Canterbury Park Holding Corp

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. OVERVIEW AND BASIS OF PRESENTATION

Business– The Company’s Racetrack operations are conducted at facilities located in Shakopee, Minnesota, approximately20 miles southwest of downtown Minneapolis. In* May 1994,the Company commenced year-round horse racing simulcast operations and hosted thefirst* annual live race meet during the summer of1995. The Company’s live racing operations are a seasonal business as it hosts live race meets each year from* Mayuntil 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 operates24* hours a day,seven days a week and is limited by Minnesota State law to conducting card play on a maximum of80 tables. The Casino currently offers a variety of poker and table games. The Company’sthree 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 approximately140 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:

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.

Contracts for Casino operations and pari-mutuel wagering involvetwo performance obligations for those customers earning points under the Company’s loyalty program and a single performance obligation for customers who donot 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 willnot 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 havetwo 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 atno 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.

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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 thethird 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 thethird party wagering site.

Cash and Cash Equivalents – Cash and cash equivalents include all investments with original maturities ofthree months or less or which are readily convertible into known amounts of cash and arenot legally restricted. The Company hasnot experienced any losses in such accounts and believes it isnot 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, 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 arenot included as “Cash and cash equivalents” as the original maturities are greater thanthree months and are intended to be held until maturity.

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 doesnot have accounts receivable with original maturities greater thanone year. The allowance for credit losses and activity as of* December 31, 2024and2023*, wasnot material.

*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.

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 2018and 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%.

Other long-term receivables -In connection with the2024 live race meet and purse fund contribution agreement with the MNHBPA and the MQHRA, the Company recorded an overpayment of purses. This overpayment was 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 thefive years following the2025 live race meet through additional forms of gaming at the Company, new revenue streams, or legislative action, the Company will be eligible for reimbursement of the actual2024 overpayment amount from those purse supplements. For more information on the Company’s overpayment of purses related to the2024 live race agreement, see Note9.

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* maybe 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. During2024* and2023, the Company determined thatno evaluations of recoverability were necessary.

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 isnot 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.

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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* maydetermine 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 isno* 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. (“MNHBPA”) – 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 MNHBPA, the Company transferred into a trust account or paid directly to the MNHBPA, approximately $8,288,000 and $7,133,000 for the years ended * December 31, 2024and2023* , respectively, related to thoroughbred races. Minnesota Statutes specify that amounts transferred into the trust account are the property of the trust andnot of the Company.

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.

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.

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 thannot sustain the position following an audit. For tax positions meeting the more likely thannot threshold, the amount recognized in the financial statements is the largest benefit that has a greater than50% 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, 2024and2023*, the Company didnot 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 Note5.**

3. LAND, BUILDINGS AND EQUIPMENT

Land, buildings and equipment, at cost, consist of the following at* December 31, 2024and2023*:

The Company has included land held for development as a separate line on the consolidated balance sheet. This represents land owned for potential real estate development and totaled $2,183,930 and $1,756,914 as of* December 31, 2024and2023*, respectively.

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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, 2024and2023* is as follows:

Income tax expense (benefit) for the years ended* December 31, 2024and2023* consists of the following:

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, 2024and2023* are as follows:

The Company is subject to U.S. and Minnesota taxation. The Company isno longer subject to U.S. federal or state by tax authorities for years before2021 and2020, respectively.

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The balances of unrecognized tax benefits as of* December 31, 2024and December 31, 2023are $181,000 and $0, respectively, and if recognized, would result in adjustments to deferred taxes and wouldnot* impact the effective tax rate. It is reasonably expected that the total amounts of unrecognized tax benefits will fully reverse within12 months of the reporting period.

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* maybe purchased by employees atsix*-month intervals at 85% of the fair market value ofone share of common stock at the beginning or end of each stock purchase period or phase. Employees purchased 14,583 and 12,700 shares in2024 and2023, respectively. As of* December 31, 2024*, a total of 381,417 shares 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 the401(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 completedsix 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, 2024and2023* totaled approximately $876,000 and $851,000, respectively.

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 $572,000 and $528,000 for the years ended* December 31, 2024and2023*, 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 has 135,238 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.

The grant-date fair value of options outstanding and exercisable at* December 31, 2024and2023* was $0. As of* December 31, 2024*, there areno options outstanding.

There wereno options granted in2024 or2023. The total fair value of options exercised during the years ended* December 31, 2024and2023* was $0. The total intrinsic value of options exercised during2024 and2023 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 thanone year (the “Performance Period”) as compared to Performance Goals established at the beginning of the Performance Period. Beginning in2020, 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 from2020 through2024. In* February 2022,the Compensation Committee made determinations regarding the achievement of2021* performance goals and payouts under the2019-2021 LTI Plan, which completed the performance period and awards under the2019-2021 LTI Plan, and the last outstanding awards under the LTI Plan. Accordingly, there areno awards outstanding under the LTI Plan.

The Company didnot record compensation expense related to the LTI Plan for2024 or2023.

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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. The unvested deferred stock awards outstanding as of* December 31, 2024* to our non-employee directors consists of only a grant of deferred stock on* June 6, 2024*of 10,734 shares with a weighted average fair value per share of $22.35.

Below is a summary of changes in Board of Directors unvested deferred stock award grants as of* December 31, 2024*:

Employee Deferred Stock Awards

In2024, the Company granted employees deferred stock awards totaling 22,100 shares of common stock, with a vesting term of approximately four years and a fair value of $21.08 per share. In2023, 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. The vesting schedule of the awards is as follows: (i)25% vesting and being issued in* March 2025, (ii)25% vesting and being issued in March 2026, (iii)25% vesting and being issued in March 2027and (iv)25% vesting and being issued in March 2028.*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, 2024*, is as follows:

At* December 31, 2024*, there was approximately $770,000 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 2.3 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, 2024and2023*.

There wereno out-of-the money stock options at* December 31, 2024* or* December 31, 2023*.

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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, 2021to extend the maturity date to January 31, 2024and 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 hadno borrowings under the credit line during the year ended December 31, 2024*. As of* December 31, 2024*, the outstanding balance on the line of credit was $0. In the event that the Company borrowed under the agreement, the annual interest rate paid by the Company would be equal to the greater of the Prime Rate or 3.0%. 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, 2024to extend the maturity date to January 31, 2027and 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 agreednot* 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 donot separate lease and nonlease components, nor do we record operating or finance lease assets and liabilities for short term leases.

As our leases donot 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 donot contain any variable lease payments, material residual value guarantees or any restrictive covenants.

Lease costs related to operating leases were $26,785 and $26,784 for the years ended* December 31, 2024* and2023, respectively. The total lease expenses for leases with a term oftwelve months or less for which the Company electednot to recognize a lease asset or liability was $457,454 and $488,937 for the years ended* December 31, 2024* and2023, respectively.

Lease costs included in depreciation and amortization related to our finance leases were $33,332 and $18,701 for the years ended* December 31, 2024* and2023, 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:

1 – Finance lease assets are net of accumulated amortization of $30,779 and $118,424 for the years ended December 31, 2024 and2023, respectively.

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

The maturity of operating leases and finance leases for the year ended* December 31, 2024* are as follows:

Purchase Obligations

In* March 2022,the Company entered into afive-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 future minimum purchase obligations under the new agreement are $166,400 per year. The amounts charged to operations for totalizator expenses for the years ended December 31, 2024and2023* were $200,000 and $205,000, respectively.

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 Agreement was amended to increase the maximum indemnification by an additional $1,300,000. Effective December 18, 2024,*the Indemnity Agreement was amended to increase the maximum indemnification by an additional $500,000, bringing the total to a maximum of $7,500,000.

