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 34 through 59 of the Form 10-K: Page Report of Independent Registered Public Accounting Firm (PCAOB ID 344 ) 30 Consolidated Balance Sheets as of December 31, 2023 and 2022 31 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 32 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023 and 2022 33 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 34 Notes to Consolidated Financial Statements for the years ended December 31, 2023 and 2022 36 29 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, 2023 and 2022, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended 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, 2023 and 2022, and the results of its operations and its cash flows for the years then ended 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 Critical audit matters are matters 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) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined there are no critical audit matters. /s/ Wipfli LLP We have served as the Company's auditor since 2014. Minneapolis, Minnesota March 12, 2024 30 CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2023 and 2022 2023 2022 ASSETS CURRENT ASSETS Cash and cash equivalents $ 21,936,210 $ 12,989,087 Restricted cash 3,905,544 3,116,916 Short-term investments 5,000,000 5,000,000 Accounts receivable, net of allowance of $ 7,670 and $ 19,250 at December 31, 2023 and 2022, respectively 484,092 618,365 Employee retention credit receivable — 6,103,236 Inventory 249,370 262,073 Prepaid expenses 645,422 557,520 Income taxes receivable and prepaid income taxes 4,083,364 2,052,364 Total Current Assets 36,304,002 30,699,561 LONG-TERM ASSETS Deposits — 27,000 Other prepaid expenses 10,978 41,774 TIF receivable 13,972,875 13,294,337 Related party receivable (Note 13) 3,526,071 2,555,320 Operating lease right-of-use assets 53,026 — Equity investment (Note 12) 6,612,712 6,863,517 Land held for development 1,229,475 2,303,010 Land, buildings, and equipment, net (Note 3) 42,969,529 36,491,660 Total Long-term Assets 68,374,666 61,576,618 TOTAL ASSETS $ 104,678,668 $ 92,276,179 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable $ 4,599,391 $ 3,368,683 Casino accruals 2,667,499 2,684,444 Accrued wages and payroll taxes 1,662,927 1,814,879 Cash dividend payable 346,125 341,602 Accrued property taxes 741,215 795,646 Deferred revenue 274,898 413,442 Payable to horsepersons 763,383 993,529 Current portion of finance lease obligations 1,604 18,973 Current portion of operating lease obligations 25,352 — Total Current Liabilities 11,082,394 10,431,198 LONG-TERM LIABILITIES Deferred income taxes (Note 4) 10,300,015 7,474,015 Investee losses in excess of equity investment 1,464,218 3,185,923 Finance lease obligations, net of current portion 7,770 — Operating lease obligations, net of current portion 27,674 — Total Long-term Liabilities 11,799,677 10,659,938 TOTAL LIABILITIES 22,882,071 21,091,136 STOCKHOLDERS’ EQUITY (Note 5) Common stock, $ .01 par value, 10,000,000 shares authorized, 4,962,573 and 4,888,975 , respectively, shares issued and outstanding 49,626 48,890 Additional paid-in capital 27,351,509 25,914,644 Retained earnings 54,395,462 45,221,509 Total Stockholders’ Equity 81,796,597 71,185,043 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 104,678,668 $ 92,276,179 See notes to consolidated financial statements. 31 CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED December 31, 2023 and 2022 2023 2022 OPERATING REVENUES: Casino $ 39,781,166 $ 40,218,953 Pari-mutuel 8,253,615 10,957,692 Food and beverage 7,828,980 8,227,105 Other 5,573,097 7,420,131 Total Net Revenues 61,436,858 66,823,881 OPERATING EXPENSES: Purse expense 7,600,059 8,530,090 Minnesota Breeders’ Fund 1,053,790 1,118,968 Other pari-mutuel expenses 915,714 962,579 Salaries and benefits 25,490,790 24,355,049 Cost of food and beverage and other sales 3,062,974 3,272,472 Depreciation 3,145,372 2,981,168 Utilities 1,680,885 1,747,744 Advertising and marketing 2,068,846 3,098,437 Professional and contracted services 5,981,480 4,772,565 Loss on disposal of assets 157,160 157,435 Other operating expenses 5,268,905 4,946,915 Total Operating Expenses 56,425,975 55,943,422 Gain on sale of land (Note 12) 6,489,976 12,151 INCOME FROM OPERATIONS 11,500,859 10,892,610 OTHER INCOME (LOSS) Income (loss) from equity investment 1,501,268 ( 1,567,822 ) Interest income, net 1,978,122 909,958 Net Other Income (Loss) 3,479,390 ( 657,864 ) INCOME BEFORE INCOME TAXES 14,980,249 10,234,746 INCOME TAX EXPENSE (Note 4) ( 4,417,000 ) ( 2,721,800 ) NET INCOME $ 10,563,249 $ 7,512,946 Basic earnings per share $ 2.15 $ 1.55 Diluted earnings per share $ 2.13 $ 1.54 Weighted Average Basic Shares Outstanding 4,921,379 4,854,339 Weighted Average Diluted Shares 4,949,182 4,892,600 See notes to consolidated financial statements. 