The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand Canterbury Park Holding Corporation, our operations and our present business environment. This MD&A is provided as a supplement to - and should be read in conjunction with - our condensed consolidated financial statements and the accompanying notes to the financial statements (the "Notes").

Overview:

Canterbury Park Holding Corporation (the "Company") owns and operates the Canterbury Park Racetrack and Card Casino in Shakopee, Minnesota (the "Racetrack"). The primary businesses of the Company are simulcast and live pari-mutuel horse racing, hosting unbanked card games, and food and beverage operations.

The Racetrack is the only pari-mutuel thoroughbred and quarter horse racing facility in the State of Minnesota. The Racetrack earns revenues from pari-mutuel take-out on races simulcast year-round to Canterbury Park from racetracks throughout the country and from live race meets featuring thoroughbred and quarter horse racing. Live race meets commence in the month of May and conclude in early September. During live race meets, the Company televises its races to out-of-state racetracks around the country, and earns additional pari-mutuel revenue on wagers placed on its races at the out-of-state racetracks.

The Card Casino at Canterbury Park currently hosts "unbanked" card games in which players compete against each other and not against the house. In addition, changes to this law governing Card Casino operations will enable us to begin offering banked games in the future. The Card Casino is open twenty-four hours a day, seven days a week. Under Minnesota law, the Company is required to pay up to 14% of gross Card Casino revenues to the Racetrack's purse fund and the State of Minnesota Breeders' Fund.

The Company also generates revenues from other activities such as parking and admission fees and from the sale of food and beverage, programs and other racing publications, and corporate sponsorships. Additional revenues are derived from the use of the Racetrack facilities for special events such as concerts, craft shows and other events.

Operations Review for the Three Months Ended March 31, 2012 and March 31, 2011:



The following table sets forth a reconciliation of net income, a GAAP financial
measure, to EBITDA (defined below), which is a non-GAAP measure, for the periods
ended March 31, 2012 and 2011:



                                                   March 31,     March 31,
                                                     2012          2011
          Net income                              $   532,504   $   210,555
          Other income, net of interest expense       (1,114)       (1,353)
          Income tax expense                          473,569       427,766
          Depreciation                                473,580       460,500
          EBITDA                                  $ 1,478,539   $ 1,097,468

EBITDA represents earnings before interest income, income tax expense, and depreciation and amortization. EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles ("GAAP"), and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance or cash flows from operating activities as a measure of liquidity. EBITDA has been presented as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry. Moreover, other companies that provide EBITDA information may calculate EBITDA differently than we do.

EBITDA as a percentage of net revenues was 15.4% for the first quarter ended March 31, 2012 compared to 13.2% for the first quarter ended March 31, 2011. This change was due to the increase in net income and related income tax expense as compared to the 2011 first quarter.

Total net revenues increased $1,300,900, or 15.7%, during the three months ended March 31, 2012 compared to the three months ended March 31, 2011. The increase is primarily attributable to an increase in Card Casino revenue of 16.8%, an increase in pari-mutuel revenue of 5.5%, and an increase in concessions revenue of 29.0%. See below for a further discussion of revenue.

Summary of Pari-mutuel Data:



                                          Three Months Ended March 31,
                                             2012                2011

            Simulcast racing days                    91                90

            On-track simulcast handle   $     8,033,000       $ 7,539,000

             Average daily handle       $        88,300       $    83,800

Pari-mutuel revenue increased $92,081, or 5.5%, in the three-month period ended March 31, 2012 compared to the same period in 2011. Total handle was approximately $8.0 million, or 6.6%, higher than total handle of $7.5 million during the same quarter a year ago. The increase is primarily attributable to unusually mild weather in the first quarter of 2012 compared to inclement weather during the first quarter of 2011, when Minnesota experienced one of the snowiest winters on record which discouraged customers from coming to the track and wagering. Similar harsh weather in other parts of the United States in the first quarter of 2011 caused the cancellation of a significant number of races at racetracks simulcasting their signal to our racetrack as compared to mild weather experienced during the first quarter of 2012 around the country, resulting in minimal cancellations of races at racetracks simulcasting their signal to our racetrack.