Effective* December 18, 2024,*the Company entered into an Indemnity Agreement with affiliates of Doran relating to debt financing by Doran Canterbury II, 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 II, LLC, up to a maximum of $1,000,000.

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 (“MNHBPA”) and the Minnesota Quarter Horse Racing Association (“MQHRA”) regarding the2024* live race meet. In an effort to increase field size and improve the quality of racing for the2024 season, the Company guaranteed purses for overnight races at $23,000 per race. The parties recognized there was likely to be a significant financial cost to the Company in establishing a2024 thoroughbred purse structure intended to average $23,000 per conducted overnight race and that to maintain that average purse structure, the Company made an overpayment that* maybe repaid to the Company through reimbursement in subsequent racing years. This overpayment of purses by the Company was intended to create a short-term bridge until additional purse supplements can be obtained from other sources. At the conclusion of the2024* live race meet, the Company recorded a receivable related to the overpayment of2024 purses in the amount of $1,597,463, which is presented on the Company's balance sheet as of* December 31, 2024.In the event that additional purse revenue is secured within thefive* years following the2025 live race meet through additional forms of gaming at the Company, new revenue streams, or legislative action, the Company will be eligible for reimbursement of the actual2024 overpayment amount from those purse supplements. Management believes it is likely that additional purse supplements will ultimately be obtained when considering both the length of time to secure such funds (five years following the2025 live race meet) and the fact that legislation has been introduced in both chambers of the Minnesota legislature that would provide those supplements through revenues from taxes paid by sports wagering licenses. Accordingly, management believesno allowance related to this receivable is necessary at* December 31, 2024.In addition, the Company agreed to allocate approximately $400,000 to be used as recruiting and participation incentives to attract thoroughbred trainers, owners, and stables for the2024* live meet in an effort to generate additional pari-mutuel handle through improved field size. For the year ended2024, the Company recognized expenses of $418,000 related to these incentives.

Effective* January 31, 2025,the Company entered into its annual live race meet and purse fund contribution agreement with the MNHBPA and the MQHRA regarding the upcoming2025* live race meet. In an effort to maintain field size and improve the quality of racing for the2025 season, the Company has guaranteed an additional $500,000 of purse monies to be distributed above the minimum amount defined in Minnesota Statutes Chapter240. In the event that additional purse revenues are secured throughout the duration of the2025 live race agreement through additional forms of gaming at the Company, new revenue streams, or legislative action, the Company has agreed to provide additional purse monies of up to $1,500,000, to a total of $2,000,000 in potential overpayment of purses to support the2025 live race meet. The parties recognize there is likely to be a significant financial cost to the Company in establishing this2025 thoroughbred purse structure and that to maintain that average purse structure, the Company will be making an overpayment that* maybe repaid to the Company through reimbursement in subsequent racing years. This anticipated 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 thefive* years following the2025 live race meet through additional forms of gaming at the Company, new revenue streams, or legislative action, the Company will be eligible for reimbursement of the actual2025 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, 2024* and as of the date of this report willnot 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 wasnot required to make any payments related to this bond in2024 or2023, and there isno liability related to this bond on the balance sheet as of* December 31, 2024*.

10. OPERATING** **SEGMENTS

The Company hasfour 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 butno allocation is made to food and beverage for shared facilities. However, the food and beverage segment pays approximately 25% of gross revenues earned on special event days to the horse racing segment for use of the facilities.

The following tables represent a disaggregation of revenues from contracts with customers along with the Company’s operating segments (in000’s):

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, 2024and2023* (in000’s):

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11. 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 thetwo* 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 approximately300 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, butnot* 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, 2024and2023*, the Company recorded a loss of $3,552,000 and income of $1,722,000, respectively, on equity method investments related to this joint venture. The increased income for2023 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 $5,016,000 and $1,464,000 at* December 31, 2024and2023*, 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 $7,500,000 as of* December 31, 2024*. See Note9. “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 thetwo* 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 additional305 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, butnot* control, over Doran Canterbury II’s operational and financial policies, the Company accounts for the joint venture as an equity method investment. For the year ended* December 31, 2024*, the Company recorded a loss of $1,923,000 on equity method investments related to this joint venture. As of* December 31, 2023,*the proportionate share of Doran Canterbury II's earnings was immaterial.