32 CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY YEARS ENDED December 31, 2023 and 2022 Number of Common Additional Retained Shares Stock Paid-in Capital Earnings Total Balance at December 31, 2021 4,812,085 48,121 24,894,571 39,410,534 $ 64,353,226 Stock-based compensation — — 449,891 — 449,891 Dividend distribution — — — ( 1,701,971 ) ( 1,701,971 ) 401(K) stock match 25,939 260 618,475 — 618,735 Issuance of deferred stock awards 41,816 418 ( 213,026 ) — ( 212,608 ) Shares issued under Employee Stock Purchase Plan 9,135 91 164,733 — 164,824 Net income — — — 7,512,946 7,512,946 Balance at December 31, 2022 4,888,975 48,890 25,914,644 45,221,509 71,185,043 Stock-based compensation — — 527,762 — 527,762 Dividend distribution — — — ( 1,389,296 ) ( 1,389,296 ) 401(K) stock match 38,701 387 850,611 — 850,998 Issuance of deferred stock awards 22,197 222 ( 171,970 ) — ( 171,748 ) Shares issued under Employee Stock Purchase Plan 12,700 127 230,462 — 230,589 Net income — — — 10,563,249 10,563,249 Balance at December 31, 2023 4,962,573 $ 49,626 $ 27,351,509 $ 54,395,462 $ 81,796,597 See notes to consolidated financial statements. 33 CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED December 31, 2023 and 2022 2023 2022 Operating Activities: Net income $ 10,563,249 $ 7,512,946 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,145,372 2,981,168 Stock-based compensation expense 527,762 449,891 Stock-based employee match contribution 850,998 618,735 Deferred income taxes 2,826,000 ( 197,000 ) Loss on disposal of assets 157,160 157,435 (Gain) loss from equity investment ( 1,501,268 ) 1,567,822 Gain on sale of land ( 6,489,976 ) ( 12,151 ) Changes in operating assets and liabilities: Accounts receivable 134,273 ( 230,061 ) Employee retention credit 6,103,236 211,232 Increase in TIF receivable ( 674,378 ) ( 791,594 ) Inventory, prepaid expenses and deposits ( 17,403 ) 36,953 Income taxes receivable/payable and prepaid income taxes ( 2,031,000 ) ( 788,308 ) Operating lease right-of-use assets 24,524 22,786 Operating lease liabilities ( 24,524 ) ( 22,786 ) Accounts payable ( 1,465,498 ) 456,328 Deferred revenue ( 138,544 ) ( 319,850 ) Casino accruals ( 16,945 ) ( 572,833 ) Accrued wages and payroll taxes ( 151,952 ) 45,301 Accrued property taxes ( 54,431 ) 21,322 Payable to horsepersons ( 230,146 ) 70,106 Net cash provided by operating activities 11,536,509 11,217,442 Investing Activities: Additions to land, buildings, and equipment ( 7,907,963 ) ( 4,997,481 ) Proceeds from disposal of assets 60,800 — Proceeds from sale of land 8,336,359 1,159,640 Additions for TIF eligible improvements ( 4,160 ) — Proceeds from sale of short-term investments 5,000,000 — Purchase of short-term investments ( 5,000,000 ) ( 5,000,000 ) Cash dividends received from equity investments 30,368 337,192 Increase in related party receivable ( 970,751 ) ( 376,521 ) Equity investment contribution — ( 397,807 ) Net cash used in investing activities ( 455,347 ) ( 9,274,977 ) Financing Activities: Proceeds from issuance of common stock 230,589 164,824 Cash dividend paid to shareholders ( 1,384,773 ) ( 1,360,369 ) Payments for taxes related to net share settlement of equity awards ( 171,748 ) ( 212,608 ) Principal payments on finance lease ( 19,479 ) ( 27,062 ) Net cash used in financing activities ( 1,345,411 ) ( 1,435,215 ) Net increase in cash, cash equivalents, and restricted cash 9,735,751 507,250 Cash, cash equivalents, and restricted cash at beginning of year 16,106,003 15,598,753 Cash, cash equivalents, and restricted cash at end of year $ 25,841,754 $ 16,106,003 34 CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED December 31, 2023 and 2022 (continued) Schedule of non-cash investing and financing activities Additions to land, buildings, and equipment funded through accounts payable $ 2,696,000 $ 606,000 Dividend declared but not yet paid 346,125 342,000 Change in investee losses in excess of equity investments ( 1,722,000 ) 1,981,000 ROU assets obtained in exchange for operating lease obligations 87,430 — Supplemental disclosure of cash flow information: Income taxes paid, net of refunds $ 3,622,000 $ 3,707,000 Interest paid 1,000 2,000 See notes to consolidated financial statements. 35 CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED December 31, 2023 and 2022 1. OVERVIEW AND BASIS OF PRESENTATION Business – The Company’s Racetrack operations are conducted at facilities located in Shakopee, Minnesota, approximately 20 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 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 Casino currently offers a variety of poker and table games. The Company’s three largest sources of revenues include: 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 continues its ongoing development of 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. Basis of Presentation - The consolidated financial statements include the accounts of Canterbury Park Holding Corporation and its direct and indirect subsidiaries Canterbury Park Entertainment, LLC, Canterbury Park Concessions, Inc., and Canterbury Development, LLC (collectively, the "Company"), 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 - Certain amounts in prior period financial statements have been reclassified to conform to current period presentations. 