Summary of Card Casino Data:



                                                Three Months Ended March 31,
                                                   2012                2011

       Poker Games                            $     2,776,000       $ 2,603,000
       Table Games                                  3,111,000         2,476,000
            Total Collection Revenue                5,887,000         5,079,000

       Other Revenue                                  656,000           522,000
            Total Card Casino Revenue         $     6,543,000       $ 5,601,000

                    Number of Days Offered                 91                90
                    Average Revenue per Day   $        72,000       $    62,000

Total Card Casino revenue increased $942,271, or 16.8%, for the first three months of 2012 compared to the same period in 2011. The primary source of Card Casino revenue is a percentage of the wagers received from the players as compensation for providing the card room facility and services, referred to as the "collection revenue." Other revenue includes fees collected for the administration of tournaments, and amounts earned as reimbursement of the administrative costs of maintaining jackpot funds. Poker collection revenue increased $173,695, or 6.7%, compared to the first quarter of 2011. The Company believes that the year-over-year increase is attributable to both the unusually mild weather experienced during the first quarter of 2012 and reduced Internet betting because of a ban on Internet poker that began on April 15, 2011. Table games collection revenue increased $634,450, or 25.6%, compared to the first three months of 2011. The Company believes this increase was primarily due to a strengthening economy that encouraged increased interest in card play and the unusually mild weather described above. Total Card Casino revenues represented 68.1% and 67.4% of net revenues for the three-month periods ended March 31, 2012 and 2011, respectively.

Concession revenues increased $209,673, or 29.0%, for the quarter ended March 31, 2012 compared to the same quarter in 2011. The increase is primarily attributable to the return of snowmobile racing that occurred in January of 2012. Also, the unusually mild weather experienced during the first quarter of 2012 resulted in more concession sales.

Total operating expenses in the first quarter of 2012 increased by $932,909, or 12.2%, compared to the three-month period ended March 31, 2011. See below for a further discussion of operating expenses.

Summary of Purse and Breeders' Fund Expense:



                                               Purse Expense                    Minnesota Breeders' Fund Expense
                                       Three Months Ended March 31,               Three Months Ended March 31,
                                         2012                 2011                 2012                   2011

Card Casino                         $      608,427       $      504,072      $         67,603       $         56,008

Simulcast Racing                           313,304              301,835                92,326                 86,980

Total                               $      921,731       $      805,907      $        159,929       $        142,988

Due to the increases in pari-mutuel and Card Casino revenues, total expense for statutory purses and the Minnesota Breeders' Fund increased 14.0%, to approximately $1,082,000, for the quarter ended March 31, 2012 compared to $949,000 for the quarter ended March 31, 2011.

Salary and benefit costs increased $476,973, or 12.9%, compared to the first quarter of 2011. The increase was partially due to supporting the increased revenue from all revenue categories during the first quarter and increased salary and benefit costs as compared to the first quarter of 2011 when a wage freeze was in effect.

Cost of sales increased $70,417, or 15.2%, compared to the first quarter of 2011. The increase was due to the increase in concessions revenue and increases in overall food costs that occurred during the first quarter of 2012.

Advertising and marketing costs increased $93,264, or 90.9%, compared to the first quarter of 2011 primarily as a result of increased radio and billboard expenditures emphasizing the Card Casino during the first quarter of 2012.

Income before income taxes was $1,006,073, for the three months ended March 31, 2012 compared to $638,321 for the three months ended March 31, 2011. Income tax expense was $473,569 for the first quarter of 2012 compared to $427,766 for the first quarter of 2011, resulting in net income of $532,504 and $210,555 for 2012 and 2011, respectively. The effective income tax rate for 2012 is higher than the statutory rate primarily due to non-deductible lobbying expenses incurred to support the Company's effort to obtain video gaming devices at the Racetrack.

Contingencies:

There have been no material changes in the contingencies reported under Item 7 in our Annual Report on Form 10-K for our year ended December 31, 2011 and such information is incorporated herein by reference.

Liquidity and Capital Resources:

Cash provided by operating activities for the three months ended March 31, 2012 was $2,280,434 and was due to several factors. First, the Company reported net income of $532,504. Additionally, the Company recorded depreciation of $473,580. Card Casino accruals also increased $464,719, which was primarily due to the increase in our player pool related to increased table game activity. A final factor contributing to the net cash provided by operating activities for the first quarter of 2012 was the increase in accounts payable and accrued wages and payroll taxes of $713,525, due primarily to an increase in deferred revenue related to corporate partnerships that run the duration of our live race meet. Cash provided by operating activities for the three months ended March 31, 2011 was $1,655,368 and was due to several factors. First, the Company reported net income of $210,555. Additionally, the Company recorded depreciation of $460,500. Card Casino accruals also increased $263,456, which was primarily due to the increase in our player pool related to increased table game activity. A final factor contributing to the net cash provided by operating activities for the first quarter of 2011 was the increase in deferred income tax liability of $316,500.

Net cash used in investing activities for the first quarter of 2012 of $119,772 was used primarily for a variety of equipment purchases. Net cash used in investing activities for the first quarter of 2011 of $162,725 was used primarily for the purchase of short-term investments.

Net cash provided by financing activities during the first three months of 2012 consisted of purchases of stock through the Employee Stock Purchase Plan and proceeds received upon the exercise of stock options of $80,589 and the related tax benefit of $19,144 from the exercise of those options. Net cash provided by financing activities during the first three months of 2011 consisted of proceeds received upon the exercise of stock options of $24,066 and the related tax benefit of $7,100 from the exercise of those options.

