Magna Entertainment Corp. announces results for the second quarter ended June 30, 2008



    AURORA, ON, Aug. 5 /CNW/ - Magna Entertainment Corp. ("MEC") (NASDAQ:  
MECAD; TSX: MEC.A) today reported its financial results for the second quarter
ended June 30, 2008.

    
    -------------------------------------------------------------------------
                                 Three Months Ended        Six Months Ended
                                      June 30,                 June 30,
                              -----------------------------------------------
                                 2008         2007         2008       2007
    -------------------------------------------------------------------------
                                   (unaudited)                (unaudited)

    Revenues(i)               $ 166,282   $ 167,406     $ 397,258  $ 421,608

    Earnings before interest,
     taxes, depreciation and
     amortization
     ("EBITDA")(i)(iii)       $   5,212   $   3,969     $  21,071  $  28,523

    Net income (loss)
      Continuing
       operations(iii)        $ (22,990)  $ (20,329)    $ (35,957) $ (14,619)
      Discontinued
       operations(ii)(iii)        1,736      (3,108)      (31,757)    (6,349)
    -------------------------------------------------------------------------
    Net loss                  $ (21,254)  $ (23,437)    $ (67,714) $ (20,968)
    -------------------------------------------------------------------------

    Diluted earnings (loss)
     per share(iv)
      Continuing
       operations(iii)        $   (3.93)  $   (3.77)    $   (6.16) $   (2.72)
      Discontinued
       operations(ii)(iii)         0.29       (0.58)        (5.44)     (1.18)
    -------------------------------------------------------------------------
    Diluted loss per
     share(iv)                $   (3.64)  $   (4.35)    $  (11.60) $   (3.90)
    -------------------------------------------------------------------------

    (i)    Revenues and EBITDA for all periods presented are from continuing
           operations only.

    (ii)   Discontinued operations for the three and six months ended
           June 30, 2008 and 2007 include the operations of Remington Park in
           Oklahoma, Thistledown in Ohio, Portland Meadows in Oregon,
           Great Lakes Downs in Michigan and Magna Racino(TM) in Austria.

    (iii)  EBITDA, net loss and diluted loss per share from continuing
           operations for the six months ended June 30, 2008 include a
           write-down of $5.0 million related to the Dixon, California real
           estate property.

           Net loss and diluted loss per share from discontinued operations
           for the six months ended June 30, 2008 include write-downs of
           $29.2 million related to Magna Racino(TM) long-lived assets and
           $3.1 million related to Instant Racing terminals and the
           associated facility at Portland Meadows.

    (iv)   On July 3, 2008, the Company's Board of Directors approved a
           reverse stock split with an effective date of July 22, 2008, of
           the Company's Class A Subordinate Voting Stock ("Class A Stock")
           and Class B Stock utilizing a 1:20 consolidation ratio. As a
           result of the reverse stock split, every twenty shares of the
           Company's issued and outstanding Class A Stock and Class B Stock
           were consolidated into one share of the Company's Class A Stock
           and Class B Stock, respectively. In addition, the exercise prices
           of the Company's stock options and the conversion prices of the
           Company's convertible subordinated notes have been adjusted, such
           that, the number of shares potentially issuable on the exercise of
           stock options and/or conversion of subordinated notes will reflect
           the 1:20 consolidation ratio. Accordingly, all of the Company's
           issued and outstanding Class A Stock and Class B Stock and all
           performance share awards, outstanding stock options to purchase
           Class A Stock and all performance share awards, outstanding stock
           options to purchase Class A Stock and convertible subordinated
           notes into Class A Stock for all periods presented have been
           restated to reflect the reverse stock split.

           All amounts are reported in U.S. dollars in thousands,
                          except per share figures.
    -------------------------------------------------------------------------
    

    Frank Stronach, MEC's Chairman and Chief Executive Officer commented:
"Despite difficult economic conditions in the U.S., our EBITDA from continuing
operations improved by $1.2 million in the second quarter of 2008 compared to
the same period last year. This improvement was primarily due to improved
results at Gulfstream Park, Santa Anita Park and our real estate operations
partially offset by disappointing results at The Maryland Jockey Club. We are
also encouraged by the results at XpressBet(R), which increased its handle by
21%, and Remington Park, which increased its slot revenues by 17%, both
compared to the same quarter last year. Notwithstanding this modest
improvement in EBITDA for the quarter, we recognize the need for further
significant improvement in our operating results, as we also focus on
dramatically reducing our debt levels."

    Blake Tohana, MEC's Executive Vice-President and Chief Financial Officer,
commented: "Although we continue to take steps to implement our debt
elimination plan, U.S. real estate and credit markets have continued to
demonstrate weakness in 2008 and we do not expect to complete our plan on the
originally contemplated time schedule. However, we remain firmly committed to
reducing debt and interest expense. We closed the sale of Great Lakes Downs in
July 2008 and are continuing to pursue other asset sale opportunities."

    Our racetracks operate for prescribed periods each year. As a result, our
racing revenues and operating results for any quarter will not be indicative
of our racing revenues and operating results for the year.

    Revenues from continuing operations were $166.3 million for the three
months ended June 30, 2008, a decrease of $1.1 million or 0.7% compared to
$167.4 million for the three months ended June 30, 2007. The decreased
revenues from continuing operations were primarily due to:

    
    -   Maryland revenues below the prior year period by $4.4 million
        primarily due to decreased handle and wagering revenues at this
        year's Preakness(R), and decreased average daily attendance and
        handle during the race meets at both Laurel Park and Pimlico; and

    -   California revenues below the prior year period by $4.0 million due
        to 5 fewer live race days at Golden Gate Fields with a change in the
        racing calendar which shifted live race days to the third and fourth
        quarters of 2008, partially offset by increased non-wagering revenues
        at Santa Anita Park from special events and facility rentals;

    partially offset by:

    -   Florida revenues above the prior year period by $5.5 million
        primarily due to increased gross gaming revenues at Gulfstream Park
        from improved slot and poker operations, and increased wagering
        revenues from the introduction of year round simulcasting at
        Gulfstream Park at the end of the 2008 race meet; and

    -   Real estate and other operations revenues above the prior year period
        by $2.3 million due to increased housing unit sales at our European
        residential housing development.

    Revenues were $397.3 million in the six months ended June 30, 2008, a
decrease of $24.4 million or 5.8% compared to $421.6 million for the six
months ended June 30, 2007. The decreased revenues in the six months ended
June 30, 2008 compared to the prior year period are primarily due to the same
factors impacting the three months ended June 30, 2008 as well as California
revenues below the prior year period by $21.2 million due to the net loss of 8
live race days at Santa Anita Park due to excessive rain and track drainage
issues with the new synthetic racing surface that was installed in the fall of
2007.

    EBITDA from continuing operations was $5.2 million for the three months
ended June 30, 2008, an increase of $1.2 million or 31.3% compared to
$4.0 million for the three months ended June 30, 2007. The increased EBITDA
from continuing operations was primarily due to:

    -   Florida operations above the prior year period by $2.5 million due to
        increased gaming and simulcasting revenues at Gulfstream Park as
        noted above, combined with reduced operating costs and improved food
        and beverage operations; and

    -   Real estate and other operations above the prior year period by
        $2.0 million due to increased revenues at our European residential
        housing development as noted above;

    partially offset by:

    -   Maryland operations below the prior year period by $4.2 million due
        to decreased revenues at The Maryland Jockey Club as noted above,
        combined with increased severance costs and the December 31, 2007
        expiry of expense contribution agreements with the
        Maryland Thoroughbred Horsemen's Association and the
        Maryland Breeders' Association.

    EBITDA of $21.1 million for the six months ended June 30, 2008, decreased
$7.5 million from $28.5 million in the six months ended June 30, 2007
primarily due to:

    -   California operations below the prior year period by $3.9 million for
        the reasons noted above which decreased revenues at Santa Anita Park
        and Golden Gate Fields;

    -   Maryland operations below the prior year period by $5.9 million for
        the reasons noted above which decreased revenues and EBITDA at
        Laurel Park and Pimlico in the three months ended June 30, 2008; and

    -   A write-down of long-lived assets of $5.0 million relating to an
        impairment charge related to the Dixon, California real estate
        property in the six months ended June 30, 2008, which represented the
        excess of the carrying value of the asset over the estimated fair
        value less selling costs.
    

    During the three months ended June 30, 2008, cash used for operating
activities of continuing operations was $22.3 million, which decreased
$25.2 million from cash provided from operating activities of continuing
operations of $2.9 million in the three months ended June 30, 2007, primarily
due to an increase in cash used for non-cash working capital balances. In the
three months ended June 30, 2008, cash used for non-cash working capital
balances of $11.9 million is primarily due to a decrease in accounts payable
and other accrued liabilities, partially offset by a decrease in restricted
cash at June 30, 2008 compared to the respective balances at March 31, 2008.
Cash provided from investing activities of continuing operations in the three
months ended June 30, 2008 was $24.7 million, including $31.5 million of
proceeds received on the sale of real estate to a related party, $3.3 million
of proceeds on the disposal of fixed assets, partially offset by $5.7 million
of other asset additions and $4.4 million of real estate property and fixed
asset additions. Cash provided from financing activities of continuing
operations during the three months ended June 30, 2008 of $2.7 million
includes net borrowings of $11.6 million from our controlling shareholder,
partially offset by net repayments of $5.7 million of long-term debt and
$3.3 million of bank indebtedness.

    Although we continue to take steps to implement our debt elimination
plan, real estate and credit markets have continued to demonstrate weakness to
date in 2008 and we do not expect that we will be able to complete asset sales
at acceptable prices as quickly or for amounts as originally contemplated.
Also, given the announcement of the reorganization proposal for MI
Developments Inc. ("MID"), our controlling shareholder, and pending
determination of whether it will proceed, we are in the process of
reconsidering whether to sell certain of the assets that were originally
identified for disposition under the debt elimination plan. As a result of
these developments, combined with our upcoming debt maturities and our
operational funding requirements, we will again need to seek extensions or
additional funds in the short-term from one or more possible sources. The
availability of such extensions or additional funds from existing lenders,
including our controlling shareholder, or from other sources is not assured
and, if available, the terms thereof are not determinable at this time.

    We will hold a conference call to discuss our second quarter results on
Wednesday August 6, 2008 at 3:00 p.m. EST. The number to use for this call is
1-800-255-2466. Please call 10 minutes prior to the start of the conference
call. The dial-in number for overseas callers is 212-676-5399. We will also
web cast the conference call at www.magnaentertainment.com. If you have any
teleconferencing questions, please call Karen Richardson at 905-726-7465.

    MEC, North America's largest owner and operator of horse racetracks,
based on revenue, develops, owns and operates horse racetracks and related
pari-mutuel wagering operations, including off-track betting facilities. MEC
also develops, owns and operates casinos in conjunction with its racetracks
where permitted by law. MEC owns and operates AmTote International, Inc., a
provider of totalisator services to the pari-mutuel industry, XpressBet(R), a
national Internet and telephone account wagering system, as well as
MagnaBet(TM) internationally. Pursuant to joint ventures, MEC has a fifty
percent interest in HorseRacing TV(R), a 24-hour horse racing television
network and TrackNet Media Group, LLC, a content management company formed to
distribute the full breadth of MEC's horse racing content.

    This press release contains "forward-looking statements" within the
meaning of applicable securities legislation, including Section 27A of the
United States Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the United States Securities Exchange Act of 1934, as amended
(the "Exchange Act") and forward-looking information as defined in the
Securities Act (Ontario) (collectively referred to as forward-looking
statements). These forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 and
the Securities Act (Ontario) and include, among others, statements regarding:
the current status and the potential impact of the debt elimination plan on
our debt reduction efforts, as to which there can be no assurance of success;
expectations as to our ability to complete asset sales at the appropriate
prices and in a timely manner; the impact of the short-term bridge loan
facility with a subsidiary of MID; expectations as to our ability to comply
with the bridge loan and other credit facilities; our ability to continue as a
going concern; strategies and plans; expectations as to financing and
liquidity requirements and arrangements; expectations as to operations;
expectations as to revenues, costs and earnings; the time by which certain
redevelopment projects, transactions or other objectives will be achieved;
estimates of costs relating to environmental remediation and restoration;
proposed developments, products and services; expectations as to the timing
and receipt of government approvals and regulatory changes in gaming and other
racing laws and regulations; expectations that claims, lawsuits, environmental
costs, commitments, contingent liabilities, labor negotiations or agreements,
or other matters will not have a material adverse effect on our consolidated
financial position, operating results, prospects or liquidity; projections,
predictions, expectations, estimates, beliefs or forecasts as to our financial
and operating results and future economic performance; and other matters that
are not historical facts.

    Forward-looking statements should not be read as guarantees of future
performance or results, and will not necessarily be accurate indications of
whether or the times at or by which such performance or results will be
achieved. Undue reliance should not be placed on such statements.
Forward-looking statements are based on information available at the time
and/or management's good faith assumptions and analyses made in light of our
perception of historical trends, current conditions and expected future
developments, as well as other factors we believe are appropriate in the
circumstances and are subject to known and unknown risks, uncertainties and
other unpredictable factors, many of which are beyond our control, that could
cause actual events or results to differ materially from such forward-looking
statements. Important factors that could cause actual results to differ
materially from our forward-looking statements include, but may not be limited
to, material adverse changes in: general economic conditions; the popularity
of racing and other gaming activities as recreational activities; the
regulatory environment affecting the horse racing and gaming industries; our
ability to obtain or maintain government and other regulatory approvals
necessary or desirable to proceed with proposed real estate developments;
increased regulation affecting certain of our non-racetrack operations, such
as broadcasting ventures; and our ability to develop, execute or finance our
strategies and plans within expected timelines or budgets. In drawing
conclusions set out in our forward-looking statements above, we have assumed,
among other things, that we will continue with our efforts to implement our
debt elimination plan, but not on the originally contemplated time schedule,
and comply with the terms of and/or obtain waivers or other concessions from
our lenders and refinance or repay upon maturity our existing financing
arrangements (including our short-term bridge loan with a subsidiary of MID
and our senior secured revolving credit facility with a Canadian financial
institution), and there will not be any material adverse changes in: general
economic conditions; the popularity of horse racing and other gaming
activities; weather and other environmental conditions at our facilities; the
regulatory environment; and our ability to develop, execute or finance our
strategies and plans as anticipated.

    Forward-looking statements speak only as of the date the statements were
made. We assume no obligation to update forward-looking statements to reflect
actual results, changes in assumptions or changes in other factors affecting
forward-looking statements. If we update one or more forward-looking
statements, no inference should be drawn that we will make additional updates
with respect thereto or with respect to other forward-looking statements.

    
    MAGNA ENTERTAINMENT CORP.
    CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
    -------------------------------------------------------------------------
    (Unaudited)
    (U.S. dollars in thousands, except per share figures)

                                   Three months ended     Six months ended
                                        June 30,              June 30,
                                  --------------------- ---------------------
                                       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Revenues
    Racing and gaming
      Pari-mutuel wagering        $ 109,043  $ 113,421  $ 291,936  $ 315,759
      Gaming                         10,867      9,151     24,504     22,816
      Non-wagering                   43,017     43,776     73,848     80,142
    -------------------------------------------------------------------------
                                    162,927    166,348    390,288    418,717
    -------------------------------------------------------------------------
    Real estate and other
      Sale of real estate                 -          -      1,492          -
      Residential development
       and other                      3,355      1,058      5,478      2,891
    -------------------------------------------------------------------------
                                      3,355      1,058      6,970      2,891
    -------------------------------------------------------------------------
                                    166,282    167,406    397,258    421,608
    -------------------------------------------------------------------------

    Costs, expenses and other
     income
    Racing and gaming
      Pari-mutuel purses, awards
       and other                     65,108     65,624    177,136    192,373
      Gaming purses, taxes and
       other                          7,271      6,221     16,471     15,884
      Operating costs                70,337     71,866    143,522    148,321
      General and administrative     15,081     17,214     29,061     31,868
    -------------------------------------------------------------------------
                                    157,797    160,925    366,190    388,446
    -------------------------------------------------------------------------
    Real estate and other
      Cost of real estate sold            -          -      1,492          -
      Operating costs                 1,017        612      1,896      1,730
      General and administrative        131        230        266        409
    -------------------------------------------------------------------------
                                      1,148        842      3,654      2,139
    -------------------------------------------------------------------------
    Predevelopment and other costs    1,052        867      1,447      1,372
    Depreciation and amortization    11,216      9,061     22,272     17,711
    Interest expense, net            16,456     11,145     32,493     22,507
    Write-down of long-lived
     assets                               -          -      5,000          -
    Equity loss                       1,073        803      1,909      1,128
    Recognition of deferred gain
     on The Meadows transaction           -          -     (2,013)         -
    -------------------------------------------------------------------------
                                    188,742    183,643    430,952    433,303
    -------------------------------------------------------------------------
    Loss from continuing
     operations before income
     taxes                          (22,460)   (16,237)   (33,694)   (11,695)
    Income tax expense                  530      4,092      2,263      2,924
    -------------------------------------------------------------------------
    Loss from continuing
     operations                     (22,990)   (20,329)   (35,957)   (14,619)
    Income (loss) from
     discontinued operations          1,736     (3,108)   (31,757)    (6,349)
    -------------------------------------------------------------------------
    Net loss                        (21,254)   (23,437)   (67,714)   (20,968)
    Other comprehensive income
     (loss)
      Foreign currency translation
       adjustment                      (407)     1,264      2,082      2,010
      Change in fair value of
       interest rate swap               673          5         57        (96)
    -------------------------------------------------------------------------
    Comprehensive loss            $ (20,988) $ (22,168) $ (65,575) $ (19,054)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per share for
     Class A Subordinate
      Voting Stock and Class
       B Stock:
      Basic and Diluted
        Continuing operations     $   (3.93) $   (3.77) $   (6.16) $   (2.72)
        Discontinued operations        0.29      (0.58)     (5.44)     (1.18)
    -------------------------------------------------------------------------
    Loss per share                $   (3.64) $   (4.35) $  (11.60) $   (3.90)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Average number of shares of
     Class A Subordinate
      Voting Stock and Class B
       Stock outstanding
       during the period (in
        thousands):
        Basic and Diluted             5,845      5,386      5,838      5,382
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes



    MAGNA ENTERTAINMENT CORP.
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited)
    (U.S. dollars in thousands)

                                   Three months ended     Six months ended
                                        June 30,              June 30,
                                  --------------------- ---------------------
                                       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Cash provided from (used for):

    Operating activities of
     continuing operations:
    Loss from continuing
     operations                   $ (22,990) $ (20,329) $ (35,957) $ (14,619)
    Items not involving current
     cash flows                      12,588      9,241     29,663     17,623
    -------------------------------------------------------------------------
                                    (10,402)   (11,088)    (6,294)     3,004
    Changes in non-cash working
     capital balances               (11,859)    14,034    (19,544)   (16,076)
    -------------------------------------------------------------------------
                                    (22,261)     2,946    (25,838)   (13,072)
    -------------------------------------------------------------------------

    Investing activities of
     continuing operations:
    Real estate property and
     fixed asset additions           (4,380)   (22,512)   (14,868)   (35,861)
    Other asset additions            (5,666)    (1,434)    (7,042)    (2,486)
    Proceeds on disposal of real
     estate properties                    -          -      1,492          -
    Proceeds on disposal of
     fixed assets                     3,291      1,001      5,345      2,641
    Proceeds on real estate sold
     to parent                            -     23,663          -     87,909
    Proceeds on real estate sold
     to a related party              31,460          -     31,460          -
    -------------------------------------------------------------------------
                                     24,705        718     16,387     52,203
    -------------------------------------------------------------------------

    Financing activities of
     continuing operations:
    Proceeds from bank
     indebtedness                    14,619        741     37,746     15,741
    Proceeds from indebtedness
     and long-term debt with
     parent                          31,826      6,402     50,900     16,329
    Proceeds from long-term debt          5      3,865      2,736      4,140
    Repayment of bank
     indebtedness                   (17,875)   (15,000)   (40,469)   (21,515)
    Repayment of indebtedness
     and long-term debt with
     parent                         (20,217)      (473)   (22,433)    (2,153)
    Repayment of long-term debt      (5,692)   (15,855)    (8,878)   (29,460)
    -------------------------------------------------------------------------
                                      2,666    (20,320)    19,602    (16,918)
    -------------------------------------------------------------------------

    Effect of exchange rate
     changes on cash and cash
     equivalents                         21         19         78        (86)
    -------------------------------------------------------------------------
    Net cash flows provided
     from (used for) continuing
     operations                       5,131    (16,637)    10,229     22,127
    -------------------------------------------------------------------------

    Cash provided from (used for)
     discontinued operations:
    Operating activities of
     discontinued operations          2,755       (906)     1,593     (1,356)
    Investing activities of
     discontinued operations         (4,075)    (2,552)    (4,983)    (3,227)
    Financing activities of
     discontinued operations        (13,323)    (1,483)   (12,655)   (21,582)
    -------------------------------------------------------------------------
    Net cash flows used for
     discontinued operations        (14,643)    (4,941)   (16,045)   (26,165)
    -------------------------------------------------------------------------

    Net decrease in cash and cash
     equivalents during the
     period                          (9,512)   (21,578)    (5,816)    (4,038)
    Cash and cash equivalents,
     beginning of period             47,089     75,831     43,393     58,291
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                   37,577     54,253     37,577     54,253
    Less: cash and cash
     equivalents, end of period
     of discontinued operations      (8,171)   (10,814)    (8,171)   (10,814)
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period of continuing
     operations                   $  29,406  $  43,439  $  29,406  $  43,439
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes



    MAGNA ENTERTAINMENT CORP.
    CONSOLIDATED BALANCE SHEETS
    -------------------------------------------------------------------------
    (REFER TO NOTE 1 - GOING CONCERN)
    (Unaudited)
    (U.S. dollars and share amounts in thousands)
                                                        June 30, December 31,
                                                           2008         2007
                                                    -------------------------
                                   ASSETS
    -------------------------------------------------------------------------
    Current assets:
      Cash and cash equivalents                     $    29,406  $    34,152
      Restricted cash                                    11,733       28,264
      Accounts receivable                                36,907       32,157
      Due from parent                                       940        4,463
      Income taxes receivable                                 -        1,234
      Inventories                                         6,272        6,351
      Prepaid expenses and other                         16,487        9,946
      Assets held for sale                               27,343       35,658
      Discontinued operations                           115,738       75,455
    -------------------------------------------------------------------------
                                                        244,826      227,680
    -------------------------------------------------------------------------
    Real estate properties, net                         701,510      705,069
    Fixed assets, net                                    79,382       85,908
    Racing licenses                                     109,868      109,868
    Other assets, net                                    13,218       10,980
    Future tax assets                                    39,576       39,621
    Assets held for sale                                      -        4,482
    Discontinued operations                                   -       60,268
    -------------------------------------------------------------------------
                                                    $ 1,188,380  $ 1,243,876
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                    LIABILITIES AND SHAREHOLDERS' EQUITY
    -------------------------------------------------------------------------
    Current liabilities:
      Bank indebtedness                             $    36,491  $    39,214
      Accounts payable                                   46,416       65,351
      Accrued salaries and wages                          8,481        8,198
      Customer deposits                                   3,029        2,575
      Other accrued liabilities                          32,123       46,124
      Income taxes payable                                  633            -
      Long-term debt due within one year                 11,088       10,654
      Due to parent                                     170,215      137,003
      Deferred revenue                                    2,772        4,339
      Liabilities related to assets held for sale           876        1,047
      Discontinued operations                            83,840       75,396
    -------------------------------------------------------------------------
                                                        395,964      389,901
    -------------------------------------------------------------------------
    Long-term debt                                       83,301       89,680
    Long-term debt due to parent                         67,299       67,107
    Convertible subordinated notes                      223,071      222,527
    Other long-term liabilities                          15,566       18,255
    Future tax liabilities                               81,471       80,076
    Discontinued operations                                   -       13,617
    -------------------------------------------------------------------------
                                                        866,672      881,163
    -------------------------------------------------------------------------

    Shareholders' equity:
    Class A Subordinate Voting Stock
      (Issued: 2008 - 2,930; 2007 - 2,908)              339,587      339,435
    Class B Stock
      (Convertible into Class A Subordinate
        Voting Stock)
      (Issued: 2008 and 2007 - 2,923)                   394,094      394,094
    Contributed surplus                                 116,164       91,825
    Other paid-in-capital                                 2,110        2,031
    Accumulated deficit                                (577,771)    (510,057)
    Accumulated other comprehensive income               47,524       45,385
    -------------------------------------------------------------------------
                                                        321,708      362,713
    -------------------------------------------------------------------------
                                                    $ 1,188,380  $ 1,243,876
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes



    MAGNA ENTERTAINMENT CORP.
    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    -------------------------------------------------------------------------
    (Unaudited)
    (All amounts in U.S. dollars unless otherwise noted and all tabular
    amounts in thousands, except per share figures)

    1.  GOING CONCERN

        These consolidated financial statements of Magna Entertainment Corp.
        ("MEC" or the "Company") have been prepared on a going concern basis,
        which contemplates the realization of assets and the discharge of
        liabilities in the normal course of business for the foreseeable
        future. The Company has incurred a net loss of $67.7 million for the
        six months ended June 30, 2008, has incurred net losses of
        $113.8 million, $87.4 million and $105.3 million for the years ended
        December 31, 2007, 2006 and 2005, respectively, and at June 30, 2008
        has an accumulated deficit of $577.8 million and a working capital
        deficiency of $151.1 million. At June 30, 2008, the Company had
        $229.8 million of debt due to mature in the 12-month period ending
        June 30, 2009, including amounts owing under the Company's $40.0
        million senior secured revolving credit facility with a Canadian
        financial institution, which is scheduled to mature on August 15,
        2008, amounts owing under its amended bridge loan facility of up to
        $110.0 million with a subsidiary of MI Developments Inc. ("MID"), the
        Company's controlling shareholder, which is scheduled to mature on
        August 31, 2008 and the Company's obligation to repay $100.0 million
        of indebtedness under the Gulfstream Park project financings with a
        subsidiary of MID by August 31, 2008. Accordingly, the Company's
        ability to continue as a going concern is in substantial doubt and is
        dependent on the Company generating cash flows that are adequate to
        sustain the operations of the business, renewing or extending current
        financing arrangements and meeting its obligations with respect to
        secured and unsecured creditors, none of which is assured. If the
        Company is unable to repay its obligations when due or satisfy
        required covenants in debt agreements, substantially all of the
        Company's other current and long-term debt will also become due on
        demand as a result of cross-default provisions within loan
        agreements, unless the Company is able to obtain waivers,
        modifications or extensions. On September 12, 2007, the Company's
        Board of Directors approved a debt elimination plan designed to
        eliminate net debt by December 31, 2008 by generating funding from
        the sale of assets, entering into strategic transactions involving
        certain of the Company's racing, gaming and technology operations,
        and a possible future equity issuance. To address short-term
        liquidity concerns and provide sufficient time to implement the debt
        elimination plan, the Company arranged $100.0 million of funding in
        September 2007, comprised of (i) a $20.0 million private placement of
        the Company's Class A Subordinate Voting Stock to Fair Enterprise
        Limited ("Fair Enterprise"), a company that forms part of an estate
        planning vehicle for the family of Frank Stronach, the Chairman and
        Chief Executive Officer of the Company, which was completed in
        October 2007; and (ii) a short-term bridge loan facility of up to
        $80.0 million with a subsidiary of MID, which was subsequently
        increased to $110.0 million on May 23, 2008. Although the Company
        continues to take steps to implement the debt elimination plan,
        weakness in the U.S. real estate and credit markets have adversely
        impacted the Company's ability to execute the debt elimination plan
        as market demand for the Company's assets has been weaker than
        expected and financing for potential buyers has become more difficult
        to obtain such that the Company does not expect to execute the debt
        elimination plan on the time schedule originally contemplated, if at
        all. Further, given the announcement of the MID reorganization
        proposal, and pending determination of whether it will proceed, the
        Company is in the process of reconsidering whether to sell certain of
        the assets that were orignially identified for disposition under the
        debt elimination plan. As a result, the Company has needed and will
        again need to seek extensions from existing lenders and additional
        funds in the short-term from one or more possible sources. The
        availability of such extensions and additional funds is not assured
        and, if available, the terms thereof are not determinable at this
        time. These consolidated financial statements do not give effect to
        any adjustments to recorded amounts and their classification, which
        would be necessary should the Company be unable to continue as a
        going concern and, therefore, be required to realize its assets and
        discharge its liabilities in other than the normal course of business
        and at amounts different from those reflected in the consolidated
        financial statements.

    2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Basis of Presentation

        The accompanying unaudited interim consolidated financial statements
        have been prepared in accordance with generally accepted accounting
        principles in the United States ("U.S. GAAP") for interim financial
        information and with instructions to Form 10-Q and Article 10 of
        Regulation S-X. Accordingly, they do not include all of the
        information and footnotes required by U.S. GAAP for complete
        financial statements. The preparation of the interim consolidated
        financial statements in conformity with U.S. GAAP requires management
        to make estimates and assumptions that affect the amounts reported in
        the interim consolidated financial statements and accompanying notes.
        Actual results could differ from these estimates. In the opinion of
        management, all adjustments, which consist of normal and recurring
        adjustments, necessary for fair presentation have been included. For
        further information, refer to the consolidated financial statements
        and footnotes thereto included in the Company's annual report on
        Form 10-K for the year ended December 31, 2007.

        Reverse Stock Split

        Subsequent to the consolidated balance sheet date, on July 3, 2008,
        the Company's Board of Directors approved a reverse stock split (the
        "Reverse Stock Split"), with an effective date of July 22, 2008, of
        the Company's Class A Subordinate Voting Stock and Class B Stock
        utilizing a 1:20 consolidation ratio. As a result of the Reverse
        Stock Split, every twenty shares of the Company's issued and
        outstanding Class A Subordinate Voting Stock and Class B Stock were
        consolidated into one share of the Company's Class A Subordinate
        Voting Stock and Class B Stock, respectively. In addition, the
        exercise prices of the Company's stock options and the conversion
        prices of the Company's convertible subordinated notes have been
        adjusted, such that, the number of shares potentially issuable on the
        exercise of stock options and/or conversion of subordinated notes
        will reflect the 1:20 consolidation ratio. Accordingly, all of the
        Company's issued and outstanding Class A Subordinate Voting Stock and
        Class B Stock and all performance share awards, outstanding stock
        options to purchase Class A Subordinate Voting Stock and convertible
        subordinated notes into Class A Subordinate Voting Stock for all
        periods presented have been restated to reflect the Reverse Stock
        Split.

        Seasonality

        The Company's racing business is seasonal in nature. The Company's
        racing revenues and operating results for any quarter will not be
        indicative of the racing revenues and operating results for the year.
        The Company's racing operations have historically operated at a loss
        in the second half of the year, with the third quarter generating the
        largest operating loss. This seasonality has resulted in large
        quarterly fluctuations in revenues and operating results.

        Comparative Amounts

        Certain of the comparative amounts have been reclassified to reflect
        assets held for sale, discontinued operations and the Reverse Stock
        Split.

        Impact of Recently Adopted Accounting Standards

        In September 2006, the Financial Accounting Standards Board ("FASB")
        issued Statement of Financial Accounting Standard No. 157, Fair Value
        Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a
        framework for measuring fair value in accordance with U.S. GAAP and
        expands disclosures about fair value measurements. The provisions of
        SFAS 157 are effective for fiscal years beginning after November 15,
        2007. In February 2008, the FASB issued Staff Position No. 157-2,
        Effective Date of FASB Statement No. 157, which defers the effective
        date of SFAS 157 for non-financial assets and liabilities, except for
        items that are recognised or disclosed at fair value in the financial
        statements on a recurring basis (at least annually), until fiscal
        years beginning after November 15, 2008. Effective January 1, 2008,
        the Company adopted the provisions of SFAS 157 prospectively, except
        with respect to certain non-financial assets and liabilities which
        have been deferred. The adoption of SFAS 157 did not have a material
        effect on the Company's consolidated financial statements.

        The following table represents information related to the Company's
        financial liabilities measured at fair value on a recurring basis and
        the level within the fair value hierarchy in which the fair value
        measurements fall at June 30, 2008:

                                Quoted Prices
                                  in Active
                                 Markets for     Significant
                                  Identical         Other        Significant
                                  Assets or       Observable    Unobservable
                                 Liabilities        Inputs          Inputs
                                  (Level 1)       (Level 2)       (Level 3)
        ---------------------------------------------------------------------
        Liabilities carried at
         fair value:
        Interest rate swaps       $       -       $   1,221       $       -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        In February 2007, the FASB issued Statement of Financial Accounting
        Standard No. 159, The Fair Value Option for Financial Assets and
        Liabilities ("SFAS 159"). SFAS 159 allows companies to voluntarily
        choose, at specified election dates, to measure certain financial
        assets and liabilities, as well as certain non-financial instruments
        that are similar to financial instruments, at fair value (the "fair
        value option"). The election is made on an instrument-by-instrument
        basis and is irrevocable. If the fair value option is elected for an
        instrument, SFAS 159 specifies that all subsequent changes in fair
        value for that instrument be reported in income. The provisions of
        SFAS 159 are effective for fiscal years beginning after November 15,
        2007. Effective January 1, 2008, the Company adopted the provisions
        of SFAS 159 prospectively. The Company has elected not to measure
        certain financial assets and liabilities, as well as certain non-
        financial instruments that are similar to financial instruments, as
        defined in SFAS 159 under the fair value option. Accordingly, the
        adoption of SFAS 159 did not have an effect on the Company's
        consolidated financial statements.

        Impact of Recently Issued Accounting Standards

        In December 2007, the FASB issued Statement of Financial Accounting
        Standard No. 141(R), Business Combinations ("SFAS 141(R)"). SFAS
        141(R) changes the accounting model for business combinations from a
        cost allocation standard to a standard that provides, with limited
        exception, for the recognition of all identifiable assets and
        liabilities of the business acquired at fair value, regardless of
        whether the acquirer acquires 100% or a lesser controlling interest
        of the business. SFAS 141(R) defines the acquisition date of a
        business acquisition as the date on which control is achieved
        (generally the closing date of the acquisition). SFAS 141(R) requires
        recognition of assets and liabilities arising from contractual
        contingencies and non-contractual contingencies meeting a "more-
        likely-than-not" threshold at fair value at the acquisition date.
        SFAS 141(R) also provides for the recognition of acquisition costs as
        expenses when incurred and for expanded disclosures. SFAS 141(R) is
        effective for acquisitions closing after December 15, 2008, with
        earlier adoption prohibited. The Company is currently reviewing SFAS
        141(R), but has not yet determined the future impact, if any, on the
        Company's consolidated financial statements.

        In December 2007, the FASB issued Statement of Financial Accounting
        Standard No. 160, Non-controlling Interests in Consolidated Financial
        Statements ("SFAS 160"). SFAS 160 establishes accounting and
        reporting standards for non-controlling interests in subsidiaries and
        for the deconsolidation of a subsidiary and also amends certain
        consolidation procedures for consistency with SFAS 141(R). Under SFAS
        160, non-controlling interests in consolidated subsidiaries (formerly
        known as "minority interests") are reported in the consolidated
        statement of financial position as a separate component within
        shareholders' equity. Net earnings and comprehensive income
        attributable to the controlling and non-controlling interests are to
        be shown separately in the consolidated statements of earnings and
        comprehensive income. Any changes in ownership interests of a non-
        controlling interest where the parent retains a controlling financial
        interest in the subsidiary are to be reported as equity transactions.
        SFAS 160 is effective for fiscal years beginning on or after
        December 15, 2008, with earlier adoption prohibited. When adopted,
        SFAS 160 is to be applied prospectively at the beginning of the year,
        except that the presentation and disclosure requirements are to be
        applied retrospectively for all periods presented. The Company is
        currently reviewing SFAS 160, but has not yet determined the future
        impact, if any, on the Company's consolidated financial statements.

    3.  THE MEADOWS TRANSACTION

        On November 14, 2006, the Company completed the sale of all of the
        outstanding shares of Washington Trotting Association, Inc., Mountain
        Laurel Racing, Inc. and MEC Pennsylvania Racing, Inc. (collectively
        "The Meadows"), each a wholly-owned subsidiary of the Company,
        through which the Company owned and operated The Meadows, a
        standardbred racetrack in Pennsylvania, to PA Meadows, LLC, a company
        jointly owned by William Paulos and William Wortman, controlling
        shareholders of Millennium Gaming, Inc., and a fund managed by
        Oaktree Capital Management, LLC ("Oaktree" and together, with PA
        Meadows, LLC, "Millennium-Oaktree"). On closing, the Company received
        cash consideration of $171.8 million, net of transaction costs of
        $3.2 million, and a holdback agreement, under which $25.0 million is
        payable to the Company over a five-year period, subject to offset for
        certain indemnification obligations. Under the terms of the holdback
        agreement, the Company agreed to release the security requirement for
        the holdback amount, defer subordinate payments under the holdback,
        defer receipt of holdback payments until the opening of the permanent
        casino at The Meadows and defer receipt of holdback payments to the
        extent of available cash flows as defined in the holdback agreement,
        in exchange for Millennium-Oaktree providing an additional $25.0
        million of equity support for PA Meadows, LLC. The Company also
        entered into a racing services agreement whereby the Company pays
        $50 thousand per annum and continues to operate, for its own account,
        the racing operations at The Meadows for at least five years. On
        December 12, 2007, Cannery Casino Resorts, LLC, the parent company of
        Millennium-Oaktree, announced it had entered into an agreement to
        sell Millennium-Oaktree to Crown Limited. If the deal is consummated,
        either party to the racing services agreement will have the option to
        terminate the arrangement. The transaction proceeds of $171.8 million
        were allocated to the assets of The Meadows as follows: (i) $7.2
        million was allocated to the long-lived assets representing the fair
        value of the underlying real estate and fixed assets based on
        appraised values; and (ii) $164.6 million was allocated to the
        intangible assets representing the fair value of the racing/gaming
        licenses based on applying the residual method to determine the fair
        value of the intangible assets. On the closing date of the
        transaction, the net book value of the long-lived assets was $18.4
        million, resulting in a non-cash impairment loss of $11.2 million
        relating to the long-lived assets, and the net book value of the
        intangible assets was $32.6 million, resulting in a gain of $132.0
        million on the sale of the intangible assets. This gain was reduced
        by $5.6 million, representing the net estimated present value of the
        operating losses expected over the term of the racing services
        agreement. Accordingly, the net gain recognized by the Company on the
        disposition of the intangible assets was $126.4 million for the year
        ended December 31, 2006.

        Given that the racing services agreement was effectively a lease of
        property, plant and equipment and since the amount owing under the
        holdback note is to be paid to the extent of available cash flows as
        defined in the holdback agreement, the Company was deemed to have
        continuing involvement with the long-lived assets for accounting
        purposes. As a result, the sale of The Meadows' real estate and fixed
        assets was precluded from sales recognition and not accounted for as
        a sale-leaseback, but rather using the financing method of accounting
        under U.S. GAAP. Accordingly, $12.8 million of the proceeds were
        deferred, representing the fair value of long-lived assets of
        $7.2 million and the net present value of the operating losses
        expected over the term of the racing services agreement of $5.6
        million, and recorded as "other long-term liabilities" on the
        consolidated balance sheet at the date of completion of the
        transaction. The deferred proceeds are being recognized in the
        consolidated statements of operations and comprehensive loss over the
        five-year term of the racing services agreement and/or at the point
        when the sale-leaseback subsequently qualifies for sales recognition.
        For the three and six months ended June 30, 2008, the Company
        recognized $0.3 million and $0.4 million, respectively, and for the
        three and six months ended June 30, 2007, the Company recognized
        $0.1 million and $0.4 million, respectively, of the deferred proceeds
        in income, which is recorded as an offset to racing and gaming
        "general and administrative" expenses on the accompanying
        consolidated statements of operations and comprehensive loss.

        Effective January 1, 2008, The Meadows entered into an agreement with
        The Meadows Standardbred Owners Association, which expires on
        December 31, 2009, whereby the horsemen will make contributions to
        subsidize backside maintenance and marketing expenses at The Meadows.
        As a result, the Company revised its estimate of the operating losses
        expected over the remaining term of the racing services agreement,
        which resulted in an additional $2.0 million of deferred gain being
        recognized in income for the six months ended June 30, 2008. At
        June 30, 2008, the remaining balance of the deferred proceeds is
        $8.6 million. With respect to the $25.0 million holdback agreement,
        the Company will recognize this consideration upon the settlement of
        the indemnification obligations and as payments are received (refer
        to Note 14(k)).

    4.  ASSETS HELD FOR SALE

        (a) In November and December 2007, the Company entered into sale
            agreements for three parcels of excess real estate comprising
            approximately 825 acres in Porter, New York, subject to the
            completion of due diligence by the purchasers and customary
            closing conditions. The sale of one parcel was completed in
            December 2007 for cash consideration of $0.3 million, net of
            transaction costs, and the sales of the remaining two parcels
            were completed in January 2008 for total cash consideration of
            $1.5 million, net of transaction costs. The two parcels of excess
            real estate for which the sales were completed in January 2008
            have been reflected as "assets held for sale" on the consolidated
            balance sheet at December 31, 2007. The net proceeds received on
            closing were used to repay a portion of the bridge loan facility
            with a subsidiary of MID in January 2008.

        (b) On December 21, 2007, the Company entered into an agreement to
            sell 225 acres of excess real estate located in Ebreichsdorf,
            Austria to a subsidiary of Magna International Inc. ("Magna"), a
            related party, for a purchase price of Euros 20.0 million (U.S.
            $31.5 million), net of transaction costs. The sale transaction
            was completed on April 11, 2008. Of the net proceeds that were
            received on closing, Euros 7.5 million was used to repay a
            portion of a Euros 15.0 million term loan facility and the
            remaining portion of the net proceeds was used to repay a portion
            of the bridge loan facility with a subsidiary of MID. The gain on
            sale of the excess real estate of approximately Euros 15.5
            million (U.S. $24.3 million), net of tax, has been reported as a
            contribution of equity in contributed surplus.

        (c) On August 9, 2007, the Company announced its intention to sell a
            real estate property located in Dixon, California. In addition,
            in March 2008, the Company committed to a plan to sell excess
            real estate located in Oberwaltersdorf, Austria. The Company is
            actively marketing these properties for sale and has listed the
            properties for sale with real estate brokers. Accordingly, at
            June 30, 2008 and December 31, 2007, these real estate properties
            are classified as "assets held for sale" on the consolidated
            balance sheets in accordance with Statement of Financial
            Accounting Standard No.144, Accounting for Impairment or Disposal
            of Long-Lived Assets ("SFAS 144").

        (d) On August 9, 2007, the Company also announced its intention to
            sell a real estate property located in Ocala, Florida. The
            Company is actively marketing this property for sale and is in
            negotiations with a potential buyer. Accordingly, at June 30,
            2008 and December 31, 2007, this real estate property is
            classified as "assets held for sale" on the consolidated balance
            sheets in accordance with SFAS 144.

        (e) The Company's assets held for sale and related liabilities at
            June 30, 2008 and December 31, 2007 are shown below. All assets
            held for sale and related liabilities are classified as current
            at June 30, 2008 as the assets and related liabilities described
            in sections (a) through (d) above have been or are expected to be
            sold within one year from the consolidated balance sheet date.


                                                        June 30, December 31,
                                                           2008         2007
                                                    -------------------------
                                   ASSETS
        ---------------------------------------------------------------------
        Real estate properties, net
          Dixon, California (refer to Note 6)       $    14,139  $    19,139
          Ocala, Florida                                  8,407        8,407
          Oberwaltersdorf, Austria                        4,797            -
          Ebreichsdorf, Austria                               -        6,619
          Porter, New York                                    -        1,493
        ---------------------------------------------------------------------
                                                         27,343       35,658
          Oberwaltersdorf, Austria                            -        4,482
        ---------------------------------------------------------------------
                                                    $    27,343   $   40,140
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

                                 LIABILITIES
        ---------------------------------------------------------------------
        Future tax liabilities                      $       876   $    1,047
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        (f) On September 12, 2007, the Company's Board of Directors approved
            a debt elimination plan designed to eliminate net debt by
            generating funding from the sale of certain assets, entering into
            strategic transactions involving the Company's racing, gaming and
            technology operations, and a possible future equity issuance. In
            addition to the sales of real estate described in sections (a)
            through (d) above, the debt elimination plan also contemplates
            the sale of real estate properties located in Aventura and
            Hallandale, Florida, both adjacent to Gulfstream Park and in Anne
            Arundel County, Maryland, adjacent to Laurel Park. The Company
            also intends to explore selling its membership interests in the
            mixed-use developments at Gulfstream Park in Florida and Santa
            Anita Park in California that the Company is pursuing under joint
            venture arrangements with Forest City Enterprises, Inc. ("Forest
            City") and Caruso Affiliated, respectively. The Company also
            intends to sell Thistledown in Ohio and its interest in Portland
            Meadows in Oregon and subsequent to the balance sheet date, on
            July 16, 2008, the Company completed the sale of Great Lakes
            Downs in Michigan. The Company also intends to explore other
            strategic transactions involving other racing, gaming and
            technology operations, including: partnerships or joint ventures
            in respect of the existing gaming facility at Gulfstream Park;
            partnerships or joint ventures in respect of potential
            alternative gaming operations at certain of the Company's other
            racetracks that currently do not have gaming operations; the sale
            of Remington Park, a horse racetrack and gaming facility in
            Oklahoma City; and transactions involving the Company's
            technology operations, which may include one or more of the
            assets that comprise the Company's PariMax business.

            For those properties that have not been classified as held for
            sale as noted in sections (a) through (d) above, the Company has
            determined that they do not meet all of the criteria required in
            SFAS 144 for the following reasons and, accordingly, these assets
            continue to be classified as held and used at June 30, 2008:

            -  Real estate properties located in Aventura and Hallandale,
               Florida (adjacent to Gulfstream Park): At June 30, 2008, the
               Company had not initiated an active program to locate a buyer
               for these assets as the properties had not been listed for
               sale with an external agent and were not being actively
               marketed for sale.

            -  Real estate property in Anne Arundel County, Maryland
               (adjacent to Laurel Park): At June 30, 2008, the Company had
               not initiated an active program to locate a buyer for this
               asset as the property had not been listed for sale with an
               external agent and was not being actively marketed for sale.
               In addition, given the near term potential for a legislative
               change to permit video lottery terminals at Laurel Park and
               the possible effect such legislative change could have on the
               Company's development plans for the overall property is such
               that at June 30, 2008, the Company does not expect to complete
               the sale of this asset within one year.

            -  Membership interest in the mixed-use development at Gulfstream
               Park with Forest City and membership interest in the mixed-use
               development at Santa Anita Park with Caruso Affiliated: At
               June 30, 2008, the Company was not actively marketing these
               assets for sale and does not expect to complete the sale of
               these assets within one year.

            The following assets have met the criteria of SFAS 144 to be
            reflected as assets held for sale and also met the requirements
            to be reflected as discontinued operations at June 30, 2008 and
            have been presented accordingly:

            -  Great Lakes Downs: In October 2007, the property was listed
               for sale with a real estate broker. The 2007 race meet at
               Great Lakes Downs concluded on November 4, 2007 and the
               facility was then closed. In order to facilitate the sale of
               this property, the Company re-acquired Great Lakes Downs from
               Richmond Racing Co., LLC in December 2007 pursuant to a prior
               existing option right. Subsequent to the consolidated balance
               sheet date, on July 16, 2008, the Company completed the sale
               of Great Lakes Downs.

            -  Thistledown and Remington Park: In September 2007, the Company
               engaged a U.S. investment bank to assist in soliciting
               potential purchasers and managing the sale process for certain
               assets contemplated in the debt elimination plan. In October
               2007, the U.S. investment bank initiated an active program to
               locate potential buyers and began marketing these assets for
               sale. The Company has since taken over the sales process from
               the U.S. investment bank and is currently in discussions with
               potential buyers for these assets.

            -  Portland Meadows: In November 2007, the Company initiated an
               active program to locate potential buyers and began marketing
               this asset for sale. The Company is currently in discussions
               with potential buyers for this asset.

            -  Magna Racino(TM): In March 2008, the Company committed to a
               plan to sell Magna Racino(TM). The Company has initiated an
               active program to locate potential buyers and began marketing
               the assets for sale through a real estate agent.

    5.  DISCONTINUED OPERATIONS

        (a) As part of the debt elimination plan approved by the Board of
            Directors (refer to Note 4(f)), the Company intends to sell
            Thistledown in Ohio, Portland Meadows in Oregon, Remington Park
            in Oklahoma City and Magna Racino(TM) in Ebreichsdorf, Austria
            and subsequent to the consolidated balance sheet date, on
            July 16, 2008, the Company completed the sale of Great Lakes
            Downs in Michigan. Accordingly, at June 30, 2008, these
            operations have been classified as discontinued operations.

        (b) The Company's results of operations related to discontinued
            operations for the three and six months ended June 30, 2008 and
            2007 are as follows:

                                   Three months ended     Six months ended
                                        June 30,              June 30,
                                  --------------------- ---------------------
                                       2008       2007       2008       2007
        ---------------------------------------------------------------------
        Results of Operations
        Revenues                  $  35,835  $  35,657  $  65,590  $  65,629
        Costs and expenses           33,853     36,178     62,968     66,463
        ---------------------------------------------------------------------
                                      1,982       (521)     2,622       (834)
        Predevelopment and other
         costs                          161         21        315         46
        Depreciation and
         amortization                     -      1,738        605      3,502
        Interest expense, net           470      1,022      1,550      2,161
        Write-down of long-lived
         assets (refer to Note 6)         -          -     32,294          -
        Equity income                     -        (32)         -        (32)
        ---------------------------------------------------------------------
        Income (loss) from
         discontinued operations
         before  income taxes         1,351     (3,270)   (32,142)    (6,511)
        Income tax benefit             (385)      (162)      (385)      (162)
        ---------------------------------------------------------------------
        Income (loss) from
         discontinued operations   $  1,736  $  (3,108)  $(31,757) $  (6,349)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Company's assets and liabilities related to discontinued
        operations at June 30, 2008 and December 31, 2007 are shown below.
        All assets and liabilities related to discontinued operations are
        classified as current at June 30, 2008 as they are expected to be
        sold within one year from the consolidated balance sheet date.

                                                        June 30, December 31,
                                                           2008         2007
                                                    -------------------------
                                   ASSETS
        ---------------------------------------------------------------------
        Current assets:
          Cash and cash equivalents                 $     8,171  $     9,241
          Restricted cash                                13,175        7,069
          Accounts receivable                             4,505        6,602
          Inventories                                       411          426
          Prepaid expenses and other                      2,851        1,386
          Real estate properties, net                    61,037       39,094
          Fixed assets, net                              11,935       11,531
          Other assets, net                                 106          106
          Future tax assets                              13,547            -
        ---------------------------------------------------------------------
                                                        115,738       75,455
        ---------------------------------------------------------------------
        Real estate properties, net                           -       41,941
        Fixed assets, net                                     -        4,764
        Other assets, net                                     -           16
        Future tax assets                                     -       13,547
        ---------------------------------------------------------------------
                                                              -       60,268
        ---------------------------------------------------------------------
                                                    $   115,738  $   135,723
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

                                 LIABILITIES
        ---------------------------------------------------------------------
        Current liabilities:
          Accounts payable                          $    13,877  $     9,146
          Accrued salaries and wages                      1,100          946
          Other accrued liabilities                      12,325       11,354
          Income taxes payable                            3,515        3,182
          Long-term debt due within one year             11,632       22,096
          Due to parent (refer to Note 13(a)(v))            409          397
          Deferred revenue                                1,053        1,257
          Long-term debt                                     91          115
          Long-term debt due to parent (refer to
           Note 13(a)(v))                                25,337       26,143
          Other long-term liabilities                       954          760
          Future tax liabilities                         13,547            -
        ---------------------------------------------------------------------
                                                         83,840       75,396
        ---------------------------------------------------------------------
        Other long-term liabilities                           -           70
        Future tax liabilities                                -       13,547
        ---------------------------------------------------------------------
                                                              -       13,617
        ---------------------------------------------------------------------
                                                    $    83,840  $    89,013
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    6.  WRITE-DOWN OF LONG-LIVED ASSETS

        When long-lived assets are identified by the Company as available for
        sale, if necessary, the carrying value is reduced to the estimated
        fair value less selling costs. Fair value less selling costs is
        evaluated at each interim reporting period based on discounted future
        cash flows of the assets, appraisals and, if appropriate, current
        estimated net sales proceeds from pending offers.

        Write-downs relating to long-lived assets recognized are as follows:

                                   Three months ended     Six months ended
                                        June 30,              June 30,
                                  --------------------- ---------------------
                                       2008       2007       2008       2007
        ---------------------------------------------------------------------
        Assets held for sale
          Dixon, California real
           estate(i)              $       -  $       -  $   5,000  $       -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Discontinued operations
        Magna Racino(TM)(ii)      $       -  $       -  $  29,195  $       -
        Portland Meadows(iii)             -          -      3,099          -
        ---------------------------------------------------------------------
                                  $       -  $       -  $  32,294  $       -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i)   As a result of significant weakness in the Northern California
              real estate market and the U.S. financial market, the Company
              recorded an impairment charge of $5.0 million related to the
              Dixon, California real estate property in the six months ended
              June 30, 2008, which represents the excess of the carrying
              value of the asset over the estimated fair value less selling
              costs. The impairment charge is included in the real estate and
              other operations segment.

        (ii)  As a result of the classification of Magna Racino(TM) as
              discontinued operations, the Company recorded an impairment
              charge of $29.2 million in the six months ended June 30, 2008,
              which represents the excess of the carrying value of the assets
              over the estimated fair value less selling costs. The
              impairment charge is included in discontinued operations on the
              consolidated statements of operations and comprehensive loss.

        (iii) In June 2003, the Oregon Racing Commission ("ORC") adopted
              regulations that permitted wagering through Instant Racing
              terminals as a form of pari-mutuel wagering at Portland Meadows
              (the "Instant Racing Rules"). In September 2006, the ORC
              granted a request by Portland Meadows to offer Instant Racing
              under its 2006-2007 race meet license. In June 2007, the ORC,
              acting under the advice of the Oregon Attorney General,
              temporarily suspended and began proceedings to repeal the
              Instant Racing Rules. In September 2007, the ORC denied a
              request by Portland Meadows to offer Instant Racing under its
              2007-2008 race meet license. In response to this denial, the
              Company requested the holding of a contested case hearing,
              which took place in January 2008. On February 27, 2008, the
              Office of Administrative Hearings released a proposed order in
              the Company's favor approving Instant Racing as a legal wager
              at Portland Meadows. However, on April 25, 2008, the ORC issued
              an order rejecting that recommendation. Based on the ORC's
              order to reject the Office of Administrative Hearings'
              recommendation, the Company recorded an impairment charge of
              $3.1 million related to the Instant Racing terminals and build-
              out of the Instant Racing facility in the six months ended
              June 30, 2008, which is included in discontinued operations on
              the consolidated statements of operations and comprehensive
              loss.

    7.  INCOME TAXES

        In accordance with U.S. GAAP, the Company estimates its annual
        effective tax rate at the end of each of the first three quarters of
        the year, based on current facts and circumstances. The Company has
        estimated a nominal annual effective tax rate for the entire year and
        accordingly has applied this effective tax rate to loss from
        continuing operations before income taxes for the three and six
        months ended June 30, 2008 and 2007, resulting in an income tax
        expense of $0.5 million and $2.3 million for the three and six months
        ended June 30, 2008 and an income tax expense of $4.1 million and
        $2.9 million for the three and six months ended June 30, 2007. The
        income tax expense for the three and six months ended June 30, 2008
        primarily represents valuation allowances recorded against future tax
        assets in certain U.S. operations that, effective January 1, 2008,
        were included in the Company's U.S. consolidated income tax return.
        The income tax expense for the three and six months ended June 30,
        2007 primarily represents income tax expense recognized from certain
        of the Company's U.S. operations that were not included in the
        Company's U.S. consolidated income tax return.

    8.  BANK INDEBTEDNESS AND LONG-TERM DEBT

        (a) Bank Indebtedness

            The Company's bank indebtedness consists of the following short-
            term bank loans:

                                                        June 30, December 31,
                                                           2008         2007
                                                    -------------------------
        $40.0 million senior secured revolving
         credit facility(i)                         $    36,491  $    34,891
        $7.5 million revolving loan facility(ii)              -        3,499
        $3.0 million revolving credit facility(iii)           -          824
        ---------------------------------------------------------------------
                                                    $    36,491  $    39,214
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i)   The Company has a $40.0 million senior secured revolving credit
              facility with a Canadian financial institution, which was
              scheduled to mature on July 30, 2008, but was extended to
              August 15, 2008 (refer to Note 16(c)). The credit facility is
              available by way of U.S. dollar loans and letters of credit.
              Loans under the facility are secured by a first charge on the
              assets of Golden Gate Fields and a second charge on the assets
              of Santa Anita Park, and are guaranteed by certain subsidiaries
              of the Company. At June 30, 2008, the Company had borrowings of
              $36.5 million (December 31, 2007 - $34.9 million) and had
              issued letters of credit totalling $3.4 million (December 31,
              2007 - $4.3 million) under the credit facility, such that
              $0.1 million was unused and available. The loans under the
              facility bear interest at the U.S. base rate plus 5% or the
              London Interbank Offered Rate ("LIBOR") plus 6%. The weighted
              average interest rate on the loans outstanding under the credit
              facility at June 30, 2008 was 8.5% (December 31, 2007 - 11.0%).

        (ii)  A wholly-owned subsidiary of the Company that owns and operates
              Santa Anita Park has a $7.5 million revolving loan agreement
              under its existing credit facility with a U.S. financial
              institution, which matures on October 31, 2012. The revolving
              loan agreement requires that the aggregate outstanding
              principal be fully repaid for a period of 60 consecutive days
              during each year, is guaranteed by the Company's wholly-owned
              subsidiary, the Los Angeles Turf Club, Incorporated ("LATC")
              and is secured by a first deed of trust on Santa Anita Park and
              the surrounding real property, an assignment of the lease
              between LATC, the racetrack operator, and The Santa Anita
              Companies, Inc. ("SAC") and a pledge of all of the outstanding
              capital stock of LATC and SAC. At June 30, 2008, the Company
              had no borrowings (December 31, 2007 - $3.5 million) under the
              revolving loan agreement. Borrowings under the revolving loan
              agreement bear interest at the U.S. prime rate. The weighted
              average interest rate on the borrowings outstanding under the
              revolving loan agreement at June 30, 2008 was not applicable
              given that there were no outstanding borrowings (December 31,
              2007 - 7.3%).

        (iii) A wholly-owned subsidiary of the Company, AmTote International,
              Inc. ("AmTote"), had a $3.0 million revolving credit facility
              with a U.S. financial institution to finance working capital
              requirements, which matured on May 31, 2008, at which time the
              credit facility was fully repaid and terminated. Accordingly,
              at June 30, 2008, the Company had no borrowings (December 31,
              2007 - $0.8 million) under the credit facility. The weighted
              average interest rate on the borrowings outstanding under the
              credit facility at June 30, 2008 was not applicable given that
              the credit facility was fully repaid and terminated
              (December 31, 2007 - 7.7%).

        (b) Long-Term Debt

            (i)   On April 30, 2008, AmTote entered into an amending credit
                  agreement with a U.S. financial institution. The principal
                  amendments related to long-term debt included accelerating
                  the maturity dates of the $4.2 million term loan from
                  May 11, 2011 to May 30, 2009 and the $10.0 million
                  equipment loan from May 11, 2012 to May 30, 2009. As a
                  result of the amendments to the maturity dates, amounts
                  outstanding under the term and equipment loans at June 30,
                  2008 are reflected in "long-term debt due within one year"
                  on the consolidated balance sheets.

            (ii)  The Company's wholly-owned subsidiaries that own and
                  operate Pimlico Race Course and Laurel Park have borrowings
                  of $9.0 million outstanding at June 30, 2008 under term
                  loan credit facilities with a U.S. financial institution.
                  At June 30, 2008, the Company was not in compliance with
                  one of the financial covenants contained in these credit
                  agreements. A waiver was obtained from the lender on
                  August 5, 2008 for the financial covenant breach at
                  June 30, 2008 (refer to Note 16(a)).

    9.  CAPITAL STOCK

        (a) Class A Subordinate Voting Stock and Class B Stock at June 30,
            2008 and December 31, 2007 are shown in the table below (number
            of shares and stated value have been rounded to the nearest
            thousand) and have been restated to reflect the effect of the
            Reverse Stock Split (refer to Note 2).

                  Class A Subordinate
                     Voting Stock       Class B Stock            Total
                  ------------------- ------------------- -------------------
                    Number              Number              Number
                        of    Stated        of    Stated        of    Stated
                    Shares     Value    Shares     Value    Shares     Value
        ---------------------------------------------------------------------
        Issued and
         outstanding
         at
         December 31,
         2007 and
         March 31,
         2008        2,908  $339,435     2,923  $394,094     5,831  $733,529
        Issued under
         the Long-
         term
         Incentive
         Plan           22       152         -         -        22       152
        ---------------------------------------------------------------------
        Issued and
         outstanding
         at June 30,
         2008        2,930  $339,587     2,923  $394,094     5,853  $733,681
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (b) The following table (number of shares have been rounded to the
            nearest thousand) presents the maximum number of shares of
            Class A Subordinate Voting Stock and Class B Stock that would be
            outstanding if all of the outstanding options and convertible
            subordinated notes issued and outstanding at June 30, 2008 were
            exercised or converted and has been restated to reflect the
            effect of the Reverse Stock Split (refer to Note 2):

                                                                      Number
                                                                   of Shares
        ---------------------------------------------------------------------
        Class A Subordinate Voting Stock outstanding                   2,930
        Class B Stock outstanding                                      2,923
        Options to purchase Class A Subordinate Voting Stock             237
        8.55% Convertible Subordinated Notes, convertible at
         $141.00 per share                                             1,064
        7.25% Convertible Subordinated Notes, convertible at
         $170.00 per share                                               441
        ---------------------------------------------------------------------
                                                                       7,595
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    10. LONG-TERM INCENTIVE PLAN

        The Company's Long-term Incentive Plan (the "Incentive Plan")
        (adopted in 2000 and amended in 2007) allows for the grant of non-
        qualified stock options, incentive stock options, stock appreciation
        rights, restricted stock, bonus stock and performance shares to
        directors, officers, employees, consultants, independent contractors
        and agents. Prior to the Reverse Stock Split, a maximum of 8.8
        million shares of Class A Subordinate Voting Stock remained available
        to be issued under the Incentive Plan, of which 7.8 million were
        available for issuance pursuant to stock options and tandem stock
        appreciation rights and 1.0 million were available for issuance
        pursuant to any other type of award under the Incentive Plan. As a
        result of the Reverse Stock Split, effective July 22, 2008, 440
        thousand shares of Class A Subordinate Voting Stock remain available
        to be issued under the Incentive Plan, of which 390 thousand are
        available for issuance pursuant to stock options and tandem stock
        appreciation rights and 50 thousand are available for issuance
        pursuant to any other type of award under the Incentive Plan.

        Under a 2005 incentive compensation program, the Company awarded
        performance shares of Class A Subordinate Voting Stock to certain
        officers and key employees. The number of shares of Class A
        Subordinate Voting Stock underlying the performance share awards was
        based either on a percentage of a guaranteed bonus or a percentage of
        total 2005 compensation divided by the market value of the Class A
        Subordinate Voting Stock on the date the program was approved by the
        Compensation Committee of the Board of Directors of the Company.
        These performance shares vested over a six or eight month period to
        December 31, 2005 and were distributed, subject to certain
        conditions, in two equal instalments. The first distribution occurred
        in March 2006 and the second distribution occurred in March 2007. For
        2006, the Company continued the incentive compensation program as
        described above. The program was similar in all respects except that
        the 2006 performance shares vested over a 12-month period to December
        31, 2006 and were distributed, subject to certain conditions, in
        March 2007. Accordingly, for the six months ended June 30, 2007, the
        Company issued 8,737 of these vested performance share awards with a
        stated value of $0.6 million and 324 performance share awards were
        forfeited. No performance share awards remain to be issued subsequent
        to March 2007 under the 2005 and 2006 incentive compensation
        arrangements and there is no unrecognized compensation expense
        related to these performance share award arrangements.

        For the six months ended June 30, 2008, 21,687 shares were issued
        with a stated value of $0.2 million to the Company's directors in
        payment of services rendered (for the six months ended June 30, 2007
        - 1,547 shares were issued with a stated value of $0.1 million).

        The Company grants stock options to certain directors, officers, key
        employees and consultants to purchase shares of the Company's Class A
        Subordinate Voting Stock. All of such stock options give the grantee
        the right to purchase Class A Subordinate Voting Stock of the Company
        at a price no less than the fair market value of such stock at the
        date of grant. Generally, stock options under the Incentive Plan vest
        over a period of two to six years from the date of grant at rates of
        1/7th to 1/3rd per year and expire on or before the tenth anniversary
        of the date of grant, subject to earlier cancellation upon the
        occurrence of certain events specified in the stock option agreements
        entered into by the Company with each recipient of options.

        Information with respect to shares subject to option is as follows
        (number of shares subject to option in the following table is
        expressed in whole numbers and has not been rounded to the nearest
        thousand) and has been restated to reflect the effect of the Reverse
        Stock Split (refer to Note 2):


                                       Shares Subject      Weighted Average
                                         to Option          Exercise Price
                                  --------------------- ---------------------
                                       2008       2007       2008       2007
        ---------------------------------------------------------------------
        Balance outstanding at
         beginning of year          247,500    245,250  $  116.40  $  121.60
        Forfeited or expired(i)     (10,000)    (8,300)    111.20     134.80
        ---------------------------------------------------------------------
        Balance outstanding at
         March 31                   237,500    236,950     116.60     121.20
        Forfeited or expired (i)       (550)    (1,250)    133.20     114.20
        ---------------------------------------------------------------------
        Balance outstanding
         at June 30                 236,950    235,700  $  116.55  $  121.40
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (i) Options forfeited or expired were as a result of employment
            contracts being terminated and voluntary employee resignations.
            No options that were forfeited were subsequently reissued.

        Information regarding stock options outstanding is as follows and has
        been restated to reflect the effect of the Reverse Stock Split (refer
        to Note 2):

                                   Options Outstanding   Options Exercisable
                                  --------------------- ---------------------
                                       2008       2007       2008       2007
        ---------------------------------------------------------------------
        Number                      236,950    235,700    217,902    217,583
        Weighted average exercise
         price                    $  116.55  $  121.40  $  119.80  $  121.40
        Weighted average remaining
         contractual life (years)       2.9        3.7        2.4        3.3
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        At June 30, 2008, the 236,950 stock options outstanding had exercise
        prices ranging from $55.60 to $140.00 per share. The average fair
        value of the stock option grants for the three and six months ended
        June 30, 2008 and 2007 using the Black-Scholes option valuation model
        was not applicable given that there were no options granted during
        the respective periods.

        The Black-Scholes option valuation model was developed for use in
        estimating the fair value of traded options that require the input of
        highly subjective assumptions including the expected stock price
        volatility. Because the Company's stock options have characteristics
        significantly different from those of traded options and because
        changes in the subjective input assumptions can materially affect the
        fair value estimate, in management's opinion, the existing models do
        not necessarily provide a reliable single measure of the fair value
        of the Company's stock options.

        The Company recognized a nominal amount of compensation expense for
        the three months ended June 30, 2008 and $0.1 million for the six
        months ended June 30, 2008 (for the three and six months ended
        June 30, 2007 - $0.1 million and $0.2 million, respectively) related
        to stock options. At June 30, 2008, the total unrecognized
        compensation expense related to stock options is $0.3 million, which
        is expected to be recognized as an expense over a period of 3.2
        years.

        For the three and six months ended June 30, 2008, the Company
        recognized total compensation expense of $0.2 million and
        $0.2 million, respectively (for the three and six months ended
        June 30, 2007 - $0.1 million and $0.3 million, respectively) relating
        to director compensation and stock options under the Incentive Plan.

    11. OTHER PAID-IN-CAPITAL

        Other paid-in-capital consists of accumulated stock option
        compensation expense less the fair value of stock options at the date
        of grant that have been exercised and reclassified to share capital.
        Changes in other paid-in-capital for the three and six months ended
        June 30, 2008 and 2007 are shown in the following table:

                                                             2008       2007
        ---------------------------------------------------------------------
        Balance at beginning of year                    $   2,031  $   1,410
        Stock-based compensation expense                       44         73
        ---------------------------------------------------------------------
        Balance at March 31                                 2,075      1,483
        Stock-based compensation expense                       35         70
        ---------------------------------------------------------------------
        Balance at June 30                              $   2,110  $   1,553
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    12. EARNINGS (LOSS) PER SHARE

        The following table is a reconciliation of the numerator and
        denominator of the basic and diluted loss per share computations (in
        thousands, except per share amounts) and has been restated to reflect
        the effect of the Reverse Stock Split (refer to Note 2):

                                    Three months ended      Six months ended
                                           June 30,              June 30,
                                  -------------------------------------------
                                       2008       2007       2008       2007
                                  -------------------------------------------
                                  Basic and  Basic and  Basic and  Basic and
                                    Diluted    Diluted    Diluted    Diluted
        ---------------------------------------------------------------------
        Loss from continuing
         operations               $ (22,990) $ (20,329) $ (35,957) $ (14,619)
        Income (loss) from
         discontinued operations      1,736     (3,108)   (31,757)    (6,349)
        ---------------------------------------------------------------------
        Net loss                  $ (21,254) $ (23,437) $ (67,714) $ (20,968)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Weighted average number
         of shares outstanding:
          Class A Subordinate
           Voting Stock               2,922      2,463      2,915      2,459
          Class B Stock               2,923      2,923      2,923      2,923
        ---------------------------------------------------------------------
        Weighted average number
         of shares outstanding        5,845      5,386      5,838      5,382
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Earnings (loss) per share:
          Continuing operations   $   (3.93) $   (3.77) $   (6.16) $   (2.72)
          Discontinued operations      0.29      (0.58)     (5.44)     (1.18)
        ---------------------------------------------------------------------
        Loss per share            $   (3.64) $   (4.35) $  (11.60) $   (3.90)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        As a result of the net loss for the three and six months ended
        June 30, 2008, options to purchase 236,950 shares and notes
        convertible into 1,505,006 shares have been excluded from the
        computation of diluted loss per share since their effect is anti-
        dilutive.

        As a result of the net loss for the three and six months ended
        June 30, 2007, options to purchase 235,700 shares and notes
        convertible into 1,505,006 shares have been excluded from the
        computation of diluted loss per share since their effect is anti-
        dilutive.

    13. TRANSACTIONS WITH RELATED PARTIES

        (a) The Company's indebtedness and long-term debt due to parent
            consists of the following:

                                                       June 30,  December 31,
                                                          2008          2007
            -----------------------------------------------------------------
            Bridge loan facility (i)                 $  68,581     $  35,889
            Gulfstream Park project financing
              Tranche 1 (ii)                           129,770       130,324
              Tranche 2 (iii)                           24,605        24,304
              Tranche 3 (iv)                            14,558        13,593
            -----------------------------------------------------------------
                                                       237,514       204,110
            Less: due within one year                 (170,215)     (137,003)
            -----------------------------------------------------------------
                                                     $  67,299     $  67,107
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            (i)   Bridge Loan Facility

                  On September 12, 2007, the Company entered into a bridge
                  loan agreement with a subsidiary of MID pursuant to which
                  up to $80.0 million of financing was made available to the
                  Company, subject to certain conditions. On May 23, 2008,
                  the bridge loan agreement was amended, such that: (i) the
                  maximum commitment available was increased from $80.0
                  million to $110.0 million, (ii) the Company is permitted to
                  redraw amounts that were repaid prior to May 23, 2008
                  (approximately $21.5 million) and (iii) the maturity date
                  was extended from May 31, 2008 to August 31, 2008 (subject
                  to certain acceleration provisions relating to the MID
                  reorganization proposal, as announced by MID on March 31,
                  2008, which are no longer applicable). The bridge loan is
                  non-revolving and bears interest at a rate of LIBOR plus
                  12.0% per annum. An arrangement fee of $2.4 million was
                  paid to MID on the September 12, 2007 closing date, an
                  additional arrangement fee of $0.8 million was paid to MID
                  on February 29, 2008, which was equal to 1.0% of the
                  maximum principal amount then available under this
                  facility, and an amendment fee of $1.1 million was paid to
                  MID on May 23, 2008 in connection with the bridge loan
                  amendments, which was equal to 1.0% of the increased
                  maximum commitment available under the facility. An
                  additional arrangement fee of $1.1 million was paid on
                  August 1, 2008, which was equal to 1.0% of the then maximum
                  loan commitment, as the MID reorganization was not approved
                  by that date. There is a commitment fee equal to 1.0% per
                  annum (payable in arrears) on the undrawn portion of the
                  $110.0 million maximum loan commitment. The bridge loan is
                  required to be repaid by way of the payment of the net
                  proceeds of any asset sale, any equity offering (other than
                  the Fair Enterprise private placement completed in October
                  2007) or any debt offering, subject to specified amounts
                  required to be paid to eliminate other prior-ranking
                  indebtedness. The bridge loan is secured by essentially all
                  of the assets of the Company and by guarantees provided by
                  certain subsidiaries of the Company. The guarantees are
                  secured by charges over the lands owned by Golden Gate
                  Fields, Santa Anita Park and Thistledown, and charges over
                  the lands in Dixon, California and Ocala, Florida, as well
                  as by pledges of the shares of certain of the Company's
                  subsidiaries. The bridge loan is also cross-defaulted to
                  all other obligations to MID and to other significant
                  indebtedness of the Company and certain of its
                  subsidiaries.

                  For the three and six months ended June 30, 2008, the
                  Company received loan advances of $32.8 million and
                  $51.4 million, repaid outstanding principal of
                  $19.8 million and $21.5 million, incurred interest expense
                  and commitment fees of $2.0 million and $3.8 million, and
                  repaid interest and commitment fees of $1.8 million and
                  $3.5 million, respectively, such that at June 30, 2008,
                  $69.4 million was outstanding under the bridge loan
                  facility, including $0.7 million of accrued interest and
                  commitment fees payable. In addition, for the three and six
                  months ended June 30, 2008, the Company amortized $2.0
                  million and $3.7 million of loan origination costs,
                  respectively, such that at June 30, 2008, $0.8 million of
                  net loan origination costs have been recorded as a
                  reduction of the outstanding loan balance. The loan balance
                  is being accreted to its face value over the term to
                  maturity. The weighted average interest rate on the
                  borrowings outstanding under the bridge loan at June 30,
                  2008 is 14.5% (December 31, 2007 - 16.2%).

           (ii)   Gulfstream Park Project Financing - Tranche 1

                  In December 2004, as amended in September 2007, certain of
                  the Company's subsidiaries entered into a $115.0 million
                  project financing arrangement with a subsidiary of MID, for
                  the reconstruction of facilities at Gulfstream Park. This
                  project financing arrangement was amended on July 22, 2005
                  in connection with the Remington Park loan as described in
                  Note 13(a)(v) below. The project financing was made by way
                  of progress draw advances to fund reconstruction. The loan
                  has a ten-year term from the completion date of the
                  reconstruction project, which was February 1, 2006. Prior
                  to the completion date, amounts outstanding under the loan
                  bore interest at a floating rate equal to 2.55% per annum
                  above MID's notional cost of borrowing under its floating
                  rate credit facility, compounded monthly. After the
                  completion date, amounts outstanding under the loan bear
                  interest at a fixed rate of 10.5% per annum, compounded
                  semi-annually. Prior to January 1, 2007, interest was
                  capitalized to the principal balance of the loan.
                  Commencing January 1, 2007, the Company is required to make
                  monthly blended payments of principal and interest based on
                  a 25-year amortization period commencing on the completion
                  date. The loan contains cross-guarantee, cross-default and
                  cross-collateralization provisions. The loan is guaranteed
                  by the Company and its subsidiaries that own and operate
                  Remington Park and the Palm Meadows Training Center ("Palm
                  Meadows") and is collateralized principally by security
                  over the lands forming part of the operations at Gulfstream
                  Park, Remington Park and Palm Meadows and over all other
                  assets of Gulfstream Park, Remington Park and Palm Meadows,
                  excluding licenses and permits.

                  For the three and six months ended June 30, 2008, the
                  Company repaid outstanding principal of $0.4 million and
                  $0.7 million (for the three and six months ended June 30,
                  2007 - $0.3 million and $1.8 million), incurred interest
                  expense of $3.4 million and $6.8 million (for the three and
                  six months ended June 30, 2007 - $3.4 million and $6.9
                  million), and repaid interest of $3.4 million and $6.8
                  million (for the three and six months ended June 30, 2007 -
                  $3.4 million and $5.7 million), respectively, such that at
                  June 30, 2008, $132.8 million was outstanding under this
                  project financing arrangement, including $1.1 million of
                  accrued interest payable. In addition, for the three and
                  six months ended June 30, 2008, the Company amortized $0.1
                  million and $0.2 million (for the three and six months
                  ended June 30, 2007 - $0.1 million and $0.2 million) of
                  loan origination costs, respectively, such that at June 30,
                  2008, $3.0 million of net loan origination costs have been
                  recorded as a reduction of the outstanding loan balance.
                  The loan balance is being accreted to its face value over
                  the term to maturity.

                  In connection with the amendments to the bridge loan on May
                  23, 2008 as described in Note 13(a)(i) above, the Company
                  and the lender also amended the Gulfstream Park and
                  Remington Park project financings. These amendments
                  included extending the deadline for repayment of $100.0
                  million under the Gulfstream Park project financing from
                  May 31, 2008 to August 31, 2008, during which time any
                  repayments made under either facility will not be subject
                  to a make-whole payment.

            (iii) Gulfstream Park Project Financing - Tranche 2

                  On July 26, 2006, certain of the Company's subsidiaries
                  that own and operate Gulfstream Park entered into an
                  amending agreement relating to the existing Gulfstream Park
                  project financing arrangement with a subsidiary of MID by
                  adding an additional tranche of $25.8 million, plus lender
                  costs and capitalized interest, to fund the design and
                  construction of phase one of the slots facility to be
                  located in the existing Gulfstream Park clubhouse building,
                  as well as related capital expenditures and start-up costs,
                  including the acquisition and installation of approximately
                  500 slot machines. The second tranche of the Gulfstream
                  Park financing has a five-year term and bears interest at a
                  fixed rate of 10.5% per annum, compounded semi-annually.
                  Prior to January 1, 2007, interest on this tranche was
                  capitalized to the principal balance of the loan. Beginning
                  January 1, 2007, this tranche requires blended payments of
                  principal and interest based on a 25-year amortization
                  period commencing on that date. Advances related to phase
                  one of the slots facility were made available by way of
                  progress draw advances and there is no prepayment penalty
                  associated with this tranche. The Gulfstream Park project
                  financing facility was further amended to introduce a
                  mandatory annual cash flow sweep of not less than 75% of
                  Gulfstream Park's total excess cash flow, after permitted
                  capital expenditures and debt service, to be used to repay
                  the additional principal amount being made available under
                  the new tranche. A lender fee of $0.3 million (1% of the
                  amount of this tranche) was added to the principal amount
                  of the loan as consideration for the amendments on July 26,
                  2006.

                  For the three and six months ended June 30, 2008, the
                  Company received no loan advances (for the three and six
                  months ended June 30, 2007 - $2.5 million and $4.8
                  million), repaid outstanding principal of $0.1 million and
                  $0.1 million (for the three and six months ended June 30,
                  2007 - $0.1 million and $0.3 million), incurred interest
                  expense of $0.6 million and $1.3 million (for the three and
                  six months ended June 30, 2007 - $0.6 million and $1.1
                  million), and repaid interest of $0.6 million and $1.3
                  million (for the three and six months ended June 30, 2007 -
                  $0.6 million and $0.9 million), respectively, such that at
                  June 30, 2008, $24.6 million was outstanding under this
                  project financing arrangement, including $0.2 million of
                  accrued interest payable. In addition, for the three and
                  six months ended June 30, 2008, the Company amortized $0.2
                  million and $0.4 million (for the three and six months
                  ended June 30, 2007 - nominal amount and $0.1 million) of
                  loan origination costs, respectively, such that at June 30,
                  2008, no net loan origination costs remained recorded as a
                  reduction of the outstanding loan balance. The loan balance
                  was accreted to its face value over the term to maturity.

            (iv)  Gulfstream Park Project Financing - Tranche 3

                  On December 22, 2006, certain of the Company's subsidiaries
                  that own and operate Gulfstream Park entered into an
                  additional amending agreement relating to the existing
                  Gulfstream Park project financing arrangement with a
                  subsidiary of MID by adding an additional tranche of $21.5
                  million, plus lender costs and capitalized interest, to
                  fund the design and construction of phase two of the slots
                  facility, as well as related capital expenditures and
                  start-up costs, including the acquisition and installation
                  of approximately 700 slot machines. This third tranche of
                  the Gulfstream Park financing has a five-year term and
                  bears interest at a rate of 10.5% per annum, compounded
                  semi-annually. Prior to May 1, 2007, interest on this
                  tranche was capitalized to the principal balance of the
                  loan. Beginning May 1, 2007, this tranche requires blended
                  payments of principal and interest based on a 25-year
                  amortization period commencing on that date. Advances
                  related to phase two of the slots facility were made
                  available by way of progress draw advances and there is no
                  prepayment penalty associated with this tranche. A lender
                  fee of $0.2 million (1% of the amount of this tranche) was
                  added to the principal amount of the loan as consideration
                  for the amendments on January 19, 2007, when the first
                  funding advance was made available to the Company.

                  For the three and six months ended June 30, 2008, the
                  Company received loan advances of $0.3 million and $0.7
                  million (for the three and six months ended June 30, 2007 -
                  $3.9 million and $11.9 million), repaid a nominal amount
                  and $0.1 million of outstanding principal (for the three
                  and six months ended June 30, 2007 - $0.1 million and $0.1
                  million), incurred interest expense of $0.4 million and
                  $0.7 million (for the three and six months ended June 30,
                  2007 - $0.2 million and $0.3 million, of which $0.1 million
                  was capitalized to the principal balance of the loan), and
                  repaid interest of $0.4 million and $0.7 million (for the
                  three and six months ended June 30, 2007 - $0.1 million and
                  $0.1 million), respectively, such that at June 30, 2008,
                  $14.6 million was outstanding under this project financing
                  arrangement, including $0.1 million of accrued interest
                  payable. In addition, for the three and six months ended
                  June 30, 2008, the Company amortized $0.1 million and $0.3
                  million (for the three and six months ended June 30, 2007 -
                  a nominal amount and $0.1 million) of loan origination
                  costs, respectively, such that at June 30, 2008, no net
                  loan origination costs remained recorded as a reduction of
                  the outstanding loan balance. The loan balance was accreted
                  to its face value over the term to maturity.

            (v)   Remington Park Project Financing

                  In July 2005, the Company's subsidiary that owns and
                  operates Remington Park entered into a $34.2 million
                  project financing arrangement with a subsidiary of MID for
                  the build-out of the casino facility at Remington Park.
                  Advances under the loan were made by way of progress draw
                  advances to fund the capital expenditures relating to the
                  development, design and construction of the casino
                  facility, including the purchase and installation of
                  electronic gaming machines. The loan has a ten-year term
                  from the completion date of the reconstruction project,
                  which was November 28, 2005. Prior to the completion date,
                  amounts outstanding under the loan bore interest at a
                  floating rate equal to 2.55% per annum above MID's notional
                  cost of LIBOR borrowing under its floating rate credit
                  facility, compounded monthly. After the completion date,
                  amounts outstanding under the loan bear interest at a fixed
                  rate of 10.5% per annum, compounded semi-annually. Prior to
                  January 1, 2007, interest was capitalized to the principal
                  balance of the loan. Commencing January 1, 2007, the
                  Company is required to make monthly blended payments of
                  principal and interest based on a 25-year amortization
                  period commencing on the completion date. Certain cash from
                  the operations of Remington Park must be used to pay
                  deferred interest on the loan plus a portion of the
                  principal under the loan equal to the deferred interest on
                  the Gulfstream Park construction loan. The loan is secured
                  by all assets of Remington Park, excluding licenses and
                  permits. The loan is also secured by a charge over the
                  Gulfstream Park lands and a charge over Palm Meadows and
                  contains cross-guarantee, cross-default and cross-
                  collateralization provisions.

                  For the three and six months ended June 30, 2008, the
                  Company received no loan advances and loan advances of $1.0
                  million (for the three and six months ended June 30, 2007 -
                  nil), repaid outstanding principal of $1.6 million and
                  $1.8 million (for the three and six months ended June 30,
                  2007 - $1.5 million and $1.9 million), incurred interest
                  expense of $0.7 million and $1.4 million (for the three and
                  six months ended June 30, 2007 - $0.8 million and $1.6
                  million), and repaid interest of $0.7 million and
                  $1.4 million (for the three and six months ended June 30,
                  2007 - $0.8 million and $1.3 million), respectively, such
                  that at June 30, 2008, $26.8 million was outstanding under
                  this project financing arrangement, including $0.2 million
                  of accrued interest payable. In addition, for the three and
                  six months ended June 30, 2008 and 2007, the Company
                  amortized a nominal amount and $0.1 million of loan
                  origination costs, respectively, such that at June 30,
                  2008, $1.1 million of net loan origination costs have been
                  recorded as a reduction of the outstanding loan balance.
                  The loan balance is being accreted to its face value over
                  the term to maturity. The Remington Park project financing
                  has been reflected in discontinued operations (refer to
                  Note 5).

        (b) At June 30, 2008, $0.9 million (December 31, 2007 - $4.5 million)
            of the funds the Company placed into escrow with MID remains in
            escrow.

        (c) On April 2, 2008, one of the Company's European wholly-owned
            subsidiaries, Fontana Beteiligungs GmbH ("Fontana"), entered into
            an agreement to sell real estate with a carrying value of Euros
            0.2 million (U.S. $0.3 million) located in Oberwaltersdorf,
            Austria to Fontana Immobilien GmbH, an entity in which Fontana
            has a 50% joint venture equity interest, for Euros 0.8 million
            (U.S. $1.2 million). The purchase price is payable in instalments
            according to the sale of apartment units by the joint venture
            and, in any event, is due no later than April 2, 2009. The
            Company will recognize this consideration as payments are
            received from the joint venture (refer to Note 16(b)).

        (d) On December 21, 2007, the Company entered into an agreement to
            sell 225 acres of excess real estate located in Ebreichsdorf,
            Austria to a subsidiary of Magna, a related party, for a purchase
            price of Euros 20.0 million (U.S. $31.5 million), net of
            transaction costs. The sale transaction was completed on April
            11, 2008. Of the net proceeds that were received on closing,
            Euros 7.5 million was used to repay a portion of a Euros 15.0
            million term loan facility and the remaining portion of the net
            proceeds was used to repay a portion of the bridge loan facility
            with a subsidiary of MID. The gain on sale of the excess real
            estate of approximately Euros 15.5 million (U.S. $24.3 million),
            net of tax, has been reported as a contribution of equity in
            contributed surplus.

        (e) On June 7, 2007, the Company sold 205 acres of land and
            buildings, located in Bonsall, California, and on which the San
            Luis Rey Downs Training Center is situated, to MID for cash
            consideration of approximately $24.0 million. The Company also
            has entered into a lease agreement whereby a subsidiary of the
            Company will lease the property from MID for a three year period
            on a triple-net lease basis, which provides for a nominal annual
            rent in addition to operating costs that arise from the use of
            the property. The lease is terminable at any time by either party
            on four months notice. The gain on sale of the property of
            approximately $17.7 million, net of tax, has been reported as a
            contribution of equity in contributed surplus.

        (f) On March 28, 2007, the Company sold a 157 acre parcel of excess
            land adjacent to Palm Meadows, located in Palm Beach County,
            Florida and certain development rights to MID for cash
            consideration of $35.0 million. The gain on sale of the excess
            land and development rights of approximately $16.7 million, net
            of tax, has been reported as a contribution of equity in
            contributed surplus.

            On February 7, 2007, MID acquired all of the Company's interests
            and rights in a 34 acre parcel of residential development land in
            Aurora, Ontario, Canada for cash consideration of Cdn. $12.0
            million (U.S. $10.1 million), which was equal to the carrying
            value of the land.

            On February 7, 2007, MID also acquired a 64 acre parcel of excess
            land at Laurel Park in Howard County, Maryland for cash
            consideration of $20.0 million. The gain on sale of the excess
            land of approximately $15.8 million, net of tax, has been
            reported as a contribution of equity in contributed surplus.

            The Company has been granted profit participation rights in
            respect of each of these three properties under which it is
            entitled to receive 15% of the net proceeds from any sale or
            development after MID achieves a 15% internal rate of return.

        (g) The Company has entered into a consulting agreement with MID,
            dated September 12, 2007, under which MID will provide consulting
            services to the Company's management and Board of Directors in
            connection with the debt elimination plan. The Company is
            required to reimburse MID for its expenses, but there are no fees
            payable to MID in connection with the consulting agreement. The
            consulting agreement may be terminated by either party under
            certain circumstances.

        (h) For the three and six months ended June 30, 2008, the Company
            incurred $0.7 million and $1.5 million (for the three and six
            months ended June 30, 2007 - $0.9 million and $1.6 million) of
            rent for facilities and central shared and other services to
            Magna and its subsidiaries. At June 30, 2008, amounts due to
            Magna and its subsidiaries totalled $1.2 million (December 31,
            2007 - $2.8 million).

    14. COMMITMENTS AND CONTINGENCIES

        (a) The Company generates a substantial amount of its revenues from
            wagering activities and, therefore, it is subject to the risks
            inherent in the ownership and operation of its racetracks. These
            include, among others, the risks normally associated with changes
            in the general economic climate, trends in the gaming industry,
            including competition from other gaming institutions and state
            lottery commissions, and changes in tax laws and gaming laws.

        (b) In the ordinary course of business activities, the Company may be
            contingently liable for litigation and claims with, among others,
            customers, suppliers and former employees. Management believes
            that adequate provisions have been recorded in the accounts where
            required. Although it is not possible to accurately estimate the
            extent of potential costs and losses, if any, management
            believes, but can provide no assurance, that the ultimate
            resolution of such contingencies would not have a material
            adverse effect on the financial position of the Company.

        (c) On May 18, 2007, ODS Technologies, L.P., operating as TVG
            Network, filed a summons against the Company, HRTV, LLC and
            XpressBet, Inc. seeking an order that the defendants be enjoined
            from infringing certain patents relating to interactive wagering
            systems and for an award for damages to compensate for the
            infringement. An Answer to Complaint, Affirmative Defenses and
            Counterclaims have been filed on behalf of the defendants. The
            discovery and disposition process is ongoing. At the present
            time, the final outcome related to this action cannot be
            accurately determined by management.

        (d) The Company has letters of credit issued with various financial
            institutions of $1.1 million to guarantee various construction
            projects related to activity of the Company. These letters of
            credit are secured by cash deposits of the Company. The Company
            also has letters of credit issued under its senior secured
            revolving credit facility of $3.4 million (refer to Note
            8(a)(i)).

        (e) The Company has provided indemnities related to surety bonds and
            letters of credit issued in the process of obtaining licenses and
            permits at certain racetracks and to guarantee various
            construction projects related to activity of its subsidiaries.
            At June 30, 2008, these indemnities amounted to $6.8 million with
            expiration dates through 2009.

        (f) Contractual commitments outstanding at June 30, 2008, which
            related to construction and development projects, amounted to
            approximately $1.2 million.

        (g) On March 4, 2007, the Company entered into a series of customer-
            focused agreements with Churchill Downs Incorporated ("CDI") in
            order to enhance wagering integrity and security, to own and
            operate HRTV(R), to buy and sell horse racing content, and to
            promote the availability of horse racing signals to customers
            worldwide. These agreements involved the formation of a joint
            venture, TrackNet Media, a reciprocal content swap agreement and
            the purchase by CDI from the Company of a 50% interest in
            HRTV(R). TrackNet Media is the vehicle through which the Company
            and CDI horse racing content is made available to third parties,
            including racetracks, off-track betting facilities, casinos and
            advance deposit wagering companies. TrackNet Media purchases
            horse racing content from third parties to be made available
            through the Company's and CDI's respective outlets. Under the
            reciprocal content swap agreement, the Company and CDI exchange
            their respective horse racing signals. To facilitate the sale of
            50% of HRTV(R) to CDI, on March 4, 2007, HRTV, LLC was created
            with an effective date of April 27, 2007. Both the Company and
            CDI are required to make quarterly capital contributions, on an
            equal basis, until October 2009 to fund the operations of HRTV,
            LLC; however, the Company may under certain circumstances be
            responsible for additional capital commitments. The Company's
            share of the required capital contributions to HRTV, LLC is
            expected to be approximately $7.0 million of which $3.6 million
            has been contributed to June 30, 2008.

        (h) On December 8, 2005, legislation authorizing the operation of
            slot machines within existing, licensed Broward County, Florida
            pari-mutel facilities that had conducted live racing or games
            during each of 2002 and 2003 was passed by the Florida
            Legislature. On January 4, 2006, the Governor of Florida signed
            the legislation into law and subsequently the Division of Pari-
            mutuel Wagering developed the governing rules and regulations.
            Prior to the November 15, 2006 opening of the slots facility at
            Gulfstream Park, the Company was awarded a gaming license for
            slot machine operations at Gulfstream Park in October 2006
            despite an August 2006 decision rendered by the Florida First
            District Court of Appeals that ruled that a trial is necessary to
            determine whether the constitutional amendment adopting the slots
            initiative was invalid because the petitions bringing the
            initiative forward did not contain the minimum number of valid
            signatures. Previously, a lower court decision had granted
            summary judgment in favor of "Floridians for a Level Playing
            Field" ("FLPF"), a group in which Gulfstream Park is a member.
            Though FLPF pursued various procedural options in response to the
            Florida First District Court of Appeals decision, the Florida
            Supreme Court ruled in late September 2007 that the matter was
            not procedurally proper for consideration by the court. That
            ruling effectively remanded the matter to the trial court for a
            trial on the merits, which will likely take an additional year or
            more to fully develop and could take as many as three years to
            achieve a full factual record and trial court ruling for an
            appellate court to review. The Company believes that the August
            2006 decision rendered by the Florida First District Court of
            Appeals is incorrect, and accordingly, the Company has opened the
            slots facility. At June 30, 2008, the carrying value of the fixed
            assets related to the slots facility is approximately $27.0
            million. If the August 2006 decision rendered by the Florida
            First District Court of Appeals is correct, the Company may incur
            a write-down of these fixed assets.

        (i) In May 2005, a Limited Liability Company Agreement was entered
            into with Forest City concerning the planned development of "The
            Village at Gulfstream Park(TM)". That agreement contemplates the
            development of a mixed-use project consisting of residential
            units, parking, restaurants, hotels, entertainment, retail
            outlets and other commercial use projects on a portion of the
            Gulfstream Park property. Forest City is required to contribute
            up to a maximum of $15.0 million as an initial capital
            contribution. The Company is obligated to contribute 50% of any
            equity amounts in excess of $15.0 million as and when needed, and
            to June 30, 2008 has made equity contributions in the amount of
            $4.2 million. At June 30, 2008, approximately $55.0 million of
            costs have been incurred by The Village at Gulfstream Park, LLC,
            which have been funded by a construction loan and equity
            contributions from Forest City and the Company. The Company has
            reflected its unpaid share of equity amounts in excess of $15.0
            million, of approximately $3.0 million, as an obligation which is
            included in "other accrued liabilities" on the accompanying
            consolidated balance sheets. If the Company or Forest City fail
            to make required capital contributions when due, then either
            party to the agreement may advance such funds to the Limited
            Liability Company, equal to the required capital contributions,
            as a recourse loan or as a capital contribution for which the
            capital accounts of the partners would be adjusted accordingly.
            The Limited Liability Company Agreement also contemplated
            additional agreements, including a ground lease, a reciprocal
            easement agreement, a development agreement, a leasing agreement
            and a management agreement which were executed upon satisfaction
            of certain conditions. Upon the opening of The Village at
            Gulfstream Park(TM), construction of which commenced in June
            2007, annual cash receipts (adjusted for certain disbursements
            and reserves) will first be distributed to the Forest City
            partner, subject to certain limitations, until such time as the
            initial contribution accounts of the partners are equal.
            Thereafter, the cash receipts are generally expected to be
            distributed to the partners equally, provided they maintain their
            equal interest in the partnership. The annual cash payments made
            to the Forest City partner to equalize the partners' initial
            contribution accounts will not exceed the amount of the annual
            ground rent.

        (j) On September 28, 2006, certain of the Company's affiliates
            entered into definitive operating agreements with certain Caruso
            Affiliated affiliates regarding the proposed development of The
            Shops at Santa Anita on approximately 51 acres of undeveloped
            land surrounding Santa Anita Park. This development project,
            first contemplated in an April 2004 Letter of Intent which also
            addressed the possibility of developing undeveloped lands
            surrounding Golden Gate Fields, contemplates a mixed-use
            development with approximately 800,000 square feet of retail,
            entertainment and restaurants as well as 4,000 parking spaces.
            Westfield Corporation ("Westfield"), a developer of a neighboring
            parcel of land, has challenged the manner in which the
            entitlement process for the development of the land surrounding
            Santa Anita Park has been proceeding. On May 16, 2007, Westfield
            commenced civil litigation in the Los Angeles Superior Court in
            an attempt to overturn the Arcadia City Council's approval and
            granting of entitlements related to the construction of The Shops
            at Santa Anita. In addition, on May 21, 2007, Arcadia First!
            filed a petition against the City of Arcadia to overturn the
            entitlements and named the Company and certain of its
            subsidiaries as real parties in interest. The first hearings on
            the merits of the petitioners' claims were heard before the trial
            judge on May 23, 2008. On July 23, 2008, the court issued a
            tentative opinion in favour of the petitioners in part,
            concluding that eleven parts of the final environmental impact
            report were deficient. The Company and Caruso Affiliated are
            working with the City of Arcadia to determine how to resolve the
            deficiencies in the final environmental impact report.
            Accordingly, development efforts may be delayed or suspended. To
            June 30, 2008, the Company has expended approximately $10.2
            million on these initiatives, of which $0.3 million was paid
            during the six months ended June 30, 2008. These amounts have
            been recorded as "real estate properties, net" on the
            accompanying consolidated balance sheets. Under the terms of the
            Letter of Intent, the Company may be responsible to fund
            additional costs; however, to June 30, 2008, the Company has not
            made any such payments.

        (k) Until December 25, 2007, The Meadows participated in a multi-
            employer defined benefit pension plan (the "Pension Plan") for
            which the Pension Plan's total vested liabilities exceeded its
            assets. The New Jersey Sports & Exposition Authority previously
            withdrew from the Pension Plan effective November 1, 2007. As the
            only remaining participant in the Pension Plan, The Meadows
            withdrew from the Pension Plan effective December 25, 2007, which
            constituted a mass withdrawal. An updated actuarial valuation is
            in the process of being obtained; however, based on allocation
            information currently provided by the Pension Plan, the estimated
            withdrawal liability of The Meadows is approximately $6.2
            million. This liability may be satisfied by annual payments of
            approximately $0.3 million. As part of the indemnification
            obligations under the holdback agreement with Millennium-Oaktree
            (refer to Note 3), the mass withdrawal liability that has been
            triggered as a result of withdrawal from the Pension Plan will be
            offset against the amount owing to the Company under the holdback
            agreement.

        (l) The Maryland Jockey Club ("MJC") was party to agreements with the
            Maryland Thoroughbred Horsemen's Association and the Maryland
            Breeders' Association, which expired on December 31, 2007, under
            which the horsemen and breeders each contributed 4.75% of the
            costs of simulcasting to MJC. Without arrangements similar in
            effect to these agreements, costs are expected to increase by
            approximately $2.0 million for the year ending December 31, 2008.
            At this time, the Company is uncertain as to the renewal of these
            agreements on comparable terms.

        (m) On May 8, 2008, one of the Company's wholly-owned subsidiaries,
            LATC, commenced civil litigation in the District Court in Los
            Angeles for breach of contract. It is seeking damages in excess
            of $8.4 million from Cushion Track Footing USA, LLC and other
            defendants for failure to install a racing surface at Santa Anita
            Park suitable for the purpose for which it was intended. The
            defendants have been served with the complaint.

    15. SEGMENT INFORMATION

        Operating Segments

        The Company's reportable segments reflect how the Company is
        organized and managed by senior management. The Company has two
        principal operating segments: racing and gaming operations and
        real estate and other operations. The racing and gaming segment has
        been further segmented to reflect geographical and other operations
        as follows: (1) California operations include Santa Anita Park,
        Golden Gate Fields and San Luis Rey Downs; (2) Florida operations
        include Gulfstream Park's racing and gaming operations and Palm
        Meadows; (3) Maryland operations include Laurel Park, Pimlico Race
        Course, Bowie Training Center and the Maryland off-track betting
        network; (4) Southern U.S. operations include Lone Star Park; (5)
        Northern U.S. operations include The Meadows and its off-track
        betting network and the North American production and sales
        operations for StreuFex(TM); (6) European operations include the
        European production and sales operations for StreuFex(TM); (7)
        PariMax operations include XpressBet(R), HRTV(R) to April 27, 2007,
        MagnaBet(TM), RaceONTV(TM), AmTote and the Company's equity
        investments in Racing World Limited, TrackNet Media and HRTV, LLC
        from April 28, 2007; and (8) Corporate and other operations includes
        costs related to the Company's corporate head office, cash and other
        corporate office assets and investments in racing related real estate
        held for development. Eliminations reflect the elimination of
        revenues between business units. The real estate and other operations
        segment includes the sale of excess real estate and the Company's
        residential housing development. Comparative amounts reflected in
        segment information for the three and six months ended June 30, 2007
        have been reclassified to reflect the operations of Remington Park's
        racing and gaming operations and its off-track betting network,
        Thistledown, Great Lakes Downs, Portland Meadows and the Oregon off-
        track betting network, and Magna Racino(TM) as discontinued
        operations.

        The Company uses revenues and earnings (loss) before interest, income
        taxes, depreciation and amortization ("EBITDA") as key performance
        measures of results of operations for purposes of evaluating
        operating and financial performance internally. Management believes
        that the use of these measures enables management and investors to
        evaluate and compare, from period to period, operating and financial
        performance of companies within the horse racing industry in a
        meaningful and consistent manner as EBITDA eliminates the effects of
        financing and capital structures, which vary between companies.
        Because the Company uses EBITDA as a key measure of financial
        performance, the Company is required by U.S. GAAP to provide the
        information in this note concerning EBITDA. However, these measures
        should not be considered as an alternative to, or more meaningful
        than, net income (loss) as a measure of the Company's operating
        results or cash flows, or as a measure of liquidity.

        The accounting policies of each segment are the same as those
        described in the "Summary of Significant Accounting Policies"
        sections of the Company's annual report on Form 10-K for the year
        ended December 31, 2007. The following summary presents key
        information by operating segment:

                                   Three months ended       Six months ended
                                          June 30,              June 30,
                                  -------------------------------------------
                                      2008       2007       2008       2007
        ---------------------------------------------------------------------
        Revenues
        California operations     $  44,904  $  48,908  $ 138,518  $ 159,746
        Florida operations           26,568     21,096    102,547     98,556
        Maryland operations          38,868     43,226     61,707     69,569
        Southern U.S. operations     23,479     24,086     33,365     33,951
        Northern U.S. operations      9,268     10,464     18,242     20,647
        European operations             361        284        698        594
        PariMax operations           22,199     22,597     43,171     44,500
        ---------------------------------------------------------------------
                                    165,647    170,661    398,248    427,563
        Corporate and other              76         56        139        106
        Eliminations                 (2,796)    (4,369)    (8,099)    (8,952)
        ---------------------------------------------------------------------
        Total racing and gaming
         operations                 162,927    166,348    390,288    418,717
        ---------------------------------------------------------------------

        Sale of real estate               -          -      1,492          -
        Residential development
         and other                    3,355      1,058      5,478      2,891
        ---------------------------------------------------------------------
        Total real estate and
         other operations             3,355      1,058      6,970      2,891
        ---------------------------------------------------------------------

        Total revenues            $ 166,282  $ 167,406  $ 397,258  $ 421,608
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                                    Three months ended      Six months ended
                                          June 30,              June 30,
                                  -------------------------------------------
                                      2008       2007       2008       2007
        ---------------------------------------------------------------------
        Earnings (loss) before
         interest, income taxes,
         depreciation and
         amortization ("EBITDA")
        California operations     $   3,539  $   3,244  $  16,192  $  20,063
        Florida operations           (3,780)    (6,275)     5,909      5,283
        Maryland operations           5,594      9,829      3,938      9,791
        Southern U.S. operations      3,625      3,515      3,115      3,130
        Northern U.S. operations       (261)      (228)       725         (4)
        European operations             (45)       (15)       (68)       (14)
        PariMax operations            1,871      1,304      3,628      2,751
        ---------------------------------------------------------------------
                                     10,543     11,374     33,439     41,000
        Corporate and other          (6,486)    (6,754)   (11,250)   (11,857)
        Predevelopment and other
         costs                       (1,052)      (867)    (1,447)    (1,372)
        Recognition of deferred
         gain on The Meadows
         transaction                      -          -      2,013          -
        ---------------------------------------------------------------------
        Total racing and
         gaming operations            3,005      3,753     22,755     27,771
        ---------------------------------------------------------------------

        Residential development
         and other                    2,207        216      3,316        752
        Write-down of
         long-lived assets                -          -     (5,000)         -
        ---------------------------------------------------------------------
        Total real estate and
         other operations             2,207        216     (1,684)       752
        ---------------------------------------------------------------------

        Total EBITDA              $   5,212  $   3,969  $  21,071  $  28,523
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Reconciliation of EBITDA to Net Loss

                                           Three months ended June 30, 2008
        ---------------------------------------------------------------------
                                        Racing and  Real Estate
                                            Gaming    and Other
                                        Operations   Operations        Total
        ---------------------------------------------------------------------
        EBITDA from continuing
         operations                      $   3,005    $   2,207    $   5,212
        Interest expense, net              (16,448)          (8)     (16,456)
        Depreciation and amortization      (11,209)          (7)     (11,216)
        ---------------------------------------------------------------------
        Income (loss) from continuing
         operations before income taxes  $ (24,652)   $   2,192      (22,460)
        Income tax expense                                               530
        ---------------------------------------------------------------------
        Loss from continuing operations                              (22,990)
        Income from discontinued operations                            1,736
        ---------------------------------------------------------------------
        Net loss                                                   $ (21,254)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                                           Three months ended June 30, 2007
        ---------------------------------------------------------------------
                                        Racing and  Real Estate
                                            Gaming    and Other
                                        Operations   Operations        Total
        ---------------------------------------------------------------------
        EBITDA from continuing
         operations                      $   3,753    $     216    $   3,969
        Interest expense, net              (11,096)         (49)     (11,145)
        Depreciation and amortization       (9,053)          (8)      (9,061)
        ---------------------------------------------------------------------
        Income (loss) from continuing
         operations before income taxes  $ (16,396)   $     159      (16,237)
        Income tax expense                                             4,092
        ---------------------------------------------------------------------
        Loss from continuing operations                              (20,329)
        Loss from discontinued operations                             (3,108)
        ---------------------------------------------------------------------
        Net loss                                                   $ (23,437)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                                             Six months ended June 30, 2008
        ---------------------------------------------------------------------
                                        Racing and  Real Estate
                                            Gaming    and Other
                                        Operations   Operations        Total
        ---------------------------------------------------------------------
        EBITDA (loss) from continuing
         operations                      $  22,755    $  (1,684)   $  21,071
        Interest expense, net              (32,478)         (15)     (32,493)
        Depreciation and amortization      (22,258)         (14)     (22,272)
        ---------------------------------------------------------------------
        Loss from continuing operations
         before income taxes             $ (31,981)   $  (1,713)     (33,694)
        Income tax expense                                             2,263
        ---------------------------------------------------------------------
        Loss from continuing operations                              (35,957)
        Loss from discontinued operations                            (31,757)
        ---------------------------------------------------------------------
        Net loss                                                   $ (67,714)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                                             Six months ended June 30, 2007
        ---------------------------------------------------------------------
                                        Racing and  Real Estate
                                            Gaming    and Other
                                        Operations   Operations        Total
        ---------------------------------------------------------------------
        EBITDA from continuing
         operations                      $  27,771    $     752    $  28,523
        Interest expense, net              (22,430)         (77)     (22,507)
        Depreciation and amortization      (17,695)         (16)     (17,711)
        ---------------------------------------------------------------------
        Income (loss) from continuing
         operations before income taxes  $ (12,354)   $     659      (11,695)
        Income tax expense                                             2,924
        ---------------------------------------------------------------------
        Loss from continuing operations                              (14,619)
        Loss from discontinued operations                             (6,349)
        ---------------------------------------------------------------------
        Net loss                                                   $ (20,968)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                                                       June 30,  December 31,
                                                          2008          2007
        ---------------------------------------------------------------------

        Total Assets
        California operations                      $   296,816   $   320,781
        Florida operations                             365,631       358,907
        Maryland operations                            159,613       162,606
        Southern U.S. operations                        99,307        97,228
        Northern U.S. operations                        18,462        18,502
        European operations                              1,534         1,468
        PariMax operations                              41,727        43,717
        ---------------------------------------------------------------------
                                                       983,090     1,003,209
        Corporate and other                             56,164        59,590
        ---------------------------------------------------------------------
        Total racing and gaming operations           1,039,254     1,062,799
        ---------------------------------------------------------------------

        Residential development and other                6,045         5,214
        ---------------------------------------------------------------------
        Total real estate and other operations           6,045         5,214
        ---------------------------------------------------------------------

        Total assets from continuing operations      1,045,299     1,068,013
        Total assets held for sale                      27,343        40,140
        Total assets of discontinued operations        115,738       135,723
        ---------------------------------------------------------------------
        Total assets                               $ 1,188,380   $ 1,243,876
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    16. SUBSEQUENT EVENTS

        (a) One of the Company's subsidiaries, Pimlico Racing Association,
            Inc., has a revolving term loan facility with a U.S. financial
            institution that permits the prepayment of outstanding principal
            without penalty. This facility matures on December 1, 2013, bears
            interest at either the U.S. prime rate or LIBOR plus 2.6% per
            annum and is secured by deeds of trust on land, buildings and
            improvements and security interests in all other assets of the
            subsidiary and certain affiliates of MJC. At June 30, 2008, there
            were no drawings on this facility. On August 5, 2008, the
            revolving term loan facility was amended to reduce the maximum
            undrawn availability from $7.7 million to $4.5 million.

            Also, in connection with the financial covenant breach at
            June 30, 2008 relating to the term loan credit facilities with
            the same U.S. financial institution (refer to Note 8(b)(ii)), a
            waiver was obtained from the lender on August 5, 2008 for the
            financial covenant breach at June 30, 2008 and the loan
            facilities were amended to temporarily modify this financial
            covenant at September 30, 2008.

        (b) On August 1, 2008, one of the Company's European wholly-owned
            subsidiaries, Fontana, completed the sale of its 50% joint
            venture equity interest in Fontana Immobilien GmbH to a related
            party. The sale price included nominal cash consideration equal
            to Fontana's initial capital contribution and a future profit
            participation in Fontana Immobilien GmbH. Fontana and Fontana
            Immobilien GmbH also agreed to amend the real estate sale
            agreement (refer to Note 13(c)) such that the purchase price
            of Euros 0.8 million (U.S. $1.2 million) was accelerated and
            becomes due and payable to Fontana on August 7, 2008.

        (c) On July 30, 2008, the Company's $40.0 million senior secured
            revolving credit facility with a Canadian financial institution
            was extended from July 30, 2008 to August 15, 2008 (refer to Note
            8(a)(i)).

        (d) On July 16, 2008, the Company completed the sale of Great Lakes
            Downs in Michigan to The Little River Band of Ottawa Indians for
            $5.0 million cash less customary closing adjustments. The net
            sale proceeds of approximately $4.5 million were used to repay a
            portion of the bridge loan facility with a subsidiary of MID.

        (e) On July 3, 2008, the Company's Board of Directors approved the
            Reverse Stock Split, with an effective date of July 22, 2008, of
            the Company's Class A Subordinate Voting Stock and Class B Stock
            utilizing a 1:20 consolidation ratio.

            As a result of the Reverse Stock Split, every twenty shares of
            the Company's Class A Subordinate Voting Stock and Class B Stock
            were consolidated into one share of Class A Subordinate Voting
            Stock and Class B Stock, respectively. The Reverse Stock Split
            affects all the Company's shares of common stock, stock options
            and convertible securities outstanding prior to the effective
            time of the Reverse Stock Split.

       (f)  One of the Company's European wholly-owned subsidiaries had a
            bank term loan with a European financial institution of up to
            Euros 3.5 million bearing interest at the Euro Overnight Index
            Average Rate plus 3.75% per annum (7.8% at June 30, 2008). At
            June 30, 2008, there was a nominal amount outstanding under this
            bank term loan facility, which was fully repaid upon its expiry
            on July 31, 2008.
    





For further information:

For further information: Blake Tohana, Executive Vice-President and
Chief Financial Officer, Magna Entertainment Corp., 337 Magna Drive, Aurora,
ON L4G 7K1, Tel: (905) 726-7493

Organization Profile

MAGNA ENTERTAINMENT CORP.

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