<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
XXX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- --- OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999.
TRANSITION REPORT UNDER 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
- --------------------------------------------------------------------------------
(Exact name of business issuer as specified in its charter)
Minnesota 41-1775532
- --------------------------------- ---------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1100 Canterbury Road, Shakopee, Minnesota 55379
- ------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
(612) 445-7223
--------------------------------------
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
--- ---
The Company had 3,156,217 shares of common stock, $.01 par value per share,
outstanding as of August 11, 1999.
<PAGE>
Canterbury Park Holding Corporation
INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998................................................. 3
Consolidated Statements of Operations for the periods ended
June 30, 1999 and 1998.............................................................. 4
Consolidated Statements of Cash Flows for the periods ended
June 30, 1999 and 1998.............................................................. 5
Notes to Consolidated Financial Statements.......................................... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS................................................ 9
PART II. OTHER INFORMATION................................................................................ 15
Signatures....................................................................................... 15
</TABLE>
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 633,347 $ 372,171
Accounts receivable 341,460 215,296
Inventory 151,317 89,640
Deposits 20,000 20,000
Prepaid expenses 230,380 121,859
------------ ------------
Total current assets 1,376,504 818,966
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $4,067,734 and $3,704,242, respectively 8,357,262 8,386,439
DEFERRED TAX ASSET 241,620 208,000
INTANGIBLE ASSETS, net of accumulated amortization of
$22,726 and $20,113, respectively 1,643 4,256
------------ ------------
$ 9,977,029 $ 9,417,661
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,609,650 $ 760,132
Accrued wages and payroll taxes 495,158 166,898
Accrued interest 11,558 100,367
Advance from MHBPA 184,199 546,414
Borrowings under credit agreement (Note 2) 608,449
Accrued property taxes 322,447 354,022
Income taxes payable 160,875
Payable to horsepersons 108,637 70,805
------------ ------------
Total current liabilities 2,731,649 2,767,962
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY
Commonstock, $.01 par value, 10,000,000 shares authorized,
3,142,817 and 3,020,167, respectively, shares issued
and outstanding 31,428 30,202
Additional paid-in capital 8,462,049 8,132,809
Accumulated deficit (1,248,097) ( 1,513,312)
------------ ------------
Total shareholders' equity 7,245,380 6,649,699
------------ ------------
$ 9,977,029 $ 9,417,661
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Pari-mutuel $ 4,716,646 $ 4,263,175 $ 7,589,561 $ 6,995,194
Concessions 840,450 765,172 1,263,017 1,179,042
Admissions and parking 219,643 206,489 226,853 260,597
Programs and racing forms 218,084 241,309 348,891 364,628
Other operating revenue 174,988 397,853 378,274 588,256
------------ ------------ ------------ ------------
6,169,811 5,873,998 9,806,596 9,387,717
OPERATING EXPENSES:
Pari-mutuel expenses
Statutory purses 1,507,224 1,367,087 1,773,733 1,622,806
Host track fees 558,233 519,091 1,033,612 976,806
Pari-mutuel taxes 53,510 7,417 77,040 29,137
Minnesota breeders' fund 235,010 213,532 386,601 357,480
Salaries and benefits 1,619,171 1,503,868 2,472,333 2,289,345
Cost of concession sales 242,723 263,096 363,092 365,959
Cost of publication sales 262,170 260,264 406,901 393,563
Depreciation and amortization 184,359 228,320 366,105 450,408
Utilities 202,628 188,819 357,338 337,713
Repairs, maintenance and supplies 266,828 263,497 370,622 368,239
Property taxes 57,767 105,652 114,698 191,708
Advertising and marketing 548,741 497,558 651,577 586,279
Other operating expenses 739,639 750,648 1,100,203 1,148,228
------------ ------------ ------------ ------------
6,478,003 6,168,849 9,473,855 9,117,671
NONOPERATING (EXPENSES)
REVENUES:
Interest expense (7,520) (29,428) (21,261) (70,177)
Other, net 3,501 1,219 3,735 1,219
------------ ------------ ------------ ------------
(4,019) (28,209) (17,526) (68,958)
------------ ------------ ------------ ------------
(LOSS) INCOME BEFORE INCOME TAX (312,211) (323,060) 315,215 201,088
INCOME TAX BENEFIT (EXPENSE)
(Note 1) 50,000 (50,000)
------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (262,211) $ (323,060) $ 265,215 $ 201,088
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
BASIC NET (LOSS) INCOME PER
COMMON SHARE $ (.08) $ (.11) $ .09 $ .07
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
DILUTED NET (LOSS) INCOME PER
COMMON SHARE $ (.08) $ (.11) $ .08 $ .07
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIODS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 265,215 $ 201,088
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation and amortization 366,105 450,408
Stock options issued for consulting services 22,044
Increase in accounts receivable (126,164) (360,867)
Increase in other current assets (170,198) (128,151)
Decrease in income taxes payable (160,875)
Increase in accounts payable and accrued expenses 1,215,610 1,160,371
Decrease in accrued interest (88,809) (16,764)
Increase in deferred tax asset (33,620)
(Decrease) increase in accrued property taxes (31,575) 14,697
----------- -----------
Net cash provided by operations 1,235,689 1,342,826
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (334,315) (173,568)
Proceeds from sale of property and equipment, net 592
----------- -----------
Net cash used in investing activities (334,315) (172,976)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 330,466 5,562
Payment on advance from MHBPA, net (362,215) (2,626)
Payments on advance from shareholder, net (608,449) (1,651,942)
Proceeds from borrowings under credit agreement, net 510,364
----------- -----------
Net cash used in financing activities (640,198) (1,138,642)
NET INCREASE IN CASH 261,176 31,208
CASH AT BEGINNING OF PERIOD 372,171 364,214
----------- -----------
CASH AT END OF PERIOD $ 633,347 $ 395,422
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is included in the notes to
consolidated financial statements in the 1998 Annual Report on form 10-KSB.
INCOME TAXES - Income tax expense is computed by applying the estimated
annual effective tax rate to the year-to-date income. For the periods
ending June 30, 1999 and 1998, income tax expense of approximately $80,000
and $99,000, respectively, is offset by a reduction in the valuation
allowance recorded on the deferred tax asset related to the Company's net
operating loss carryforward.
UNAUDITED FINANCIAL STATEMENTS - The consolidated balance sheet as of June
30, 1999, the consolidated statements of operations for the three and six
months ended June 30, 1999 and 1998, the consolidated statements of cash
flows for the six months ended June 30, 1999 and 1998, and the related
information contained in these notes have been prepared by management
without audit. In the opinion of management, all accruals (consisting of
normal recurring accruals) which are necessary for a fair presentation of
financial position and results of operations for such periods have been
made. Results for an interim period should not be considered as indicative
of results for a full year.
2. BORROWINGS UNDER CREDIT AGREEMENT
Borrowings under the Company's credit agreement with Bremer Bank include a
commercial revolving credit line which provides for maximum advances of
$2,250,000 with interest at the prime rate ( 7.75%) at June 30, 1999.
Borrowings under the credit line were $608,449 at December 31, 1998. The
Company had no borrowings under this credit line at June 30, 1999. The
credit agreement contains certain covenants requiring the Company to
maintain certain financial ratios. The Company was in compliance with these
requirements as of June 30, 1999. Management believes that funds available
under this line of credit, along with funds generated from simulcast
operations, will be sufficient to satisfy its liquidity and capital
resource requirements during 1999.
3. OPERATING SEGMENTS
The Company has two reportable operating segments: horse racing and
concessions. The horse racing segment includes simulcast and live racing
operations. The concessions segment provides concessions during simulcast
racing, live racing and special events. The Company's reportable operating
segments are strategic business units that offer different products and
services. They are managed separately because the segments differ in the
nature of the products and services provided as well as processes to
produce those products and services. The horse racing segment is regulated
by the State of Minnesota Racing Commission.
6
<PAGE>
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies.
All depreciation, interest expense and income taxes are recorded in the
horse racing segment and no allocation is made to concessions for shared
facilities. However, the concessions segment pays approximately 25% of
gross revenues to the horse racing segment for use of the facilities.
The following table provides information about the Company's operating
segments (in 000's):
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999 Six Months Ended June 30, 1998
---------------------------------------- ----------------------------------------
Horse Horse
Racing Concessions Total Racing Concessions Total
-------- ----------- ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers $8,491 $1,316 $9,807 $8,146 $1,242 $9,388
Intersegment revenues 308 308 292 292
Net interest expense 17 17 39 69
Depreciation and
amortization 366 366 450 450
Segment income before
income taxes 315 48 363 201 19 220
Segment Assets $9,820 $479 $10,299 $9,966 $391 $10,357
-------- ----------- ------- -------- ----------- -------
-------- ----------- ------- -------- ----------- -------
</TABLE>
The following are reconciliations of reportable segment revenue, income
before income taxes, and assets, to the Company's consolidated totals (in
000's):
<TABLE>
<CAPTION>
Six Months Six Months
REVENUES Ended Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Total revenue for reportable segments $10,115 $9,680
Elimination of intersegment revenues (308) (292)
------------- -------------
Total consolidated revenues 9,807 9,388
------------- -------------
------------- -------------
INCOME BEFORE INCOME TAXES
Total segment income before income taxes $363 $220
Elimination of intersegment income before income taxes (48) (19)
------------- -------------
Total consolidated income before income taxes 315 201
------------- -------------
------------- -------------
<CAPTION>
ASSETS June 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Total assets for reportable segments $10,299 $9,587
Elimination of intercompany receivables (322) (169)
------------- -------------
Total consolidated assets 9,977 9,418
------------- -------------
------------- -------------
</TABLE>
7
<PAGE>
4. CONTINGENCIES
In accordance with an Earn Out Note, given to the prior owner of the
racetrack as part of the consideration paid by the Company to acquire the
racetrack, 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 Pre-Tax 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.
5. CURRENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
was issued in June 1998. SFAS No. 133 provides a comprehensive standard for
the recognition and measurement of derivatives and hedging activities. The
standard requires all derivatives to be recorded on the balance sheet at
fair value and establishes special accounting for three types of hedges.
SFAS No. 133 is effective for the Company year beginning January 1, 2001.
The Company does not have investments in derivatives and does not
participate in hedging activities. The Company is currently assessing the
impact SFAS No. 133 will have on the Company's financial position and
results of operations.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Canterbury Park Holding Corporation (the "Company") owns and operates
Canterbury Park, the only pari-mutuel horse racing facility in the State of
Minnesota (the "Racetrack"). The Company's revenues for the periods from January
1, 1999 to June 30, 1999 and January 1, 1998 to June 30, 1998 were derived
primarily from pari-mutuel take-out on horse races simulcast to Canterbury Park
from racetracks throughout the country and from live horse racing conducted at
Canterbury Park. In 1999 the Company intends to conduct 364 simulcast racing
days. In addition, from May 15 through August 22, 1999 the Company is conducting
its 1999 56-day live race meet featuring thoroughbred and quarter horse racing.
During live race meets, the Company earns pari-mutuel revenue on live
thoroughbred and quarter horse races at the Racetrack. The Company earns
additional pari-mutuel revenue from broadcasting its live races to out-of-state
racetracks around the country.
In addition to pari-mutuel revenues, the Company generates revenues from
admissions, parking, publication sales, concessions, special events, advertising
and other sources.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Total operating revenues increased 4.4% during the six months ended June
30, 1999 compared to the six months ended June 30, 1998, and increased 5.0% for
the three months ended June 30, 1999 compared to the three months ended June 30,
1998.
Total pari-mutuel revenues increased 8.5% and 10.6%, respectively, for the
six and three month periods ended June 30, 1999 compared to the same periods in
1998. Simulcast handle increased approximately $1.9 million or 6.8%, and live
handle increased approximately $.5 million or 9.6%. Refer to the Summary of
Operating Data below.
Concession revenues increased due primarily to higher attendance for both
simulcast and live racing, and to a modest price increase effective May 1, 1999.
Other operating revenues decreased 36% in the six month period ended June
30, 1999, compared to the same period in 1998, due primarily to decreased space
rental revenues generated by leasing underutilized areas of the Racetrack
grounds for vehicle storage. Vehicle storage revenues were approximately
$130,000 and $335,000 for the six month periods ended June 30, 1999 and 1998,
respectively.
9
<PAGE>
SUMMARY OF OPERATING DATA:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
<S> <C> <C>
RACING DAYS
Simulcast only days 156 157
Live and simulcast days 25 24
------------- --------------
Total Racing Days 181 181
ATTENDANCE
Simulcast only days 73,398 72,143
Live and simulcast days 89,812 83,638
------------- --------------
Total Attendance 163,210 155,781
ON-TRACK HANDLE
Simulcast only days $ 24,390,000 $ 22,604,000
Live and simulcast days
Live racing 5,869,000 5,354,000
Simulcast racing 5,994,000 5,813,000
OUT-OF-STATE LIVE HANDLE 3,928,000 3,082,000
------------- --------------
Total Handle $ 40,181,000 $ 36,853,000
AVERAGE DAILY ATTENDANCE
Simulcast only days 470 460
Live and simulcast days 3,592 3,485
ON-TRACK PER CAPITA WAGERING
Simulcast only days $ 332 $ 313
Live and simulcast days 132 134
ON-TRACK AVERAGE DAILY HANDLE
Simulcast only days $ 156,346 $ 143,975
Live and simulcast days 474,520 465,292
</TABLE>
As shown in the table above, total handle for the six months ended June 30,
1999 is 9.0% higher than total handle during the comparable period in 1998 due
to increases in all categories of handle. On-track handle on live racing days in
1999 is up approximately 6.2% compared to 1998, primarily because the Company
conducted one more live racing day in the 1999 period. The Company has
experienced increases in average daily attendance, on-track per capita wagering
and on-track average daily handle in 1999 compared to 1998. Import handle
increased from approximately $3.1 million during the second quarter of 1998 to
approximately $3.9 million for the same period in 1999.
10
<PAGE>
The Company discontinued charging admission fees for simulcast only days on
January 1, 1999. This free admission policy may contribute to higher levels of
attendance and handle on simulcast only days. Admission and parking revenues
have increased in 1999 compared to 1998 despite the implementation of this
policy, due to higher live racing attendance levels and to a $1.00 increase in
the live racing general admission price for the 1999 live race meet. In
addition, during the 1999 live race meet, the Company no longer charges $1.50
for its live racing program. The live racing programs are complimentary in 1999.
Live racing program sales revenues have decreased approximately $52,000 in 1999
compared to 1998 due to this change. This decrease is partially offset by
increases in revenue from the sales of simulcast racing programs.
Total operating expenses increased 3.9% during the six month period ended
June 30, 1999 compared to the six month period ended June 30, 1998, and 5.0%
during the three months ended June 30, 1999 compared to the three month period
ended June 30, 1998.
Pari-mutuel expenses have increased 9.5% and 11.7%, respectively, during
the six and three month periods of 1999 compared to 1998, due to increased
pari-mutuel revenues resulting from higher handle than in the comparable periods
of 1998. The Company incurs pari-mutuel taxes on handle in excess of $12 million
during the twelve month period which began July 1, 1998 and ended June 30, 1999.
The Company records pari-mutuel tax expense based upon its estimated effective
tax rate throughout the twelve month period.
Salary and benefit expenses have increased by approximately 8.0% and 7.7%
for the six month and three month periods ended June 30, 1999 compared to the
six and three month periods ended June 30, 1998. Approximately half of that
increase is attributable to increased employee insurance and benefit expenses.
Advertising and marketing expenses were higher primarily due to timing of
promotions and the Company's continuing efforts to maintain attendance of loyal
patrons while also attracting new patrons.
Depreciation and amortization expense declined in the six and three month
periods ended June 30, 1999 because certain assets acquired by the Company in
1994 became fully depreciated in 1999. The Company's property tax liability for
1999 decreased compared to 1998, resulting in lower expense for 1999. Interest
expense is lower in 1999 due to lower balances outstanding under line of credit
borrowings and lower levels of advances with the MHBPA. The increase in Interest
income results from higher cash balances on deposit.
Income before income taxes was $315,215 for the six months ended June 30,
1999 compared to $201,088 for the six months ended June 30, 1998. After income
tax expense of $50,000 in 1999, net income is $265,215. The loss before income
taxes for the quarter ended June 30, 1999 was $312,211 compared to a loss before
income taxes of $323,060 for the quarter ended June 30, 1998. After an income
tax benefit of $50,000 in the second quarter of 1999, the net loss is $262,211.
In 1998, year to date income tax expense of $99,000 was entirely offset by a
reduction in the valuation allowance. In 1999, the entire amount of income tax
expense could not be offset because the majority of the valuation allowance was
utilized in fiscal year 1998.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the period January 1, 1999 through June 30, 1999, cash provided by
operating activities was $1,235,689, which resulted principally from an increase
in accounts payable and accrued expenses of $1,215,610, depreciation and
amortization of $366,105 and net income of $265,215. These items were partially
offset by an increase in accounts receivable and other current assets of
$296,362, and a decrease in income taxes payable of $160,875.
Net cash used in investing activities for the first six months of 1999
results primarily from acquisitions of property and equipment of $334,315,
compared to investments in equipment and building improvements of $173,568
during the six month period ended June 30, 1998.
During the period January 1, 1999 through June 30, 1999, cash used in
financing activities was $640,198, resulting primarily from payments on the
Company's line of credit with Bremer Bank of $608,449 and from net payments on
the advance from the MHBPA of $362,215. Exercises of stock options during the
first quarter of 1999 provided cash flows from financing activities of $330,466.
During the first six months of 1998, the Company used $1,651.942 to pay off its
line of credit with Curtis Sampson, the Chairman of the Board. This use of
cash was partially offset by net proceeds from borrowings under the
credit agreement with Bremer Bank of $510,364.
The Company entered into a general credit and security agreement with
Bremer, a financial institution located in South Saint Paul, Minnesota on June
3, 1998. The commercial revolving credit line provides for maximum advances of
$2,250,000 with interest at the prime rate (7.75%) at June 30, 1999.
The Company is required by statute to segregate purse funds received from
wagering on simulcast and live horse races for future payment as purses for live
horse races at the Racetrack or other uses of Minnesota's horsepersons'
association. Pursuant to an agreement with the Minnesota Horseman's Benevolent
and Protective Association, Inc. ("MHBPA"), during the six months ended June 30,
1999 and 1998, the Company transferred into a trust account or paid directly
to the MHBPA approximately $2,000,000 and $1,400,000, respectively. At June 30,
1999, the Company had an additional $184,199 liability to the MHBPA which will
be paid with interest in 1999 in accordance with the agreement.
The Company believes that the funds to be generated from operations
together with funds available under its $2,250,000 line of credit with Bremer
Bank will be sufficient to satisfy its liquidity and capital resource
requirements for the next twelve months. The Company paid down its borrowings
under the line of credit agreement with Bremer Bank during the first quarter of
1999. While the line of credit is available for borrowings, the Company has
not utilized the line of credit during the second quarter of 1999.
The Company may incur funding requirements of $1,000,000 or more for
capital expenditures and other costs related to the implementation of a Card
Club which the Company is authorized to establish under legislation discussed
below under "Operating Plan." While the Company's line of credit could be
used for this purpose, management is evaluating other debt and equity
financing options. See the Operating Plan section below for further
discussion.
12
<PAGE>
OPERATING PLAN:
At June 30, 1999, the Company was in the middle of its 1999 live race meet
which consists of 26 days of mixed thoroughbred and quarter horse racing and 30
days of thoroughbred-only racing.
On August 7, 1999, the Racetrack hosted the inaugural Claiming Crown.
This event, which was hosted in partnership with the Thoroughbred Owners and
Breeders Association, gave Canterbury Park its first marquee racing event of
national importance. The Claiming Crown, a championship for claiming horses,
consisted of six championship races with total purse money exceeding
$600,000. The Claiming Crown featured the largest purses ever offered for
claiming horses and attracted some of the top claiming horses from around the
country. On track attendance on Claiming Crown day exceeded 11,000 people,
and total handle exceeded $2.5 million dollars.
Operating results during the third quarter of 1999 will be adversely
affected by costs associated with the Claiming Crown. The Company guaranteed
a portion of the Claiming Crown purses and incurred other costs to organize
and promote this national event which will not be recovered through
pari-mutuel and other revenues generated by the Claiming Crown event.
However, Canterbury Park is the site of the Claiming Crown for the next two
years and a total of six of the first ten years and is expected to profit
from the event in future years.
On May 25, 1999, legislation authorizing new gaming authority for
Canterbury Park was enacted into law. This legislation will allow Canterbury
Park to host unbanked card games whereby players compete against each other
and not against the house. Under the new gaming authority, frequently
referred to as a "Card Club", Canterbury will receive a percentage of the
wagers or a fee from the players as its revenue for providing the facility
and services. The new law specifies that the Racetrack's purse fund, which is
the prize money paid out during Canterbury Park's live racing meet, will
receive 10% to 14% of the gross revenue generated by the Card Club. The
Company anticipates that the Card Club will begin operation in the first
quarter of the year 2000.
The Company has formed a task force of directors, officers and outside
experts to develop plans for the Card Club. The task force is currently
conducting market studies, analyzing architectural options, and drafting an
operation plan for review by the Minnesota Racing Commission which will
regulate the operations of the Card Club. While levels of expenditures are
not yet estimable, management anticipates that expenses incurred to develop
the Card Club, including, but not limited to, market research, architectural
analysis and consulting fees, will significantly impact the profitability of
the Company during the last six months of 1999.
Due to the adverse impact of costs incurred in the inaugural Claiming
Crown event and the expenses being incurred to study the feasibility and
prepare for the opening of a Card Club at Canterbury Park, management expects
net results for fiscal 1999 will be well below 1998 pre tax income of
$386,619.
13
<PAGE>
YEAR 2000:
The Company has identified and evaluated its in-house personal computer
systems for year 2000 compliance. These PC based applications are compliant and
are not considered to be critical to the Company's daily operations. The Company
replaced its racing office administrative network system with a Y2K compliant
system in the second quarter of 1999.
The Company has evaluated the impact that the failure of significant
suppliers to achieve year 2000 readiness would have on its operations. The
Company has a contract through April, 2004 with Autotote Systems, Inc.
("Autotote") for totalizator services, including equipment and computer
programs which record and process all wagers and calculate odds and payoffs.
Autotote has assured the Company, in writing, of their commitment to achieve
year 2000 compliance. Should Autotote fail to remediate its own year 2000
issues, pari-mutuel wagering could be materially adversely affected at the
Racetrack beginning January 1, 2000. If material year 2000 problems are
experienced, the Company's contingency plan is to terminate its contract with
Autotote for cause, and to enter into a comparable agreement with another of
the industry's tote service providers at the earliest possible time. However,
there can be no guarantee that the systems of alternative tote service
providers would be year 2000 ready. If Autotote's totalizator equipment fails
to achieve year 2000 compliance, and if other potential tote service
providers are not year 2000 ready, the Company's operations could be
materially adversely affected.
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-QSB, 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.
14
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on June 3,
1999. Shareholders reelected the following directors for a one year
term: Brian C. Barenscheer, Gibson Carothers, Terence McWilliams,
Carin Offerman, Curtis A. Sampson, Randall D. Sampson, and Dale H.
Schenian. Not less than 2,954,066 shares were voted in favor of the
reelection of each of the directors (approximately 96% of all
shares eligible to vote).
In addition, the shareholders approved an amendment of the
Company's 1994 Stock Plan to increase the number of shares
authorized for issuance under the Plan by a vote of 2,072,542 in
favor, 44,266 opposed.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
The Company filed a Form 8-K dated May 24, 1999 reporting the
passage of legislation providing general authority for establishing
a card club at Canterbury Park.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly cause this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Canterbury Park Holding Corporation
Dated: August 12, 1999 /s/ Randall D. Sampson
------------------------------------------
Randall D. Sampson,
President, Chief Executive Officer
and Treasurer
15
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