2. ACCOUNTING STANDARDS AND SIGNIFICANT ACCOUNTING POLICIES Summary of Significant Accounting Policies Revenue Recognition – The Company’s primary revenues with customers consist of 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 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. 36 Contracts for 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 Casino contracts with customers: ( 1 ) our MVP Loyalty Program and ( 2 ) outstanding chip liability. These are included in the line item Casino accruals on the Consolidated Balance Sheets. 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 (live racing), export revenue (simulcast), and import revenue (guest fees) 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 racetrack, 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 – Restrict ed cash represents refundable deposits and amounts due to horsemen for purses, stakes and awards, collateral needed for joint venture operations, 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 – Short-term investments include cash investments into short-to intermediate-term fixed income securities. Such investments are not included as "Cash and cash equivalents" as the original maturities are greater than three months and are intended to be held until maturity. Employee Retention Credit ("ERC") – The Company qualified for federal government assistance through ERC provisions of the CARES Act passed in 2020, for the 2020 second, third, and fourth quarters, as well as the 2021 first and second quarters. The purpose of the ERC is to encourage employers to keep employees on the payroll, even if they are not working during the covered period because of the coronavirus outbreak. We recognize government grants for which there is a reasonable assurance of compliance with grant condition s and receipt of credits. The Company's outstanding receivable as of December 31, 2022 was $ 6,103,236 , and is included on the Consolidated Balance Sheets as an employee retention credit receivable. During 2023, the Company received the payments in full. 37 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. We evaluate our allowance for credit losses and estimate collectability of current and non-current accounts receivable based on historical bad debt experience, our assessment of the financial condition of individual companies with which we do business, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty than in more stable periods. The Company does not have accounts receivable with original maturities greater than one year. The allowance for credit losses and activity as of December 31, 2023 and 2022, was not material. Property Tax Increment Financing (TIF) Receivable – In connection with the Contract for Private Redevelopment (“Redevelopment Agreement”) and First Amendment to the Contract for Private Redevelopment (the "First Amendment") between the City of Shakopee Economic Development Authority and Canterbury Development LLC signed in August 2018 and amended in September 2021, 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 is recognized when the related event occurs or services have been performed. 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 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 $ 7,133,000 and $ 7,846,000 for the years ended December 31, 2023 and 2022 , 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. 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 2023 and 2022 , 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. 38 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. Casino Accruals – Minnesota law allows the Company to collect amounts from patrons to fund progressive jackpot pools in the 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, 2023 and 2022 , 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. 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 and unvested deferred stock awards. 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. New Accounting Pronouncement Accounting Standards Update (ASU) No. 2016 - 13, Measurement of Credit Losses on Financial Instruments, requires the Company to present financial assets measured at amortized cost (including trade receivables) at the net amount expected to be collected over their remaining contractual lives. Estimated credit losses are based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. The Company adopted ASU No. 2016 - 13 on January 1, 2023. The net impact to retained earnings would have been immaterial, thus no adjustment was made to retained earnings. Results for the year ended December 31, 2023, are presented under Accounting Standards Codification (ASC) 326 while prior period amounts continue to be reported in accordance with previously applicable US GAAP. See Accounts Receivable for changes to accounting policies. 