Canterbury Park Holding Corp 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (a) Financial Statements The following financial statements of the Company are set forth on pages 36 through 60 of the Form 10-K: Page Report of Independent Registered Public Accounting Firm 36 Consolidated Balance Sheets as of December 31, 2020 and 2019 38 Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 39 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020 and 2019 40 Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 41 Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019 43 35 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders Canterbury Park Holding Corporation 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, 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. 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. 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. 36 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: o Historical results o Discussions with management related to the ongoing development projects. o 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. Minneapolis, Minnesota March 24, 2021 37 CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2020 and 2019 2020 2019 ASSETS CURRENT ASSETS Cash and cash equivalents $ — $ 355,399 Restricted cash 4,471,712 2,308,955 Short-term investments — 103,886 Accounts receivable, net of allowance of $19,250 for both periods 231,255 302,037 Inventory 218,791 390,118 Prepaid expenses 498,642 501,493 Income taxes receivable 4,031,621 — Total current assets 9,452,021 3,961,888 LONG-TERM ASSETS Deposits 49,500 49,500 Restricted cash - long-term portion — 1,262,744 TIF receivable 11,888,570 9,708,856 Related party receivable (Note 13) 1,541,910 3,528,927 Operating lease right-of-use assets 45,057 74,832 Equity investment (Note 12) 7,515,108 2,992,633 Land held for development 4,805,417 9,191,107 Land, buildings and equipment, net (Note 3) 33,507,204 34,642,595 TOTAL ASSETS $ 68,804,787 $ 65,413,082 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable 2,953,586 3,495,238 Card Casino accruals 2,327,994 2,167,056 Accrued wages and payroll taxes 1,150,102 2,254,379 Cash dividend payable — 324,439 Accrued property taxes 804,817 1,019,658 Deferred revenue 435,866 1,482,130 Payable to horsepersons 2,374,696 557,696 Income taxes payable — 120,960 Current portion of finance lease obligations 25,749 24,500 Current portion of operating lease obligations 22,271 29,776 Total current liabilities 10,095,081 11,475,832 LONG-TERM LIABILITIES Deferred income taxes (Note 4) 7,347,700 4,404,300 Finance lease obligations, net of current portion 46,035 71,784 Operating lease obligations, net of current portion 22,786 45,056 Total long-term liabilities 7,416,521 4,521,140 TOTAL LIABILITIES 17,511,602 15,996,972 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 47,480 46,445 Additional paid-in capital 23,631,618 22,733,933 Retained earnings 27,614,087 26,635,732 Total stockholders’ equity 51,293,185 49,416,110 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 68,804,787 $ 65,413,082 See notes to consolidated financial statements. 38 CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED December 31, 2020 and 2019 2020 2019 OPERATING REVENUES: Pari-mutuel $ 7,979,336 $ 9,832,945 Card Casino 19,885,862 34,406,195 Food and beverage 2,372,716 8,894,985 Other 2,902,358 6,092,732 Total Net Revenues 33,140,272 59,226,857 OPERATING EXPENSES: Purse expense 4,946,799 6,979,508 Minnesota Breeders’ Fund 742,052 1,052,682 Other pari-mutuel expenses 692,060 1,332,321 Salaries and benefits 15,926,727 25,527,560 Cost of food and beverage and other sales 1,230,633 4,075,313 Depreciation 2,748,514 2,679,728 Utilities 1,212,004 1,531,029 Advertising and marketing 377,412 2,152,260 Professional and contracted services 3,340,116 4,983,587 Loss on disposal of assets 13,407 261,728 Gain on insurance recoveries — (198,874 ) Gain on sale of assets — (12,141 ) Other operating expenses 3,652,265 5,226,392 Total Operating Expenses 34,881,989 55,591,093 Gain on transfer of land (Note 12) 2,367,514 — INCOME FROM OPERATIONS 625,797 3,635,764 OTHER INCOME (LOSS) Loss from equity investment (1,478,199 ) (2,377 ) Interest income, net 663,571 329,150 Net Other (Loss) Income (814,628 ) 326,773 (LOSS) INCOME BEFORE INCOME TAXES (188,831 ) 3,962,537 INCOME TAX BENEFIT (EXPENSE) (Note 4) 1,250,845 (1,244,263 ) NET INCOME $ 1,062,014 $ 2,718,274 Basic earnings per share $ 0.23 $ 0.59 Diluted earnings per share $ 0.23 $ 0.59 Weighted Average Basic Shares Outstanding 4,697,021 4,594,118 Weighted Average Diluted Shares 4,697,791 4,607,809 Cash dividends declared per share — 0.28 See notes to consolidated financial statements. 39 CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY YEARS ENDED December 31, 2020 and 2019 Number of Common Additional Retained Shares Stock Paid-in Capital Earnings Total Balance at December 31, 2018 4,527,685 $ 45,277 $ 21,420,886 $ 25,268,187 $ 46,734,350 Exercise of stock options 41,310 413 272,869 — 273,282 Other share retirements (5,863 ) (59 ) (27,915 ) (62,048 ) (90,022 ) Stock-based compensation — — 235,105 — 235,105 Dividend distribution — — — (1,288,681 ) (1,288,681 ) 401(K) stock match 52,089 521 687,979 — 688,500 Issuance of deferred stock awards 10,968 110 (55,044 ) — (54,934 ) Shares issued under Employee Stock Purchase Plan 18,333 183 200,053 — 200,236 Net income — — — 2,718,274 2,718,274 Balance at December 31, 2019 4,644,522 $ 46,445 $ 22,733,933 $ 26,635,732 $ 49,416,110 Exercise of stock options 24,250 242 200,548 — 200,790 Other share retirements (9,920 ) (99 ) (44,587 ) (79,512 ) (124,198 ) Stock-based compensation — — 468,832 — 468,832 Dividend distribution — — — (4,147 ) (4,147 ) 401(K) stock match 34,625 346 371,086 — 371,432 Issuance of deferred stock awards 45,865 459 (177,960 ) — (177,501 ) Shares issued under Employee Stock Purchase Plan 8,670 87 79,766 — 79,853 Net income — — — 1,062,014 1,062,014 Balance at December 31, 2020 4,748,012 $ 47,480 $ 23,631,618 $ 27,614,087 $ 51,293,185 See notes to consolidated financial statements. 40 CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED December 31, 2020 and 2019 2020 2019 Operating Activities: Net income $ 1,062,014 $ 2,718,274 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,748,514 2,679,728 Stock-based compensation expense 468,832 235,105 Stock-based employee match contribution 371,432 688,500 Deferred income taxes 2,943,400 434,300 Loss on disposal of assets 13,407 261,728 Loss from equity investment 1,478,199 2,377 Gain on insurance recoveries — (198,874 ) Gain on sale of assets — (12,141 ) Gain on transfer of land (2,367,514 ) — Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 70,782 (60,294 ) Decrease in other current assets 174,178 30,623 (Increase) decrease in income taxes receivable/payable (4,152,581 ) 537,963 Decrease in operating lease right-of-use assets 29,775 28,914 Decrease in operating lease liabilities (29,775 ) (28,914 ) Decrease in accounts payable (886,060 ) (1,364,430 ) (Decrease) increase in deferred revenue (1,046,264 ) 502,772 Increase in Card Casino accruals 160,938 426,130 Decrease in accrued wages and payroll taxes (1,104,277 ) (13,972 ) (Decrease) increase in accrued property taxes (75,292 ) 18,458 Increase (decrease) in payable to horsepersons 1,817,000 (148,426 ) Net cash provided by operating activities 1,676,708 6,737,821 Investing Activities: Additions to land, buildings, and equipment (1,536,948 ) (7,364,925 ) Additions for TIF eligible improvements (1,311,907 ) (7,800,791 ) Decrease (increase) in related party receivable 1,987,017 (320,527 ) Decrease in notes receivable — 2,142,511 Proceeds from insurance recoveries — 204,174 Sale of investments 103,886 102,659 Net cash used in investing activities (757,952 ) (13,036,899 ) Financing Activities Proceeds from issuance of common stock 156,446 383,496 Borrowings on line of credit 5,866,416 5,932,532 Payments against line of credit (5,866,416 ) (5,932,532 ) Cash dividend paid to shareholders (328,587 ) (1,281,180 ) Payments for taxes related to net share settlement of equity awards (177,501 ) (54,934 ) Principal payments on finance lease (24,500 ) (25,204 ) Net cash used in financing activities (374,142 ) (977,822 ) Net decrease in cash, cash equivalents, and restricted cash 544,614 (7,276,900 ) Cash, cash equivalents, and restricted cash at beginning of year 3,927,098 11,203,998 Cash, cash equivalents, and restricted cash at end of year $ 4,471,712 $ 3,927,098 41 CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED December 31, 2020 and 2019 (continued) Schedule of non-cash investing and financing activities Additions to buildings and equipment funded through accounts payable $ 344,000 $ 1,272,000 Transfer of future TIF reimbursed costs from PP&E 2,180,000 7,801,000 Dividend declared — 324,000 ROU assets obtained in exchange for operating lease obligations — 104,000 Transfer of assets to Doran Canterbury II 1,633,299 — Transfer of assets to Canterbury DBSV 2,195,260 — Supplemental disclosure of cash flow information: Income taxes paid $ 80,000 $ 740,000 Interest paid 40,000 42,000 See notes to consolidated financial statements. 