192,000 218,000
----------- -----------
Total Attendance....................................... 324,000 353,000

On-Track Handle

Simulcast only days.................................... $ 42,136,000 $ 40,581,000

Live and simulcast days

Live racing............................................ 12,251,000 14,287,000

Simulcast racing....................................... 10,396,000 11,675,000

Out-of-state Live Handle............................... 9,895,000 3,339,000
----------- -----------
Total Handle...........................................$ 74,678,000 $ 69,882,000

Average Daily Attendance

Simulcast only days.................................... 506 531

Live and simulcast days................................ 3,765 3,963

On-Track Per Capita Wagering

Simulcast only days.................................... $ 319 $ 301

Live and simulcast days................................ 118 119

On-Track Average Daily Handle

Simulcast only days.................................... $ 161,441 $ 159,768

Live and simulcast days................................ 444,059 472,036
</TABLE>

Total operating revenues for the years ended December 31, 1996 and December
31, 1995 were $17,371,005 and $17,651,606, respectively.

Total pari-mutuel revenues increased .6% from $13,400,712 in 1995 to
$13,487,640 in 1996. Pari-mutuel revenues derived from simulcasting increased
1.9% to approximately $10,407,000 from approximately $10,215,000 in 1995. This
change was consistent with the change in simulcast handle, which increased to
$52,532,000 in 1996, compared to $52,256,000 in 1995.

On-track wagering on live races at the Racetrack decreased by
approximately $2 million, or 14.3%, to approximately $12,251,000 in 1996 from
approximately $14,287,000 in 1995. Consequently, pari-mutuel revenue from
these live races decreased by 15.3% from approximately $3.1 million in 1995,
to $2.6 million in 1996. Most of this decrease is attributed to four fewer
live racing days in 1996 (51 days in 1996, compared to 55 days in 1995).
While on-track average daily handle decreased to $444,059 in 1996 from
$472,036 in 1995, the on-track per capita wagering remained steady on days
when both live and simulcast racing were conducted.

<PAGE>

Pari-mutuel revenue from simulcasting the Racetrack's live races to
out-of-state racetracks totalled $282,670 in 1996 compared to $94,224 in 1995.
The Racetrack receives amounts ranging from 2.50% to 3.00% of amounts wagered at
out-of-state racetracks as a "Guest fee". The handle wagered at out-of-state
racetracks was $9,895,000 in 1996, 196% greater than the $3,339,000 wagered
out-of-state in 1995. This increase in import handle is attributable to changes
in post times. In 1995 the live racing post times were 2:00 pm on Saturdays,
Sundays and holidays, and 4:00 pm on Thursdays and Fridays. In 1996 thoroughbred
post times for Sundays and holidays remained at 2:00 pm. The Company changed the
post times on Thursdays, Fridays and Saturdays to 6:30 pm to enhance on-track
race attendance and handle and to provide a more attractive time slot for
out-of-state simulcast guest tracks who elect to take the Company's simulcast
signal.

Revenues earned related to uncashed winning tickets were $180,000 in 1996.
Uncashed winning tickets were remitted to the State of Minnesota during 1995 and
up to April 11, 1996, the date the legislation became effective.

Concession, admission, parking and publication revenues were lower during
the twelve months ended December 31, 1996 compared to the twelve months ended
December 31, 1995 due primarily to lower average daily attendance (refer to
Summary of Operating Data ), and to four fewer live racing days in 1996. In
addition, in 1996, the Company sponsored more free admission or discounted
admission and concession promotions than in 1995.

Total operating expenses decreased 6.8% from $18,328,944 in 1995 to
$17,084,033 in 1996.

Minnesota law requires the Company to segregate a portion of funds received
from wagering on simulcast and live horse races for future payment as purses for
live horse races or other uses of Minnesota's horsepersons' associations. This
purse expense is one of the Company's largest single expense items. The minimum
percentage required by law to be set aside for purses from simulcasting varies
substantially depending on the time of year the simulcasting is conducted. For
the 25-week period beginning in early May, which is the statutorily established
"Racing Season," 50% of net pari-mutuel revenue, before deducting for purses, is
allocated to a fund for the payment of purses during the live meet. For the
remaining 27 weeks of the racing year, November through April, funds accumulate
at the rate of 25% of net pari-mutuel revenue, before deducting for purses, but
after deducting an 8% expense factor. Purse expense as a percentage of the
Company's pari-mutuel commission and breakage revenues increased slightly to
26.8% for the year ended 1996, from 26.1% for the year ended December 31, 1995.
The increase in this percentage is attributed to two factors. First, the
reduction in the pari-mutuel tax, which became effective July 1, 1996, also
benefitted the horsepersons' associations. As a result of this legislation the
Racetrack allocated more funds for purses related to simulcast races from other
racetracks. Second, in 1996 the Racetrack paid approximately $87,000 to the
Minnesota Horsemen's Benevolent and Protective Association (the "MHBPA") for
purses on live races simulcast to out-of-state racetracks. Pursuant to the
agreement with the MHBPA, 50% of the net earnings from import races during the
1996 live meet were paid to the MHBPA. Net earnings are defined as guest fees
received, less the costs of sending the simulcast signal ("uplinking"). In 1995
the unlinking costs exceeded the guest fee revenue and no purse money was earned
by the horsepersons' associations related to simulcasting to out-of-state
racetracks.

Amounts paid to the Minnesota Breeders' Fund are a function of on-track
handle and the decrease is consistent with the decrease in total on-track
handle. Host track fees rose slightly to 3.49% of simulcast handle in 1996
compared to 3.37% in 1995. The host fee is calculated as a percentage of
monies wagered on out-of-state racetracks (generally 2.50% to 4.00%) and is
negotiated with each host track. The Racetrack received simulcast signals
from over 40 different out-of-state racetracks during 1996.

Pari-mutuel taxes decreased $377,529, or 47.2%, to $421,787 for the year
ended December 31, 1996 compared to $799,316 for the year ended December 31,
1995. This decrease is attributed to the legislation enacted in the State of
Minnesota on April 11, 1996 and effective July 1, 1996. The Company has applied
an estimated annual effective tax rate to the pari-mutuel commission and
breakage revenues generated from July 1, 1996 through December 31, 1996.

<PAGE>

Salaries and benefits were approximately $344,000, or 7.9% lower for the
year ended December 31, 1996, compared to the year ended December 31, 1995. The
reduction is attributed to a shorter live race meet in 1996, and to operating
efficiencies gained primarily in the concessions and mutuels areas during the
live meet. In addition, after the 1995 live meet, certain reductions and
consolidations of full-time staff were enacted to reduce wage expenses for the
Company.

Repairs, maintenance and supplies and other operating expenses are
significantly lower in 1996 compared to 1995 due primarily to the significant
repairs and maintenance necessary during 1995 to return live racing to the
Racetrack in May of 1995 for the first time in almost three years.

Advertising and marketing costs were 7.6% lower in 1996 due to increased
focus on expense control in this area. In addition, in 1995 significant
advertising expenditures were necessary to notify racing patrons that live
racing was returning to the Racetrack. A patron database developed during that
inaugural live meet allowed the Racetrack to contact patrons via direct mail in
1996, reducing the need for mass media advertising.