3. LAND, BUILDINGS AND EQUIPMENT Land, buildings and equipment, at cost, consist of the following at December 31, 2023 and 2022 : 2023 2022 Land $ 2,878,308 $ 3,063,325 Buildings and building improvements 45,338,216 42,590,623 Furniture and equipment 20,805,643 21,409,954 Construction in progress 7,419,631 4,218,089 76,441,798 71,281,991 Accumulated depreciation ( 33,472,269 ) ( 34,790,331 ) $ 42,969,529 $ 36,491,660 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 $ 1,229,475 and $ 2,303,010 at December 31, 2023 and 2022, respectively. 39 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, 2023 and 2022 is as follows: 2023 2022 Federal tax expense at statutory rates $ 3,145,900 $ 2,149,300 Nondeductible lobbying expense 30,200 10,200 State expense, net of federal impact 1,204,200 753,500 Stock-based compensation expense ( 52,500 ) ( 78,600 ) Long term incentive and restricted stock unit expense — ( 9,600 ) Other 89,200 ( 103,000 ) $ 4,417,000 $ 2,721,800 Income tax expense (benefit) for the years ended December 31, 2023 and 2022 consists of the following: 2023 2022 Current Federal $ 931,000 $ 2,010,700 State 660,000 908,100 1,591,000 2,918,800 Deferred, Federal 1,961,700 ( 242,700 ) Deferred, State 864,300 45,700 $ 4,417,000 $ 2,721,800 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, 2023 and 2022 are as follows: 2023 2022 Deferred tax assets: Vacation accrual $ 47,600 $ 67,600 Player rewards program accrual 116,800 120,100 Stock-based compensation expense 135,900 118,700 Other 2,785 5,785 Net deferred tax assets 303,085 312,185 Deferred tax liabilities: Land, building and equipment - cost and depreciation ( 5,352,900 ) ( 4,202,800 ) Investment in equity investments ( 3,100,100 ) ( 2,866,400 ) Deferred gain ( 1,214,300 ) — Prepaid expenses ( 766,300 ) ( 144,100 ) TIF receivable accrued interest ( 169,500 ) ( 572,900 ) Net deferred tax liabilities ( 10,603,100 ) ( 7,786,200 ) Net long-term deferred tax liabilities $ ( 10,300,015 ) $ ( 7,474,015 ) 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 2019. 40 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 of one share of common stock at the beginning or end of each stock purchase period or phase. Employees purch ased 12,700 and 9,135 shares in 2023 and 2022 , respectively. As of December 31, 2023 , a total o f 366,834 sh ares have been issued from the 450,000 shares 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, 2023 and 2022 totaled approximat ely $ 851,000 and $ 619,000 , 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 2023 or 2022 . In March 2022, the Board of Directors determined to terminate 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 $ 528,000 and $ 450,000 for the years ended December 31, 2023 and 2022 , respectively. Stock Options: The Company’s 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 h as 168,072 sh ares 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. 41 The grant-date fair value of options outstanding and exercisable at December 31, 2023 and 2022 was $ 0 . As of December 31, 2023, there are no options outstanding. There were no options granted in 2023 or 2022 . The total fair value of options exercised during the years ended December 31, 2023 and 2022 was $ 0 . The total intrinsic value of options exercised during 2023 and 2022 was $ 0 . Long Term Incentive Plan The Long Term Incentive Plan (the “LTI Plan”) authorizes the grant of Long Term Incentive Awards that provide an opportunity to Named Executive Officers (“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. Beginning in 2020, and as a result of the COVID- 19 pandemic, the Company temporarily suspended the granting of performance awards under its LTI Plan, and instead granted deferred stock awards designed to retain NEOs and other senior executives in lieu of LTI Plan awards from 2020 through 2023. In February 2022, the Compensation Committee made determinations regarding the achievement of 2021 performance goals and payouts under the 2019 - 2021 LTI Plan, which completed the performance period and awards under the 2019 - 2021 LTI Plan, and the last outstanding awards under the LTI Plan. Accordingly, there are no awards outstanding under the LTI Plan. The Company did not record compensation expense related to the LTI Plan for 2023 or 2022 . 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 m eeting. 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. The unvested deferred stock awards outstanding as of December 31, 2023 to our non-employee directors consists of only a grant of deferred stock on June 1, 2023 of 7,818 shares with a weighted average fair value per share of $ 23.01 . 42 Below is a summary of changes in Board of Directors unvested deferred stock award grants as of December 31, 2023: Weighted Average Deferred Fair Value Stock Per Share Non-Vested Balance, December 31, 2022 7,230 $ 22.12 Granted 7,818 23.01 Vested ( 7,230 ) 22.12 Forfeited — — Non-Vested Balance, December 31, 2023 7,818 $ 23.01 Employee Deferred Stock Awards In 2023, the Company granted employees deferred stock awards totaling 19,020 shares of common stock, with a vesting term of approximately four years and a fair value of $ 25.52 per share. During 2022, the Company granted employees deferred stock awards totaling 18,600 shares of common stock with a fair value of $ 21.62 per share. The vesting schedule of the awards is as follows: (i) 25 % vesting and being issued in March 2024, ( ii) 25 % vesting and being issued in March 2025, ( iii) 25 % vesting and being issued in March 2026 and (iv) 25 % vesting and being issued in March 2027. The compensation cost associated with these grants 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, 2023, is as follows: Weighted Average Deferred Fair Value Stock Per Share Non-Vested Balance, December 31, 2022 41,200 $ 16.62 Granted 19,020 25.52 Vested ( 20,050 ) 14.33 Forfeited ( 3,250 ) 21.84 Non-Vested Balance, December 31, 2023 36,920 $ 22.00 At December 31, 2023 , there was approximat ely $ 618,000 of total unrecognized stock-based compensation expense related to unvested employee and board of director deferred stock awards that is expected to be recognized over a period of approximately 2.1 years. 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, 2023 and 2022 . Year Ended December 31, 2023 2022 Net income (numerator) amounts used for basic and diluted per share computations: $ 10,563,249 $ 7,512,946 Weighted average shares (denominator) of common stock outstanding: Basic 4,921,379 4,854,339 Plus dilutive effect of stock options 27,803 38,261 Diluted 4,949,182 4,892,600 Net income per common share: Basic $ 2.15 $ 1.55 Diluted 2.13 1.54 There were no out-of-the money stock options at December 31, 2023 or December 31, 2022. 43 7. GENERAL CREDIT AGREEMENT The Company has a general credit and security agreement with a financial institution. The agreement was amended as of February 28, 2021 to extend the maturity date to January 31, 2024 and increase its revolving credit line up to $ 10,000,000 . The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company, as well as a mortgage on certain real property. The Company had no borrowings under the credit line during the year ended December 31, 2023 . As of December 31, 2023 , the outstanding balance on the line of credit was $0. The credit agreement contains covenants requiring the Company to maintain certain financial ratios. The general credit and security agreement was further amended as of January 31, 2024 to extend the maturity date to January 31, 2027 and reduce the maximum borrowing under the line of credit to $ 5,000,000 . In connection with the amendment, the financial institution terminated a mortgage to release certain Company real property as collateral and the parties entered into a negative pledge agreement under which the Company agreed not to create any liens or encumbrances on certain Company real property. 8. LEASES 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. Lease costs related to operating leases were $ 26,784 and $ 22,339 for the years ended December 31, 2023 and 2022, 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 $ 488,937 and $ 507,705 for the years ended December 31, 2023 and 2022 , respectively. Lease costs included in depreciation and amortization related to our finance leases were $ 18,701 and $ 23,795 for the years ended December 31, 2023 and 2022 , respectively. 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, Assets Balance Sheet Location 2023 2022 Finance Land, buildings and equipment, net (1) $ 9,374 $ 18,973 Operating Operating lease right-of-use assets 53,026 - Total Leased Assets $ 62,400 $ 18,973 1 – Finance lease assets are net of accumulated amortization of $ 118,424 and $ 106,586 for the years ended December 31, 2023 and 2022 , respectively. 44 The following table shows the lease terms and discount rates related to our leases: Year Ended December 31, 2023 2022 Weighted average remaining lease term (in years): Finance 4.9 0.7 Operating 0.8 0.0 Weighted average discount rate (%): Finance 4.8 % 5.0 % Operating 8.0 % 0.0 % The maturity of operating leases and finance leases for the year ended December 31, 2023 are as follows: Year Ended December 31, 2023 Operating leases Finance leases 2024 $ 26,785 $ 2,339 2025 28,229 2,339 2026 — 2,339 2027 and beyond — 4,485 Total minimum lease obligations 55,014 11,503 Less: amounts representing interest ( 1,988 ) ( 2,129 ) Present value of minimum lease payments 53,026 9,374 Less: current portion ( 25,352 ) ( 1,604 ) Lease obligations, net of current portion $ 27,674 $ 7,770 Purchase Obligations In March 2014, the Company entered into a seven -year agreement with a 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, 2023 and 2022 wer e $ 205,000 and $ 253,000 , r espectively. In March 2022, the Company entered into a five -year agreement with a new totalizator provider. Under the new agreement, $ 166,400 was charged to operations in 2023. The future minimum purchase obligations under the new agreement are $ 166,400 per year for each of the next three years. 9. COMMITMENTS AND CONTINGENCIES Effective December 21, 2021, the Company entered into a Contribution and Indemnity Agreement ("Indemnity Agreement") with affiliates of Doran Companies ("Doran") relating to debt financing by Doran Canterbury I, LLC as borrower, which is guaranteed by Doran affiliates. Under the Indemnity Agreement, the Company is obligated to reimburse and indemnify each loan guarantor for any amounts paid by such loan guarantor to the lender on debt financing by Doran Canterbury I, LLC, up to a maximum of $ 5,000,000 . Effective October 27, 2022, the Indemnity Agreement was amended to increase the maximum indemnification by an additional $ 700,000 . Effective December 12, 2023, the Indemnity Agreeme nt was amended to increase the maximum indemnification by an additional $ 1,300,000 , bringing the total to a maximum of $ 7,000,000 . Effective December 21, 2023, the Company entered into its annual live race meet and purse fund contribution agreement with the Minnesota Horsemen’s Benevolent & Protective Association (“MHBPA”) and the Minnesota Quarter Horse Racing Association ("MQHRA") regarding the upcoming 2024 live race meet. In an effort to increase field size and improve the quality of racing for the 2024 season, the Company has guaranteed purses for overnight races at $ 23,000 per race. The parties recognize there is likely to be a significant financial cost to the Company in establishing a 2024 thoroughbred purse structure intended to average $ 23,000 per conducted overnight race and that to maintain that average purse structure, the Company will be making an overpayment that may be repaid to the Company through reimbursement in subsequent racing years. This antici pated overpayment of purses by the Company is intended to create a short-term bridge until additional purse supplements can be obtained from other sources. In the event that additional purse revenue is secured within the next five years through additional forms of gaming at the Company, new revenue streams, or legislative action, the Company will be eligible for reimbursement of the actual 2024 overpayment amount from those purse supplements. 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, 2023 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 2023 or 2022 , and there is no liability related to this bond on the balance sheet as of December 31, 2023 . 45 10. OPERATING SEGMENTS The Company has four reportable operating segments: horse racing, Casino, food and beverage, and development. The horse racing segment primarily represents simulcast and live horse racing operations. The Casino segment represents operations of Canterbury Park’s Casino, the food and beverage segment represents food and beverage operations provided during simulcast and live racing, in the 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 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. Starting in 2020, the food and beverage segment has not paid 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, 2023 Horse Racing Casino Food and Beverage Development Total Net revenues from external customers $ 13,198 $ 39,781 $ 8,458 $ — $ 61,437 Intersegment revenues 235 — 1,181 — 1,416 Net interest income 1,058 — — 920 1,978 Depreciation 2,674 301 170 — 3,145 Segment income (loss) before income taxes ( 2,082 ) 9,226 2,132 8,670 17,946 Segment tax expense (benefit) ( 1,488 ) 2,720 629 2,556 4,417 At December 31, 2023 Segment Assets $ 92,970 $ 2,125 $ 33,175 $ 34,892 $ 163,162 Year Ended December 31, 2022 Horse Racing Casino Food and Beverage Development Total Net revenues from external customers $ 17,560 $ 40,219 $ 9,045 $ — $ 66,824 Intersegment revenues 216 — 1,031 — 1,247 Net interest income 96 — — 814 910 Depreciation 2,482 301 198 — 2,981 Segment (loss) income before income taxes 687 10,446 2,441 ( 969 ) 12,605 Segment tax (benefit) expense ( 448 ) 2,778 649 ( 257 ) 2,722 At December 31, 2022 Segment Assets $ 71,338 $ 2,425 $ 30,341 $ 26,475 $ 130,579 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, 2023 and 2022 (in 000’s ): Year Ended December 31, 2023 2022 Revenues Total net revenue for reportable segments $ 62,853 $ 68,071 Elimination of intersegment revenues ( 1,416 ) ( 1,247 ) Total consolidated net revenues $ 61,437 $ 66,824 46 Income (loss) before income taxes Total segment income before income taxes $ 17,946 $ 12,605 Elimination of intersegment loss before income taxes ( 2,966 ) ( 2,370 ) Total consolidated income before income taxes $ 14,980 $ 10,235 December 31, December 31, 2023 2022 Assets Total assets for reportable segments $ 163,162 $ 130,579 Elimination of intercompany balances ( 58,483 ) ( 38,303 ) Total consolidated assets $ 104,679 $ 92,276 11. COOPERATIVE MARKETING AGREEMENT On June 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA was 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 was achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. Such payments had 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. The annual purse enhancement that the SMSC was obligated to pay under the CMA for 2021 and 2022 was not changed and remained at $ 7,380,000 per year. 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. As noted above and affirmed in the Fifth Amendment, SMSC was obligated to make an annual purse enhancement of $ 7,380,000 and annual marketing payment of $ 1,620,000 for 2022. The amounts received from the marketing payments under the CMA 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 consolidated statements of operations. For the year ended December 31, 2022 , the Company recorded $ 1,920,000 in other revenue and incurred $ 1,698,000 in advertising and marketing expense and $ 222,000 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. The CMA expired by its terms on December 31, 2022. Accordingly, for the year ended December 31, 2023, there were no purse enhancement payments or marketing payments under the CMA. 47 12. REAL ESTATE DEVELOPMENT Equity Investments Doran Canterbury I, LLC 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. For the years ended December 31, 2023 and 2022, the Company recorded income of $ 1,722,000 and a loss $ 1,981,000 , respectively, on equity method investments related to this joint venture. The increased income for 2023 is primarily due to a gain recognized on insurance proceeds received by Doran Canterbury I related to an outstanding claim. In accordance with U.S. GAAP, since we are committed to provide future capital contributions to Doran Canterbury I, we also present as a liability in the accompanying Consolidated Balance Sheets for the net balance recorded for our share of Doran Canterbury I's losses in excess of the amount funded into Doran Canterbury I, which was $ 1,464,000 and $ 3,186,000 at December 31, 2023 and 2022, respectively. We are a party to a contribution and indemnity agreement with affiliates of Doran relating to debt financing by Doran Canterbury I as borrower, which is guaranteed by Doran affiliates. Under the contribution and indemnity agreement, as amended, the Company is obligated to reimburse and indemnify each loan guarantor for any amounts paid by such loan guarantor to the lender on debt financing by Doran Canterbury I, up to a maximum of $ 7,000,000 as of December 31, 2023. See Note 9. “Commitments and Contingencies.” Doran Canterbury II, LLC 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 305 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. As of December 31, 2023 and 2022, the proportionate share of Doran Canterbury II's earnings was immaterial. During the years ended December 31, 2023 and December 31, 2022, the Company contributed approximately $ 0 and $ 398,000 , respectively, as an equity investment contribution in Doran Canterbury II. Groundwork on the Doran Canterbury II site began in October 2020, paving the way for the ground-up construction of the second phase of apartments, which began construction in March 2022 with initial occupancy beginning January 2024. Canterbury DBSV Development, LLC 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. For the years ended December 31, 2023 and 2022, the Company recorded a loss of $ 223,000 and income of $ 415,000 , respectively, on equity investment related to this joint venture. For the years ended December 31, 2023 and 2022, the Company also received dividend distributions of $ 30,000 and $ 337,000 , respectively, related to this joint venture. The following table summarizes changes to the Equity investment and Investee losses in excess of equity investment lines on our consolidated balance sheets for the year ended December 31, 2023: Equity investment Investee losses in excess of equity investment Equity investment, net Net Equity Investment Balance at 12/31/22 $ 6,863,517 $ ( 3,185,923 ) $ 3,677,594 Q1 Equity investment (loss) income ( 23,232 ) 1,881,744 1,858,512 Q2 Equity investment loss ( 26,071 ) ( 596,109 ) ( 622,180 ) Q3 Equity investment loss ( 24,442 ) ( 649,899 ) ( 674,341 ) Q4 Equity investment (loss) income ( 177,060 ) 1,085,969 908,909 Net Equity Investment Balance at 