42 CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED December 31, 2020 and 2019 1. OVERVIEW AND BASIS OF PRESENTATION Business – The Company’s Racetrack operations are conducted at facilities located in Shakopee, Minnesota, approximately 25 miles southwest of downtown Minneapolis. In May 1994, the Company commenced year-round horse racing simulcast operations and hosted the first annual live race meet during the summer of 1995. The Company’s live racing operations are a seasonal business as it hosts live race meets each year from May until September. The Company earns additional pari-mutuel revenue by televising its live racing to out-of-state racetracks around the country. Canterbury Park’s Card Casino operates 24 hours a day, seven days a week and is limited by Minnesota State law to conducting card play on a maximum of 80 tables. The Card Casino currently offers a variety of poker and table games. The Company’s three largest sources of revenues include: Card Casino operations, pari-mutuel operations and food and beverage sales. The Company also derives revenues from related services and activities, such as admissions, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack. Additionally, the Company is redeveloping approximately 140 acres of underutilized land surrounding the Racetrack in a project known as Canterbury Commons. The Company is pursuing several mixed-use development opportunities for this land, directly and through joint ventures. 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. 43 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. 2. 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. We determine revenue recognition through the following steps: ● Identification of the contract, or contracts, with a customer ● Identification of the performance obligations in the contract ● Determination of the transaction price ● Allocation of the transaction price to the performance obligation in the contract ● Recognition of revenue when, or as, we satisfy a performance obligation The transaction price for a Card Casino contract is a set percentage of wagers and is recognized at the time that the wagering process is complete. The transaction price for pari-mutuel wagering is the commission received on a wager, exclusive of any track fees and is recognized upon occurrence of the live race that is presented for wagering and after that live race is made official by the respective state’s racing regulatory body. The transaction price for food and beverage contracts is the net amount collected from the customer for these goods. Food and beverage services have been determined to be separate, stand-alone performance obligations and the transaction price is recorded as revenue as the good is transferred to the customer when delivery is made. 44 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. For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with the loyalty points earned, the Company allocates an amount to the loyalty point contract liability based on the stand-alone redemption value of the points earned, which is determined by the value of a point that can be redeemed for a cash voucher, food and beverage voucher, racing admission, valet parking, or racing forms. Based on past experience, the majority of customers redeem their points for cash vouchers. We have two general types of liabilities related to Card Casino contracts with customers: (1) our MVP Loyalty Program and (2) outstanding chip liability. These are included in the line item Card Casino accruals on the consolidated balance sheet. We defer the full retail value of these complimentary reward items until the future revenue transaction occurs. The Company offers certain promotional allowances at no charge to patrons who participate in its player rewards program. 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. An entity is a principal if it controls the specified service before that service is transferred to a customer. The revenue we recognize for on-track revenue and import revenue is the commission we are entitled to retain for providing a wagering service to our customers. For these arrangements, we are the principal as we control the wagering service; therefore, any charges, including simulcast fees, we incur for delivering the wagering service are presented as operating expenses. For export revenue, our customer is the third party wagering site such as a race track, OTB, or advance deposit wagering provider. Therefore, the revenue we recognize for export revenue is the simulcast host fee we earn for exporting our racing signal to the third party wagering site. 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. 45 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. The Company continually reviews its investments to determine whether a decline in fair value below the cost basis is other than temporary. If the decline in fair value is judged to be other than temporary, the cost basis of the security is written down to fair value and the amount of the write-down is included in earnings. 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. Accounts receivable are stated net of allowances for doubtful accounts, which represent estimated losses resulting from the inability of customers to make the required payments. Accounts that are outstanding longer than the contractual terms are considered past due. When determining the allowances for doubtful accounts, the Company takes several factors into consideration including the overall composition of the accounts receivable aging, its prior history of accounts receivable write-offs, the type of customers and its day-to-day knowledge of specific customers. 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 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. As uncashed winning tickets and vouchers are redeemed, this liability is reduced for the respective cash payment. The Company recognizes revenue associated with the uncashed winning tickets and vouchers when the likelihood of redemption, based on historical experience, is remote. 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. 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. 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. 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. 46 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. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets. 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. Repair and maintenance costs are charged to operations when incurred. Furniture, fixtures, and equipment are depreciated using the straight-line method over estimated useful lives ranging from 5 – 7 years, while buildings are depreciated over 15 – 39 years. Building improvements are amortized using the straight-line method over the useful life of the assets. Pre-development costs are incurred prior to vertical construction and for certain land held for development during the due diligence phase. This includes legal, engineering, architecture, and other professional fees incurred in pursuit of new development opportunities for which we believe future development is probable. Future development is dependent upon various factors, including zoning and regulatory approval, rental market conditions, construction costs and availability of capital. Pre-development costs incurred for which future development is not yet considered probable are expensed as incurred. The Company capitalizes property taxes incurred on its land held for development during periods in which activities necessary to get the property ready for its intended use are in progress. Costs incurred after the property is substantially complete and ready for its intended use are charged to expense as incurred. 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. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to reverse. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. Interest and penalties associated with uncertain income tax positions are presented in income tax expense. For the years ended December 31, 2020 and 2019 , the Company did not recognize any expense related to interest and penalties. 47 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 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. 3. LAND, BUILDINGS AND EQUIPMENT Land, buildings and equipment, at cost, consist of the following at December 31, 2020 and 2019 : 2020 2019 Land $ 2,680,158 $ 2,507,298 Buildings and building improvements 41,081,689 38,858,798 Furniture and equipment 23,515,215 22,821,447 Construction in progress 1,677,547 3,174,664 68,954,609 67,362,207 Accumulated depreciation (35,447,405 ) (32,719,612 ) $ 33,507,204 $ 34,642,595 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. 48 4. INCOME TAXES 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: 2020 2019 Federal tax (benefit) expense at statutory rates $ (40,000 ) $ 928,000 Nondeductible lobbying expense 13,000 15,100 State expense, net of federal impact 3,000 316,000 Stock option expense — (14,200 ) Long term incentive and restricted stock unit expense (14,000 ) — Federal rate difference on NOL carrybacks (1,213,000 ) — Other 155 (637 ) $ (1,250,845 ) $ 1,244,263 Income tax (benefit) expense for the years ended December 31, 2020 and 2019 consists of the following: 2020 2019 Current Federal $ (4,110,000 ) $ 449,000 State (84,000 ) 361,000 (4,194,000 ) 810,000 Deferred, Federal 2,860,155 479,263 Deferred, State 83,000 (45,000 ) $ (1,250,845 ) $ 1,244,263 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, 2020 and 2019 are as follows: 2020 2019 Deferred tax assets (liabilities) Vacation accrual $ 55,700 $ 72,800 Player rewards program accrual 166,900 143,200 Stock options 86,200 75,100 Long-Term Incentive Plan 32,500 114,300 Land, building and equipment - cost and depreciation (4,381,600 ) (4,062,800 ) Investment in joint ventures (3,387,200 ) (729,000 ) Prepaid Expenses (144,900 ) (7,700 ) TIF receivable accrued interest (200,700 ) (43,600 ) Lease obligations 20,600 27,900 Charitable contribution carryovers 15,300 — State net operating loss 374,000 — Other 15,500 5,500 Net long-term deferred tax liabilities $ (7,347,700 ) $ (4,404,300 ) The Company is subject to U.S. and Minnesota taxation. The Company is no longer subject to U.S. federal, state, or local examinations by tax authorities for years before 2017. 49 5. 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. 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. KSOP: 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. The KSOP is available to eligible employees who had completed six months of service. 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, 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 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. The Plan is administered by the Board of Directors which determines the persons who are to receive awards under the Plan, the type of award to be granted, the number of shares subject to each award and, if an option, the exercise price of each option. The Plan provides that payment of the exercise price may be made in the form of unrestricted shares of common stock already owned by the optionee. 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. 50 Stock option activity related to the Plan during the years ended December 31, 2020 and 2019 is summarized below: 2020 2019 Weighted Weighted Average Average Number of Exercise Number of Exercise Options Price Shares Price Outstanding at beginning of year 33,250 $ 9.64 75,062 $ 7.95 Granted — — — — Exercised (24,250 ) 8.28 (41,310 ) 6.62 Expired/Forfeited — — (502 ) 6.00 Outstanding at end of year 9,000 $ 13.30 33,250 $ 9.64 Options exercisable at end of year 9,000 $ 13.30 33,250 $ 9.64 The grant-date fair value of options outstanding and exercisable at December 31, 2020 and 2019 was $56,000 and $148,000, respectively. The weighted average remaining contractual term of these options is 0.1 years. There were no options granted in 2020 or 2019 . The total fair value of options exercised during the years ended December 31, 2020 and 2019 was $92,000 and $75,000, respectively. The total intrinsic value of options exercised during 2020 and 2019 was $104,000 and $313,000, respectively. The following table summarizes information concerning all options outstanding and options exercisable as of December 31, 2020 : Options Outstanding Options Exercisable Weighted Weighted Weighted Average Average Aggregate Average Aggregate Range of Number Life (Years) Exercise Intrinsic Number Exercise Intrinsic Exercise Price Outstanding Remaining Price Value Exercisable Price Value $ 11.01 - 14.00 9,000 0.1 $ 13.30 — 9,000 $ 13.30 — Total 9,000 0.1 $ 13.30 $ — 9,000 $ 13.30 $ — 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. 51 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 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. 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 deferred stock: Weighted Average Deferred Fair Value Stock Per Share Non-Vested Balance, December 31, 2019 12,604 $ 12.69 Granted 20,073 11.17 Vested (12,604 ) 12.69 Forfeited — — Non-Vested Balance, December 31, 2020 20,073 $ 11.17 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: Weighted Average Deferred Fair Value Stock Per Share Non-Vested Balance, December 31, 2019 — $ — Granted 47,000 11.07 Vested (26,400 ) 12.43 Forfeited (1,800 ) 12.43 Non-Vested Balance, December 31, 2020 18,800 $ 11.07 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. 52 6. NET INCOME PER SHARE COMPUTATIONS The following is a reconciliation of the numerator and denominator of the net income per common share computations for the years ended December 31, 2020 and 2019 . Year Ended December 31, 2020 2019 Net income (numerator) amounts used for basic and diluted per share computations: $ 1,062,014 $ 2,718,274 Weighted average shares (denominator) of common stock outstanding: Basic 4,697,021 4,594,118 Plus dilutive effect of stock options 770 13,691 Diluted 4,697,791 4,607,809 Net income per common share: Basic $ 0.23 $ 0.59 Diluted 0.23 0.59 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. 