The Company has a general credit agreement with Bremer Bank, which provides a revolving credit line of up to $3,000,000 until May 5, 2013 with interest at the prime rate but not less than 4.5% per annum. The Company had no borrowings under the line of credit at March 31, 2012 or December 31, 2011. This credit agreement contains covenants requiring the Company to maintain certain financial ratios. The Company was in compliance with these requirements at all times throughout the quarter ended March 31, 2012.

Unrestricted cash balances at March 31, 2012 were $10,529,174 compared to $8,268,779 at December 31, 2011. The Company believes that funds available in its cash accounts, amounts available under the general credit and security agreement, along with funds generated from operations, will be sufficient to satisfy its liquidity and capital resource requirements during 2012 for regular operations.

Critical Accounting Policies and Estimates:

The preparation of consolidated financial statements in conformity with generally accepted accounting principles 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. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time the consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with generally accepted accounting principles. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are included in Note 1 to our consolidated financial statements in our 2011 Annual Report on Form 10-K. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Property and Equipment - We have significant capital invested in our property and equipment, which represents approximately 61.3% of our total assets at March 31, 2012. We utilize our judgment in various ways including: determining whether an expenditure is considered a maintenance expense or a capital asset; determining the estimated useful lives of assets; and determining if or when an asset has been impaired or has been disposed. Management periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected future net cash flows. Should the sum of the related expected future net cash flows be less than the carrying value, we will determine whether an impairment loss should be recognized. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. We have determined that no impairment of these assets exists at March 31, 2012.

Stock Based Employee Compensation - ASC 718, Compensation - Stock Compensation ("ASC 718"), requires recognition of employee services provided in exchange for a share-based payment based on the grant date fair market value. We utilize our judgment in determining the assumptions used to determine the fair value of options granted using a Black-Scholes model.

Commitments and Contractual Obligations:

There have been no material changes in our outstanding commitments and contractual obligations since those reported at December 31, 2011.

Legislation:

On May 4, 2012, Minnesota Governor Mark Dayton signed legislation approved by the Minnesota Legislature that amended laws governing the Company's Card Casino. The amendments, which were effective immediately, will increase the Company's flexibility to operate its Card Casino which should lead to increased revenues, as well as increased purses for live races at Canterbury Park's Racetrack.

As amended, the law authorizes the Company to increase the number of tables in its Card Casino from 50 to 80 and increases the poker bet limit from $60 to $100. It also removes limits on the number of poker tournaments the Company can conduct, as well as limits on the number of tables used in poker tournaments. In addition, it allows Canterbury to conduct "banked" card games, in which customers play against the house, along with the unbanked games it currently conducts. In a separate provision, the amended law establishes a framework for the possible implementation of pari-mutuel simulcasting of horse races conducted at Canterbury and other racetracks to Tribal casinos in Minnesota.

Implementation of the amended law will occur in stages. Initially, the Company plans to increase the number of tables hosting live play from 50 to 60, the Card Casino's current capacity, to accommodate customers during peak periods. Additional expansion, higher betting limits and expanded poker tournaments will be implemented based on market demand. While it will take some time to determine the incremental revenue and purse enhancements from the amended law, management believes it will enable the Company to better meet customer demand and grow Card Casino revenues.

The Company's efforts to obtain legislative approval for slot machines to be operated at the Racetrack (a business model that is generally called a "Racino") have required, and will continue to require, substantial expenditures. Due to the inherent uncertainty of the outcome of legislative activities, there can be no assurance that any bills favorable to the Company's interests will be enacted into law, and it is possible bills adverse to the Company could be enacted.

Forward-Looking Statements:

From time to time, in reports filed with the Securities and Exchange Commission, in press releases, and in other communications to shareholders or the investing public, the Company may make forward-looking statements concerning possible or anticipated future financial performance, business activities or plans which are typically preceded by the words "believes," "expects," "anticipates," "intends" or similar expressions. For such forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that such forward-looking statements are subject to risks and uncertainties which could cause actual performance, activities or plans to differ significantly from those indicated in the forward-looking statements. Such risks and uncertainties include, but are not limited to: fluctuations in attendance at the Racetrack, material changes in the level of wagering by patrons, decline in interest in the unbanked card games offered in the Card Casino, legislative and regulatory changes, the impact of wagering products and technologies introduced by competitors; increases in the percentage of revenues allocated for purse fund payments; increase in compensation and employee benefit costs; the economic health of the gaming sector; higher than expected expense related to new marketing initiatives; and other factors discussed under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2011 and in the Company's other filings with the Securities and Exchange Commission.