Interest expense relates primarily to amounts due to the Company's 35%
shareholder under a line of credit agreement and to amounts due to the MHBPA for
purses. The average daily balance of amounts due under the line of credit were
approximately $1,855,000 and $1,643,000 for the years ended December 31, 1996
and December 31, 1995, respectively. The weighted average rate of interest on
the line of credit was 10.45% and 10.99% for 1996 and 1995, respectively. The
contractual rate of interest on the line of credit is prime rate plus 2%. The
average daily balance of amounts due to the MHBPA were approximately $473,000
and $461,000, for the years ended December 31, 1996 and 1995, respectively. The
weighted average rate of interest on the amounts due to the MHBPA was 8.27% and
8.87% for 1996 and 1995, respectively. The interest rates on the line of credit
and the MHBPA liability were 10.25% and 8.25%, respectively, at December 31,
1996.

Liquidity and Capital Resources:

During the year ended December 31, 1996, cash provided by operating
activities was $977,941, which resulted principally from depreciation and
amortization of $811,509, net income of $71,149 and a decrease in accounts
receivable and current assets of $75,250. During the year ended December 31,
1995, cash used in operating activities was $401,459, which resulted principally
from a net loss of $889,100, an increase in accounts receivable and other
current assets of $137,361, and a decrease in accrued property taxes of
$613,318, which were partial offset by depreciation and amortization of
$748,312, an increase in accounts payable and accrued expenses of $285,274 and
an increase in the payable to horsepersons of $121,344.

Cash used in financing activities was $774,787 for the year ended
December 31, 1996, which represents the net payments on the Company's line of
credit with its majority shareholder of $817,555, offset by proceeds of
$42,768 from the issuance of common stock due primarily to the exercise of
options. During 1995, cash provided by financing activities was $1,312,880,
which was the net amount of advances on the company's line of credit with its
majority shareholder. For fiscal 1996, net cash used in investing activities
was $295,054 which consisted of $362,584 for capital expenditures, primarily
consisting of equipment and building improvements, offset by proceeds from
the sale of equipment of $67,530. For fiscal 1995, net cash used in investing
activities was $846,109 for capital expenditures, primarily purchases of
video production equipment needed for live racing. The Company estimates that
it will spend approximately $300,000 for capital expenditures during fiscal
year 1997.

Minnesota law requires the Company to segregate a portion of funds (recorded
as statutory purses in the statement of operations), received from 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 has transferred into a trust account or paid
directly to the MHBPA, approximately $3,164,000 and $3,037,000 for the years
ended December 31, 1996 and 1995, respectively, 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. The amounts due the MHBPA were
$553,190 and $487,054 at December 31, 1996 and 1995, respectively, and are
guaranteed by the Company's 35% shareholder. The interest rates on any statutory
purses accrued but not transferred into the trust were 8.25% and 8.75% at
December 31, 1996 and 1995, respectively.

<PAGE>

The Company believes that the cash to be generated from operations, together
with funds available under its $3,000,000 line of credit with Mr. Curtis
Sampson, the Company's 35% shareholder, will be sufficient to satisfy its
liquidity and capital resource requirements for the next twelve months. The
Company anticipates that it will pay down a portion of the borrowings under the
line of credit with funds generated from operations and borrow additional
amounts under the line of credit as funds are needed for working capital
purposes. The Company is also negotiating a credit facility from a traditional
lender to replace the line of credit with Mr. Sampson. Mr. Sampson has advised
the Company that if it is unable to obtain a credit facility from a traditional
lender, then he will keep his line of credit in place through at least March 31,
1998. As of March 17, 1997, borrowings under the line of credit had been reduced
to approximately $839,000.

Cash flows from operations in 1997 are anticipated to be greater than cash
flows in 1996 because the legislation effecting pari-mutuel taxes and uncashed
winning tickets will be effective for the entire fiscal year.

Operating Plan:

In 1996 the Company was successful in conducting its second live race meet
in two years. The Company competes with racetracks located throughout the United
States in securing the better quality horses to run at the Racetrack. Attracting
the owners and trainers of better quality horses is largely influenced by the
ability to offer large purses. By reducing the number of racing days and
utilizing purse monies from simulcasting and live race wagering, the Company was
able to offer purses during its 1996 live racing season which were comparable to
other midwestern racetracks.

The Company plans a live race meet in 1997 which will consist of a 26-day
mixed meet of Thoroughbred and Quarter Horse racing, a 27-day Thoroughbred only
meet, and three days of live harness racing over Labor Day weekend.

The Company's ability to operate profitably in 1997 will largely depend on
its ability to maintain levels of attendance and wagering handle for live and
simulcast racing at levels similar to 1996. The Company will also need to
maintain operating expenses at levels similar to 1996. In addition, the Company
is focusing on special events and maximizing the potential of the facility
year-round. Legislation which became effective in 1996 relating to the
pari-mutuel tax and uncashed winning tickets will supplement cash flows in 1997,
the first full fiscal year that the legislation will be in effect.

Legislation was recently introduced at the 1997 Minnesota Legislative
Session which would permit the Minnesota State Lottery to operate up to 1,500
video lottery terminals (VLTs) at the Canterbury Park Racetrack. The proposal
is structured to help support four key goals: (1) to create a sports
infrastructure fund from which revenue would become available to finance some
or all of a new outdoor ballpark for the Minnesota Twins, and restoration of
the Metrodome for the Minnesota Vikings and the St. Paul Civic Center for
professional hockey; (2) to expand the Racetrack by attracting new visitors;
(3) to rebuild the horse industry in Minnesota by requiring 8.4% of the net
proceeds from the VLTs to be allocated to live horse racing purses, thereby
attracting better horses and better competition; and (4) to fund
environmental needs by dedicating 40% of the net proceeds to the
Environmental Trust Fund as required by the Minnesota constitution. No
assurance can be given that the proposed legislation will be enacted and, if
enacted, the Company is unable to provide any estimates as to the financial
impact this legislation would have on the Company.

<PAGE>

Factors Affecting Future Performance:

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 comment on anticipated future financial
performance. Such forward looking statements, including statements contained in
this Report on Form 10-KSB, are subject to risks and uncertainties which may
adversely affect future financial performance, including, but not limited to,
fluctuations in attendance at the Racetrack, changes in the level of wagering by
patrons, legislative and regulatory changes, the impact of wagering products
introduced by competitors, higher than expected expenses, and other risks
applicable to the horse racing industry generally.

ITEM 7. FINANCIAL STATEMENTS

The following financial statements of the Company are set forth on pages 18
through 28 of the Form 10-KSB:

Independent Auditors' Report........................................................... 18

Consolidated Balance Sheets as of December 31, 1996 and 1995........................... 19

Consolidated Statements of Operations for the years ended December 31, 1996 and
December 31, 1995.................................................................... 20

Consolidated Statements of Changes in Stockholders' Equity for the years ended December
31, 1996 and December 31, 1995....................................................... 21

Consolidated Statements of Cash Flows for the years ended December 31, 1996 and
December 31, 1995.................................................................... 22

Notes to Consolidated Financial Statements for the years ended December 31, 1996 and
December 31, 1995.................................................................... 23
</TABLE>

<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors
Canterbury Park Holding Corporation
Shakopee, Minnesota

We have audited the accompanying consolidated balance sheets of
Canterbury Park Holding Corporation and subsidiary (the Company) as of
December 31, 1996 and 1995 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended December
31, 1996 and 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes the
examining, on a test basis, evidence supporting the amounts and disclosures
in the consolidated financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Canterbury
Park Holding Corporation and subsidiary as of December 31, 1996 and 1995 and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.