7. 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. 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. The Company had borrowings of $5,866,000 under the credit line during the year ended December 31, 2020 . As of December 31, 2020 , the outstanding balance on the line of credit was $0. The credit agreement contains covenants requiring the Company to maintain certain financial ratios. The Company was in compliance with these requirements as of December 31, 2020 . 8. LEASES AND COMMITMENTS The Company determines if an arrangement is a lease or contains a lease at inception. The Company leases certain office equipment under finance leases. We also lease equipment related to our horse racing operations under operating leases. For lease accounting purposes, we do not separate lease and nonlease components, nor do we record operating or finance lease assets and liabilities for short term leases. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. 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. 53 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 2020 2019 Assets Finance Land, buildings and equipment, net (1) $ 71,784 $ 96,284 Operating Operating lease right-of-use assets 45,057 74,832 Total Leased Assets $ 116,841 $ 171,116 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: Year Ended December 31, 2020 2019 Weighted average remaining lease term (in years): Finance 2.7 3.7 Operating 0.8 1.3 Weighted average discount rate (%): Finance 5.0 % 5.0 % Operating 5.5 % 5.5 % The maturity of operating leases and finance leases for the year ended December 31, 2020 are as follows: Year Ended December 31, 2020 Operating leases Finance leases 2021 23,100 28,743 2022 23,100 28,743 2023 — 19,332 Total minimum lease obligations 46,200 76,817 Less: amounts representing interest (1,143 ) (5,033 ) Present value of minimum lease payments 45,057 71,784 Less: current portion (22,271 ) (25,749 ) Lease obligations, net of current portion $ 22,786 $ 46,035 Purchase Obligations In March 2014, the Company entered into a seven-year agreement with a new totalizator provider. Pursuant to the agreement, the vendor provides totalizator equipment and related software which records and processes all wagers and calculates odds and payoffs. 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 $235,000 for 2021. 54 9. CONTINGENCIES Canterbury Park Holding Corporation was incorporated on March 24, 1994. On March 29, 1994, the Company acquired all the outstanding securities of Jacobs Realty, Inc. (“JRI”) from Irwin Jacobs and IMR Fund, L.P. (an investment fund for various pension plans and trusts). JRI was merged into the Company, and the acquisition was accounted for under the purchase method of accounting whereby the acquired assets and liabilities have been recorded at the Company’s cost. The primary asset of JRI was Canterbury Downs Racetrack and the 325 acres of surrounding land. On May 20, 1994, the Company adopted a plan of Reorganization pursuant to which the sole shareholder of Canterbury Park Concessions, Inc. (“CPC”), and majority shareholder of the Company, agreed to exchange his shares of CPC stock for 198,888 shares of the Company’s common stock concurrent with the closing of a public offering. Pursuant to the Plan of Reorganization, CPC became a wholly-owned subsidiary of the Company in August 1994 when the Company completed the initial public offering of its common stock. This reorganization was treated in a manner similar to a pooling of interests. Net proceeds received by the Company from the public offering were approximately $4,847,000, which along with additional borrowings under the Company’s line of credit with the majority shareholder, were used to pay off the remaining notes payable from the acquisition of JRI. In connection with the purchase of the Racetrack, the Company entered into an Earn Out Promissory Note dated March 29, 1994. In accordance with the Earn Out Note, if (i) off-track betting becomes legally permissible in the State of Minnesota and (ii) the Company begins to conduct off-track betting with respect to or in connection with its operations, the Company will be required to pay to the IMR Fund, L.P. the greater of $700,000 per operating year, as defined, or 20% of the net pretax profit, as defined for each of five operating years. At this time, management believes that the likelihood that these two conditions will be met and that the Company will be required to pay these amounts is remote. At the date (if any) that these two conditions are met, the five minimum payments will be discounted back to their present value and the sum of those discounted payments will be capitalized as part of the purchase price in accordance with generally accepted accounting principles. The purchase price will be further increased if payments become due under the “20% of Net Pretax Profit” calculation. The first payment is to be made 90 days after the end of the third operating year in which off-track betting is conducted by the Company. Remaining payments would be made within 90 days of the end of each of the next four operating years. 