We are a party to a contribution and indemnity agreement with affiliates of Doran relating to debt financing by Doran Canterbury II 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 II, up to a maximum of $1,000,000 as of* December 31, 2024*. See Note9. “Commitments and Contingencies.”

Canterbury DBSV Development, LLC

On* June 16, 2020,Canterbury Development, entered into an operating agreement with an affiliate of Greystone Construction, as thetwo* 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 approximately13 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, butnot* 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, 2024and2023*, the Company recorded income of $8,000 and a loss of $223,000, respectively, on equity investment related to this joint venture. For the years ended* December 31, 2024and2023*, the Company also received dividend distributions of $36,000 and $30,000, respectively, related to this joint venture.

Trackside Investments, LLC

On* September 20, 2023,Canterbury Development, entered into an Operating Agreement with Trackside Hospitality, LLC as thetwo* members of a Minnesota limited liability company named Trackside Investments, LLC ("Trackside Investments"). Trackside Investments was formed as a joint venture for the development of an approximately 16,000 square foot restaurant and entertainment venue. Canterbury Development, LLC's equity contribution to Trackside Investments was approximately 3.5 acres of land, which were contributed to Trackside Investments on* August 20, 2024.In connection with its contribution, Canterbury Development became a 50% equity member in Trackside Investments. In addition, Canterbury Development is guaranteed an annual 6% preferred return on the balance of Canterbury Development's undistributed base capital. As the Company is able to assert significant influence, butnot* control, over Trackside Investments' operational and financial policies, the Company accounts for the joint venture as an equity method investment.

In accordance with ASC610-20, we determined that we donot have a controlling financial interest in the Trackside Investments joint venture and the arrangements meet the criteria to be accounted for as a contract. Therefore, we derecognized the land and recognized a full gain in2024 (approximately $1,732,000) 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 Trackside Investments' earnings as an increase or decrease in its Equity investment and as Income or Loss from Investment in this joint venture.

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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, 2024*:

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 amountnot* 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 Exhibit10.1 of the Form8-K filed on* January 31, 2022.The Company expects to substantially complete the remaining Developer Improvements by July 17, 2027and will be reimbursed for costs of the Developer Improvements incurred byno* 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 isnot* guaranteed, however, and will depend in part on future tax revenues generated from the developed property.

As of * December 31, 2024* , the Company recorded a TIF receivable of approximately $18,898,000, which represents $15,551,000 of principal and $3,347,000 of interest. Management believes future tax revenues generated from current development activity will exceed the Company's development costs and thus, management believesno allowance related to this receivable is necessary. 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.

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* August**20,* 2024, the Company completed the transfer of approximately 3.5 acres of land to the Trackside Investments joint venture for total consideration of $2,316,000. Trackside Investments, LLC was formed as a joint venture for the development of an approximately 16,000 square foot restaurant and entertainment venue, with the venue opening anticipated to be Summer2025.

On* April 28, 2023,the Company completed the sale of37* 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 in2023.

As a result of thesetwo land transactions, the Company recorded a gain of approximately $1,732,000 and $6,490,000 on the Consolidated Statements of Operations for the years ended* December 31, 2024* and* December 31, 2023*, respectively.

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12. RELATED PARTY RECEIVABLES

Since2019, the Company has loaned money to the Doran Canterbury I and II joint ventures in member loans totaling approximately $3,812,000 and $2,957,000 as of* December 31, 2024and2023*, respectively. These member loans bear interest at the rate equal to the Prime Rate plustwo percent per annum and totaled $898,000 and $522,000 as of* December 31, 2024and2023*, 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 $34,000 and $47,000 as of* December 31, 2024and2023*, 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.