March 7, 1997
Minneapolis, Minnesota

<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

ASSETS

CURRENT ASSETS:

Cash................................................................... $ 296,671 $ 388,571

Accounts receivable.................................................... 186,834 237,928

Inventory.............................................................. 72,731 88,806

Deposits............................................................... 20,000 20,250

Prepaid expenses....................................................... 81,367 89,198
------------ ------------

Total current assets................................................. 657,603 824,753

PROPERTY AND EQUIPMENT, net (Note 2)..................................... 8,631,754 9,143,662

INTANGIBLE ASSETS, net of accumulated amortization of $9,925 and $5,378,
respectively........................................................... 12,775 17,322
------------ ------------

$ 9,302,132 $ 9,985,737
------------ ------------
------------ ------------

LIABILITY AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable....................................................... $ 623,930 $ 672,800

Accrued wages and payroll taxes........................................ 161,272 144,052

Accrued interest....................................................... 149,387 109,340

Advance from shareholder (Note 5)...................................... 1,609,754 2,427,309

Accrued property taxes................................................. 370,916 386,124

Payable to horsepersons (Note 1)....................................... 560,555 533,711
------------ ------------

Total current liabilities............................................ 3,475,814 4,273,336

COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)

STOCKHOLDERS' EQUITY (Note 4): Common stock, $.01 par value, 10,000,000
shares authorized, 2,961,382 and 2,939,271, respectively, shares issued
and outstanding........................................................ 29,614 29,393

Additional paid-in capital............................................... 7,879,551 7,837,004

Accumulated deficit...................................................... (2,082,847) (2,153,996)
------------ -------------

Total stockholders' equity........................................... 5,826,318 5,712,401
------------ ------------
</TABLE>

See notes to consolidated financial statements.

19
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1996 AND 1995

OPERATING REVENUES:

Pari-mutuel.................................................. $ 13,487,640 $ 13,400,712

Concessions.................................................. 2,138,896 2,233,862

Admissions and parking....................................... 581,304 778,917

Publications................................................. 823,818 867,107

Other operating revenue...................................... 339,347 371,008
------------- -------------

17,371,005 17,651,606

OPERATING EXPENSES:

Pari-mutuel expenses:

Statutory purses........................................... 3,483,674 3,455,518

Host track fees............................................ 1,825,999 1,772,482

Pari-mutuel taxes.......................................... 421,787 799,316

Minnesota Breeders' Fund................................... 679,404 690,530

Salaries and benefits........................................ 4,004,104 4,348,378

Cost of sales related to concessions......................... 636,231 641,348

Cost of sales related to publications........................ 913,331 939,541

Depreciation and amortization................................ 811,509 748,312

Repairs, maintenance and supplies............................ 402,753 630,952

Property taxes............................................... 369,824 352,861

Advertising and marketing.................................... 968,375 1,048,127

Utilities.................................................... 648,514 633,743

Other operating expenses..................................... 1,918,528 2,267,836
------------- -------------

17,084,033 18,328,944

NONOPERATING (EXPENSES) REVENUES:

Interest expense (Note 5).................................... (228,355) (225,481)

Other, net................................................... 12,532 13,719
------------- -------------

(215,823) (211,762)
------------- -------------

NET INCOME (LOSS).............................................. $ 71,149 $ (889,100)
------------- -------------
------------- -------------

1996 1995
------------- -------------

WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING.................................................. 2,948,977 2,939,271
------------- -------------
------------- -------------

NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE....... $ .02 $ (.30)
------------- -------------
------------- -------------

</TABLE>

See notes to consolidated financial statements.

20
<PAGE>

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
NUMBER ADDITIONAL PAID-IN ACCUMULATED
OF SHARES COMMON STOCK CAPITAL DEFICIT TOTAL
---------- -------------- ------------------------ ------------------ ------------
<S> <C> <C> <C> <C> <C>

BALANCE AT DECEMBER 31,
1994.................. 2,939,271 $ 29,393 $ 7,837,004 $ (1,264,896) $ 6,601,501

Net loss................ (889,100) (889,100)
---------- -------------- ----------- ------------------ ------------

BALANCE AT DECEMBER 31,
1995.................. 2,939,271 29,393 7,837,004 (2,153,996) 5,712,401

Exercise of stock
options............... 15,000 150 27,975 28,125

Exercise of stock
warrants.............. 100 1 487 488

Shares issued pursuant
to Employee Stock
Purchase Plan......... 7,011 70 14,085 14,155

Net income.............. 71,149 71,149
---------- -------------- ----------- ------------------ ------------

BALANCE AT DECEMBER 31,
1996.................. 2,961,382 $ 29,614 $ 7,879,551 $ (2,082,847) $ 5,826,318
---------- -------------- ----------- ------------------ ------------
---------- -------------- ----------- ------------------ ------------
</TABLE>

See notes to consolidated financial statements.

21
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1996 AND 1995

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss).................................................... $ 71,149 $ (889,100)

Adjustments to reconcile net income (loss) to net cash provided by
(used in) operations:

Depreciation and amortization...................................... 811,509 748,312

Decrease (increase) in accounts receivable......................... 51,094 (104,166)

Decrease (increase) in other current assets........................ 24,156 (33,195)

(Decrease) increase in accounts payable and accrued expenses....... (31,650) 285,274

Increase in accrued interest....................................... 40,047 83,390

Decrease in accrued property taxes................................. (15,208) (613,318)

Increase in payable to horsepersons................................ 26,844 121,344
---------- -----------

Net cash provided by (used in) operations......................... 977,941 (401,459)

CASH FLOWS FROM INVESTING ACTIVITIES:

Additions to property and equipment and other assets............... (362,584) (846,109)

Proceeds from sale of equipment.................................... 67,530
---------- -----------

Net cash used in investing activities............................. (295,054) (846,109)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock............................. 42,768

Net (payments on) proceeds from advance from shareholder........... (817,555) 1,312,880
---------- -----------

Net cash (used in) provided by financing activities............... (774,787) 1,312,880
---------- -----------

NET (DECREASE) INCREASE IN CASH...................................... (91,900) 65,312

CASH AT BEGINNING OF YEAR............................................ 388,571 323,259
---------- -----------

CASH AT END OF YEAR.................................................. $ 296,671 $ 388,571
---------- -----------
---------- -----------

INTEREST PAID IN CASH................................................ $ 188,308 $ 156,465
---------- -----------
---------- -----------
</TABLE>

See notes to consolidated financial statements.

<PAGE>

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1996 AND 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business--Canterbury Park Holding Corporation (the Company) was
incorporated on March 24, 1994. On March 29, 1994 the Company acquired all
the outstanding securities of Jacobs Realty, Inc. (JRI) from Irwin Jacobs and
IMR Fund, L.P. (an investment fund for various pension plans and trusts). JRI
was merged into the Company and the acquisition was accounted for under the
purchase method of accounting whereby the acquired assets and liabilities
have been recorded at the Company's cost. The primary asset of JRI was
Canterbury Downs Racetrack and the 325 acres of surrounding land.

On May 20, 1994, the Company adopted a plan of Reorganization pursuant to
which the sole shareholder of Canterbury Park Concessions, Inc. (CPC), and
majority shareholder of the Company, agreed to exchange his shares of CPC
stock for 198,888 shares of the Company's common stock concurrent with the
closing of a public offering. Pursuant to the Plan of Reorganization, CPC
became a wholly owned subsidiary of the Company in August 1994 when the
Company completed the initial public offering of its common stock. This
reorganization was treated in a manner similar to a pooling of interests. Net
proceeds received by the Company from the public offering were approximately
$4,847,000 which, along with additional borrowings under the Company's line
of credit with the majority shareholder, were used to pay off the remaining
notes payable from the acquisition of JRI.

The consolidated financial statements include the accounts of the Company
and CPC after elimination of intercompany accounts and transactions.

Operations--The Company's revenues are derived primarily from pari-mutuel
wagering on simulcast and live horse races.

Basis of Accounting--The consolidated financial statements have been
prepared assuming that the Company will continue in existence. This
contemplates the realization of assets and settlement of obligations in the
ordinary course of business. The Company has incurred cumulative operating
losses of approximately $2,083,000, and has a working capital deficit of
approximately $2,818,000 at December 31, 1996. During 1996 and 1995, the
Company hosted a number of special events in addition to horse racing in an
effort to increase its cash flows and attain profitability. Management
continues to evaluate additional potential sources of revenue and is also
pursuing alternative financing. Management believes that funds available
under its line of credit, or any other line of credit which replaces it,
along with funds generated from simulcast operations, will be sufficient to
satisfy its liquidity and capital resource requirements during 1997. If the
line of credit is not replaced, the Company's majority shareholder has agreed
not to terminate the line of credit prior to March 31, 1998.

Estimates--The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles 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.

Depreciation--Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets, generally 5 to 39 years.

Intangible Assets--Intangible assets consist of organization and trademark
costs and are amortized on a straight-line basis over 60 months.

23
<PAGE>

Uncashed Winning Tickets--On April 11, 1996, legislation became effective
in Minnesota whereby winning pari-mutuel tickets which are not cashed within
one year of the end of the respective race meet will become the property of
the Company. The legislation is effective through December 31, 1999 after
which uncashed winning tickets will again be remitted to the State of
Minnesota. The Company will record revenue associated with the uncashed
winning tickets at the time that, based on historical experience, management
can reasonably estimate the amount of additional winning tickets from a race
meet that will be presented for payment.

Pari-mutuel Taxes--The legislation referred to above also provides that,
beginning July 1, 1996, the first $12 million of pari-mutuel revenue would be
exempt from the 6% pari-mutuel tax. The legislation is effective until July
1, 1999 and benefits the horsepersons' purse fund as well as the Company.
Effective July 1, 1996, parti-mutuel taxes will be estimated for each 12
month period from July 1 through June 30, and an estimated annual effective
tax rate will be applied to all pari-mutuel commission and breakage revenues.

Payable to Horsepersons--The Minnesota Pari-Mutuel Horse Racing Act
specifies that the Company is required to segregate a portion of funds
(recorded as statutory purses in the statements of operations), received from
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 has transferred into a trust account
or paid directly to the MHBPA, approximately $3,164,000 and $3,037,000 for
the years ended December 31, 1996 and 1995, respectively, related to
Thoroughbred races. Amounts due to the MHBPA are guaranteed by the Chairman
of the Board. Minnesota Statutes specify that amounts transferred into the
trust account are the property of the trust and not of the Company. The
interest rates on any statutory purses accrued but not transferred into the
trust were 8.25% and 8.75% at December 31, 1996 and 1995, respectively.

Short-Term Borrowings--The weighted average interest rates on short-term
borrowings at December 31, 1996 and 1995 are 9.74% and 10.42%, respectively.
The weighted average rates for 1996 and 1995 were 10.00% and 10.53%,
respectively.

Income Taxes--Prior to the completion of the Company's initial public
offering of its common stock, the Company was taxed as a "small business
corporation" under Subchapter S of the Internal Revenue Code. As a result,
any income tax liability or benefit was being passed through to the
individual shareholders and no income taxes payable or income tax expenses
were recorded in the consolidated financial statements. Simultaneous with the
Company's completion of the public offering of its common stock, the
Company's Subchapter S election was terminated. A portion of the losses
accumulated prior to the public offering is not available to offset future
earnings. The Company currently accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes.

Income (Loss) Per Common and Common Equivalent Share--The income (loss)
per share is based on the weighted average number of common and common
equivalent shares outstanding. All stock options and warrants granted after
the date of the initial filing of the registration statement have been
excluded from the computation because the impact of the incremental shares is
antidilutive under the modified treasury stock method.

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
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. To date, management has determined that no impairment of these
assets exists.

24
<PAGE>

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:

Land.............................................................. $ 2,713,710 $ 2,713,710

Buildings and building improvements............................... 2,754,502 2,642,067

Furniture and equipment........................................... 5,145,010 4,973,958
------------ ------------

10,613,222 10,329,735

Less accumulated depreciation..................................... (1,981,468) (1,186,073)
------------ ------------

$ 8,631,754 $ 9,143,662
------------ ------------
------------ ------------
</TABLE>

3. INCOME TAXES

A reconciliation between income taxes computed at the statutory federal
income tax rate and the effective tax rate is as follows:

Federal tax expense (benefit) computed at statutory rates............. $ 25,000 $(311,000)

(Decrease) increase in valuation allowance............................ (41,000) 368,000

Nondeductible lobbying expense........................................ 12,000

State expense (benefit) net of federal impact......................... 6,000 (55,000)

Other................................................................. (2,000) (2,000)
---------- ----------

$ - $ -
---------- ----------
---------- ----------

Temporary differences, tax carryforwards and the valuation allowance at
December 31 are as follows:

1996 1995
---------- ----------

Operating loss carryforward........................................... $ 683,000 $ 632,000

Tax depreciation greater than book depreciation....................... (272,000) (194,000)

Organizational and start-up costs..................................... 54,000 77,000

Repairs capitalized................................................... 17,000 22,000

Other................................................................. 20,000 6,000

Valuation allowance................................................... (502,000) (543,000)
---------- ----------

$ - $ -
---------- ----------
---------- ----------
</TABLE>

The benefit of deferred tax assets has been offset by a valuation
allowance at December 31, 1996 and 1995 because future realization is
uncertain. At December 31, 1996, the Company has federal income tax net
operating loss carryforwards of approximately $1,649,000 which expire in
years 2009 through 2011.

4. STOCKHOLDERS' EQUITY

EMPLOYEE STOCK PURCHASE PLAN:

On April 3, 1995, the Board of Directors adopted the 1995 Employee Stock
Purchase Plan. The plan, which is open to all employees of the Company
working more than 15 hours per week, commenced on April 15, 1995 and will
continue for ten years. The plan consists of one-year phases. The first phase
began on October 1, 1995. Under the terms of the plan, employees may set
aside a portion of their payroll earnings to purchase shares of the Company's
common stock at the lower of 85% of the fair market value

25
<PAGE>

of the shares on the commencement date of each phase or 85% of the fair
market value on the termination date of each phase. The plan provides for the
sale of up to 100,000 shares, 7,011 of which were issued in 1996.

Stock Options:

The Company has a stock option plan (the Stock Option Plan) which
provides for the granting of awards in the form of stock options, restricted
stock, stock appreciation rights, and deferred stock to key employees and
nonemployees, including directors of and consultants to the Company and any
subsidiary, to purchase up to a maximum of 250,000 shares of common stock.
Options that are granted under the plan may be either options that qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (Incentive Stock Options), or those that do
not qualify as Incentive Stock Options (Non-Qualified Stock Options). The
plan is administered by the Board of Directors, or a committee designated by
the Board, which determines the persons who are to receive awards under the
plan, the type of award to be granted, the number of shares subject to each
award and, if an option, the exercise price of each option. The plan also
provides for formula grants of Non-Qualified Stock Options to nonemployee
directors of the Company.