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. At this time, management believes that the likelihood that the breach of a covenant will occur and that the Company will be required to pay the specified amount related to such covenant is remote. The Company 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, 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. The Company was not required to make any payments related to this bond in 2020 or 2019 , and there is no liability related to this bond on the balance sheet as of December 31, 2020 . 55 10. OPERATING SEGMENTS The Company has four reportable operating segments: horse racing, Card Casino, food and beverage, and development. 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. The Minnesota Racing Commission regulates the horse racing and Card Casino segments. Depreciation, interest expense, and income taxes are allocated to the segments but no allocation is made to food and beverage for shared facilities. 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. 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 Horse Racing Card Casino Food and Beverage Development Total Net revenues from external customers $ 10,722 $ 19,886 $ 2,489 $ 43 $ 33,140 Intersegment revenues 74 — 430 — 504 Net interest (expense) income (37 ) — — 701 664 Depreciation 2,309 226 214 — 2,749 Segment (loss) income before income taxes (1,610 ) 953 (709 ) 1,319 (47 ) Segment tax benefit (253 ) (108 ) (3 ) (887 ) (1,251 ) At December 31, 2020 Segment Assets $ 35,620 $ 3,027 $ 24,862 $ 29,475 $ 92,984 Year Ended December 31, 2019 Horse Racing Card Casino Food and Beverage Development Total Net revenues from external customers $ 15,370 $ 34,406 $ 9,430 $ 21 $ 59,227 Intersegment revenues 999 — 1,425 — 2,424 Net interest (expense) income (38 ) — — 365 327 Depreciation 2,262 186 232 — 2,680 Segment (loss) income before income taxes (2,695 ) 6,400 715 65 4,485 Segment tax (benefit) expense (1,011 ) 2,009 225 21 1,244 At December 31, 2019 Segment Assets $ 31,618 $ 3,327 $ 25,430 $ 29,074 $ 89,449 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, 2020 and 2019 (in 000’s): Year Ended December 31, 2020 2019 Revenues Total net revenue for reportable segments $ 33,644 $ 61,651 Elimination of intersegment revenues (504 ) (2,424 ) Total consolidated net revenues $ 33,140 $ 59,227 56 (Loss) income before income taxes Total segment (loss) income before income taxes $ (47 ) $ 4,485 Elimination of intersegment loss before income taxes (142 ) (522 ) Total consolidated (loss) income before income taxes $ (189 ) $ 3,963 December 31, December 31, 2020 2019 Assets Total assets for reportable segments $ 92,984 $ 89,449 Elimination of intercompany balances (24,179 ) (24,036 ) Total consolidated assets $ 68,805 $ 65,413 11. 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. 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. 57 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 Year Horsemen (1) Canterbury Park 2021 $ 7,380,000 $ 1,620,000 2022 7,380,000 1,620,000 (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, 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. 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. 12. REAL ESTATE DEVELOPMENT Equity Investment 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 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. 58 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. 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 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 public 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, 2020 , 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. 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. 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. 59 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. 13. RELATED PARTY RECEIVABLES 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. 14. SUBSEQUENT EVENTS 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. 60 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable.