CPHC 10-K & 10-Q changes, risk factors and insider trading

Our growth strategy may place significant demands on our financial, operationaloperational, and management resources. We may not successfully execute on our growth strategy because of legislative, regulatory, financial, or other hurdles that we fail to overcome in a timely fashion, or lack of appropriate resources.fashion. Additionally, we may compete with other companies for attractive strategic opportunities. The process of identifying and exploring strategic transactions and initiatives is time consuming and may result in a diversion of management’s time and attention away from existing business activities. Additionally, if we do not effectively communicate our growth strategy to our investors and stakeholders, we may not realize the full benefits that we would otherwise gain through successful execution of that strategy.

Our business is sensitive to downturns in the economy and the associated impact on discretionary spending on entertainment, gaming, and other leisure activities. Our in-person visitors are predominately local, so we compete for more day-to-day discretionary spending as compared with destination spending. Decreases in discretionary consumer spending or consumer preferences brought about by factors such as perceived or actual general economic conditions or the economic conditions in the Twin Cities or Minnesota specifically, effects of declines in consumer confidence in the economy, any future employment and credit crisis, the impact of high and prolonged inflation, particularly with respect to housing, energy and food costs, the increased cost of travel, decreased disposable consumer income and wealth, fears of war and future acts of terrorism, or widespread illnesses or epidemics can have a material adverse effect on discretionary spending and other areas of economic behavior that directly impact the gaming and entertainment industries in general and could further reduce customer demand in our Casino, RacetrackRacetrack, and food and beverage segments, which may negatively impact our revenues and operating cash flow.

Following the expiration of the Cooperative Marketing Agreement ("CMA") on December 31, 2022, we didhave not receivereceived any purse enhancement, marketing payments, or other amounts under the CMA. In 2022, the SMSC paid an annual purse enhancement of $7,280,000 and an annual marketing payment of $1,620,000. The purse enhancement payments were paid directly to the MNHBPA to support purse sizes and accordingly, such payments had no direct impact on the Company’s consolidated financial statements or operations. The marketing payments under the CMA offset the Company’s expense relating to certain marketing efforts, including signage, promotions, player benefits, and events.

We enter into an agreement with the horsepersons each year for the following year’s live racing season. For the 2024 live racing season, we agreed with the MNHBPA and MQHRA to a 54-day racing season and have agreed to contribute an additional share of our Casino revenue to the statutorily required purse amounts to guarantee 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 a 2024 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 may be repaid to the Company by the MNHBPA 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 the 2024 live race meet, the Company recorded a receivable related to the overpayment of 2024 purses in the amount of $1,597,463, which is presented as Other long-term receivables on the Company's balance sheet as of December 31, 2024. In the event that additional purse revenue is secured within the five years following the 2025 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 actual 2024 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 the 2025 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 believes no 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 the 2024 live meet in an effort to generate additional pari-mutuel handle through improved field size. For the year ended 2024, the Company recognized expenses of $418,000 related to these incentives.

Additionally, for the 2025 live racing season, we agreed with the MNHBPA and MQHRA to a 51-day racing season and have agreed to contribute an additional $500,000 above the statutorily required purse amounts to guarantee purses. In the event that additional purse revenues are secured throughout the duration of the 2025 live race agreement, 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 the 2025 live race meet. The parties recognizerecognized there iswas likely to be a significant financial cost to the Company in establishing this 2025 thoroughbred purse structure and that to maintain that average purse structure, the Company will be makingmade an overpayment that may be repaid to the Company by the MNHBPA through reimbursement in subsequent racing years. This anticipated overpayment of purses by the Company iswas intended to create a short-term bridge until additional purse supplements can be obtained from other sources. At the conclusion of the 2025 live race meet, the Company recorded a receivable related to the overpayment of 2025 purses in the amount of $500,000 The combined amounts from the 2024 and 2025 live race meet agreements of $2,097,463 is presented as Other long-term receivables on the Company's balance sheet as of December 31, 2025. In the event that additional purse revenue is secured within the five years following the 2025 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 actual 2025 overpayment amount from those purse supplements. However, there can be no assurance that our agreed-upon purse supplements will have the expected impact on the financial performance of live racing or that any improved financial performance of live racing will offset the amounts we contribute to purses. Further, there can be no assurance that we will receive any reimbursement of any 2025 overpayment amount.

We believe that patrons prefer to wager on races with a number of horses in the race (the “field”) at or above the national average. A failureFailure to offer races with adequate fields generally results in less wagering on our horse races. Our ability to attract adequate fields depends on several factors, including our ability to offer and fund competitive purses and the overall horse population available for racing. Various factors have led to declines in the horse population in Minnesota and other areas of the country, including competition from racetracks in other areas, increased costs, changing economic returns for owners and breeders, and the spread of various debilitating and contagious equine diseases. If our racetrack is faced with a sustained outbreak of a contagious equine disease, it could have a material impact on our profitability.

Finally, if we are unable to attract horse owners to stable and race their horses at our racetrack by offering a competitive environment, including high-quality facilities, a well-maintained racetrack, comfortable conditions for backstretch personnel involved in the care and training of horses stabled at our racetrack, and a competitive purse structure, our profitability could also decrease. We also face increased competition for horses and trainers from racetracks that are licensed to operate slot machines and other electronic gaming machines that provide these racetracks an advantage in generating newnew, additional revenues for race purses and capital improvements. Our inability in the future to attract adequate fields, for whatever reason,fields could have a material adverse impact on our business, financial condition, and results of operations.

We also compete with tribal-owned casinos. These tribal facilities have the advantage of being exempt from some state and federal taxes and state regulation of indoor smoking,smoking and also have the ability to offer a wider variety of gaming products.products with increased limits.

We expect competition for our existing and future operations to increase from Running Aces, existing tribal casinos, and racetracks that are able to subsidize their purses with alternative gaming revenues. Competition for simulcasting customers will be intense given the 2016 legalization of online internet wagering on horse racing in Minnesota, through ADW providers. In addition, several of our tribal gaming competitors in Minnesota have substantially larger marketing and financial resources than we dodo, and this competition may increase if sports betting is legalized in Minnesota at tribal casinos and online through mobile applications operated by the tribes. Increased competition from the tribal casinos could divert customers from our Casino and Racetrack and thus adversely affect our financial condition, results of operations, and cash flows.

Horse racing is an inherently dangerous sportsport, and our racetrack is subject to personal injury litigation.

Since horse racing is conducted outdoors, unfavorable weather conditions, including extremely high and low temperatures, high winds, storms, tornadoes, and smoke,poor air quality, could cause events to be postponed or canceled or attendance to be lower, resulting in reduced wagering. For example, in 2024,2025, the Company had to cancel one day of live racing shortened due to inclement weather. Our operations, as well as the racetracks from which we receive simulcast signals, are subject to reduced patronage, disruptions, or complete cessation of operations due to weather conditions, natural disasters, and other casualties. While the Company maintains insurance for inclement weather conditions, if a prolonged business interruption were to occur due to inclement weather and continue for a significant length of time at our racetrack, it could have a material adverse impact on our business, financial condition, and results of operations.

Our operations and oversight by the MRC are ultimately subject to the laws of Minnesota including, but not limited to, the Minnesota Racing Act and HISA, and there exists the risk that these laws may be amended in ways adverse to our operations. In particular, we are required to pay special racing-related and Casino-related taxes and fees in addition to normal federal, state, and local income taxes as well as potential costs related to HISA regulations. These taxes and fees are subject to increase at any time. From time to time, state and local legislators and officials have proposed changes in tax laws, or in the administration of laws affecting our industry, such as the allocation of each wagering pool to winning bettors, the Racetrack, purses, and the MBF. In addition, poor economic conditions could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes. It is not possible to predict with certainty the likelihood of changes in tax laws or in the administration of these laws. These changes, if adopted, could have a material adverse effect on our operations.

Canterbury Development is currently pursuing other opportunities for the commercial development of its underutilized land. The development of residential and commercial real estate involves many risks, including, but not limited to,to: the selection of development partners; building design and construction; obtaining government permits; financing; securing and retaining tenants; and the volatility of real estate market conditions. Accordingly, there can be no assurance that our real estate development activities will be successful.

Inflation has the potential to adversely affect our business, results of operations, financial positionposition, and liquidity by increasing our overall cost structure. The existence of inflation in the economy has the potential to result in higher interest rates and capital costs, supply shortages, increased costs of laborlabor, and other similar effects. As a result of inflation, we have experienced and may continue to experience increases in the costs of food and beverage supplies, labor, materials, energy, fuel, and other inputs. Although we may take measures to mitigate the impact of this inflation through pricing actions and efficiency gains, if these measures are not effectiveeffective, our business, results of operations, financial position, and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred. Additionally, the pricing actions we take could result in a decrease in market share.

We rely on information technology and other systems to maintain and transmit customers’ personal and financial information, credit card information, mailing lists, and other information. We have taken steps designed to safeguard our customers’ personal and financial information and have implemented systems designed to meet the applicable requirements of the Payment Card Industry standards for data protection. However, our information and processes are subject to the ever-changing threat of compromised security, in the form of a risk of potential breach, system failure, computer virus, or unauthorized or fraudulent access or use by unauthorized individuals. The steps we take to deter and mitigate these risks may not be successful, and any resulting compromise or loss of data or systems could adversely impact operations or regulatory compliance and could result in remedial expenses, fines, litigation, and loss of reputation, potentially impacting our financial results. Although we have invested in and deployed security systems and developed processes that are designed to protect all sensitive data, prevent data lossloss, and reduce the impact of a security incident, such measures cannot provide absolute security.

The Company’s pari-mutuel wagering operations include both wagering on thoroughbred and quarter horse races during live meets at the Racetrack each year from May through September and year-round wagering on races primarily held at out-of-state racetracks that are televised simultaneously at the Racetrack (“simulcasting”). Unbanked card games, in which patrons compete against each other and not the house, are hosted in the Casino at the Racetrack. The Casino operates 24 hours a day, seven days a week. The Casino offers both poker and table games at up to 80 tables. The Company also derives revenues from related services and activities, such as food and beverage, parking, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack.

EBITDA represents earnings before interest income, net, income tax expense, depreciation, and amortization. EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles in the United States of America (“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. We present EBITDA as a supplemental disclosure for our Racetrack Operations because it is a widely used measure of performance of and basis for valuation of companies in the gaming industry. Other companies that provide EBITDA information may calculate EBITDA differently than we do. We also present Adjusted EBITDA, a non-GAAP measure, as a supplemental disclosure because we believe it enables investors to understand and assess our core operating results excluding the effect of unusual or non-recurring items, as well as items relating to our real estate development operations, allowing greater transparency related to a significant measure used by management in its financial and operational decision-making. Adjusted EBITDA has economic substance because it is used by management as a performance measure to analyze the performance of our business and provides a perspective on the current effects of operating decisionsdecisions. For the year ended December 31, 2025, Adjusted EBITDA excluded from EBITDA stock-based compensation (which includes the Company's 401(k) match in Company stock contribution), loss on disposal of assets, and depreciation and amortization and interest related to equity investments and their joint ventures. For the year ended December 31, 2024, Adjusted EBITDA excluded from EBITDA stock-based compensation (which includes the Company's 401(k) match in Company stock contribution), the gain on transfer of land, loss on disposal of assets, and depreciation and amortization and interest related to equity investments. For the year ended December 31, 2023, Adjusted EBITDA excluded from EBITDA stock-based compensation (which includes the Company's 401(k) match in stock contribution), the gain on sale of land, loss on disposal of assets, insurance proceeds received by the Company's equity investmentinvestments and depreciation,their andjoint amortization and interest related to equity investments.ventures.

Total net revenues for 20242025 were $61,562,000,$59,568,000, ana increasedecrease of $125,000,$1,996,000, or 0.2%,3.2%, compared to total net revenues of $61,437,000$61,562,000 for 2023.2024. For 20242025 as compared to 2023,2024, total Casino revenue decreased 4.4%, pari-mutuel revenue decreased 0.3%, Casino revenue decreased 2.5%,6.6%, food and beverage revenue increased 1.8%,3.5%, and other revenue increaseddecreased 18.3%.0.7%. See below for a further discussion of our sources of revenues for each of our Casino, pari-mutuel, Casino, food and beverage, and other revenues.

Total Casino revenue decreased $1,006,000,$1,688,000, or 2.5%,4.4%, in 20242025 compared to 2023.The2024.The decrease can bewas primarily attributeddriven by lower table games drop attributable to bothincreased acompetition, decreaseas inwell drop andas a lower average collection revenue rate inresulting tablefrom games,a somewhatdecreased hold percentage. These decreases were partially offset by an increase in our other table games revenuerevenue, relateddriven toby increases in our progressive jackpot administration revenue.

Total 20242025 pari-mutuel revenue decreased $28,000,$540,000, or 0.3%,6.6%, compared to 2023.2024. The slight decrease in pari-mutuel revenue in 20242025 compared to 20232024 is primarily due to a decrease in simulcast handle,handle somewhatand offset by increaseddecreased guest fees from out-state-handle on our live racing product on a per day basis due to increaseddecreases in field size and onethree additionalfewer live race day.days.

Food and beverage revenues increased $139,000,$277,000, or 1.8%,3.5%, to $7,968,000$8,245,000 for the year ended December 31, 20242025 compared to 2023.2024. The increase in food and beverage revenues is primarily due to increased catering operations and food revenues related to hosting large scalelarge-scale special events as well as the one additional live race day year-over-year mentioned above.events.

Other revenues, consisting of admission revenues, corporate sponsorships, space rentals, and other miscellaneous activities, increasedremained $1,020,000,relatively flat, decreasing $44,000, or 18.3%,0.7%, to $6,593,000$6,550,000 in 20242025 compared to 2023. The increase is primarily due to admission revenue increases related to our first ever rodeo, our first comedy series, and our live racing events.2024.

Total operating expenses increased $436,000,$244,000, or 0.8%,0.4%, to $57,106,000 in 2025, from $56,862,000 in 2024, from $56,426,000 in 2023.2024. An explanation of changes in specific categories of operating expense is set forth below. Total operating expenses as a percentage of net revenues increased to 95.9% in 2025 from 92.4% in 2024 from 91.8% in 2023,2024, which was primarily a result of increaseddecreased operatingnet expensesrevenues for 20242025 as compared to 2023.2024.

Total purse expense increaseddecreased $308,000,$845,000, or 4.1%,10.7%, in 20242025 compared to 2023.2024. The increasedecrease is primarily due to the expenses incurred as part of our recruiting and participation incentives paid in 2024 under our annual live race meet and purse fund contribution agreement dated December 21, 2023. See Note 9 for further details of the agreement. No recruiting and participation incentives arewere plannedincurred for the 2025 live race meet. The decrease was also due to the decrease in total Casino revenues, due to increased competition, and decreased total pari-mutuel revenues, due to a decrease in overall live race days year-over-year. The table below notes the various components of both purse expense and the Minnesota Breeders' Fund expense.

Cost of food and beverage and other sales increaseddecreased $133,000,$38,000, or 4.3%,1.2%, in 20242025 compared to 2023.2024. The increasedecrease is primarily due to the increasedreduced food costs and beveragecreating revenuesprocess relatedefficiencies to increasedlower cateringoverall operations as noted above.costs.

Depreciation and amortization increased $476,000,$377,000, or 15.1%,10.4%, in 20242025 compared to 2023.2024. The increase is primarily due to placing larger fixed assets into service towardsduring the second halfquarter of 20232024 asand wellthroughout as placing assets into service2025 related to the first and second phases of our barn relocation and redevelopment plan in the second quarter of 2024.plan.

Advertising and marketing costs decreasedincreased $719,000,$376,000, or 34.8%,27.9%, in 20242025 compared to 2023.2024. The decreaseincrease is primarily due to intentionally reducingincreasing overall spend infor anmarketing effortinitiatives related to reducethe costs.Casino and special events.

Professional and contracted service expenses decreasedincreased $320,000,$190,000, or 5.4%,3.4%, in 20242025 compared to 2023.2024. The decreaseincrease is primarily due to higher costs in 20232025 relatedfor toHISA long-termregulatory strategiccosts growththat initiatives.are required for live racing.

During 2024, the Company recorded a gain on transfer of land of $1,732,000 as result of transferring approximately 3.5 acres of land to the Trackside Investments joint venture. See Note 11 for further details. The Company had no sales or transfers of land in 2025.

Other loss, net, for the year ended December 31, 20242025 was $3,396,000,$3,276,000, a decrease of $6,875,000,$120,000, compared to an other income,loss, net, of $3,479,000$3,396,000 for the year ended December 31, 2023.2024. The decrease for 20242025 is primarily due to increased leasing rates for our share of a gain recognized on insurance proceeds received on a claim by Doran Canterbury Iequity duringinvestments, 2023.resulting Thein Company'sdecreased portionoverall oflosses the gain on insurance proceeds recognized by Doran Canterbury I was $4,228,000.recognized. The loss on equity investments for the yearyears ended December 31, 2025 and 2024 is primarily due to non-cash expenses from depreciation and amortization. This was slightly offset by increaseddecreased interest income of approximately $93,000$105,000 year-over-year, due to both lower average interest rates and a decrease in the CompanyCompany's transferring availableaverage cash intobalance certificatesduring of2025 deposit and money market funds as well as increasing balances relatedcompared to both our member loans to Doran Canterbury I and Doran Canterbury II and our increase in TIF receivable.2024.

The Company recorded a provision for income taxes with a benefit of $285,000 and expense of $924,000 and $4,417,000 for 20242025 and 2023,2024, respectively. The decreaseincome intax ourbenefit for 2025 compared to the income tax expense forin 2024 comparedis to 2023 isprimarily due to a decrease in income before taxes from operations,operations primarilyand relateda tofederal interest income tax refund received in the 2023first gainquarter onof land sale mentioned above.2025. Our effective tax rate was 30.4%35.0% and 29.5%30.4% for 20242025 and 2023,2024, respectively.

NET (LOSS) INCOME

Estimate of the allowance for doubtfulcredit accountslosses - Property Tax Increment Financing “TIF” Receivable

As of December 31, 2024,2025, the Company recorded a TIF receivable of approximately $18,898,000,$19,986,000, which represents $15,551,000$16,305,000 of principal and $3,347,000$3,681,000 of interest. The TIF receivable requires significant management estimates and judgement pertaining to expected future tax revenue, the Company's development cost on infrastructure improvements, and whether an allowance for doubtful accounts is necessary. The TIF receivable was generated in connection with the Contract for Private Redevelopment, in which the City of Shakopee has agreed that a portion of the future tax increment revenue generated from the developed property around the Racetrack will be paid to the Company to reimburse it for expenses in constructing public infrastructure improvements. For the year ended December 31, 2025, the Company received its first payment from the City of Shakopee totaling $582,000 related to this receivable.

The Company typically performs an annual collectability analysis of the TIF receivable in the fourth quarter of each year, or more frequently if indicators of the receivable to be potentially uncollectable exist. The Company utilizes a third-party to assist with the projected tax increment revenues. The quantitative analysis includes assumptions based on the market values of the completed development projects within Canterbury Commons, which derives the future projected tax increment revenue. The Company uses the analysis to determine if expected future tax increment revenue will exceed the Company's development costs on infrastructure improvements. As a result of our analysis as well as initial payments received in 2025 with additional payments expected to be received in 2026 from the City of Shakopee, for the year ended December 31, 2024,2025, management believes the TIF receivable will be fully collectible and no allowance related to this receivable is necessary.

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,$500,000. Effective December 30, 2025, the Indemnity Agreement was amended to increase the maximum indemnification by an additional $250,000, bringing the total to a maximum of $7,500,000.$7,750,000.

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 30, 2025, the Indemnity Agreement was amended to increase the maximum indemnification by an additional $1,750,000, bringing the total to a maximum of $2,750,000.

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 the 2024 live race meet. In an effort to increase field size and improve the quality of racing for the 2024 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 a 2024 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 may be repaid to the Company by the MNHBPA 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 the 2024 live race meet, the Company recorded a receivable related to the overpayment of 2024 purses in the amount of $1,597,463, which is presented as Other long-term receivables on the Company's balance sheet as of December 31, 2024. In the event that additional purse revenue is secured within the five years following the 2025 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 actual 2024 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 the 2025 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 believes no 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 the 2024 live meet in an effort to generate additional pari-mutuel handle through improved field size. For the year ended 2024, 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 upcoming 2025 live race meet. In an effort to maintain field size and improve the quality of racing for the 2025 season, the Company has guaranteed an additional $500,000 of purse monies to be distributed above the minimum amount defined in Minnesota Statutes Chapter 240. In the event that additional purse revenues are secured throughout the duration of the 2025 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 the 2025 live race meet. The parties recognizerecognized there iswas likely to be a significant financial cost to the Company in establishing this 2025 thoroughbred purse structure and that to maintain that average purse structure, the Company will be makingmade an overpayment that may be repaid to the Company by the MNHBPA through reimbursement in subsequent racing years. This anticipated overpayment of purses by the Company iswas intended to create a short-term bridge until additional purse supplements can be obtained from other sources. InAt the eventconclusion that additional purse revenue is secured within the five years followingof the 2025 live race meet through additional forms of gaming at the Company, new revenue streams, or legislative action,meet, the Company willrecorded bea eligiblereceivable forrelated reimbursementto the overpayment of the actual 2025 overpaymentpurses in the amount fromof those purse supplements.$500,000.

At December 31, 2024,2025, we had cash, cash equivalents, and restricted cash of $13,687,000$15,824,000 compared to $25,842,000$13,687,000 at December 31, 2023.2024. This $12,155,000$2,137,000 decreaseincrease consisted of $6,488,000$8,900,000 of net cash provided by operating activities in 2024,2025, offset by $17,349,000$5,453,000 of net cash used in investing activities in 20242025 and $1,293,000$1,310,000 of net cash used in financing activities in 2024.2025. We believe our existing cash and cash equivalents, along with our short-term investments and cash flow from operations and availability of borrowing under our revolving line of credit agreement, will be sufficient to meet our liquidity and working capital requirements beyond the next 12 months.

As of December 31, 2024,2025, the Company has substantially completed phasesphase one and twothree of the barn relocation and redevelopment plan with phase three currently underway, with estimated remainingminimal costs of approximately $2,500,000.remaining. In addition, the Company expects to spend the remaining $2,042,000$1,288,000 in tax increment financing over the next sixtwelve months for the completion of tax increment related improvements.

Operations Review for the Three and Six Months Ended MarchJune 31,30, 2026:

Total net revenues for the three months ended MarchJune 31,30, 2026 were $13,510,000,$16,168,000, an increase of $368,000,$502,000, or 2.8%,3.2%, compared to total net revenues of $13,142,000$15,666,000 for the three months ended MarchJune 31,30, 2025. Total net revenues for the six months ended June 30, 2026 were $29,677,000, an increase of $870,000, or 3.0%, compared to total net revenues of $28,807,000 for the six months ended June 30, 2025. See below for a further discussion of our sources of revenues.

As indicated by the table above, total Casino revenue increased $49,000,$142,000, or 0.5%,1.5%, and increased $191,000, or 1.0%, for the three and six months ended March 31 ,June 30, 2026, respectively, compared to the same periodperiods in 2025. The increase for the three and six months ended March 31 ,June 30, 2026 can be primarily attributed to an increase in table games drop, due to increased visitation and spend per visit, which was somewhat offset by a lower average collection revenue rate in table games, which also resulted in a decrease in our other table games revenue.

Total pari-mutuel revenue decreasedincreased $60,000,$58,000, or 5.6%,2.6%, and decreased $3,000, or 0.1%, for the three and six months ended June 30, 2026, respectively, compared to the same periods in 2025. The increase for the three months ended MarchJune 31, 2026, compared to the same period in 2025. The decrease for three months ended March 31,30, 2026 can be primarily attributed to increased live race days year over year, which was somewhat offset by lower simulcast revenues which is related to less overall race days for other race tracks across the country compared to the same period in 2025.

Food and beverage revenue increased $224,000,$405,000, or 13.8%,19.6%, and increased $630,000, or 17.1%, for the three and six months ended June 30, 2026, respectively, compared to the same periods in 2025. The increase for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025. The increase2026 can be primarily attributed to increased visitation related to hostingan moreincrease largein scalethe specialnumber eventsof live race days compared to last year. The increase for the three and six months ended June 30, 2026 also benefit from the implementation of a new point-of-sale system that improved our speed of service, resulting in increased overall transactions and average spend per customer.transactions.

Other revenues, consisting of admission revenues, corporate sponsorships, space rentals, and other miscellaneous activities, increaseddecreased $155,000,$103,000, or 12.5%,5.6%, and increased $52,000, or 1.7%, for the three and six months ended June 30, 2026, respectively, compared to the same periods in 2025. The decrease for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025. The increase2026 is primarily due to increaseddecreased admission revenue related to hostingreduced moreconcert largeevents scale special events.year-over-year.

Total operating expenses decreasedincreased $38,000,$648,000, or 0.3%,4.3%, and increased $610,000, or 2.2%, for the three and six months ended MarchJune 31,30, 2026, respectively, compared to the same periodperiods in 2025. The following paragraphs provide further detail regarding certain operating expenses.

DepreciationPurse expense increased $463,000, or 23.6%, and amortization increased $117,000,$453,000, or 12.6%,14.1%, for the three and six months ended MarchJune 31,30, 2026, respectively, compared to the same periodperiods in 2025. The increaseincreases isare primarily due to placingthe largerimpairment fixedcharge assetsof intoa servicereceivable related to the completion2024 ofand large2025 capitallive improvementrace projects.agreements. See Note 6. “Commitments and Contingencies.”

OtherDepreciation operatingand expensesamortization increased $113,000,$33,000, or 8.9%,3.3%, and increased $150,000, or 7.8%, for the three and six months ended MarchJune 31,30, 2026, respectively, compared to the same periodperiods in 2025. The increaseincreases isare primarily due to higherplacing reallarger estatefixed taxesassets andinto specialservice eventrelated promoterto fees.the completion of large capital improvement projects.

Other loss, net, for the three months ended MarchJune 31,30, 2026 was $705,000,$506,000, a decrease of $425,000,$404,000, compared to other loss, net, of $1,130,000$910,000 for the three months ended MarchJune 31,30, 2025. Other loss, net, for the six months ended June 30, 2026 was $1,212,000, a decrease of $828,000, compared to other loss, net, of $2,040,000 for the six months ended June 30, 2025. The decreased losslosses isare primarily due to increased leasing rates for our Doran Canterbury equity investments, resulting in decreased overall losses recognized. The loss on equity investments for the three and six months ended MarchJune 31,30, 2026 and 2025 is primarily due to non-cash expenses from depreciation and amortization.

The Company recorded a provision for income taxes with a benefit of $73,000 and $151,000 for the three months ended June 30, 2026 and 2025, respectively. The Company recorded a provision for income taxes with an expense of $180,000$108,000 and a benefit of $181,000$332,000 for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The income tax expensebenefit for the three months ended MarchJune 31,30, 2026 decreased compared to the income tax benefit for the same period in 2025 primarily due to an increase in income before taxes from operations in the second quarter of 2026. The income tax expense for the six months ended June 30, 2026 compared to the income tax benefit for the same period in 2025 is primarily due to anthe increase in income before taxes from operations in the first quarterrelationship of 2026.non-deductible expenses and discrete items against pretax book income. Our effective tax rate was 51.5%32.9% and 37.7%83.2% for three and six months ended MarchJune 31,30, 20262026, respectively. Our effective tax rate was 31.6% and 34.6% for three and six months ended June 30, 2025, respectively,respectively. andOur effective tax rate can vary due to changes in non-deductible expenses such as lobbying fees.

The Company recorded a net loss of $148,000, or $0.03 per basic and diluted share and net income of $170,000,$22,000, or $0.03$0.00 per basic and diluted share, for the three and six months ended MarchJune 31,30, 2026.2026, respectively. The Company recorded a net loss of $299,000,$327,000, or $0.06 and $627,000, or $0.12 per basic and diluted share, for the three and six months ended MarchJune 31,30, 2025.2025, respectively.

To supplement our financial statements, we also provide investors with information about our EBITDA and Adjusted EBITDA, each of which is a non-GAAP measure, which excludes certain items from net income, a GAAP measure. See the table below, which presents reconciliations of these measures to the GAAP equivalent financial measures. We define EBITDA as earnings before interest, income tax expense, and depreciation and amortization. We also compute Adjusted EBITDA, which reflects additional adjustments to Net Income to eliminate unusual or non-recurring items, as well as items relating to our real estate development operations and we believe the exclusion of these items allows for better comparability of our performance between periods and is useful in allowing greater transparency related to a significant measure used by management in its financial and operational decision-making. Adjusted EBITDA has economic substance because it is used by management as a performance measure to analyze the performance of our business, excluding the impact of our real estate segment, and provides a perspective on the current effects of operating decisions relating to our core, non-real estate business. For the three and six months ended MarchJune 31,30, 2026, Adjusted EBITDA excluded stock-based compensation (which includes the Company's 401(k) match in Company stock contribution), an impairment charge on receivables, gain on disposal of assets, and depreciation and amortization and interest related to equity investmentsinvestments, andincluding theiramounts attributable to underlying joint ventures.ventures reflected in equity investment earnings. For the three and six months ended MarchJune 31,30, 2025, Adjusted EBITDA excluded stock-based compensation (which includes the Company's 401(k) match in Company stock contribution), and depreciation and amortization and interest related to equity investmentsinvestments, andincluding theiramounts attributable to underlying joint ventures.ventures reflected in equity investment earnings. Neither EBITDA nor adjusted EBITDA is a measure of performance calculated in accordance with GAAP and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance. EBITDA is presented as a supplemental disclosure because we believe that, when considered with measures calculated in accordance with GAAP, EBITDA and Adjusted EBITDA provide a more complete understanding of our operating results before the impact of investing and financing transactions and income taxes, and it is a widely used measure of performance and a basis for valuation of companies in our industry. Moreover, otherOther companies that provide EBITDA or Adjusted EBITDA information may calculate EBITDA or Adjusted EBITDAit differently than we do.do, so caution should be taken in comparing the Company's EBITDA and Adjusted EBITDA results to those of other companies.

The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA and to adjusted EBITDA (defined above) which are non-GAAP financial measures, for the three and six months ended MarchJune 31,30, 2026 and 2025:

Adjusted EBITDA increased $749,000,$597,000, or 35.6%,29.3%, and increased $1,316,000, or 31.8%, for the three and six months ended MarchJune 31,30, 2026, compared to the same periodperiods in 2025. The increase in Adjusted EBITDA is primarily due to an overall increase in income frombefore operations.taxes. For the three and six months ended MarchJune 31,30, 20262026, Adjusted EBITDA as a percentage of net revenue was 16.3% and 18.4%, respectively. For the three and six months ended June 30, 2025, Adjusted EBITDA as a percentage of net revenue was 21.1%13.0% and 16.0%,14.4%, respectively.

The Company's primary source of liquidity and capital resources have been and are expected to be cash flow from operations and cash available under our revolving line of credit. The Company has a line of 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 was collateralized by all receivables, inventory, equipment, and general intangibles of the Company, as well as a mortgage on certain real property. 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. As of MarchJune 31,30, 2026, the outstanding balance on the line of credit was $0. As of MarchJune 31,30, 2026, the Company was in compliance with the financial covenants of the credit and security agreement.

The Company’s cash, cash equivalents, and restricted cash balance at MarchJune 31,30, 2026 was $16,357,000$19,450,000 compared to $15,824,000 as of December 31, 2025. The Company expects to spend the remaining $1,198,000 in tax increment financing over the next nine months for the completion of the private redevelopment plan. The Company believes that unrestricted funds available in its cash accounts, short-term investments, amounts available under its revolving line of credit, along with funds generated from operations and potential future land sales, will be sufficient to satisfy its ongoing liquidity and capital resource requirements for regular operations, as well as these planned development expenses for at least the next twelve months. Furthermore, if the Company engages in additional significant real estate development, significant improvements to its facilities, the Racetrack or surrounding grounds, or strategic growth or diversification transactions, additional financing would more than likely be required and the Company may seek this additional financing through joint venture arrangements, through incurring debt, or through an equity financing, or a combination of any of these.

Trends in our operating cash flows tend to follow trends in operating income but can be affected by changes in working capital, the timing of significant interest payments, and tax payments or refunds. Net cash provided by operating activities for the threesix months ended MarchJune 31,30, 2026 was $3,241,000,$7,488,000, primarily as a result of the following: the Company reported net income of $170,000,$22,000, depreciation and amortization of $1,049,000,$2,068,000, a loss from equity investment of $1,217,000, and$2,266,000, stock-based compensation and 401(k) match totaling $402,000.$838,000, Theand a decrease in other long-term receivables related to an impairment charge related to the 2024 and 2025 live racing agreements. For the six months ended June 30, 2026, the Company also experienced an increaseincreases in payable to horsepersons and accounts payable, net of $310,000,land, buildings, and equipment funded through accounts payable of $1,436,000 and $1,163,000, respectively, primarily due to the timing of our live racing season, as well as increases in accrued wages and payroll taxes of $277,000, which is timing related, and an increase in accrued property taxes of $328,000.season. This was partially offset by an increase in accounts receivable of $328,000,$756,000, also due to the timing of our live racing season, a decrease in accounts payable, net of land, buildings, and equipment funded through accounts payable, of $255,000, and an increase in TIF receivable of $239,000,$483,000, related to the interest accrued, for the threesix months ended MarchJune 31,30, 2026.

Net cash provided by operating activities for the threesix months ended MarchJune 31,30, 2025 was $3,374,000,$7,756,000, primarily as a result of the following: the Company reported a net loss of $299,000,$627,000, depreciation and amortization of $931,000,$1,918,000, a loss from equity investment of $1,573,000,$2,963,000, and stock-based compensation and 401(k) match totaling $382,000.$809,000. TheFor the six months ended June 30, 2025, the Company also experienced an increase in payable to horsepersons of $1,207,000,$2,396,000 and an increase in deferred revenue of $781,000, both primarily due to the timing of our live racing season. This was offset by an increase in accounts receivable of $486,000,$527,000, also due to the timing of our live racing season, and an increase in TIF receivable of $206,000, and a decrease in accounts payable, net of land, buildings, and equipment funded through accounts payable, of $1,234,000, primarily$434,000, related to paymentsthe forinterest our redevelopment plan,accrued, for the threesix months ended MarchJune 31,30, 2025.

Net cash used in investing activities for the threesix months ended MarchJune 31,30, 2026 was $2,256,000,$3,132,000, primarily due to an equity investment contribution of $1,466,000$1,471,000 to our Doran II joint venture related to their refinancing, additions to land, buildings, and equipment of $635,000,$1,315,000, primarily related to information technology and casino equipment, an increase in TIF eligible improvements of $89,000, which is associated with the redevelopment plan, an increase in related party receivable of $131,000,$388,000, primarily due to additional interest accrued related to our member loans, and purchases of short-term investments of $2,750,000.$5,250,000. This was partially offset by proceeds from the sale of short-term investments of $2,750,000.$5,250,000 during the six months ended June 30, 2026.

Net cash used in investing activities for the threesix months ended MarchJune 31,30, 2025 was $891,000,$2,377,000, primarily due to additions to land, buildings, and equipment of $859,000,$2,032,000 and an increase in TIF eligible improvements of $135,000,$486,000, both of which are associated with the redevelopment plan, an increase in related party receivable of $166,000,$396,000, primarily due to additional member loans and interest related to the member loans, and purchases of short-term investments of $2,000,000.$4,500,000. TheThis was partially offset by proceeds from the sale of short-term investments of $2,250,000.$5,000,000 during the six months ended June 30, 2025.

Net cash used in financing activities for the threesix months ended MarchJune 31,30, 2026 was $452,000,$730,000, primarily due to cash dividends paid to shareholders and payments for taxes of equity awards. The Company declared and paid a cash dividend of $0.07$0.14 per share payable during the threesix months ended MarchJune 31,30, 2026.

Net cash used in financing activities for the threesix months ended MarchJune 31,30, 2025 was $430,000,$683,000, primarily due to cash dividends paid to shareholders and payments for taxes of equity awards. The Company declared and paid a cash dividend of $0.07$0.14 per share payable during the threesix months ended MarchJune 31,30, 2025.

These accounting estimates are described in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. Management made no changes to the Company’s critical accounting estimates during the quarter ended threesix months ended MarchJune 31,30, 2026. In applying its critical accounting estimates, management reassesses its estimates each reporting period based on available information. ChangesOther than the impairment of other long-term receivables discussed in Note 6 of Notes to Financial Statements, changes in these estimates did not have a significant impact on earnings for the quarter ended threesix months ended MarchJune 31,30, 2026.

Estimate of the allowance for doubtfulcredit accountslosses - Property Tax Increment Financing "TIF" Receivable

As of MarchJune 31,30, 2026, the Company recorded a TIF receivable on its Consolidated Balance Sheet of approximately $20,315,000,$20,558,000, which represents $16,394,000 of principal and $3,921,000$4,164,000 of interest. The TIF receivable requires significant management estimates and judgement pertaining to whether an allowance for doubtful accounts is necessary. The TIF receivable was generated in connection with the Contract for Private Redevelopment, in which the City of Shakopee has agreed that a portion of the future tax increment revenue generated from the developed property around the Racetrack will be paid to the Company to reimburse it for expenses in constructing public infrastructure improvements. AsFor ofthe Decemberyear 31,ended 2025, the Company received its first payment from the City of Shakopee totaling $582,000 related to this receivable. There were no payments received during the three and six month periods ended June 30, 2026.

The Company typically performs an annual collectability analysis of the TIF receivable in the fourth quarter of each year, or more frequently if indicators of the receivable to be potentially uncollectable exist. The quantitative analysis includes assumptions based on the market values of the completed development projects within Canterbury Commons, which derives the future projected tax increment revenue. The Company uses the analysis to determine if expected future tax increment revenue will exceed the Company's development costs on infrastructure improvements. As a result of our analysis as well as initial payments received in 2025 with additional payments expected to be received in 2026 from the City of Shakopee, as of MarchJune 31,30, 2026, management believes the TIF receivable will be fully collectible and no allowance related to this receivable is necessary.