Stock option activity related to the Plan during the years ended December
31, 1996 and 1995 is summarized below:

<TABLE>
<CAPTION>
1996 1995
---------------------------- --------------------------

WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ----------------- --------- ---------------

Outstanding at beginning of year.......................... 117,000 $ 3.04 63,000 $ 4.00

Granted................................................... 73,000 2.04 54,000 1.92

Exercised................................................. (15,000) 1.88

Canceled.................................................. (3,000) 1.75
--------- ----- --------- -----

Outstanding at end of year................................ 172,000 $ 2.74 117,000 $ 3.04
--------- ----- --------- -----
--------- ----- --------- -----

Options exercisable at end of year........................ 143,000 $ 2.52 93,000 $ 3.34
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>

In addition to options granted under the plan, in June 1994 the Company
issued options to purchase 73,000 shares of common stock to certain
individuals who were instrumental in assisting the Company commence
operations. These options are currently exercisable at $3.00 per share and
expire in June 1998.

The Chairman of the Board has an option (which expires in May 1998) to
purchase 51,825 shares at $2.64 per share at December 31, 1996.

At December 31, 1996, the weighted average remaining contractual life of
all options was 49 months.

In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." As permitted
by SFAS 123, the Company has elected to continue following the guidance of
APB 25 for measurement and recognition of stock-based transactions with
employees. No compensation cost has been recognized for stock options issued
under the Stock

26
<PAGE>
Option Plan because the exercise price of all options granted
was at least equal to the fair value of the common stock at the date of
grant. If compensation cost for the Company's stock option and employee stock
purchase plans had been determined based on the fair value at the grant
dates, consistent with the method provided in SFAS 123, the Company's net
income (loss) and earnings (loss) per share would have been as follows:

Net Income (Loss):

As reported.................................................. $ 71,149 $ (889,100)

Pro forma......................................................... (43,622) (928,769)

Earnings (Loss) Per Share:

As reported....................................................... $ .02 $ (.30)

Pro forma......................................................... (.01) (.32)
</TABLE>

The fair value of options granted under the Stock Option Plan during 1996
and 1995 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions and
results:

Dividend yield......................................................... None None

Expected volatility.................................................... 88% 67%

Risk-free interest rate................................................ 5.86% 7.58%

Expected life of option................................................ 120 mo. 67 mo.

Fair value of options on grant date.................................... $ 130,722 $ 67,132
</TABLE>

Warrants:

In 1994, the Company issued warrants to purchase 400,000 shares of common
stock to the Company's founders in consideration for services performed. The
warrants expire in August 1998 and are exercisable at $4.00 per share. Also,
there are currently outstanding warrants to purchase 1,437,400 shares of common
stock related to the initial public offering which are exercisable at $4.88 per
share and expire in August 1998. Warrants to purchase 100 shares were exercised
in 1996.

In addition to the above, the Company's selling agents have a warrant to
purchase 125,000 units (each unit consisting of one share of common stock and
one warrant to purchase one share of common stock) at an exercise price of $4.80
per unit which expires in August 1998.

The Company's Articles of Incorporation provide that the Company may redeem,
at fair market value, securities held by any person or entity whose status as a
security holder, in the opinion of the Board of Directors of the Company, may
result in the disapproval, modification, or nonrenewal of any contract or the
loss or nonreinstatement from any governmental agency of any license or
franchise held by the Company or any of its subsidiaries, which license or
franchise is conditioned upon some or all of the holders of capital stock
meeting certain criteria.

27
<PAGE>
. LINE OF CREDIT

At December 31, 1996 and 1995, the Company had a $3,000,000 line of
credit arrangement with the Chairman of the Board, of which $1,609,754 and
$2,427,309 were outstanding, respectively. The interest rate for borrowings
under the line of credit is prime plus 2%. The line of credit may be canceled
on 90 days notice. Interest charged to operations under this line of credit
was approximately $194,000 and $181,000 for the periods ended December 31,
1996 and 1995, respectively.

6. OPERATING LEASES AND COMMITMENTS

The Company leased certain copying equipment under an operating lease
which required monthly payments of $5,500. This lease expired in May 1996.
Rental expenses charged to operations were approximately $27,500 and $66,000
for the periods ended December 31, 1996 and 1995, respectively.

In addition, the Company entered into a five-year totalizator services
agreement with Autotote Systems, Inc. (Autotote) in May 1994. Pursuant to the
agreement, Autotote provides totalizator equipment and computer programs
which record and process all wagers and calculate the odds and payoffs. For
such services, Autotote receives a fee of approximately .35% of the gross
monies wagered. Amounts charged to operations under this agreement for the
years ended December 31, 1996 and 1995 were approximately $291,000 and
$277,000, respectively. During the 1996 and1995 live race meets, Autotote
provided uplink services which enabled the Company to simulcast horse races
held at Canterbury Park to out-of-state racetracks. These services were
provided at a rate of approximately $2,000 per day, resulting in an amount
charged to operations in 1996 and 1995 of approximately $102,000 and
$110,000, respectively. A director of the Company is the regional sales
manager of Autotote.

7. CONTINGENCIES

In connection with the purchase of JRI (note 1), the company entered into
an Earn Out Promissory Note dated March 29, 1994. In accordance with the Earn
Out Note 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 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 recorded as an increase to the
purchase price. 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.

8. RELATED-PARTY TRANSACTIONS

The president/director and two other directors have guaranteed
performance by the Company under a $500,000 bond issued to the Minnesota
Racing Commission.

In 1996 and 1995, the Company paid $40,000 to a Board member for
advertising and marketing services provided to the Company.

28
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT

Information required under this item with respect to the directors will
be set forth in a section captioned "Election of Directors" in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on June 5,
1997 (the "1997 Proxy Statement"), a definitive copy of which will be filed
with the Commission within 120 days of the close of the past fiscal year,
which information is incorporated herein by reference. Information regarding
executive officers is presented under Item 1 herein.

ITEM 10. EXECUTIVE COMPENSATION

Information required under this item will be set forth in a section
entitled "Executive Compensation" in the Company's 1997 Proxy Statement which
information is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required under this item will be set forth in a section
entitled "Shareholdings of Principal Shareholders and Management" in the
Company's 1997 Proxy Statement which information is incorporated herein by
reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required under this item will be set forth in a section
entitled "Certain Transactions" in the Company's 1997 Proxy Statement which
information is incorporated herein by reference.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits. See Exhibit Index at page 31 which is incorporated herein by
reference. Exhibits that cover management contracts or compensatory plans or
arrangements are marked with an asterisk (*) on the Exhibit Index.

(b) Reports on Form 8-K. The Company filed no reports on Form 8-K during
1996.
29

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: March 24, 1997

CANTERBURY PARK HOLDING CORPORATION

BY /S/ RANDALL D. SAMPSON
-----------------------------------------
Randall D. Sampson
PRESIDENT AND CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the date set forth above.

Power of Attorney

Each person whose signature appears below constitutes and appoints CURTIS
A. SAMPSON, DALE H. SCHENIAN and RANDALL D. SAMPSON as his true and lawful
attorneys-in-fact and agents, each acting alone, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this Annual Report
on Form 10-KSB and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all said attorneys-in-fact and agents, each acting
alone, or his substitute or substitutes, may lawfully do or cause to be done
by virtue thereof.

SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------

/s/ CURTIS A. SAMPSON Chairman of the Board March 24, 1997
- ------------------------------
Curtis A. Sampson

/s/ DALE H. SCHENIAN Director; Vice Chairman March 24, 1997
- ------------------------------
Dale H. Schenian

/s/ RANDALL D. SAMPSON Chief Executive Officer, March 24, 1997
- ------------------------------ President*, General Manager,
Randall D. Sampson Treasurer and Director

/s/ BRIAN C. BARENSCHEER Director March 24, 1997
- ------------------------------
Brian C. Barenscheer

/s/ GIBSON CAROTHERS Director March 24, 1997
- ------------------------------
Gibson Carothers

/s/ TERENCE MCWILLIAMS Director March 24, 1997
- ------------------------------
Terence McWilliams

/s/ CARIN OFFERMAN
- ------------------------------ Director March 24, 1997
Carin Offerman

* Chief Financial Officer and Chief Accounting Officer.

<PAGE>

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY

Exhibit Index To Form 10-KSB for the Year Ended December 31, 1996

<TABLE>
<CAPTION>
REGULATION S-B LOCATION IN CONSECUTIVE NUMBERING
EXHIBIT TABLE SYSTEM AS FILED WITH THE SECURITIES
REFERENCE TITLE OF DOCUMENT AND EXCHANGE COMMISSION
- --------------- ------------------------------------------------ ------------------------------------------------
<S> <C> <C>
3.1 Articles of Incorporation, as amended. Filed as Exhibit 3.1 to the Forms SB-2
Registration Statement of the Company, File No.
33-81262C, (the "SB-2 Registration Statement")
and incorporated herein by reference.

3.2 Bylaws, as amended Filed as Exhibit 3.2 to the SB-2 Registration
Statement and incorporated herein by reference.

4.1 Warrant Agreement between the Company and the Filed as Exhibit 4.1 to the SB-2 Registration
Warrant Agent Statement and incorporated herein by reference.

10.1 Plan of Reorganization dated as of May 20, 1994 Filed as Exhibit 10.1 to the SB-2 Registration
between Canterbury Park Holding Corporation and Statement and incorporated herein by reference.
Canterbury Park Concessions, Inc.

10.2 Restated Stock Purchase Agreement Filed as Exhibit 10.2 to the SB-2 Registration
Statement and incorporated herein by reference.

10.3 Letter dated April 4, 1994 from the Minnesota Filed as Exhibit 10.3 to the SB-2 Registration
Horsemen's Benevolent and Protective Statement and incorporated herein by reference.
Association, Inc. to Minnesota Racing Commission
waiving 125 day racing minimum

10.4 Totalizator Services Agreement dated May 2, 1994 Filed as Exhibit 10.4 to the SB-2 Registration
between Autotote Systems, Inc. and Canterbury Statement and incorporated herein by reference.
Park Holding Corporation.

10.5 Stock Option Plan* Filed as Exhibit 10.5 to the SB-2 Registration
Statement and incorporated herein by reference.

10.6 Form of Non-qualified Stock Option Agreement Filed as Exhibit 10.6 to the SB-2 Registration
Statement and incorporated herein by reference.
10.7 Curtis A. Sampson Guaranty to HRA Filed as Exhibit 10.7 to the SB-2 Registration
Statement and incorporated herein by reference.

10.8 Form of Founders' Warrants Filed as Exhibit 10.8 to the SB-2 Registration
Statement and incorporated herein by reference.

10.9 Curtis A. Sampson Warrant Filed as Exhibit 10.9 to the SB-2
Registration Statement and incorporated herein
by reference.

</TABLE>

<PAGE>

<C> <S> <C>
10.10 Line of Credit Agreement dated as of June 17, Filed as Exhibit 10.10 to the SB-2 Registration
1994 between Canterbury Park Holding Corporation Statement and incorporated herein by reference.
and Curtis A. Sampson

10.11 Stock Purchase Savings Plan Filed herewith at page 35.

21 Subsidiary of the Registrant Filed herewith at page 33.

23 Independent Auditors' Consent Filed herewith at page 34.

24 Power of Attorney Included in signature page at page 30.
</TABLE>

- ------------------------

* Denotes an exhibit that covers management contracts or compensatory plans or
arrangements.

The exhibits referred to in this Exhibit will be supplied to a shareholder
at a charge of $.25 per page upon written request directed to Canterbury Park
Holding Corporation at the executive offices of the Company.

<PAGE>

Exhibit 10.11

CANTERBURY PARK HOLDING CORPORATION

1995 EMPLOYEE STOCK PURCHASE PLAN

1. Establishment of Plan. Canterbury Park Holding Corporation (hereinafter
referred to as the "Company") proposes to grant to certain employees of the
Company the opportunity to purchase common stock of the Company. Such common
stock shall be purchased pursuant to the plan herein set forth which shall be
known as the "CANTERBURY PARK HOLDING CORPORATION 1995 EMPLOYEE STOCK PURCHASE
PLAN" (hereinafter referred to as the "Plan"). The Company intends that the Plan
shall qualify as an "Employee Stock Purchase Plan" under Section 423 of the
Internal Revenue Code of 1954, as amended, and shall be construed in a manner
consistent with the requirements of said Section 423 and the regulations
thereunder.

2. Purpose. The Plan is intended to encourage stock ownership by all
employees of the Company and to provide them with further incentive to continue
their employment, improve operations, increase profits, and contribute more
significantly to the Company's success.

3. Administration. The Plan shall be administered by a committee
(hereinafter referred to as the "Committee") consisting of not less than three
directors or employees of the Company (which may be the Compensation Committee
if any is established by the Board of Directors), as designated by the Board of
Directors of the Company (hereinafter referred to as the "Board of Directors").
The Board of Directors shall fill all vacancies in the Committee and may remove
any member of the Committee at any time, with or without cause. The Committee
shall select its own chairman and hold its meetings at such times and places as
it may determine. All determinations of the Committee shall be made by a
majority of its members. Any decision which is made in writing and signed by a
majority of the members of the Committee shall be effective as fully as though
made by a majority vote at a meeting duly called and held. The determinations of
the Committee shall be made in accordance with its judgment as to the best
interests of the Company, its employees and its shareholders and in accordance
with the purposes of the Plan; provided, however, that the provisions of the
Plan shall at all times be construed in a manner consistent with the
requirements of Section 423 of the Internal Revenue Code, as amended. Such
determinations shall be binding upon the Company and the participants in the
Plan unless otherwise determined by the Board of Directors. The Company shall
pay all expenses of administering the Plan. No member of the Board of Directors
or the Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any option granted under it.

4. Duration and Phases of the Plan. (a) The Plan will commence on April 15,
1995 and will terminate ten (10) years thereafter, except that any phase
commenced prior to such termination shall, if necessary, be allowed to continue
beyond such termination until completion. Notwithstanding the foregoing, this
Plan shall be considered of no force or effect and any options granted shall be
considered null and void unless the holders of a majority of all of the issued
and outstanding shares of the common stock of the company approve the Plan
within twelve (12) months before or after the date of its adoption by the Board
of Directors.

(b) The Plan shall be carried out in one or more phases, each phase being
for a period of one year. No phase shall run concurrently, but a phase may
commence immediately after the termination of the preceding phase. The existence
and date of commencement of a phase (the "Commencement Date") shall be
determined by the committee, provided that the commencement of the first phase
shall be within twelve (12) months before or after the date of approval of the
Plan by the shareholders of the Company. In the

35
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY

1995 EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)

event all of the stock reserved for grant of options hereunder is issued
pursuant to the terms hereof prior to the commencement of one or more phases
scheduled by the committee or the number of shares remaining is so small, in the
opinion of the Committee, as to render administration of any succeeding phase
impracticable, such phase or phases shall be canceled. Phases shall be numbered
successively Phase 1, Phase 2, Phase 3, etc.

(c) The Board of Directors may elect to accelerate the termination date of
any phase effective on the date specified by the Board of Directors in the event
of (i) any consolidation or merger of the Company in which the company is not
the continuing or surviving corporation or pursuant to which shares would be
converted into cash, securities or other property, other than a merger of the
company in which shareholders immediately prior to the merger have the same
proportionate ownership of stock in the surviving corporation immediately after
the merger; (ii) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all of the assets
of the Company; or (iii) any plan of liquidation or dissolution of the Company.

5. Eligibility. All Employees, as defined in Paragraph 19 hereof, who are
employed by the Company at lease one day prior to the Commencement Date of a
phase shall be eligible to participate in such phase.

6. Participation. Participation in the Plan is voluntary. An eligible
employee may elect to participate in any phase of the Plan, and thereby become a
"Participant" in the Plan, by completing the Plan payroll deduction form
provided by the Company and delivering it to the Company it its designated
representative prior to the Commencement Date of that phase. Payroll deductions
for a Participant shall commence on the first payday after the Commencement Date
of the phase and shall terminate on the last payday immediately prior to or
coinciding with the termination date of that phase unless sooner terminated by
the Participant as provided in Paragraph 9 hereof.

7. Payroll Deductions. (a) Upon enrollment, a Participant shall elect to
make contributions to the Plan by payroll deductions (in full dollar amounts and
in amounts calculated to be as uniform as practicable throughout the period of
the phase), in the aggregate amount not in excess of 10% of such Participant's
Base Pay for the term of the phase, as determined according to Paragraph 19
hereof.

The minimum authorized payroll deduction must aggregate to not less than $10
per month.

(b) In the event that the Participant's compensation for any pay period is
terminated or reduced from the compensation rate for such a period as of the
Commencement Date of the phase for any reason so that the amount actually
withheld on behalf of the Participant as of the termination date of the phase is
less than the amount anticipated to be withheld over the phase year as
determined on the Commencement Date of the phase, then the extent to which the
Participant may exercise his option shall be based on the amount actually
withheld on his behalf. In the event of a change in the pay period of any
Participant, such as from bi-weekly to monthly, an appropriate adjustment shall
be made to the deduction in each new pay period so as to ensure the deduction of
the proper amount authorized by the Participant.

(c) All payroll deductions made for Participants shall be credited to their
accounts under the Plan. The Participant may not make any separate cash payments
into such account.

(d) Except for his right to discontinue participation in the Plan as
provided in Paragraph 9, no Participant shall be entitled to increase or
decrease the amount to be deducted in a given phase after the Commencement Date.

36
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY

1995 EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)

8. Options.

(a) Grant of Option.

(i) A Participant who is employed by the Company as of the Commencement Date
of a phase shall be granted an option as of such date to purchase a number of
full shares of Company common stock to be determined by dividing the total
amount to be credited to that Participant's account under Paragraph 7 hereof by
the option price set forth in Paragraph 8(a)(ii)(A) hereof, subject to the
limitations of Paragraph 10 hereof.

(ii) The option price for such shares of common stock shall be the lower of:

A. Eighty-five percent (85%) of the fair market value of such shares of
common stock on the Commencement Date of the phase; or

B. Eight five percent (85%) of the fair market value of such shares of
common stock on the termination date of the phase.

(iii) The fair market value of shares of common stock of the Company shall
be determined by the Committee for each valuation date in a manner acceptable
under Section 423, Internal Revenue Code of 1954.

(iv) Anything herein to the contrary notwithstanding, no Employee shall be
granted an option hereunder:

A. Which permits his rights to purchase stock under all employee stock
purchase plans of the Company, its subsidiaries or its parent, if any, to accrue
at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of the fair
market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time;

B. If immediately after the grant such Employee would own and/or hold
outstanding options to purchase stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of the Company,
its parent, if any, or of any subsidiary of the Company. For purposes of
determining stock ownership under this paragraph, the rules of Section 425(d) of
the Internal Revenue code, as amended, shall apply; or

C. Which can be exercised after the expiration of 27 months from the date
the option is granted.

(b) Exercise of Option.

(i) Unless a Participant gives written notice to the Company pursuant to
Paragraph 8(b) (ii) or Paragraph 9 prior to the termination of a phase, his
option for the purchase of shares will be exercised automatically for him as of
such termination date for the purchase of the number of full shares of Company
common stock which the accumulated payroll deductions in his account at that
time will purchase at the applicable option price, subject to the limitations
set forth in Paragraph 10 thereof.

(ii) A Participant may, by written notice to the Company at any time during
the thirty (30) day period immediately preceding the termination date of a
phase, elect, effective as of the termination date of that phase, to exercise
his option for a specified number of full shares less than the maximum number
which may be purchased under his option.

37
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY

1995 EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)

(iii) As promptly as practicable after the termination date of any phase,
the Company will deliver to each Participant herein the common stock purchased
upon the exercise of his option, together with a cash payment equal to the
balance, if any, of his account which was not used for the purchase of common
stock with interest accrued thereon.

9. Withdrawal or Termination of Participation. (a) A Participant may, at any
time prior to the termination date of a phase, withdraw all payroll deductions
then credited to his account by giving written notice to the Company. Promptly
upon receipt of such notice of withdrawal, all payroll deductions credited to
the Participant's account will be paid to him with interest accrued thereon and
no further payroll deductions will be made during that phase. In such event, the
option granted the Participant under that phase of the Plan shall lapse
immediately. Partial withdrawals of payroll deductions hereunder may not be
made.

(b) In the event of the death of a Participant, the person or persons
specified in Paragraph 14 may give notice to the Company within sixty (60) days
of the death of the Participant electing to purchase the number of full shares
which the accumulated payroll deductions in the account of such deceased
Participant will purchase at the option price specified in Paragraph 8(a) (ii)
and have the balance in the account distributed in cash with interest accrued
thereon. If no such notice is received by the Company within said sixty (60)
days, the accumulated payroll deductions will be distributed in full in cash
with interest accrued thereon.

(c) Upon termination of Participant's employment for any reason other than
death of the Participant, the payroll deductions credited to his account, plus
interest, shall be returned to him.

10. Stock Reserved for Options. (a) One Hundred thousand (100,000) shares of
the Company's $.01 par value common stock are reserved for issuance upon the
exercise of options to be granted under the Plan. Shares subject to the
unexercised portion of any lapsed or expired option may again be subject to
option under the Plan.

(b) If the total number of shares of Company common stock for which options
are to be granted for a given phase as specified in Paragraph 8 exceeds the
number of shares then remaining available under the Plan (after deduction of all
shares for which options have been exercised or are then outstanding) and if the
Committee does not elect to cancel such phase pursuant to Paragraph 4, the
Committee shall make a pro rata allocation of the shares remaining available in
as uniform and equitable a manner as it shall consider practicable. In such
event, the options to be granted and the payroll deduction to be made pursuant
to the Plan which would otherwise be effected may, in the discretion of the
Committee, be reduced accordingly. The Committee shall five written notice of
such reduction to each Participant affected.

(c) The Participant (or a joint tenant name pursuant to Paragraph 10(d)
hereof) shall have no rights as a shareholder with respect to any shares subject
to the Participant's option until the date of the issuance of a stock
certificate evidencing such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the date
such stock certificate is actually issued, except as otherwise provided in
Paragraph 12 hereof.

(d) The shares of Company common stock to be delivered to a Participant
pursuant to the exercise of an option under the Plan will be registered in the
name of the Participant or, if the Participant so directs by

38
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY

1995 EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)

written notice to the Committee prior to the termination date of that phase of
the Plan, in the names of the Participant and one other person the Participant
may designate as his joint tenant with rights of survivorship, to the extent
permitted by law.

11. Accounting and Use of Funds. Payroll deductions for each Participant
shall be credited to an account established for him under the Plan. A
Participant may not make any separate cash payments into such account. Such
account shall be solely for bookkeeping purposes and no separate fund or trust
shall be established hereunder and the Company shall not be obligated to
segregate such funds. All funds from payroll deductions received or held by the
Company under the Plan may be used, without limitation, for any corporate
purpose by the Company.

12. Adjustment Provision. (a) Subject to any required action by the
shareholders of the Company, the number of shares which are authorized in
Section 10 to be issued pursuant to this Plan and the number of shares covered
by each outstanding option and the price per share thereof in each such option,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of the Company common stock resulting from a subdivision or
consolidation of shares or the payment of a share dividend (but only on the
shares) or any other increase or decrease in the number of such shares effected
without receipt of consideration by the Company.

(b) In the event of a change in the shares of the Company as presently
constituted, which is limited to a change of all its authorized shares with par
value into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be the
shares within the meaning of this Plan.

13. Non-Transferability of Options. (a) Options granted under any phase of
the Plan shall not be transferable except under the laws of descent and
distribution and shall be exercisable only by the Participant during his
lifetime and after his death only by his beneficiary of the representative of
his estate as provided in Paragraph 9(b) hereof.

(b) Neither payroll deductions credited to a Participant's account, nor any
rights with regard to the exercise of an option or to receive common stock under
any phase of the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way by the Participant. Any such attempted assignment,
transfer, pledge or other disposition shall be null and void and without effect,
except that the Company may, at its option, treat such act as an election to
withdraw funds in accordance with Paragraph 9.

14. Designation of Beneficiary. A Participant may file a written designation
of a beneficiary who is to receive any cash to the Participant's credit plus
interest thereon under any phase of the Plan in the event of such Participant's
death prior to exercise of his option pursuant to Paragraph 9(b) hereof, or to
exercise his option and become entitled to any stock and/or cash upon such
exercise in the event of the Participant's death prior to exercise of the option
pursuant to Paragraph 9(b) hereof. The beneficiary designation may be changed by
the Participant at any time by written notice to the Company.

Upon the death of a Participant and upon receipt by the Company of proof
deemed adequate by it of the identity and existence at the Participant's death
of a beneficiary validly designated under the Plan, the Company shall in the
event of the Participant's death under the circumstances described in Paragraph
9(b) hereof, allow such beneficiary to exercise the Participant's option
pursuant to Paragraph 9(b) if such beneficiary is living on the termination date
of the phase and deliver to such beneficiary the appropriate

39
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY

1995 EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)

stock and/or cash after exercise of the option. In the event there is no validly
designated beneficiary under the Plan who is living at the time of the
Participant's death under the circumstances described in Paragraph 9(b) or in
the event the option lapses, the Company shall deliver the cash credited to the
account of the Participant with interest to the executor or administrator of the
estate of the Participant, or if no such executor or administrator has been
appointed to the knowledge of the Company, it may, in its discretion, deliver
such cash to the spouse or to any one or more dependents or relatives of the
Participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate. The Company will not be
responsible for or be required to give effect to the disposition of any cash or
stock or the exercise of any option in accordance with any will or other
testamentary disposition made by such Participant or in accordance with the
provision of any law concerning intestacy, or otherwise. No designated
beneficiary shall, prior to the death of a Participant by whom he has been
designated, acquire any interest in any stock or in any option or in the cash
credited to the Participant under any phase of the Plan.

15. Amendment and Termination. The Plan may be terminated at any time by the
Board of Directors provided that, except as permitted in Paragraph 4(c) with
respect to an acceleration of the termination date of any phase, no such
termination will take effect with respect to any options then outstanding. Also,
the Board may, from time to time, amend the Plan as it may deem proper and in
the best interests of the Company or as may be necessary to comply with Section
423 of the Internal Revenue Code of 1986, as amended, or other applicable laws
or regulations; provided, however, that no such amendment shall, without prior
approval of the shareholders of the Company (1) increase the total number of
shares for which options may be granted under the Plan (except as provided in
Paragraph 12 herein), (2) permit aggregate payroll deductions in excess of ten
percent (10%) of a Participant's compensation as of the Commencement Date of a
phase, or (3) impair any outstanding option.

16. Interest. In any situation where the Plan provides for the payment of
interest on a Participant's payroll deductions, such interest shall be
determined by averaging the month-end balances in the Participant's account for
the period of his participation and computing interest thereon at the rate of
five percent (5%) per annum.

17. Notices. All notices or other communications in connection with the Plan
or any phase thereof shall be in the form specified by the Committee and shall
be deemed to have been duly given when received by the Participant or his
designated personal representative or beneficiary or by the Company or its
designated representative, as the case may be.

18. Participation of Subsidiaries. The Board of Directors may, by written
resolution, authorize the employees of any of its subsidiaries to participate
hereunder. Effective as of the date of coverage of any such subsidiary, any
references herein to the "Company" shall be interpreted as referring to such
subsidiary as well as to Canterbury Park Holding Corporation.

In the event that any subsidiary which is covered under the Plan ceases to
be a subsidiary of Canterbury Park Holding Corporation, the employees of such
subsidiary shall be considered to have terminated their employment for purposes
of Paragraph 9 hereof as of the date such subsidiary ceases to be such a
subsidiary.

19. Definitions. (a) "Subsidiary" shall include any corporation which shall
be deemed a subsidiary of the Company under Section 425(f) of the Internal
Revenue Code of 1954, as amended.

(b) "Employee" shall mean any employee, including an officer, of the
Company who as of the first day of the month

40
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY

1995 EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)

immediately preceding the Commencement Date of a phase is customarily employed
by the Company for more than fifteen (15) hours per week.

(c) "Base Pay" is the regular pay for employment for each employee as
annualized for a twelve (12) month period, exclusive of overtime,
commissions, bonuses, disability payments, shift differentials, incentives
and other similar payments, determined as of the Commencement Date of each
phase.

Adopted by Board of Directors: April 3, 1995

<PAGE>

Exhibit 21

SUBSIDIARY OF CANTERBURY PARK HOLDING CORPORATION

<TABLE>
<CAPTION>
JURISDICTION
OF
SUBSIDIARIES INCORPORATION
- ------------------------------------------------------------------------------- -------------
<S> <C>
Canterbury Park Concessions, Inc............................................... Minnesota
</TABLE>

The subsidiary is 100%-owned directly by Canterbury Park Holding
Corporation. The financial statements of such subsidiary are included in the
Consolidated Financial Statements of Canterbury Park Holding Corporation.

<PAGE>

Exhibit 23

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statements
No. 33-96582 and No. 33-96580 of Canterbury Park Holding Corporation on Form
S-8 of our report dated March 7, 1997 appearing in this Annual Report on Form
10-KSB of Canterbury Park Holding Corporation for the year ended December 31,
1996.

Minneapolis, Minnesota
March 24, 1997

<PAGE>
<ARTICLE> 5

<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 296671
<SECURITIES> 0
<RECEIVABLES> 201436
<ALLOWANCES> 14602
<INVENTORY> 72731
<CURRENT-ASSETS> 657603
<PP&E> 10613222
<DEPRECIATION> (1981468)
<TOTAL-ASSETS> 9302132
<CURRENT-LIABILITIES> 3475814
<BONDS> 0
0
0
<COMMON> 29614
<OTHER-SE> 5796704
<TOTAL-LIABILITY-AND-EQUITY> 9302132
<SALES> 2962714
<TOTAL-REVENUES> 17371005
<CGS> 1549562
<TOTAL-COSTS> 17084033
<OTHER-EXPENSES> (12,532)
<LOSS-PROVISION> 11302
<INTEREST-EXPENSE> 228355
<INCOME-PRETAX> 71149
<INCOME-TAX> 0
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<NET-INCOME> 71149
<EPS-PRIMARY> .02
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</TABLE>