12/31/23 $ 6,612,712 $ ( 1,464,218 ) $ 5,148,494 48 Tax Increment Financing On August 8, 2018, the City Council of the City of Shakopee, Minnesota approved a Contract for Private Redevelopment (“Original 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 Original Agreement, the Company agreed to undertake a number of specific infrastructure improvements within the TIF District and the City agreed that a portion of the tax revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing these improvements. Under the Original Agreement, the total estimated cost of TIF eligible improvements to be borne by the Company was $ 23,336,500 . On January 25, 2022, the Company received the fully executed First Amendment to the Contract for Private Redevelopment (the “First Amendment”) among the Company, the City of Shakopee, and the Shakopee EDA, which is effective as of September 7, 2021. Under the First Amendment and as part of the authorized changes regarding the responsibilities of the Company and the City, improvements on Unbridled Avenue will be primarily constructed by the City of Shakopee. As a result, the total estimated cost of TIF eligible improvements to be borne by the Company will be reduced by $ 5,744,000 to an amount not to exceed $ 17,592,881 . In order to reimburse the Company for the qualified costs related to constructing the developer improvements, the Authority will issue and the Company will receive a TIF Note in the maximum principal amount of $ 17,592,881 . The First Amendment also memorialized that the Company completed the Shenandoah Drive improvements as required prior to December 31, 2019. The City is obligated to issue bonds to finance the portion of the improvements required to be constructed by the City. A detailed Schedule of the Public Improvements under the First Amendment, the timeline for their construction and the source and amount of funding is set forth in Exhibit 10.1 of the Form 8 -K filed on January 31, 2022. The Company expects to substantially complete the remaining Developer Improvements by July 17, 2027 and will be reimbursed for costs of the Developer Improvements incurred by no later than July 17, 2027. The total amount of funding that the Company will be paid as reimbursement under the TIF program for these improvements is not guaranteed, however, and will depend in part on future tax revenues generated from the developed property. As of December 31, 2023 , the Company recorded a TIF receivable of approximately $ 13,973,000 , which represents $ 11,307,000 of principal and $ 2,666,000 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, 2022 , the Company recorded a TIF receivable of approximately $ 13,294,000 , which represents $ 11,301,000 of principal and $ 1,993,000 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. Recently Closed Transactions Under Real Estate Agreements On April 28, 2023, the Company completed the sale of 37 acres of land to Bloomington Investments, LLC, an entity related to Swervo Development ("Swervo"), for total consideration of $ 8,800,000 . With the land sale and government approvals now complete, Swervo began construction of its planned state-of-the-art amphitheater in 2023, with the venue opening anticipated to be Summer 2025. On April 7, 2020, the Company entered into an agreement to sell approximately 11.3 acres of land to the west of the Racetrack to a third party for total consideration of approximately $ 2,400,000 . The Company closed on the first phase of this transaction in April 2021, which totaled approximately 7.4 acres of land for proceeds of approximately $ 1,200,000 . The Company closed on the second phase of this transaction in May 2022, which totaled approximately 4.2 acres of land for proceeds of approximately $ 1,200,000 . As a result of these two land sales, the Company recorded a gain of approximately $ 6,490,000 and $ 12,000 on the Consolidated Statements of Operations for the years ended December 31, 2023 and December 31, 2022, respectively. 49 13. RELATED PARTY RECEIVABLES Since 2019, the Company has loaned money to the Doran Canterbury I and II joint ventures in member loans totaling approximately $ 2,957,000 and $ 2,269,000 as of December 31, 2023 and 2022, respectively. These member loans bear interest at the rate equal to the Prime Rate plus two percent per annum and totaled $ 522,000 and $ 275,000 as of December 31, 2023 and 2022, respectively. The Company expects to be fully reimbursed for these member loans when the joint ventures achieve positive cash flow. The Company has also recorded related party receivables of approximately $ 47,000 and $ 11,000 as of December 31, 2023 and 2022, respectively, for various related costs incurred by the Company. The Company expects to be fully reimbursed for these costs by the related parties in the following year. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable.