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Item 8. Financial Statements and Supplementary Data

2021-03-24 compared with 2020-03-26 · 260 added, 265 removed, 408 unchanged (56% of the section changed)

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Consolidated Statements of Operations for the years ended December 31, 2020 and 2019

Consolidated Statements of Changes in Stockholders’

Equity for the years ended December 31, 2019 and 2018

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Canterbury Park Holding Corporation and Subsidiaries (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of operations, changes in stockholders’

equity and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively referred to as the financial statements).

We have audited the accompanying consolidated balance sheets of Canterbury Park Holding Corporation and Subsidiaries (the Company) as of December 31, 2020 and 2019 , and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2020 , and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019 , and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020 , in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financials are the responsibility of Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These financials are the responsibility of Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Estimate of the allowance for doubtful accounts – Property Tax Increment Financing “TIF” Receivable

As described in Notes 1 and 12 to the consolidated financial statements, the Company recorded a TIF receivable of approximately $11,889,000, which represents $11,191,000 of principal and $698,000 of interest.

Management believes future tax revenues generated from current development activity will exceed the Company's development costs and thus, management believes no allowance related to this receivable is necessary.

We identified the estimate of the allowance for doubtful accounts of the TIF receivable as a critical audit matter because auditing it involved a high degree of subjectivity in evaluating whether management’s estimates and assumptions used to determine the allowance for doubtful accounts was necessary.

The primary audit procedures we performed to address this critical audit matter included:

We evaluated the design and operating effectiveness of key controls related to the Company’s allowance for doubtful accounts analysis, including controls over the precision of management’s review and approval of the calculation and related estimate.

We evaluated the accuracy of the data used by management in determining the estimate, including the reasonable and supportable factors, by agreeing them to internal and external information available.

We evaluated the reasonableness of management’s forecasts on future development by comparing the following:

Historical results

Discussions with management related to the ongoing development projects.

Forecasted information from outside parties related to projected tax increments for the development projects.

/s/ Wipfli LLP

We have served as the Company’s auditor since 2014.

We have served as the Company's auditor since 2014.

Minneapolis, Minnesota

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

Current portion of notes receivable

Prepaid expenses

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TIF receivable

Notes receivable - long-term portion

Related party receivable (Note 13)

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Equity investment (Note 12)

Land held for development

Land, buildings and equipment, net (Note 3)

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

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TOTAL LIABILITIES

STOCKHOLDERS’

EQUITY (Note 5)

STOCKHOLDERS’ EQUITY (Note 5)

Common stock, $.01 par value, 10,000,000 shares authorized, 4,748,012 and 4,644,522, respectively, shares issued and outstanding

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Retained earnings

Total stockholders’

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

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Purse expense

Minnesota Breeders’

Minnesota Breeders’ Fund

Other pari-mutuel expenses

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Gain on sale of assets

Gain on transfer of land (Note 13)

Other operating expenses

Total Operating Expenses

Gain on transfer of land (Note 12)

INCOME FROM OPERATIONS

OTHER INCOME (LOSS)

Loss from equity investment

Interest income, net

Net Other Income

INCOME BEFORE INCOME TAXES

INCOME TAX EXPENSE (Note 4)

Net Other (Loss) Income

(LOSS) INCOME BEFORE INCOME TAXES

INCOME TAX BENEFIT (EXPENSE) (Note 4)

Basic earnings per share

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

YEARS ENDED December 31, 2020 and 2019

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Exercise of stock options

Other share retirements

Stock-based compensation

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Changes in operating assets and liabilities:

Decrease in accounts receivable

Decrease (increase) in other current assets

Decrease (increase) in income taxes payable/receivable

Decrease (increase) in accounts receivable

Decrease in other current assets

(Increase) decrease in income taxes receivable/payable

Decrease in operating lease right-of-use assets

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Decrease in accounts payable

Increase in deferred revenue

Increase (decrease) in Card Casino accruals

(Decrease) increase in deferred revenue

Increase in Card Casino accruals

Decrease in accrued wages and payroll taxes

Increase in accrued property taxes

(Decrease) increase in payable to horsepersons

(Decrease) increase in accrued property taxes

Increase (decrease) in payable to horsepersons

Net cash provided by operating activities

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Additions to land, buildings, and equipment

Issuance of related party note receivable

Additions for TIF eligible improvements

Decrease (increase) in related party receivable

Decrease in notes receivable

Proceeds from insurance recoveries

Sale (purchase) of investments

Sale of investments

Net cash used in investing activities

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ROU assets obtained in exchange for operating lease obligations

Expiration of buyback option on land

Transfer of assets to Doran Canterbury I

Transfer of assets to Doran Canterbury II

Transfer of assets to Canterbury DBSV

Supplemental disclosure of cash flow information:

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OVERVIEW AND BASIS OF PRESENTATION

Business –

The Company’s Racetrack operations are conducted at facilities located in Shakopee, Minnesota, approximately 25 miles southwest of downtown Minneapolis.

Business – The Company’s Racetrack operations are conducted at facilities located in Shakopee, Minnesota, approximately 25 miles southwest of downtown Minneapolis.

In May 1994, the Company commenced year-round horse racing simulcast operations and hosted the first annual live race meet during the summer of 1995.

The Company’s live racing operations are a seasonal business as it hosts live race meets each year from May until September.

The Company earns additional pari-mutuel revenue by televising its live racing to out-of-state racetracks around the country.

Canterbury Park’s Card Casino operates 24 hours a day, seven days a week and is limited by Minnesota State law to conducting card play on a maximum of 80 tables.

The Card Casino currently offers a variety of poker and table games.

The Company’s three largest sources of revenues include:

Card Casino operations, pari-mutuel operations and food and beverage sales.

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The Company is pursuing several mixed-use development opportunities for this land, directly and through joint ventures.

Basis of Presentation - The consolidated financial statements include the accounts of the Company, Canterbury Park Concessions, Inc.

(CPC) and Canterbury Development LLC after elimination of intercompany accounts and transactions.

Effective January 1, 2019, we adopted the requirements of Accounting Standards Updated (“ASU”) No.

2016-02, Leases as discussed in Note 2.

All amounts and disclosures set forth in this Form 10-K have been updated to comply with the new standards.

Estimates –

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

In January 2020, an outbreak of a respiratory illness caused by a new strain of coronavirus was identified.

The disease has since spread rapidly across the world, causing the World Health Organization to declare the outbreak a pandemic (the “COVID-19 Pandemic”) on March 12, 2020.

Since that time, governments and businesses have taken measures to limit the impact of the COVID-19 Pandemic, including the issuance of shelter-in-place orders, social distancing measures, travel bans and restrictions and business shutdowns.

On March 16, 2020, the Company announced that, based on the advice of Minnesota state and regulatory bodies, it was temporarily suspending all card casino, simulcast, and special events operations at Canterbury Park in response to concerns about the COVID-19 Pandemic.

Canterbury Park determined this voluntary suspension of activities was in the best interest of the health and safety of its guests and team members and would provide the Company an opportunity to review and update operational best practices and strategies based on what was currently known about this public health situation and future developments.

On June 10, 2020, the Company reopened and resumed simulcast, live racing, and food and beverage operations.

The Company also resumed table games and poker operations in the Company’s Card Casino on June 15, 2020 and July 9, 2020, respectively.

These reopenings were done in compliance with Minnesota state guidelines on capacity limitations.

On November 18, 2020, Minnesota state and regulatory bodies issued an executive order requiring closure of places of public accommodation as a measure to slow the spread of COVID-19.

As a result, the Company temporarily suspended all card casino, simulcast, and food and beverage operations from November 21, 2020 through January 10, 2021.

Despite a strong start to the year, the disruptions arising from the COVID-19 Pandemic had a significant impact on the Company's financial condition and operations during the year ended December 31, 2020.

The duration and intensity of this global health emergency and related disruptions is uncertain.

Given the dynamic nature of these circumstances, the impact on the Company’s consolidated results of operations, cash flows and financial condition in 2020 has been material, and the Company expects it will continue to be material.

The Company cannot reasonably estimate at this time when the COVID-19 Pandemic will end, or when or how quickly the current travel restrictions and capacity restrictions will be modified or cease to be necessary.

As a result, it is difficult to predict the continuing and future impact on the Company’s business and the willingness of customers to spend on entertainment in venues such as ours.

As of December 31, 2020, the Company has no long-term debt and a $6.0 million line of credit, which was increased to $10.0 million effective February 28, 2021.

The Company anticipates that its existing cash balance, any cash generated from operations and availability under its credit line will provide the Company with the necessary liquidity and financial flexibility to manage through this challenging operating environment.

We have taken significant actions to mitigate the effects of the COVID-19 Pandemic on our operations, including initiating workforce reductions and furloughs, suspending the Company’s quarterly cash dividend, postponing non-essential capital expenditures, reducing operating costs, and substantially reducing discretionary spending.

We expect these countermeasures to partially mitigate the impact of COVID-19.

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

Basis of Presentation - The consolidated financial statements include the accounts of the Company (Canterbury Park Holding Corporation) and its direct and indirect subsidiaries Canterbury Park Entertainment, LLC, Canterbury Park Concessions, Inc., and Canterbury Development, LLC, after elimination of intercompany accounts and transactions.

Estimates – The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from these estimates.

Reclassifications - Prior period financial statements have been reclassified to conform to current period presentations.

Certain land costs have been reclassified on the December 31, 2019 Consolidated Balance Sheets from Property, plant, and equipment, net to Land held for development.

ACCOUNTING STANDARDS AND SIGNIFICANT ACCOUNTING POLICIES

Summary of Significant Accounting Policies

Revenue Recognition –

The Company’s primary revenues with customers consist of Card Casino operations, pari-mutuel wagering on simulcast and live horse races, and food and beverage transactions.

Revenue Recognition – The Company’s primary revenues with customers consist of Card Casino operations, pari-mutuel wagering on simulcast and live horse races, and food and beverage transactions.

We determine revenue recognition through the following steps:

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The transaction price for a Card Casino contract is a set percentage of wagers and is recognized at the time that the wagering process is complete.

The transaction price for pari-mutuel wagering is the commission received on a wager, exclusive of any track fees and is recognized upon occurrence of the live race that is presented for wagering and after that live race is made official by the respective state’s racing regulatory body.

The transaction price for food and beverage contracts is the net amount collected from the customer for these goods.

Food and beverage services have been determined to be separate, stand-alone performance obligations and the transaction price is recorded as revenue as the good is transferred to the customer when delivery is made.

Contracts for Card Casino operations and pari-mutuel wagering involve two performance obligations for those customers earning points under the Company’s loyalty program and a single performance obligation for customers who do not participate in the program.

The Company applies a practical expedient by accounting for its gaming contracts on a portfolio basis as these wagers have similar characteristics and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio will not differ materially from that which would result if applying the guidance to an individual wagering contract.

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The Company offers certain promotional allowances at no charge to patrons who participate in its player rewards program.

The retail value of these promotional items is included as a deduction from pari-mutuel revenues and no longer shown as a separate line item on the Company’s consolidated statements of operations.

The retail value of these promotional items is included as a deduction from pari-mutuel revenues.

We evaluate our on-track revenue, export revenue, and import revenue contracts to determine whether we are acting as the principal or as the agent when providing services, which we consider in determining if revenue should be reported gross or net.

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Therefore, the revenue we recognize for export revenue is the simulcast host fee we earn for exporting our racing signal to the third party wagering site.

Cash and Cash Equivalents –

Cash and cash equivalents include all investments with original maturities of three months or less or which are readily convertible into known amounts of cash and are not legally restricted.

Cash and Cash Equivalents – Cash and cash equivalents include all investments with original maturities of three months or less or which are readily convertible into known amounts of cash and are not legally restricted.

The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Restricted Cash –

Restricted cash represents refundable deposits and amounts due to horsemen for purses, stakes and awards, and amounts accumulated in card game progressive jackpot pools, the player pool, and poker promotional fund to be used to repay card players in the form of promotions, giveaways, prizes, or by other means.

Restricted cash also includes a deposit related to its development operations.

In 2018, the Company recorded a deposit with a bank with the purpose of assisting Doran Canterbury I in completing financing for a construction loan.

The bank will release the deposit back to the Company when the construction loan is repaid by Doran

Canterbury I and converted into a term loan.

As this is expected to occur in 2021 or 2022, the Company classified this as long term restricted cash on the consolidated balance sheet.

Short-term Investments –

Securities are classified as held to maturity when the Company has the positive intent and ability to hold them to maturity, and are measured at amortized cost.

Restricted Cash – Restricted cash represents refundable deposits and amounts due to horsemen for purses, stakes and awards, and amounts accumulated in card game progressive jackpot pools, the player pool, and poker promotional fund to be used to repay card players in the form of promotions, giveaways, prizes, or by other means.

Short-term Investments – Securities are classified as held to maturity when the Company has the positive intent and ability to hold them to maturity, and are measured at amortized cost.

At December 31, 2020 and 2019 , all investments were classified as held-to-maturity.

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If the decline in fair value is judged to be other than temporary, the cost basis of the security is written down to fair value and the amount of the write-down is included in earnings.

Short-term investments consist of certificates of deposit at December 31, 2019 and 2018.

Amortized cost approximated fair value for both periods.

Accounts Receivable –

Accounts receivable are initially recorded for amounts due from other tracks for simulcast revenue, net of amounts due to other tracks, and for amounts due from customers related to catering and events.

The Company did not have any short-term investments at December 31, 2020.

At December 31, 2019, short-term investments consisted of certificates of deposit.

Amortized cost approximated fair value at December 31, 2019.

Accounts Receivable – Accounts receivable are initially recorded for amounts due from other tracks for simulcast revenue, net of amounts due to other tracks, and for amounts due from customers related to catering and events.

Credit is granted in the normal course of business without collateral.

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The Company writes off accounts receivable when they become uncollectible.

Changes in the allowances for doubtful accounts are recorded as bad debt expense and are included in other operating expenses in the Company’s consolidated statements of operations.

Property Tax Increment Financing (TIF) Receivable –

In connection with the Contract for Private Redevelopment (“Redevelopment Agreement”) between the City of Shakopee Economic Development Authority and Canterbury Development LLC signed in August 2018, the City of Shakopee has agreed that a portion of the tax increment revenue generated from the developed property will be paid to the Company to reimburse it for expenses in constructing infrastructure improvements.

Changes in the allowances for doubtful accounts are recorded as bad debt expense and are included in other operating expenses in the Company’s consolidated statements of operations.

Property Tax Increment Financing (TIF) Receivable – In connection with the Contract for Private Redevelopment (“Redevelopment Agreement”) between the City of Shakopee Economic Development Authority and Canterbury Development LLC signed in August 2018, the City of Shakopee has agreed that a portion of the tax increment revenue generated from the developed property will be paid to the Company to reimburse it for expenses in constructing public infrastructure improvements.

The interest rate on the TIF Receivable is 6%.

Inventory –

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

Unredeemed Pari-mutuel Tickets –

The Company records a liability for winning tickets and vouchers upon the completion of a race and when a voucher is printed, respectively.

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

Unredeemed Pari-mutuel Tickets – The Company records a liability for winning tickets and vouchers upon the completion of a race and when a voucher is printed, respectively.

As uncashed winning tickets and vouchers are redeemed, this liability is reduced for the respective cash payment.

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While the Company continues to honor all winning tickets and vouchers presented for payment, management may determine the likelihood of redemption to be remote due to the length of time that has elapsed since the ticket was issued.

In these circumstances, if management also determines there is no requirement for remitting balances to government agencies under unclaimed property laws, uncashed winning tickets and vouchers may then be recognized as revenue in the Company’s Consolidated Statement of Operations.

Deferred Revenue –

Deferred revenue includes advance sales related to racing, events and corporate partnerships.

Deferred Revenue – Deferred revenue includes advance sales related to racing, events and corporate partnerships.

Revenue from these advance billings are recognized when the related event occurs or services have been performed.

Deferred revenue also includes advanced Cooperative Marketing Agreement (“CMA”) promotional funds, and revenue is recognized when expenses are incurred.

Due to Minnesota Horsemen’s Benevolent and Protective Association, Inc.

(“MHBPA”) –

The Minnesota Pari-mutuel Horse Racing Act specifies that the Company is required to segregate a portion of funds (recorded as purse expense in the statements of operations), received from Card Casino operations and wagering on simulcast and live horse races, for future payment as purses for live horse races or other uses of the horsepersons’

associations.

Deferred revenue also includes advanced Cooperative Marketing Agreement (“CMA”) promotional funds, and revenue is recognized when expenses are incurred.

Due to Minnesota Horsemen’s Benevolent and Protective Association, Inc.

(“MHBPA”) – The Minnesota Pari-mutuel Horse Racing Act specifies that the Company is required to segregate a portion of funds (recorded as purse expense in the statements of operations), received from Card Casino operations and wagering on simulcast and live horse races, for future payment as purses for live horse races or other uses of the horsepersons’ associations.

Pursuant to an agreement with the MHBPA, the Company transferred into a trust account or paid directly to the MHBPA, approximately $2,885,000 and $6,314,000 for the years ended December 31, 2020 and 2019 , 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.

Impairment of Long-Lived Assets –

The Company reviews its long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Checks Written in Excess of Cash Balance - For the year ended December 31, 2020, the Company included approximately $970,000 of checks written in excess of cash balance within accounts payable on the Consolidated Balance Sheet.

There were no checks written in excess of cash balance as of December 31, 2019.

Impairment of Long-Lived Assets – The Company reviews its long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

In the event that facts and circumstances indicate that the carrying value of any long-lived assets may be impaired, an evaluation of recoverability would be performed.

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During 2020 and 2019 , the Company determined that no evaluations of recoverability were necessary.

Advertising and Marketing –

Advertising and marketing costs are charged to expense as incurred.

The related amounts are presented separately in the Company’s consolidated statements of operations.

Land, Buildings, and Equipment –

Land, buildings, equipment, and building improvements are capitalized at a level of $2,000 or greater and are recorded at cost.

Advertising and Marketing – Advertising and marketing costs are charged to expense as incurred.

The related amounts are presented separately in the Company’s Consolidated Statements of Operations.

Land, Buildings, and Equipment – Land, buildings, equipment, and building improvements are capitalized at a level of $2,000 or greater and are recorded at cost.

Repair and maintenance costs are charged to operations when incurred.

Furniture, fixtures, and equipment are depreciated using the straight-line method over estimated useful lives ranging from 5 –

7 years, while buildings are depreciated over 15 –

Furniture, fixtures, and equipment are depreciated using the straight-line method over estimated useful lives ranging from 5 – 7 years, while buildings are depreciated over 15 – 39 years.

Building improvements are amortized using the straight-line method over the useful life of the assets.

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Costs incurred after the property is substantially complete and ready for its intended use are charged to expense as incurred.

Card Casino Accruals –

Minnesota law allows the Company to collect amounts from patrons to fund progressive jackpot pools in the Card Casino.

Land Held for Development – Land held for development consists of land owned for potential real estate development.

Card Casino Accruals – Minnesota law allows the Company to collect amounts from patrons to fund progressive jackpot pools in the Card Casino.

These amounts, along with amounts earned by the player pool, promotional pools, and the outstanding chip liability, are accrued as short-term liabilities at each balance sheet date.

Income Taxes –

Income taxes are accounted for under the asset and liability method.

Income Taxes – Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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For the years ended December 31, 2020 and 2019 , the Company did not recognize any expense related to interest and penalties.

Net Income Per Share –

Basic net income per common share is based on the weighted average number of common shares outstanding during each year.

Net Income Per Share – Basic net income per common share is based on the weighted average number of common shares outstanding during each year.

Diluted net income per common share takes into effect the dilutive effect of potential common shares outstanding.

The Company’s only potential common shares outstanding are stock options.

Fair Values of Financial Instruments –

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

Stock-Based Employee Compensation –

The Company accounts for share-based compensation awards on a fair value basis.

The Company’s only potential common shares outstanding are stock options.

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

Stock-Based Employee Compensation – The Company accounts for share-based compensation awards on a fair value basis.

The estimated grant date fair value of each stock-based award is recognized as expense over the requisite service period (generally the vesting period).

The estimated fair value of each option is calculated using the Black-Scholes option-pricing model.

For more information on the Company’s stock-based compensation plans, see Note 5.

Recently Adopted Accounting Standards

In February 2016, the FASB issued ASU No.

2016-02 codified as Accounting Standards Codification (“ASC”) 842, Leases, (“ASC 842”) which addresses the recognition and measurement of leases.

Under the new guidance, for all leases (with the exception of short-term leases), at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to control the use of a specified asset for the lease term.

The effective date for this update is for the annual and interim periods beginning after December 15, 2018 with early adoption permitted.

ASC 842 requires a transition adoption election using either (1) a modified retrospective approach with periods prior to the adoption date being recast or (2) a prospective adoption approach with a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods continuing to be reported under previous lease accounting guidance.

The Company adopted ASC 842 on January 1, 2019 using the prospective adoption approach, and therefore, comparative periods will continue to be reported under previous lease accounting guidance consistent with previously issued financial statements.

The Company also elected to adopt the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allows us to carry forward the historical lease identification, lease classification and treatment of initial direct costs for leases entered into prior to January 1, 2019.

We have also made an accounting policy election to not record short-term leases with an initial term of 12 months or less on the balance sheet for all classes of underlying assets.

The adoption of ASC 842 did not have a material impact on our consolidated financial statements.

Refer to Note 8 for further detail.

For more information on the Company’s stock-based compensation plans, see Note 5.

LAND, BUILDINGS AND EQUIPMENT

Land, buildings and equipment, at cost, consist of the following at December 31, 2020 and 2019 :

Land held for development

Buildings and building improvements

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Accumulated depreciation

Land held for development represents land owned for potential real estate development.

The Company has included land held for development as a separate line on the consolidated balance sheet.

This amount represents land owned for potential real estate development and totaled approximately $4,805,000 and $9,191,000 at December 31, 2020 and 2019, respectively.

A reconciliation between income taxes computed at the statutory federal income tax rate and the effective tax rate for the years ended December 31, 2020 and 2019 is as follows:

Federal tax expense at statutory rates

Federal tax (benefit) expense at statutory rates

Nondeductible lobbying expense

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Stock option expense

Federal deferred remeasurement

On December 22, 2017, the U.S.

Tax Cuts and Jobs Act ("TCJA") was signed into law.

GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted.

The Tax Act significantly revised the U.S.

corporate income tax regime by, among other things, lowering the highest U.S.

corporate tax rate of 35% to a flat 21% effective for tax years starting after December 31, 2017.

As a result, we recorded a tax benefit of $175,600 in the fourth quarter of 2018 as a result of a revaluation of the net deferred tax liabilities due to the corporate tax rate change from 34% to 21% starting in 2018.

Income tax expense for the years ended December 31, 2019 and 2018 consists of the following:

Long term incentive and restricted stock unit expense

Federal rate difference on NOL carrybacks

Income tax (benefit) expense for the years ended December 31, 2020 and 2019 consists of the following:

Deferred, Federal

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows:

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2020 and 2019 are as follows:

Deferred tax assets (liabilities)

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Land, building and equipment - cost and depreciation

Investment in JV

Investment in joint ventures

Prepaid Expenses

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Lease obligations

Charitable contribution carryovers

State net operating loss

Net long-term deferred tax liabilities

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federal, state, or local examinations by tax authorities for years before 2017.

STOCKHOLDERS’

EQUITY AND STOCK-BASED COMPENSATION

Stockholders’

STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Stockholders’ Equity

Employee Stock Purchase Plan:

The Company offers an Employee Stock Purchase Plan (the “ESPP”) that is open to all employees working more than 15 hours per week.

Shares of the Company’s common stock may be purchased by employees at six-month intervals at 85% of the fair market value on the last trading day of each six-month period.

The Company offers an Employee Stock Purchase Plan (the “ESPP”) that is open to all employees working more than 15 hours per week.

Shares of the Company’s common stock may be purchased by employees at six-month intervals at 85% of the fair market value on the last trading day of each six-month period.

Employees purchased 8,670 and 18,333 shares in 2020 and 2019 , respectively.

As of December 31, 2020 , a total of 333,174 shares have been issued from the 350,000 shares originally authorized.

The Company offers a KSOP Plan (the “KSOP”) that includes the Employee Stock Ownership Plan (the “ESOP”) and the 401(k) Plan.

The KSOP allows the Company to use Company stock to match contributions from its employees should it so choose.

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Beginning January 1, 2016, the matching of employee contributions were issued in Company stock.

Employer contributions charged to operations for stock matching of employee contributions for the year ended December 31, 2019 and 2018 totaled $688,000 and $527,000, respectively.

Employer contributions charged to operations for stock matching of employee contributions for the year ended December 31, 2020 and 2019 totaled approximately $371,000 and $688,000, respectively.

Stock Repurchase Plan:

In 2007, the Company’s Board of Directors adopted a plan that authorized the repurchase of up to 250,000 shares of the Company’s common stock in open market transactions or block purchases of privately negotiated transactions.

The Company repurchased 216,543 shares under the 2008 Stock Repurchase Plan and in 2012, authorized the repurchase of an additional 100,000 shares of the Company’s common stock.

No shares were repurchased in 2020 or 2019 , and currently the Company is authorized to repurchase up to 128,871 shares under the Stock Repurchase Plan.

Stock-Based Compensation

Stock-based compensation is recorded at fair value as of the date of grant, is included in the salaries and benefits expense line item on the consolidated statements of operations and amounted to $235,000 and $346,000 for the years ended December 31, 2019 and 2018, respectively.

Stock-based compensation is recorded at fair value as of the date of grant, is included in the salaries and benefits expense line item on the consolidated statements of operations and amounted to approximately $469,000 and $235,000 for the years ended December 31, 2020 and 2019 , respectively.

Stock Options:

The Company’s 1994 Stock Plan, as amended, (the “Plan”) provides for the granting of awards in the form of stock options, restricted stock, stock appreciation rights, and deferred stock to key employees and non-employees, including directors of and consultants to the Company and any subsidiary, to purchase up to a maximum of 1,650,000 shares of common stock.

The Company currently has 263,810 shares available for grant under the Plan.

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The Company calculates the fair market value of unrestricted shares as the average of the high and low sales prices on the date of the option exercise.

The Company’s common stock is purchased upon the exercise of stock options, and restricted stock awards are settled in shares of the Company’s common stock.

Stock option activity related to the Plan during the years ended December 31, 2020 and 2019 is summarized below:

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11.01 - 14.00

Board of Directors Stock Option and Restricted Stock Grants

The Company’s Stock Plan was amended to authorize annual grants of restricted stock, deferred stock, stock options, or any combination of the three, to non-employee members of the Board of Directors at the time of the Company’s annual shareholders’

meeting as determined by the Board prior to each such meeting.

Long Term Incentive Plan and Award of Deferred Stock

In 2016, the Board of Directors of the Company approved a new plan for long-term incentive compensation of the Company’s named executive officers (NEOs) and other Senior Executives called the Canterbury Park Holding Corporation Long Term Incentive Plan (the “LTI Plan”).

The LTI Plan authorizes the grant of Long Term Incentive Awards that provide an opportunity to NEOs and other Senior Executives to receive a payment in cash or shares of the Company’s common stock to the extent of achievement at the end of a period greater than one year (the “Performance Period”) as compared to Performance Goals established at the beginning of the Performance Period.

The Company uses three years as the Performance Period.

The LTI is a sub-plan of the Company’s Stock Plan which authorizes the grant of Deferred Stock awards that represent the right to receive Company common stock if conditions specified in the awards are satisfied.

The Board has approved granting opportunities in 2018 and 2019 to Company officers and key employees to earn long-term incentive compensation under the LTI Plan.

Each officer and key employee was granted an Incentive Award (that was also a Deferred Stock Award under the Stock Plan) which provided an opportunity to receive a payout of shares of the Company’s common stock to the extent of achievement compared to Performance Goals at the end of the three year Performance Period.

The Company expects to pay out 6,241 shares of deferred stock in the 2021 first quarter, related to the Performance Period ended December 31, 2020 .

The number of shares to be paid out for the Performance Period ending December 31, 2021 will be determined based on actual achievement compared to Performance Goals.

As a result of the COVID-19 Pandemic, the Company temporarily suspended the granting of performance awards under its LTI Plan until there is more certainty about the Company’s future operations, and instead granted other awards designed to retain NEOs and other Senior Executives as described below under “Employee Deferred Stock Awards.”

The Company recorded a Compensation benefit of $32,000 and Compensation expense of $100,000 related to the LTI plan for 2020 and 2019 , respectively.

Board of Directors Stock Option, Deferred Stock Awards, and Restricted Stock Grants

Options granted under the Plan generally expire 10 years after the grant date.

Restricted stock and deferred stock grants generally vest 100% one year after the date of the annual meeting at which they were granted, are subject to restrictions on resale for an additional year, and are subject to forfeiture if a board member terminates his or her board service prior to the shares vesting.

Below is a summary of changes in Board of Directors unvested restricted and deferred stock:

Below is a summary of changes in Board of Directors unvested deferred stock:

Non-Vested Balance, December 31, 2019

Non-Vested Balance, December 31, 2020

Employee Deferred Stock Awards

On June 25, 2020, 47,000 shares of deferred stock awards were granted to employees pursuant to the Company’s Stock Plan with a price per share equal to the market price on the date of grant of $11.07.

The vesting schedule of the awards is as follows:

(i) 60% vesting and being issued in December 2020, (ii) 20% vesting and being issued in March 2022, and (iii) 20% vesting and being issued in March 2023.

The Company’s Board of Directors designated those portions of the deferred stock awards vesting in 2020 as awards under the Company’s 2020 annual incentive plan and designed those portions of the awards scheduled to vest in 2022 and 2023 as 2020 awards under the Company’s LTI Plan.

The compensation cost associated with this grant of deferred stock awards are recorded in "Salaries and benefits" on the Consolidated Statements of Operations.

A summary of the changes in employee unvested deferred stock award grants as of December 31, 2020, is as follows:

Non-Vested Balance, December 31, 2019

At December 31, 2019, there was approximately $75,000 of total unrecognized stock-based compensation expense related to unvested deferred stock awards the Company expects to recognize in 2020.

Long Term Incentive Plan and Award of Deferred Stock

The Company uses three years as the Performance Period.

The Board has approved granting opportunities in 2017, 2018, and 2019 to Company officers and key employees to earn long-term incentive compensation under the LTI Plan.

The Company expects to pay out 24,681 shares of deferred stock in the 2020 first quarter, related to the Performance Period ended December 31, 2019.

The number of shares to be paid out for the Performance Period ending December 31, 2020 and 2021 will be determined based on actual achievement compared to Performance Goals.

Compensation expense related to the LTI plan for 2019 and 2018 was $100,000 and $216,000, respectively.

Non-Vested Balance, December 31, 2020

At December 31, 2020 , there was approximately $297,000 of total unrecognized stock-based compensation expense related to unvested employee and board of director deferred stock awards the Company expects to recognize through 2023.

NET INCOME PER SHARE COMPUTATIONS

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Net income per common share:

Options to purchase 9,000 shares of common stock at an average price of $13.30 per share were outstanding but not included in the computation of diluted net income per share for the year ended December 31, 2019 because the exercise price of the options exceeded the market price of the Company’s common stock at December 31, 2019.

There were no out of the money options at December 31, 2018, thus, all outstanding options to purchase shares of common stock were included in the computation of diluted net income per share.

Options to purchase 9,000 shares of common stock at an average price of $13.30 per share were outstanding but not included in the computation of diluted net income per share for the year ended December 31, 2020 and 2019 because the exercise price of the options exceeded the market price of the Company’s common stock at December 31, 2020 and 2019.

GENERAL CREDIT AGREEMENT

The Company has a general credit and security agreement with a financial institution, which provides a revolving credit line of up to $6,000,000 and allows for a letter of credit in the aggregate amount of up to $2,000,000 to be issued under the credit agreement.

This agreement was amended as of September 30, 2019 to extend the maturity date to September 30, 2020.

As of December 31, 2020, the financial institution had issued a $1,250,000 letter of credit on the Company's behalf, and therefore, the Company had an available credit line up to $4,750,000.

This agreement was amended as of December 23, 2020 to extend the maturity date to February 28, 2021.

This agreement was amended on February 28, 2021 to extend the maturity date to January 31, 2024.

See footnote 14 for additional information.

The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company.

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We recognize expense for operating leases on a straight-line basis over the lease term.

The Company’s lease agreements do not contain any variable lease payments, material residual value guarantees or any restrictive covenants.

Lease costs related to operating leases were $33,519 for the year ended December 31, 2019.

The total lease expenses for leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or liability was $558,233 for the year ended December 31, 2019.

Lease costs included in depreciation and amortization related to our finance leases were $23,795 for the year ended December 31, 2019.

The Company’s lease agreements do not contain any variable lease payments, material residual value guarantees or any restrictive covenants.

Lease costs related to operating leases were $31,333 and $33,519 for the years ended December 31, 2020 and 2019, respectively.

The total lease expenses for leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or liability was $360,902 and $558,233 for the years ended December 31, 2020 and 2019 , respectively.

Lease costs included in depreciation and amortization related to our finance leases were $23,795 for each of the years ended December 31, 2020 and 2019 .

Interest expense related to our finance leases was immaterial.

The following table shows the classification of the right of use assets on our consolidated balance sheets:

Year Ended December 31,

Balance Sheet Location

December 31, 2019

Land, buildings and equipment, net (1)

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Total Leased Assets

Finance lease assets are net of accumulated amortization of $23,795 for the year ended December 31, 2019.

1 – Finance lease assets are net of accumulated amortization of $53,853 and $23,795 for the years ended December 31, 2020 and 2019 , respectively.

The following table shows the lease terms and discount rates related to our leases:

December 31, 2019

Year Ended December 31,

Weighted average remaining lease term (in years):

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The amounts charged to operations for totalizator expenses for the years ended December 31, 2020 and 2019 were $181,000 and $233,000, respectively.

Future minimum purchase obligations are as follows:

Payment due by period

Future minimum purchase obligations are $235,000 for 2021.

CONTINGENCIES

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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.

In connection with the purchase of the Racetrack, the Company entered into an Earn Out Promissory Note dated March 29, 1994.

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At the date (if any) that these two conditions are met, the five minimum payments will be discounted back to their present value and the sum of those discounted payments will be capitalized as part of the purchase price in accordance with generally accepted accounting principles.

The purchase price will be further increased if payments become due under the “20% of Net Pretax Profit”

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.

Effective on June 15, 2012, the Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community (“SMSC”).

The CMA was amended in January 2015, 2016, 2017, and 2018.

Effective on June 15, 2012, the Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community (“SMSC”).

The CMA was amended in January 2015, 2016, 2017, 2018, and in June 2020 (as described below in Note 12).

The CMA contains certain covenants which, if breached, would trigger an obligation to repay a specified amount related to such covenant.

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The Company is periodically involved in various claims and legal actions arising in the normal course of business.

Management believes that the resolution of any pending claims and legal actions at December 31, 2019 and as of the date of this report will not have a material impact on the Company’s consolidated financial positions or results of operations.

Management believes that the resolution of any pending claims and legal actions at December 31, 2020 and as of the date of this report will not have a material impact on the Company’s consolidated financial positions or results of operations.

The Company has committed to payment of statutory distributions under a $500,000 bond issued to the Minnesota Racing Commission as required by Minnesota statute.

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The horse racing segment primarily represents simulcast and live horse racing operations.

The Card Casino segment represents operations of Canterbury Park’s Card Casino, the food and beverage segment represents food and beverage operations provided during simulcast and live racing, in the Card Casino, and during special events, and the development segment represents our real estate development operations.

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 process to produce those products and services.

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However, the food and beverage segment pays approximately 25% of gross revenues earned on live racing and special event days to the horse racing segment for use of the facilities.

The following tables represent a disaggregation of revenues from contracts with customers along with the Company’s operating segments (in 000’s):

In 2020, the food and beverage segment did not pay a commission to the horse racing segment subsequent to the Company's first temporary shutdown of operations starting March 16, 2020.

The following tables represent a disaggregation of revenues from contracts with customers along with the Company’s operating segments (in 000’s):

Year Ended December 31, 2020

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Segment (loss) income before income taxes

Segment tax expense (benefit)

Segment tax benefit

At December 31, 2020

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Intersegment revenues

Net interest income

Segment income before income taxes

Segment tax expense (benefit)

Net interest (expense) income

Segment (loss) income before income taxes

Segment tax (benefit) expense

At December 31, 2019

Segment Assets

The following are reconciliations of reportable segment revenues, income before income taxes, and assets, to the Company’s consolidated totals for the years ended December 31, 2019 and 2018 (in 000’s):

Year Ended December 31,

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Total consolidated net revenues

Income before income taxes

Total segment income before income taxes

Elimination of intersegment income before income taxes

Total consolidated income before income taxes

(Loss) income before income taxes

Total segment (loss) income before income taxes

Elimination of intersegment loss before income taxes

Total consolidated (loss) income before income taxes

Total assets for reportable segments

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Total consolidated assets

SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)

2019 Quarter Ended

Operating expenses

Basic net income per share

Diluted net income per share

2018 Quarter Ended

Operating expenses

Basic net income per share

Diluted net income per share

COOPERATIVE MARKETING AGREEMENT

On June 4, 2012, the Company entered into the CMA with the SMSC.

The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse industry.

Under the CMA, as amended, this is achieved through “Purse Enhancement Payments to Horsemen”

paid directly to the MHBPA.

Such payments have no direct impact on the Company’s consolidated financial statements or operations.

Under the terms of the CMA, as amended, the SMSC paid the horsemen $7.3 million for purse enhancements for each of the years ended December 31, 2019 and 2018.

Under the CMA, SMSC also agreed to make “Marketing Payments”

to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits and events.

Under the CMA, the SMSC paid the Company $1,620,000 for marketing purposes for each of the years ended December 31, 2019 and 2018.

The CMA was amended in January 2015, January 2016, January 2018, and March 2018 to adjust the payment amounts between the “Purse Enhancement Payments to Horsemen”

and “Marketing Payments to Canterbury Park.”

Under the CMA as most recently amended, the SMSC has agreed to make the following purse enhancement and marketing payments for 2020 through 2022:

The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse industry.

Under the CMA, as amended, this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA.

Such payments have no direct impact on the Company’s consolidated financial statements or operations.

Because the Company conducted a more limited 2020 live race meet due to the COVID-19 Pandemic, the Company and SMSC entered into the Fifth Amendment Agreement (“Fifth Amendment”) to the CMA effective June 8, 2020.

Under the Fifth Amendment, the SMSC agreed to provide up to $5,620,000 for the annual purse enhancement for the year 2020.

The annual purse enhancement that the SMSC is obligated to pay under the CMA for 2021 and 2022 was not changed and remains at $7,380,000 per year.

Under the terms of the CMA, as amended, the SMSC made payments of $5.6 million and $7.4 million during 2020 and 2019, respectively, primarily for purse enhancements for the respective live race meets.

Under the CMA, as amended, SMSC also agreed to make “Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits, and events.

Under the Fifth Amendment, the SMSC was not required to pay the Company a 2020 annual marketing payment, but the Company used previously paid but unspent funds for these purposes.

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

Purse Enhancement Payments to

Marketing Payments to Canterbury

Marketing Payments to

Canterbury Park

(1) - Includes $100,000 each year payable to various horsemen associations

The amounts earned from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s condensed consolidated statements of operations.

For the year ended December 31, 2019, the Company recorded $1,114,000 in other revenue and incurred $888,000 in advertising and marketing expense and incurred $226,000 in depreciation related to the SMSC marketing funds.

For the year ended December 31, 2018, the Company recorded $1,275,000 in other revenue and incurred $1,049,000 in advertising and marketing expense and $226,000 in depreciation related to the SMSC marketing funds.

Under the CMA, the Company agreed for the term of the CMA that it would not promote or lobby the Minnesota legislature for expanded gambling authority and will support the SMSC’s lobbying efforts against expanding gambling authority.

For the year ended December 31, 2020 , the Company recorded $900,000 in other revenue and incurred $740,000 in advertising and marketing expense and $160,000 in depreciation related to the SMSC marketing payment.

For the year ended December 31, 2019 , the Company recorded $1,114,000 in other revenue and incurred $888,000 in advertising and marketing expense and $226,000 in depreciation related to the SMSC marketing payment.

The excess of amounts received over revenue is reflected as deferred revenue on the company’s consolidated balance sheets.

REAL ESTATE DEVELOPMENT

Land Sale and Repurchase

On October 6, 2015, the Company sold six acres of land adjacent to the Racetrack for $1,459,000 and recorded a gain of $660,000 on the Consolidated Statements of Operations –

Gain on sale of land .

Under the agreement with the buyer, the Company had the option to repurchase up to one acre within three years from closing date at the sale price of approximately $240,000 per acre.

According to ASC 360‑20‑40‑38 - Derecognition , the Company recorded the repurchase option acre as a deferred gain liability in the amount of $240,000 on the Consolidated Balance Sheets.

Since the risks and rewards were not completely transferred to the buyer based on the repurchase option, the Company maintained the asset on our financials in the amount of $110,000.

The repurchase option lapsed on October 6, 2018, and the Company did not repurchase the one acre of land.

Therefore, a gain on sale of land of $129,500 was recognized on the Consolidated Statements of Operations for the year ended December 31, 2018.

Equity Investment

On April 2, 2018, the Company’s subsidiary Canterbury Development LLC entered into an Operating Agreement (“Operating Agreement”) with an affiliate of Doran Companies (“Doran”), a national commercial and residential real estate developer, as the two members of a Minnesota limited liability company named Doran Canterbury I, LLC (“Doran Canterbury I”).

Doran Canterbury I was formed as part of a joint venture between Doran and Canterbury Development LLC to construct an upscale apartment complex on land adjacent to the Company’s Racetrack (the “Project”).

Doran Canterbury is developing Phase I of the Project, which will include approximately 300 units, a heated parking ramp, and a clubhouse.

In connection with the execution of the Amended Doran Canterbury I Agreement, on August 18, 2018, Canterbury Development LLC entered into an Operating Agreement with Doran Shakopee, LLC as the two members of a Minnesota limited liability company entitled Doran Canterbury II, LLC (“Doran Canterbury II”).

Under the Doran Canterbury II Operating Agreement, Doran Canterbury II will pursue development of Phase II of the Project, which is expected to begin upon rental stabilization of Phase I.

Phase II will include an additional 300 apartment units.

Canterbury Development’s equity contribution to Doran Canterbury for Phase II will be approximately 10 acres of land.

In connection with its contribution, Canterbury Development will become a 27.4% equity member in Doran Canterbury II with Doran owning the remaining 72.6%.

On September 27, 2018, Canterbury Development LLC contributed approximately 13 acres of land as its equity contribution in the joint venture and became a 27.4% equity member.

On April 2, 2018, the Company’s subsidiary Canterbury Development LLC entered into an operating agreement with an affiliate of Doran Companies (“Doran”), a national commercial and residential real estate developer, as the two members of a Minnesota limited liability company named Doran Canterbury I, LLC (“Doran Canterbury I”).

Doran Canterbury I was formed as part of a joint venture between Doran and Canterbury Development LLC to construct an upscale apartment complex on land adjacent to the Company’s Racetrack.

Doran Canterbury has developed Phase I of the Project, which includes approximately 300 units, a heated parking ramp, and a clubhouse.

On September 27, 2018, Canterbury Development LLC contributed approximately 13 acres of land as its equity contribution in the Doran Canterbury I joint venture and became a 27.4% equity member.

On December 20, 2018, financing for Doran Canterbury I was secured.

As the Company is able to assert significant influence, but not control, over Doran Canterbury I’s operational and financial policies, the Company will account for the joint venture as an equity method investment.

In accordance with ASC 610-20, we determined that we do not have a controlling financial interest in the joint venture and the arrangement meets the criteria to be accounted for as a contract.

As the Company is able to assert significant influence, but not control, over Doran Canterbury I’s operational and financial policies, the Company accounts for the joint venture as an equity method investment.

In connection with the execution of the amended operating agreement for Doran Canterbury I, on August 18, 2018, Canterbury Development LLC entered into an operating agreement with Doran Shakopee, LLC as the two members of a Minnesota limited liability company entitled Doran Canterbury II, LLC (“Doran Canterbury II”).

Under the Doran Canterbury II operating agreement, Doran Canterbury II will pursue development of Phase II of the project.

Phase II will include an additional 300 apartment units.

Canterbury Development’s equity contribution to Doran Canterbury II for Phase II was approximately 10 acres of land, which were contributed to Doran Canterbury II on July 30, 2020.

In connection with its contribution, Canterbury Development became a 27.4% equity member in Doran Canterbury II with Doran owning the remaining 72.6%.

As the Company is able to assert significant influence, but not control, over Doran Canterbury II’s operational and financial policies, the Company accounts for the joint venture as an equity method investment.

On June 16, 2020, Canterbury Development, entered into an operating agreement with an affiliate of Greystone Construction, as the two members of a Minnesota limited liability company named Canterbury DBSV Development, LLC (Canterbury DBSV).

Canterbury DBSV was formed as part of a joint venture between Greystone and Canterbury Development LLC for a multi-use development on the 13-acre land parcel located on the southwest portion of the Company’s racetrack.

Canterbury Development’s equity contribution to Canterbury DBSV was approximately 13 acres of land, which were contributed to Canterbury DBSV on July 1, 2020.

In connection with its contribution, Canterbury Development became a 61.87% equity member in Canterbury DBSV.

As the Company is able to assert significant influence, but not control, over Canterbury DBSV’s operational and financial policies, the Company accounts for the joint venture as an equity method investment.

In accordance with ASC 610-20, we determined that we do not have a controlling financial interest in the Doran Canterbury II and Canterbury DBSV joint ventures and the arrangements meet the criteria to be accounted for as a contract.

Therefore, we derecognized the land and recognized a full gain (approximately $2,368,000) between the carrying amount of the land and the estimated fair value of the land transferred.

The Company recognize its proportionate share of Doran Canterbury I’s earnings (after the effect of basis differences) as an increase or decrease in its Investment in Doran Canterbury I and as Income or Loss from Investment in Doran Canterbury I.

In future periods, the Company will recognize its proportionate share of Doran Canterbury II and Canterbury DBSV’s earnings (after the effect of basis differences) as an increase or decrease in its Equity investment and as Income or Loss from Investment in these joint ventures.

Tax Increment Financing

On August 8, 2018, the City Council of the City of Shakopee, Minnesota approved a Contract for Private Redevelopment (“Redevelopment Agreement”) between the City of Shakopee Economic Development Authority (“Shakopee EDA”) and Canterbury Park Holding Corporation and its subsidiary Canterbury Development LLC in connection with a Tax Increment Financing District (“TIF District”) that the City had approved in April 2018.

The City of Shakopee, the Shakopee EDA and the Company entered into the Redevelopment Agreement on August 10, 2018.

Under the Redevelopment Agreement, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, including the development of public streets, utilities, sidewalks, and other public infrastructure.

More specifically, the Company is obligated to construct improvements on Shenandoah Drive and Barenscheer Boulevard with these improvements required to be substantially complete on or before December 31, 2019 and December 31, 2020, respectively.

Under the Redevelopment Agreement, the Company has agreed to undertake a number of specific public infrastructure improvements within the TIF District, including the development of public streets, utilities, sidewalks, and other public infrastructure.

More specifically, the Company is obligated to construct improvements on Shenandoah Drive and Unbridled Avenue (formerly Barenscheer Boulevard) with these improvements required to be substantially complete on or before December 31, 2019 and December 31, 2020, respectively.

As of December 31, 2020 , improvements to Shenandoah Drive were substantially complete.

Under the Redevelopment Agreement, the City of Shakopee has agreed that a portion of the tax increment revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing infrastructure improvements.

The total estimated cost of TIF eligible improvements to be borne by the Company is $23,336,500.

A detailed Schedule of the Public Improvements under the Redevelopment Agreement, the timeline for their construction and the source and amount of funding is set forth on Exhibit C of the Redevelopment Agreement, which was filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June 30, 2018.

The total amount of funding that Canterbury will be paid as reimbursement under the TIF program for these improvements is not guaranteed, however, and will depend on future tax revenues generated from the developed property.

As of December 31, 2019, the Company recorded a TIF receivable of $9,709,000, which represents $9,557,000 of principal and $152,000 of interest.

Management believes no allowance for doubtful accounts is necessary.

As of December 31, 2018, the Company recorded a TIF receivable of $1,909,000, which represented only principal.

As of December 31, 2020 , the Company recorded a TIF receivable of approximately $11,889,000, which represents $11,191,000 of principal and $698,000 of interest.

As of December 31, 2019 , the Company recorded a TIF receivable of approximately $9,709,000, which represented $9,557,000 of principal and $152,000 of interest.

The Company expects to finance its improvements under the Redevelopment Agreement with funds from its current operating resources and existing credit facility and, potentially, third-party financing sources.

NOTES RECEIVABLE

During May 2016, the Company sold approximately 24 acres of land adjacent to the Racetrack for a total consideration of approximately $4.3 million.

Promissory notes receivable consisted of two promissory notes totaling $3,191,000 bearing interest at the mid-term applicable federal rate, which equaled 1.43%.

On November 1, 2019, the Company received a final payment of $982,639, which represented $975,363 of principal and $7,276 in interest related to the note receivable.

This resulted in an increase to Cash and cash equivalents of $982,639 and a decrease to our Current portion of notes receivable for the same amount.

The remaining difference between the Current portion of notes receivable balance and payment received was recorded as a loss on disposal of assets.

The City of Shakopee has authorized changes to the Redevelopment Agreement and the responsibilities of the Company, but the Company, the City of Shakopee and other parties have not formally entered into an agreement that memorializes these changes.

The Company will provide updated disclosure when the parties enter into a new agreement.

As part of the authorized changes regarding the responsibilities of the Company and the city of Shakopee, improvements on Unbridled Avenue will be primarily constructed by the City of Shakopee.

As a result, should Canterbury enter into the agreement that memorializes these changes, the total estimated cost of TIF eligible improvements to be borne by the Company will be reduced by $7,670,000.

These improvements were substantially complete as of the date of this filing.

Development Agreements

On April 7, 2020, the Company entered into an agreement to sell approximately 11.3 acres of land on the west side of the Racetrack to a third party for total consideration of approximately $2,400,000.

Closing is subject to the satisfaction of certain customary conditions.

The Company expects phase one of the transaction to close in 2021 and phase two to close in 2022.

On April 15, 2020, the Company entered into an agreement to sell approximately 2.4 acres of land on the west side of the Racetrack to a third party for total consideration of approximately $1,100,000.

Closing is subject to the satisfaction of certain customary conditions.

The Company expects the transaction to close in 2021.

RELATED PARTY RECEIVABLES

On December 20, 2018, the Company entered into a loan agreement with Doran Family Holdings, a related party that is the controlling partner in the Doran Canterbury I joint venture.

The Company loaned Doran Family Holdings $2,910,000 and received a promissory note totaling $2,940,000 bearing interest at 5%.

The note will mature at the earliest of (i) the date of closing by Doran Canterbury II, LLC on Phase II Project Financing;

(ii) the closing on any purchase of the Phase II Land by Doran Shakopee, LLC pursuant to its option under Section 3.9(a) of the Operating Agreement;

(iii) the date of final determination that the Phase II Project will not be developed by either Doran Canterbury II, LLC;

or (iv) three (3) years following the date of the note.

The promissory note is fully and unconditionally guaranteed by Doran Family Holdings.

Management believes no allowance for doubtful accounts is necessary.

For the year ended December 31, 2019, the Company recorded $147,000 of interest income related to this note.

In 2018, the Company incurred $269,000 of costs for preliminary grading work on parcels of land the Company has designated for Doran Canterbury II.

The Company will be fully reimbursed for these costs upon the commencement of the Doran Canterbury II project and thus, recorded the amount as a receivable for the year ended December 31, 2018 and 2019.

Although there is a possibility Doran Canterbury II will not materialize, the Company currently believes the likelihood of that is remote.

In 2019, the Company contributed two member loans to the Doran Canterbury I joint venture totaling $178,100 and $137,000, respectively.

The member loans bears interest at the rate equal to the Prime Rate plus two percent annum.

The Company expects to be fully reimbursed for the member loans upon positive cash flow from the joint venture.

For the year ended December 31, 2019, the Company recorded $5,000 of interest income related to these loans.

On December 20, 2018, the Company entered into a loan agreement with Doran Family Holdings, which is the controlling partner in the Doran Canterbury I joint venture.

The Company loaned Doran Family Holdings $2,910,000 net of loan origination fees, and received a promissory note totaling $2,940,000 bearing interest at 5%.

On August 3, 2020, the Company received payment for this promissory note of $2,940,000.

In 2018, the Company incurred $268,000 of costs for preliminary grading work on parcels of land the Company had designated for Doran Canterbury II.

The Company was to be fully reimbursed for these costs upon the commencement of the Doran Canterbury II project and thus, recorded the amount as a receivable.

On August 3, 2020, the Company received payment for this receivable of $268,000.

In 2019 and 2020, the Company loaned money to the Doran Canterbury I joint venture in eight separate loans totaling approximately $1,277,000.

These member loans bear interest at the rate equal to the Prime Rate plus two percent per annum.

As of December 31, 2020, accrued interest totaled approximately $41,000.

The Company expects to be fully reimbursed for these member loans when the joint venture achieves positive cash flow.

In 2020, the Company recorded a related party receivable of approximately $22,000 for various development related costs incurred by the Company on parcels of land the Company had designated for Canterbury DBSV.

The Company expects to be fully reimbursed for these costs by Canterbury DBSV in 2021.

In 2020, the Company recorded a related party receivable of approximately $169,000 for landscaping and irrigation costs incurred by the Company on parcels of land the Company had designated for Doran Canterbury II.

The Company received payment for this receivable in January 2021.

The Company also recorded a related party receivable of approximately $20,000 for various development related costs incurred by the Company on behalf of Doran Canterbury I and II.

The Company expects to be fully reimbursed for these costs in 2021.

SUBSEQUENT EVENTS

On March 16, 2020, the Company announced that, based on the advice of Minnesota state and regulatory bodies, it was temporarily suspending all card casino, simulcast, and special events operations at Canterbury Park at noon on March 16, 2020 in response to concerns about the COVID-19 coronavirus.

The Company will continue to monitor developments with respect to the COVID-19 coronavirus and provide updated information on its website, or in press releases.

As a result of the temporary suspension of operations, the Company’s three main sources of income and cash flow, revenues from simulcasting, card casino, and food and beverage ceased operating on March 16, 2020.

In the second quarter ended June 30, 2019, the Company had revenue of $2,546,000 from live racing and simulcasting, $8,891,000 from the Card Casino and $2,544,000 from food and beverage.

The Company cannot currently predict when it will be able to resume simulcasting or reopen its Card Casino, or whether it will be able to commence live racing on its projected May 15, 2020 date.

The Company’s food and beverage revenue is driven primarily by its simulcasting, live racing, and card casino guests.

In a separate press also issued on March 16, 2020, the Company announced that in conjunction with its determination to temporarily shut down operations due to concerns and uncertainty about the effect of the COVID-19 coronavirus, the Company’s Board of Directors had suspended declaring and paying its $0.07 quarterly cash dividend, that would normally be paid in April 2020.

On February 28, 2021, the Company entered into an amendment to its existing credit agreement with a financial institution.

The amendment extended the maturity date of the agreement to January 31, 2024 and increased its revolving credit line up to $10,000,000.

The amendment also includes additional collateral on the line of credit in the form of a Mortgage, Security Agreement, Fixture Financing Statement and Assignment of Leases and Rents.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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What changed 10-K

Item 8. Financial Statements and Supplementary Data