Magna Entertainment Corp. announces results for the second quarter ended June 30, 2007, Strategic Review of Assets and Operations and immediate Corporate Initiatives



    AURORA, ON, Aug. 9 /CNW/ - Magna Entertainment Corp. ("MEC") (NASDAQ:  
MECA; TSX: MEC.A) today reported its financial results for the second quarter
ended June 30, 2007.

    
    -------------------------------------------------------------------------
                                    Three Months Ended      Six Months Ended
                                           June 30,              June 30,
                                  --------------------- ---------------------
                                       2007       2006       2007       2006
                                  ---------- ---------- ---------- ----------
                                                    (unaudited)

    Revenues(i)                   $ 203,063  $ 179,716  $ 487,237  $ 457,242

    Earnings before interest,
     taxes, depreciation and
     amortization ("EBITDA")(i)   $   3,459  $   1,295  $  27,675  $  26,295

    Net income (loss)
      Loss from continuing
       operations                 $ (23,437) $ (27,331) $ (20,968) $ (24,983)
      Income from discontinued
       operations(ii)                     -        993          -        857
    -------------------------------------------------------------------------
    Net loss                      $ (23,437) $ (26,338) $ (20,968) $ (24,126)
    -------------------------------------------------------------------------

    Diluted earnings (loss)
     per share
      Continuing operations       $   (0.22) $   (0.26) $   (0.19) $   (0.23)
      Discontinued operations(ii)         -       0.01          -       0.01
    -------------------------------------------------------------------------
    Total diluted loss per share  $   (0.22) $   (0.25) $   (0.19) $   (0.22)
    -------------------------------------------------------------------------

    (i)    Revenues and EBITDA for all periods presented are from continuing
           operations only.
    (ii)   Discontinued operations for 2006 includes the Fontana Golf Club,
           the sale of which was completed on November 1, 2006, the Magna
           Golf Club, the sale of which was completed on August 25, 2006 and
           the operations of a restaurant and related real estate in the
           United States, the sale of which was completed on May 26, 2006.

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

    In announcing these results, Frank Stronach, Chairman and Interim Chief
Executive Officer of MEC, remarked, "We are extremely disappointed with the
second quarter results. We recognize that immediate and drastic action is
required and we have commissioned a strategic review of the company. Also, we
will cease racing operations at our Austrian racetrack Magna Racino(TM) at the
end of its 2007 meet, have relinquished our racing license for Michigan Downs
and have terminated our racetrack development project in Dixon, California."
    MEC has engaged Greenbrook Capital Partners Inc. to conduct the strategic
review. The strategic review will be led by Greenbrook's Senior Partner, Tom
Hodgson, a former President and Chief Executive Officer of MEC. Greenbrook
expects to make its report to the Board by early September, following which
MEC will provide a further update.
    Mr. Stronach commented, "I am pleased that Tom has agreed to work with us
on a strategic review of MEC. The Board has instructed Tom to take a
comprehensive approach to his review and to develop a plan that will produce a
financially healthy MEC with the staying power to execute its strategic plan.
Management and the Board are dedicated to substantial debt reduction and
profit improvement on an urgent basis."
    Mr. Hodgson stated, "MEC is a company with tremendous assets including
world-class racetracks and valuable real estate. However, MEC has an
inadequate level of EBITDA and remains burdened with far too much debt and
interest expense. I look forward to working with MEC's Board of Directors and
senior management team to create a plan that will be designed to dramatically
strengthen MEC's balance sheet and increase shareholder value. "
    In the meantime and with immediate effect, the Board has approved the
following actions:

    Michigan Racing
    ---------------
    With the expectation that it could bring about changes to the regulatory
environment that would make racing in Michigan profitable, MEC has for several
years pursued the development and expansion of racing in the metropolitan
Detroit area.
    Unfortunately, notwithstanding extensive effort by MEC and support from
many industry stakeholders and others involved in the regulatory process and
government representatives, the regulatory environment has not improved. As a
result, MEC has today relinquished its racing license for the Romulus,
Michigan location.

    Dixon Downs
    -----------
    Today, racing in Northern California takes place principally at Golden
Gate Fields (owned by MEC) and Bay Meadows.
    For many years, the owner of Bay Meadows has pursued a plan to develop
the Bay Meadows lands for other uses. Knowing that Bay Meadows would not be
available for racing long term and knowing that a market exists for year-round
racing in Northern California, MEC planned to develop its Dixon, California
property as a training center and racetrack to replace the racing and stabling
capacity that will be lost when Bay Meadows closes.
    The approvals for MEC's Dixon lands for racing and adjacent commercial
uses were put to a local referendum on April 17, 2007. MEC's proposal lost at
the referendum. In addition, the current regulatory framework in California
makes it uncertain as to whether MEC could get a license for the necessary
dates to make Dixon Downs a viable operation. As a result, MEC has terminated
its development plans for Dixon and is listing the property for sale.
    MEC remains very much committed to horseracing in the State of
California, where it owns both Santa Anita Park near Los Angeles and Golden
Gate Fields near San Francisco, and is in the process of installing new,
synthetic racing surfaces at both facilities. However, MEC also believes that
the operating and regulatory environment in California needs to be improved
and will continue to work with other stakeholders to ensure the long-term
viability of horseracing in the State.

    Magna Racino(TM)
    ----------------
    MEC developed Magna Racino(TM) as a racing, gaming and entertainment
venue near Vienna, Austria. Market conditions have not met MEC's expectations.
While MEC has dramatically reduced the annual EBITDA loss at Magna Racino(TM)
from $15 million in 2005 (the first full year of operation) to approximately
$6 million (MEC's 2007 forecast), MEC cannot continue to operate in this
environment.
    Accordingly, MEC will cease racing at this facility at the close of the
current meet, which ends in November 2007. MEC intends to quickly evaluate
other uses for the real estate, together with the existing facilities and
significant infrastructure, with the intention of realizing the highest and
best value for this property.
    In the meantime, MEC will operate an equestrian center utilizing the
existing barn area, dorms and paddocks in order to mitigate some of its fixed
property holding costs and preserve the value of its assets pending
disposition of the property.

    Ocala Lands
    -----------
    Ocala, Florida has one of the largest populations of thoroughbred race
horses in America. Several years ago, MEC acquired approximately 450 acres on
I-75 in Marion County (Ocala), Florida with the intention of building a
racetrack to serve the local and simulcast markets. MEC believes that this
property has appreciated substantially in value over the years.
    As a further step to reduce interest and other costs and pay down debt,
MEC will list this property for sale.

    Porter Lands
    ------------
    MEC owns approximately 800 acres of real estate in Porter, New York.
While this property is of modest value compared to the others described above,
MEC intends to dispose of it as a further step of reducing interest and other
costs and paying down debt.

    Aggregate Net Book Value
    ------------------------
    MEC expects that the total proceeds from the disposals outlined above
will exceed the aggregate net book value of these assets, which was
approximately $71 million at June 30, 2007.

    Financial Results for the Second Quarter Ended June 30, 2007
    ------------------------------------------------------------
    Blake Tohana, Executive Vice-President and Chief Financial Officer of
MEC, commented, "Our results this quarter were negatively affected by the slot
operations at Gulfstream Park, which have significantly underperformed to
date. However, we remain optimistic that our recent marketing initiatives,
legislative changes that were adopted in early July and the relocation of
Christine Lee's restaurant, a culinary institution in South Florida for more
than 30 years, to the third floor of Gulfstream Park in early August, will
lead to improved results. We are also encouraged by the second quarter results
of our PariMax operations, which had increased EBITDA of $4.1 million and
achieved a 31% increase in handle at XpressBet(R), compared to the second
quarter of 2006. During the second quarter of 2007, we sold San Luis Rey Downs
for cash proceeds of approximately $24.0 million and repaid long-term debt of
$17.8 million. We remain focused on continuing to sell non-core assets and pay
down debt."
    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 for the three months ended June 30, 2007 increased $23.3 million
or 13.0% to $203.1 million, compared to $179.7 million for the three months
ended June 30, 2006. The increased revenues were primarily due to:

    
    -   PariMax revenues above the prior year period by $13.0 million
        primarily due to the acquisition of the remaining 70% equity interest
        in AmTote in July 2006, the operations of which are now being
        consolidated, whereas previously our 30% equity interest was
        accounted for on an equity basis and increased revenues at
        XpressBet(R) due to a 31% increase in handle compared to the prior
        year period primarily due to having access to Churchill Downs
        Incorporated ("CDI") racing content, including the Kentucky Derby,
        through our TrackNet Media joint venture arrangement;
    -   Florida revenues above the prior year period by $10.1 million
        primarily due to the Gulfstream Park casino facility, which generated
        $9.2 million of gaming revenues in the second quarter of 2007;
    -   California revenues above the prior year period by $6.6 million
        primarily due to a change in the racing calendar at Golden Gate
        Fields, whereby live race days increased from 25 days in the three
        months ended June 30, 2006 to 35 days in the three months ended
        June 30, 2007;
    -   Northern U.S. revenues below the prior year period by $1.3 million
        primarily due to lower handle and attendance at Thistledown;
    -   Southern U.S. revenues below the prior year period by $1.1 million
        primarily due to four fewer live race days at Lone Star Park in the
        second quarter of 2007 compared to the second quarter of 2006, as
        well as excessive rains in June 2007, which impaired the quality of
        the live racing product thereby reducing live and export handle and
        wagering revenue; and
    -   Eliminations of inter-company revenues between business units above
        the prior year period by $2.6 million due to the acquisition of
        AmTote.
    

    Revenues were $487.2 million in the six months ended June 30, 2007, an
increase of $30.0 million or 6.6% compared to $457.2 million for the six
months ended June 30, 2006. The increased revenues in the six months ended
June 30, 2007 compared to the prior year comparative period are primarily due
to the same factors as noted for the three months ended June 30, 2007, except
that for the six months ended June 30, 2007, Maryland revenues were below the
prior year comparative period by $2.2 million due to lower attendance and
wagering as a result of inclement weather experienced during the winter months
in Maryland and California revenues are below the prior year comparative
period by $1.4 million as a result of a decrease in attendance and lower
levels of handle and gross wagering at Santa Anita Park with one less live
race day in the 2007 race meet compared to the 2006 race meet as well as a
very strong race meet in 2006, which had record levels of attendance and
wagering and a reduction in live race days at Golden Gate Fields whereby live
race days were decreased from 65 days in the six months ended June 30, 2006 to
61 days in the six months ended June 30, 2007.
    EBITDA for the three months ended June 30, 2007 increased $2.2 million or
167.1% to $3.4 million from $1.3 million in the three months ended June 30,
2006 and was impacted by the following:

    
    -   PariMax operations above the prior year period by $4.1 million as a
        result of the acquisition of the remaining 70% equity interest in
        AmTote, increased revenues at XpressBet(R) for reasons noted
        previously and a reduction in losses of HRTV(TM) with the formation
        of the joint venture with CDI in late April 2007, in which they now
        own 50% of the HRTV(TM) operations;
    -   European operations above the prior year by $1.7 million primarily
        due to cost reduction initiatives at Magna Racino(TM);
    -   Corporate office above the prior year period by $1.0 million due to
        cost reduction initiatives and higher severance charges during the
        second quarter of 2006;
    -   Predevelopment, pre-opening and other costs decreased from the prior
        year period by $0.8 million due to lower spending on alternative
        gaming initiatives;
    -   California operations above the prior year period by $0.7 million
        primarily due to the change in the racing calendar at Golden Gate
        Fields, which resulted in ten additional live race days in the three
        months ended June 30, 2007 compared to the same period last year;
        partially offset by
    -   Florida operations below the prior year period by $3.2 million as
        increased gaming revenues at Gulfstream Park were more than offset by
        higher marketing and operating costs for the new casino facility;
    -   Southern U.S. operations below the prior year period by $1.7 million
        due to revenue shortfalls at Lone Star Park for reasons noted
        previously; and
    -   Northern U.S. operations below the prior year period by $0.7 million
        due to revenue shortfalls at Thistledown for reasons noted
        previously.
    

    EBITDA of $27.7 million for the six months ended June 30, 2007 increased
$1.4 million or 5.2% from $26.3 million in the six months ended June 30, 2006.
The improvement in EBITDA is primarily a result of the same factors noted
above which affected EBITDA in the second quarter, except that for the six
months ended June 30, 2007, California operations EBITDA decreased compared to
the prior year period as a result of revenue decreases at Santa Anita Park and
Golden Gate Fields for the same reasons noted above.
    Net loss from continuing operations for the three months ended June 30,
2007 has decreased $3.9 million or 14.2% from a loss of $27.3 million in the
three months ended June 30, 2006 to a loss of $23.4 million in the three
months ended June 30, 2007. The improvement in net loss is due to EBITDA
improvements as well as a decrease in interest expense due to repayment of our
bridge loan facility with our parent company, reduced borrowings on our senior
secured revolving credit facility and repayment of other debt over the past
year from proceeds of various asset sales, partially offset by increased
borrowings on our Gulfstream Park project financing arrangement with our
parent company. Net loss from continuing operations for the six months ended
June 30, 2006 has decreased $4.0 million or 16.1% from a loss of $25.0 million
in the six months ended June 30, 2006 to a loss of $21.0 million in the six
months ended June 30, 2007 for the same reasons as previously noted for the
three month period ended June 30, 2007.
    During the three months ended June 30, 2007, cash provided from
operations was $2.0 million, which has increased from cash used for operations
of $7.8 million in the second quarter of 2006 primarily due to an increase in
the change in non-cash working capital balances in 2007 relative to the prior
year period. Cash used for investing activities during the three months ended
June 30, 2007 was $1.8 million, which included $24.7 million of proceeds on
the sale of real estate and fixed assets, partially offset by real estate
property and fixed asset additions of $25.1 million and other asset additions
of $1.4 million. Cash used for financing activities during the three months
ended June 30, 2007 of $21.8 million includes net repayments of $14.3 million
of bank indebtedness and $12.0 million of net repayments of long-term debt,
partially offset by net borrowings of $4.4 million of long-term debt with our
parent.

    Changes to Board of Directors
    -----------------------------
    MEC announced today that Dennis Mills has resigned from his position as
Director and Vice-Chairman of MEC and Ron Charles has been appointed to the
Board of Directors. Mr. Charles is Executive Director, MEC California
Operations. He is also a founding member and former Chairman of the Board of
the Thoroughbred Owners of California.
    Mr. Stronach commented, "On behalf of the entire Board, I would like to
thank Dennis for his efforts on behalf of MEC. He has worked tirelessly to
champion many of MEC's initiatives. I would also like to welcome Ron Charles
to the Board. Ron has a wealth of industry knowledge and experience and is a
valuable addition to the Board."

    Other Strategic Initiatives
    ---------------------------
    MEC also reported today that it has executed the definitive agreements
related to The Village at Gulfstream Park(TM), a joint venture with Forest
City Enterprises, Inc. and the planned mixed-use development to be built
around the Gulfstream Park racetrack. The groundbreaking for Phase 1 of The
Village at Gulfstream Park(TM) occurred in June 2007.

    Conference Call
    ---------------
    We will hold a conference call to discuss our second quarter results on
Friday August 10, 2007 at 9:00 a.m. EST. The number to use for this call is
1-800-926-4402. Please call 10 minutes prior to the start of the conference
call. The dial-in number for overseas callers is 212-231-2900. We will also be
webcasting 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, acquires, 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, a 24-hour horse racing
television network and TrackNet Media Group, LLC, a content management company
formed for distribution of 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:
strategies and plans; expectations as to our potential ability to strengthen
our balance sheet; expectations as to financing and liquidity requirements and
arrangements; expectations as to operational improvements; expectations as to
cost savings, revenue growth and earnings; the time by which certain
redevelopment projects, transactions or other objectives will be achieved;
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 the Company's control,
that could cause actual events or results to differ materially from such
forward-looking statements. 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, 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
there will not be any material adverse changes: in general economic
conditions, the popularity of horse racing and other gaming activities, 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,
                               ----------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
                                    (restated-note 7)       (restated-note 7)
    Revenues
    Racing and gaming
      Pari-mutuel wagering     $ 128,911   $ 124,621   $ 343,293   $ 355,040
      Gaming                      23,621      14,649      51,198      29,489
      Non-wagering                49,473      38,896      89,855      69,688
    -------------------------------------------------------------------------
                                 202,005     178,166     484,346     454,217
    Real estate and other          1,058       1,550       2,891       3,025
    -------------------------------------------------------------------------
                                 203,063     179,716     487,237     457,242
    -------------------------------------------------------------------------

    Costs and expenses
    Racing and gaming
      Pari-mutuel purses,
       awards and other           75,778      77,085     210,321     222,629
      Gaming taxes, purses
       and other                  13,306       7,445      29,985      14,366
      Operating costs             88,542      74,000     178,584     154,502
      General and
       administrative             19,477      17,453      36,019      34,229
    -------------------------------------------------------------------------
                                 197,103     175,983     454,909     425,726
    -------------------------------------------------------------------------
    Real estate and other
      Operating costs                612         967       1,730       2,313
      General and administrative     230           3         409          24
    -------------------------------------------------------------------------
                                     842         970       2,139       2,337
    -------------------------------------------------------------------------
    Predevelopment, pre-opening
     and other costs                 888       1,660       1,418       3,094
    Depreciation and
     amortization                 10,799      10,050      21,213      19,999
    Interest expense, net         12,167      15,450      24,668      28,864
    Equity loss (income)             771        (192)      1,096        (210)
    -------------------------------------------------------------------------
                                 222,570     203,921     505,443     479,810
    -------------------------------------------------------------------------
    Loss from continuing
     operations before
     income taxes                (19,507)    (24,205)    (18,206)    (22,568)
    Income tax expense             3,930       3,126       2,762       2,415
    -------------------------------------------------------------------------
    Loss from continuing
     operations                  (23,437)    (27,331)    (20,968)    (24,983)
    Income from discontinued
     operations                        -         993           -         857
    -------------------------------------------------------------------------
    Net loss                     (23,437)    (26,338)    (20,968)    (24,126)
    Other comprehensive
     income (loss)
      Foreign currency
       translation adjustment      1,264       5,591       2,010       7,278
      Change in fair value of
       interest rate swap              5          26         (96)        100
    -------------------------------------------------------------------------
    Comprehensive loss         $ (22,168)  $ (20,721)  $ (19,054)  $ (16,748)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per share
     for Class A Subordinate
     Voting Stock or
     Class B Stock:
      Basic and Diluted
        Continuing operations  $   (0.22)  $   (0.26)  $   (0.19)  $   (0.23)
        Discontinued
         operations                    -        0.01           -        0.01
    -------------------------------------------------------------------------
    Loss per share             $   (0.22)  $   (0.25)  $   (0.19)  $   (0.22)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number of
     shares of Class A
     Subordinate Voting Stock
     or Class B Stock
     outstanding during the
     period (in thousands):
      Basic and Diluted          107,725     107,463     107,642     107,419
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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,
                               ----------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
                                    (restated-note 7)       (restated-note 7)
    Cash provided from
     (used for):

    Operating activities of
     continuing operations
    Net loss from continuing
     operations                $ (23,437)  $ (27,331)  $ (20,968)  $ (24,983)
    Items not involving
     current cash flows           10,854      15,938      21,168      30,163
    -------------------------------------------------------------------------
                                 (12,583)    (11,393)        200       5,180
    Changes in non-cash
     working capital balances     14,624       3,554     (14,635)    (21,172)
    -------------------------------------------------------------------------
                                   2,041      (7,839)    (14,435)    (15,992)
    -------------------------------------------------------------------------

    Investing activities of
     continuing operations
    Real estate property and
     fixed asset additions       (25,064)    (23,382)    (39,088)    (55,875)
    Other asset additions         (1,434)       (933)     (2,486)       (847)
    Proceeds on disposal of
     real estate properties
     and fixed assets              1,001       1,388       2,641       2,825
    Proceeds on real estate
     sold to parent               23,663           -      87,909           -
    Proceeds on real estate
     sold to a related party           -           -           -       5,578
    -------------------------------------------------------------------------
                                  (1,834)    (22,927)     48,976     (48,319)
    -------------------------------------------------------------------------

    Financing activities of
     continuing operations
    Proceeds from bank
     indebtedness                    741           -      15,741           -
    Proceeds from advances
     and long-term debt with
     parent                        6,402      18,444      16,329      60,577
    Proceeds from long-term
     debt                          3,865       5,207       4,140       5,207
    Repayment of bank
     indebtedness                (15,000)     (5,500)    (21,515)     (5,500)
    Repayment of long-term
     debt with parent             (1,953)     (1,800)     (4,053)     (1,800)
    Repayment of long-term
     debt                        (15,858)     (6,437)    (49,142)     (9,997)
    -------------------------------------------------------------------------
                                 (21,803)      9,914     (38,500)     48,487
    -------------------------------------------------------------------------

    Effect of exchange rate
     changes on cash and
     cash equivalents                 18        (228)        (79)       (296)
    -------------------------------------------------------------------------
    Net cash flows used for
     continuing operations       (21,578)    (21,080)     (4,038)    (16,120)
    -------------------------------------------------------------------------

    Cash provided from (used
     for) discontinued
     operations
    Cash flows provided from
     operating activities of
     discontinued operations           -         319           -       5,378
    Cash flows provided from
     investing activities of
     discontinued operations           -       1,524           -       1,379
    Cash flows used for
     financing activities of
     discontinued operations           -          (1)          -      (5,728)
    -------------------------------------------------------------------------
    Net cash flows provided
     from discontinued
     operations                        -       1,842           -       1,029
    -------------------------------------------------------------------------

    Net decrease in cash and
     cash equivalents during
     the period                  (21,578)    (19,238)     (4,038)    (15,091)
    Cash and cash equivalents,
     beginning of period          75,831      55,029      58,291      50,882
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $  54,253   $  35,791   $  54,253   $  35,791
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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,
                                                           2007         2006
                                                    -------------------------
                                   ASSETS
    -------------------------------------------------------------------------
    Current assets:
      Cash and cash equivalents                     $    54,253  $    58,291
      Restricted cash                                    21,761       34,194
      Accounts receivable                                39,017       35,949
      Due from parent                                     5,555        6,648
      Income taxes receivable                                 -          580
      Inventories                                         8,523        6,384
      Prepaid expenses and other                         11,298        8,884
    -------------------------------------------------------------------------
                                                        140,407      150,930
    -------------------------------------------------------------------------
    Real estate properties, net                         825,037      845,894
    Fixed assets, net                                    88,909       93,141
    Racing licenses                                     109,868      109,868
    Other assets, net                                     7,112        4,664
    Future tax assets                                    43,727       42,388
    -------------------------------------------------------------------------
                                                    $ 1,215,060  $ 1,246,885
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                     LIABILITIES AND SHAREHOLDERS' EQUITY
    -------------------------------------------------------------------------
    Current liabilities:
      Bank indebtedness                             $       741  $     6,515
      Accounts payable                                   55,763       76,105
      Accrued salaries and wages                          8,805        8,792
      Customer deposits                                   2,945        2,531
      Other accrued liabilities                          46,555       56,228
      Income taxes payable                                  691            -
      Long-term debt due within one year                 51,001       85,754
      Due to parent                                       3,609        3,108
      Deferred revenue                                    6,157        6,098
    -------------------------------------------------------------------------
                                                        176,267      245,131
    -------------------------------------------------------------------------
    Long-term debt                                       84,087       93,859
    Long-term debt due to parent                        191,247      177,250
    Convertible subordinated notes                      221,981      221,437
    Other long-term liabilities                          17,780       17,484
    Future tax liabilities                               91,265       91,106
    -------------------------------------------------------------------------
                                                        782,627      846,267
    -------------------------------------------------------------------------

    Shareholders' equity:
    Class A Subordinate Voting Stock
     (Issued: 2007 - 49,259; 2006 - 49,055)             319,828      319,087
    Class B Stock
     (Convertible into Class A Subordinate
     Voting Stock)
     (Issued: 2007 and 2006 - 58,466)                   394,094      394,094
    Contributed surplus                                  91,703       41,718
    Other paid-in-capital                                 1,553        1,410
    Accumulated deficit                                (417,266)    (396,298)
    Accumulated comprehensive income                     42,521       40,607
    -------------------------------------------------------------------------
                                                        432,433      400,618
    -------------------------------------------------------------------------
                                                    $ 1,215,060  $ 1,246,885
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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 interim consolidated financial statements of Magna
        Entertainment Corp. (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 net losses of
        $87.4 million, $105.3 million and $95.6 million for the years ended
        December 31, 2006, 2005 and 2004, respectively, has incurred a net
        loss of $21.0 million for the six months ended June 30, 2007, and has
        an accumulated deficit of $417.3 million and a working capital
        deficiency of $35.9 million at June 30, 2007. 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, renew or extend
        current financing arrangements and meet its obligations with respect
        to secured and unsecured creditors, none of which is assured. During
        the six months ended June 30, 2007, the Company completed asset sale
        transactions for proceeds totaling approximately $89.1 million. The
        Company is continuing to pursue other funding sources, which may
        include further asset sales, partnerships and raising capital through
        equity offerings, however, the successful realization of these
        efforts is not determinable at this time (refer to note 16(a)). These
        interim consolidated financial statements do not give effect to any
        adjustments 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 United States generally
        accepted accounting principles ("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 consolidated financial
        statements in conformity with U.S. GAAP requires management to make
        estimates and assumptions that affect the amounts reported in the
        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, 2006.

        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
        discontinued operations.

        Impact of Recently Issued Accounting Standards

        Under Staff Accounting Bulletin 74, the Company is required to
        disclose certain information related to new accounting standards,
        which have not yet been adopted due to delayed effective dates.

        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 generally
        accepted accounting principles and expands disclosures about fair
        value measurements. The provisions of SFAS 157 are effective for
        fiscal years beginning after November 15, 2007. The Company is
        currently reviewing SFAS 157, but has not yet determined the impact
        on the Company's consolidated financial statements.

        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 financial 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. The Company is currently reviewing SFAS 159, but
        has not yet determined the impact on the Company's consolidated
        financial statements.

    3.  Accounting Change

        In July 2006, the FASB issued FASB Interpretation 48, Accounting for
        Uncertainty in Income Taxes ("FIN 48"), which clarifies the
        accounting for uncertainty in income taxes recognized in an entity's
        financial statements in accordance with Statement of Financial
        Accounting Standards No. 109, Accounting for Income Taxes. FIN 48
        requires an entity to recognize the tax benefit of uncertain tax
        positions only when it is more likely than not, based on the
        position's technical merits, that the position would be sustained
        upon examination by the respective taxing authorities. The tax
        benefit is measured as the largest benefit that is more than fifty-
        percent likely of being realized upon final settlement with the
        respective taxing authorities. Effective January 1, 2007, the Company
        adopted the provisions of FIN 48 on a retroactive basis, which did
        not result in any charge to accumulated deficit as a cumulative
        effect of an accounting change or adjustment to the liability for
        unrecognized tax benefits. Accordingly, the adoption of FIN 48 did
        not have an effect on the results of operations or financial position
        of the Company.

        As of January 1, 2007, the Company had $2.0 million of unrecognized
        income tax benefits and $0.3 million of related accrued interest and
        penalties (net of any tax effect), all of which could ultimately
        reduce the Company's effective tax rate. The Company is currently
        under audit in Austria. Although it is not possible to accurately
        predict the timing of the conclusion of the audit, the Company does
        not anticipate that the Austrian audit relating to the years 2002
        through 2004 will be completed by the end of 2007. Given the stage of
        completion of the audit, the Company does not currently estimate
        significant changes to unrecognized income tax benefits over the next
        year. In addition, the Company does not anticipate any other
        significant changes to unrecognized income tax benefits over the next
        year.

        It is the Company's continuing policy to account for interest and
        penalties associated with income tax obligations as a component of
        income tax expense. The Company did not recognize any interest and
        penalties as provision for income taxes in the accompanying
        consolidated statements of operations and comprehensive loss for the
        three and six months ended June 30, 2007 as the maximum interest and
        penalty period have elapsed.

        As of January 1, 2007, the following tax years remained subject to
        examination by the major tax jurisdictions:

        Major Jurisdictions                                       Open Years
        ---------------------------------------------------------------------
        Austria                                            2002 through 2006
        Canada                                             2003 through 2006
        United States                                      2003 through 2006

        The Company is subject to income taxes in many state and local taxing
        jurisdictions in the U.S. and Canada, many of which are still open to
        tax examinations. Management does not believe these represent a
        significant financial exposure to the Company.

    4.  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 the loss from
        continuing operations before income taxes for the three and six
        months ended June 30, 2007 and 2006, resulting in an income tax
        expense of $3.9 million and $2.8 million for the three and six months
        ended June 30, 2007 and an income tax expense of $3.1 million and
        $2.4 million for the three and six months ended June 30, 2006,
        respectively. The income tax expense for the three and six months
        ended June 30, 2007 and 2006 primarily represents income tax expense
        recognized from certain of the Company's U.S. operations that are not
        included in the Company's U.S. consolidated income tax return.

    5.  Acquisition

        On August 22, 2003, MEC Maryland Investments Inc. ("MEC Maryland"), a
        wholly-owned subsidiary of the Company, acquired a 30% equity
        interest in AmTote International, Inc. ("AmTote") for a total cash
        purchase price, including transaction costs, of $4.3 million. On
        July 26, 2006, MEC Maryland acquired the remaining 70% equity
        interest of AmTote for a total cash purchase price of $9.3 million,
        including transaction costs of $0.1 million, net of cash acquired of
        $5.5 million. AmTote is a provider of totalisator services to the
        North American pari-mutuel industry with service contracts with over
        70 North American racetracks and other wagering entities. The results
        of AmTote have been consolidated from July 26, 2006 and are included
        in the racing and gaming - PariMax operations segment. Prior to
        July 26, 2006, the results of AmTote were accounted for on an equity
        basis.

        The purchase price has been allocated to the assets and liabilities
        acquired as follows:

        Non-cash working capital                                     $ 1,203
        Fixed assets                                                  12,008
        Other assets                                                     127
        Goodwill                                                         683
        Long-term debt                                                (1,470)
        Other long-term liabilities                                     (980)
        Future tax liabilities                                        (2,224)
        ---------------------------------------------------------------------
        Net assets acquired and total purchase price,
         net of cash acquired                                        $ 9,347
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The purchase price allocation for this acquisition and the impact of
        any pre-existing relationship per EITF 04-1, Accounting for Pre-
        existing Relationships between the Parties to a Business Combination,
        is preliminary and may be adjusted further as a result of obtaining
        additional information regarding preliminary estimates of fair values
        made at the date of purchase.

    6.  Sale of The Meadows

        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 will pay
        $50 thousand per annum and will continue to operate for its own
        account the racing operations at The Meadows for at least five years.
        This transaction established fair values of the assets of The Meadows
        and accordingly, the Company recognized a non-cash impairment loss of
        $11.2 million related to the long-lived assets and a gain of
        $126.4 million related to the disposition of the intangible assets,
        representing the racing/gaming licenses during the year ended
        December 31, 2006. Based on the terms of the racing services
        agreement and the holdback agreement, the sale of The Meadows' real
        estate properties and fixed assets was not accounted for as a sale
        and leaseback, but rather using the financing method of accounting
        under U.S. GAAP as the Company was deemed to have a continuing
        interest in the transaction. Accordingly, for accounting purposes,
        $12.8 million of the proceeds were deferred 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, 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. Given the indemnification obligations and
        other terms contained in the holdback agreement, the $25.0 million
        holdback agreement is considered continuing involvement and will be
        recognized in the consolidated financial statements upon the
        settlement of the indemnification obligations and as payments are
        received.

    7.  Discontinued Operations

        (a) On November 1, 2006, a wholly-owned subsidiary of the Company
            completed the sale of the Fontana Golf Club located in
            Oberwaltersdorf, Austria to a subsidiary of Magna International
            Inc. ("Magna"), a related party, for a sale value of Euros
            30.0 million (U.S. $38.3 million), which included cash
            consideration of Euros 13.2 million (U.S. $16.9 million), net of
            transaction costs, and approximately Euros 16.8 million (U.S.
            $21.4 million) of debt assumed by Magna. The gain at the date of
            disposition of approximately $20.9 million, net of tax, was
            recorded as a contribution of equity in contributed surplus on
            the accompanying consolidated balance sheets.

        (b) On August 25, 2006, a wholly-owned subsidiary of the Company
            completed the sale of the Magna Golf Club located in Aurora,
            Ontario, Canada to Magna, for cash consideration of Cdn.
            $51.8 million (U.S. $46.4 million), net of transaction costs. The
            Company recognized an impairment loss of $1.2 million at the date
            of disposition equal to the excess of the Company's carrying
            value of the assets disposed over their fair values at the date
            of disposition. Of the sale proceeds, Cdn. $32.6 million (U.S.
            $29.3 million) was used to pay all amounts owing under certain
            loan agreements with Bank Austria Creditanstalt AG related to the
            Magna Golf Club.

        (c) On May 26, 2006, the Company completed the sale of a restaurant
            and related real estate in the United States and received cash
            consideration of $2.0 million, net of transaction costs, and
            recognized a gain at the date of disposition of approximately
            $1.5 million.

        (d) The Company's results of operations related to discontinued
            operations for the three and six months ended June 30, 2006 are
            as follows:

                                                            Three        Six
                                                           months     months
                                                            ended      ended
                                                          June 30,   June 30,
                                                             2006       2006
            -----------------------------------------------------------------
            Results of Operations
            Revenues                                    $   5,584  $   9,528
            Costs and expenses                              4,149      6,825
            -----------------------------------------------------------------
                                                            1,435      2,703
            Depreciation and amortization                     740      1,441
            Interest expense, net                             684      1,341
            -----------------------------------------------------------------
            Income (loss) before gain on disposition           11        (79)
            Gain on disposition                             1,495      1,495
            -----------------------------------------------------------------
            Income before income taxes                      1,506      1,416
            Income tax expense                                513        559
            -----------------------------------------------------------------
            Net income                                  $     993   $    857
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            The Company did not have any assets or liabilities related to
            discontinued operations at June 30, 2007 or December 31, 2006.

    8.  Bank Indebtedness and Long-term Debt

        (a) The Company has a $40.0 million senior secured revolving credit
            facility with a Canadian financial institution, which was
            scheduled to mature on June 29, 2007. On June 29, 2007, the
            maturity date was extended to October 1, 2007. 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, 2007 and December 31,
            2006, the Company had no borrowings under the credit facility but
            had issued letters of credit totaling $24.7 million, such that
            $15.3 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%.

        (b) A wholly-owned subsidiary of the Company that owns and operates
            Santa Anita Park has a $10.0 million revolving loan arrangement
            under its existing credit facility with a U.S. financial
            institution, which matures on October 8, 2007. The revolving loan
            agreement 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, 2007, the Company had no borrowings under the
            revolving loan agreement (December 31, 2006 - $6.5 million).
            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, 2007 was nil given that there were no outstanding
            borrowings (December 31, 2006 - 8.25%).

        (c) On May 11, 2007, a wholly-owned subsidiary of the Company,
            AmTote, completed a refinancing of its existing credit facilities
            with a new lender. The refinancing includes: (i) a $3.0 million
            revolving credit facility to finance working capital
            requirements, available by way of U.S. dollar loans and letters
            of credit, bearing interest at LIBOR plus 2.5%, with a maturity
            date of May 11, 2008; (ii) a $4.2 million term loan for the
            repayment of AmTote's debt outstanding under its existing term
            loan facilities, bearing interest at LIBOR plus 2.75%, with a
            maturity date of May 11, 2011; and (iii) a $10.0 million term
            loan to finance up to 80% of eligible capital costs related to
            tote service contracts, bearing interest at LIBOR plus 2.75%,
            with a maturity date of May 11, 2012. Loans under the credit
            facilities are secured by a first charge on the assets and a
            pledge of stock of AmTote.

            At June 30, 2007, the Company had (i) borrowed $0.7 million under
            the $3.0 million revolving credit facility, which is included in
            bank indebtedness on the consolidated balance sheets; (ii)
            borrowed $3.8 million under the $4.2 million term loan, which is
            included in long-term debt on the consolidated balance sheets;
            and (iii) no borrowings under the $10.0 million term loan. The
            weighted average interest rates on the borrowings outstanding
            under the revolving credit facility and term loan at June 30,
            2007 were 7.82% and 8.07%, respectively.

    9.  Capital Stock

        (a) Changes in Class A Subordinate Voting Stock and Class B Stock
            for the three and six months ended June 30, 2007 are shown in the
            following table (number of shares and stated value have been
            rounded to the nearest thousand):

                              Class A
                            Subordinate
                           Voting Stock      Class B Stock        Total
                       ------------------ ----------------- -----------------
                       Number of   Stated Number of  Stated Number of  Stated
                          Shares    Value   Shares    Value   Shares    Value
            -----------------------------------------------------------------
            Issued and
             outstanding
             at December
             31, 2006     49,055 $319,087   58,466 $394,094  107,521 $713,181
            Issued under
             the Long-term
             Incentive
             Plan            204      741        -        -      204      741
            -----------------------------------------------------------------
            Issued and
             outstanding
             at March 31,
             2007 and
             June 30,
             2007         49,259 $319,828   58,466 $394,094  107,725 $713,922
            -----------------------------------------------------------------

        (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 as at June 30, 2007
            were exercised or converted:

                                                            Number of Shares
            -----------------------------------------------------------------
            Class A Subordinate Voting Stock outstanding              49,259
            Class B Stock outstanding                                 58,466
            Options to purchase Class A Subordinate Voting
             Stock                                                     4,714
            8.55% Convertible Subordinated Notes,
             convertible at $7.05 per share                           21,276
            7.25% Convertible Subordinated Notes,
             convertible at $8.50 per share                            8,824
            -----------------------------------------------------------------
                                                                     142,539
            -----------------------------------------------------------------
            -----------------------------------------------------------------

    10. Long-term Incentive Plan

        The Company's Long-term Incentive Plan (the "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.
        A maximum of 9.2 million shares of Class A Subordinate Voting Stock
        remain available to be issued under the Plan, of which 7.8 million
        are available for issuance pursuant to stock options and tandem stock
        appreciation rights and 1.4 million are available for issuance
        pursuant to any other type of award under the Plan.

        During 2005, the Company introduced an incentive compensation program
        for certain officers and key employees, which awarded performance
        shares of Class A Subordinate Voting Stock under the Plan. The number
        of shares of Class A Subordinate Voting Stock underlying the
        performance share awards were 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
        installments. The first distribution occurred in March 2006 and the
        second distribution occurred in March 2007. At December 31, 2005,
        there were no non-vested performance share awards and there were
        199,471 vested performance share awards with a weighted average
        grant-date market value of either U.S. $6.26 or Cdn. $7.61 per share.
        During the year ended December 31, 2006, 131,751 of these vested
        performance shares were issued with a stated value of $0.8 million
        and 4,812 performance share awards were forfeited (of which 75,907
        vested performance shares were issued with a stated value of
        $0.5 million for the six months ended June 30, 2006). Accordingly, at
        December 31, 2006, there were 62,908 performance share awards vested
        with a weighted average grant-date market value of either U.S. $6.26
        or Cdn. $7.61 per share. During the six months ended June 30, 2007,
        all of these performance shares were issued with a stated value of
        $0.2 million. At June 30, 2007, there are no performance shares
        remaining to be issued under the 2005 incentive compensation
        arrangement. The Company recognized no compensation expense related
        to the 2005 incentive compensation arrangement for the three and six
        months ended June 30, 2007 and 2006.

        In 2006, the Company continued the incentive compensation program as
        described in the immediately preceding paragraph. 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, prior to March 31, 2007.
        For the year ended December 31, 2006, 161,099 performance share
        awards were granted under the Plan with a weighted average grant-date
        market value of either U.S. $6.80 or Cdn. $7.63 per share, 1,616
        performance shares were issued with a nominal stated value and 42,622
        performance share awards were forfeited (of which 161,099 performance
        share awards were granted, 1,616 performance shares were issued and
        3,299 performance share awards were forfeited during the six months
        ended June 30, 2006). Accordingly, at December 31, 2006, there were
        116,861 performance share awards vested with a weighted average
        grant-date market value of either U.S. $6.80 or Cdn. $7.63 per share.
        During the six months ended June 30, 2007, 110,384 performance shares
        were issued with a stated value of $0.4 million and 6,477 performance
        share awards were forfeited. At June 30, 2007, there are no
        performance shares remaining to be issued under the 2006 incentive
        compensation arrangement. The Company recognized no compensation
        expense related to the 2006 incentive compensation arrangement for
        the three and six months ended June 30, 2007 and recognized
        approximately $0.3 million and $0.6 million of compensation expense
        related to the 2006 incentive compensation arrangement for the three
        and six months ended June 30, 2006, respectively.

        At June 30, 2007, there is no unrecognized compensation expense
        related to these performance share award arrangements.

        During the six months ended June 30, 2007, 30,941 shares with a
        stated value of $0.1 million (during the six months ended June 30,
        2006 - 25,896 shares with a stated value of $0.2 million) were
        issued to the Company's directors in payment of services rendered.

        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 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 at June 30, 2007
        and 2006 is as follows (number of shares subject to option in the
        following tables are expressed in whole numbers and have not been
        rounded to the nearest thousand):

                                        Shares              Weighted Average
                                   Subject to Option         Exercise Price
                               ----------------------  ----------------------
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Balance outstanding
         at January 1          4,905,000   4,827,500       $6.08       $6.14
        Forfeited or
         expired(i)             (166,000)          -        6.74           -
        ---------------------------------------------------------------------
        Balance outstanding
         at March 31           4,739,000   4,827,500        6.06        6.14
        Forfeited or
         expired(i)              (25,000)    (64,000)       5.71        6.80
        ---------------------------------------------------------------------
        Balance outstanding
         at June 30            4,714,000   4,763,500       $6.07       $6.13
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i) Options forfeited or expired were primarily as a result of
            employment contracts being terminated and voluntary employee
            resignations.

                                 Options Outstanding     Options Exercisable
                               ----------------------  ----------------------
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Number                 4,714,000   4,763,500   4,351,668   4,245,415
        Weighted average
         exercise price            $6.07       $6.13       $6.07      $ 6.08
        Weighted average
         remaining
         contractual
         life (years)                3.7         4.6         3.3         4.2
        ---------------------------------------------------------------------

        At June 30, 2007, the 4,714,000 stock options outstanding had
        exercise prices ranging from $3.91 to $7.24 per share. The average
        fair value of the stock option grants for the three and six months
        ended June 30, 2007 and 2006 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 compensation expense recognized for the three and six months
        ended June 30, 2007 related to stock options is approximately
        $0.1 million and $0.2 million, respectively (for the three and six
        months ended June 30, 2006 - $0.3 million and $1.1 million,
        respectively). At June 30, 2007, the total unrecognized compensation
        expense related to stock options is $0.5 million, which is expected
        to be recognized in expense over a period of 3.6 years.

        For the three and six months ended June 30, 2007, the Company
        recognized total compensation expense of $0.1 million and
        $0.3 million, respectively (for the three and six months ended
        June 30, 2006 - $0.6 million and $1.7 million, respectively),
        relating to performance share awards, director compensation and stock
        options under the 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, 2007 and 2006 are shown in the following table:

                                                            2007        2006
        ---------------------------------------------------------------------
        Balance at January 1                           $   1,410   $       -
        Stock-based compensation expense                      73         772
        ---------------------------------------------------------------------
        Balance at March 31                                1,483         772
        Stock-based compensation expense                      70         289
        ---------------------------------------------------------------------
        Balance at June 30                             $   1,553   $   1,061
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    12. Earnings (Loss) Per Share

        The following is a reconciliation of the numerator and denominator of
        the basic and diluted earnings (loss) per share computations (in
        thousands, except per share amounts):

                                  Three months ended        Six months ended
                                        June 30,                June 30,
                                  -------------------------------------------
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
                               Basic and   Basic and   Basic and   Basic and
                                 Diluted     Diluted     Diluted     Diluted
        ---------------------------------------------------------------------

        Loss from continuing
         operations            $ (23,437)  $ (27,331)  $ (20,968)  $ (24,983)
        Income from
         discontinued
         operations                    -         993           -         857
        ---------------------------------------------------------------------
        Net loss               $ (23,437)  $ (26,338)  $ (20,968)  $ (24,126)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Weighted average
         number of shares
         outstanding:
          Class A Subordinate
           Voting Stock           49,259      48,997      49,176      48,953
          Class B Stock           58,466      58,466      58,466      58,466
        ---------------------------------------------------------------------
                                 107,725     107,463     107,642     107,419
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Earnings (loss)
         per share:
          Continuing
           operations          $   (0.22)  $   (0.26)  $   (0.19)  $   (0.23)
          Discontinued
           operations                  -        0.01           -        0.01
        ---------------------------------------------------------------------
        Loss per share         $   (0.22)  $   (0.25)  $   (0.19)  $   (0.22)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        As a result of the net loss for the three and six months ended
        June 30, 2007, options to purchase 4,714,000 shares and notes
        convertible into 30,100,124 shares have been excluded from the
        computation of diluted loss per share since the effect is anti-
        dilutive.

        As a result of the net loss for the three and six months ended
        June 30, 2006, options to purchase 4,763,500 shares, notes
        convertible into 30,100,124 shares and 279,748 performance share
        awards have been excluded from the computation of diluted loss per
        share since the effect is anti-dilutive.

    13. Transactions with Related Parties

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

                                                        June 30, December 31,
                                                            2007        2006
            -----------------------------------------------------------------
            Gulfstream Park Project Financing
              Tranche 1(i)                             $ 130,866   $ 131,350
              Tranche 2(ii)                               23,429      18,617
              Tranche 3(iii)                              11,740           -
            Remington Park Project Financing(iv)          28,821      30,391
            -----------------------------------------------------------------
                                                         194,856     180,358
            Less: due within one year                     (3,609)     (3,108)
            -----------------------------------------------------------------
                                                       $ 191,247   $ 177,250
            -----------------------------------------------------------------
            -----------------------------------------------------------------

        (i)   Gulfstream Park Project Financing - Tranche 1

              In December 2004, certain of the Company's subsidiaries entered
              into a $115.0 million project financing arrangement with a
              subsidiary of our parent company, MI Developments Inc. ("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)(iv) 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's subsidiaries that own and operate Remington Park
              and the Palm Meadows Training Center 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. During the
              three and six months ended June 30, 2007, the Company incurred
              interest expense of $3.4 million and $6.9 million, repaid
              accrued interest of $3.4 million and $5.7 million, and repaid
              outstanding principal of $0.3 million and $1.8 million,
              respectively, such that at June 30, 2007, $134.2 million was
              outstanding under this project financing arrangement, including
              $1.1 million of accrued interest payable. During the three and
              six months ended June 30, 2007, the Company amortized loan
              origination costs of $0.1 million and $0.2 million,
              respectively, such that at June 30, 2007, $3.3 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.

        (ii)  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. During the three and six
              months ended June 30, 2007, the Company received loan advances
              of $2.5 million and $4.8 million, incurred interest expense of
              $0.6 million and $1.1 million, repaid accrued interest of
              $0.6 million and $0.9 million, and repaid outstanding principal
              of $0.1 million and $0.3 million, respectively, such that at
              June 30, 2007, $24.2 million was outstanding under this project
              financing arrangement, including $0.2 million of accrued
              interest payable. During the three and six months ended
              June 30, 2007, the Company amortized a nominal amount and
              $0.1 million, respectively, of loan origination costs such that
              at June 30, 2007, $0.7 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.

        (iii) 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 are 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. During the three and six months ended
              June 30, 2007, the Company received loan advances of
              $3.9 million and $11.9 million, accrued interest of
              $0.2 million and $0.3 million, of which $0.1 million has been
              capitalized to the principal balance of the loan, repaid
              accrued interest of $0.1 million and $0.1 million, and repaid
              outstanding principal of $0.1 million and $0.1 million,
              respectively, such that at June 30, 2007, $12.3 million was
              outstanding under this project financing arrangement, including
              $0.1 million of accrued interest payable. During the three and
              six months ended June 30, 2007, the Company amortized a nominal
              amount and $0.1 million, respectively, of loan origination
              costs, such that at June 30, 2007, $0.5 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.


        (iv)  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 lands owned by Gulfstream Park and a charge over the Palm
              Meadows Training Center and contains cross-guarantee, cross-
              default and cross-collateralization provisions. During the
              three and six months ended June 30, 2007, the Company incurred
              interest expense of $0.8 million and $1.6 million, repaid
              accrued interest of $0.8 million and $1.3 million, and repaid
              outstanding principal of $1.5 million and $1.9 million,
              respectively, such that at June 30, 2007, $30.1 million was
              outstanding under this project financing arrangement, including
              $0.3 million of accrued interest payable. During the three and
              six months ended June 30, 2007, the Company amortized a nominal
              amount and $0.1 million, respectively, of loan origination
              costs, such that at June 30, 2007, $1.2 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.

        (b) At June 30, 2007, $5.6 million (December 31, 2006 - $6.5 million)
            of the funds the Company placed into escrow with MID remain in
            escrow.

        (c) 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 $17.6 million, net of tax, has been reported as a
            contribution of equity in contributed surplus.

        (d) On March 28, 2007, the Company sold a 157 acre parcel of excess
            land adjacent to the Palm Meadows Training Center, 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 $15.7 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.

        (e) On March 31, 2006, the Company sold a non-core real estate
            property located in the United States to Magna for total proceeds
            of $5.6 million, net of transaction costs. The gain on sale of
            the property of approximately $2.9 million, net of tax, has been
            reported as a contribution of equity in contributed surplus. In
            accordance with the terms of the senior secured revolving credit
            facility, the Company used the net proceeds from this transaction
            to repay principal amounts outstanding under this credit
            facility.

    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 a racetrack. 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 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. d/b/a 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. At the present time, the
            final outcome related to this action cannot be accurately
            determined by management.

        (d) At June 30, 2007, the Company has letters of credit issued with
            various financial institutions of $1.0 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 $24.7 million (refer
            to note 8(a)).

        (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, 2007, these indemnities amounted to $5.8 million with
            expiration dates through 2008.

        (f) Contractual commitments outstanding at June 30, 2007, which
            related to construction and development projects, amounted to
            approximately $3.9 million.

        (g) One of the Company's wholly-owned subsidiaries, SAC, entered into
            two interest rate swap contracts, one on March 1, 2007 and one on
            April 27, 2007, with an effective date of October 9, 2007, which
            fix the rate of interest at 6.98% and 7.06% per annum,
            respectively, to October 9, 2009 on a notional amount of
            $10.0 million per contract of the outstanding balance under the
            SAC term loan facility.

        (h) 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 HorseRacing TV(TM) ("HRTV(TM)"), 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 Group, LLC
            ("TrackNet Media"), a reciprocal content swap agreement and the
            purchase by CDI from the Company of a 50% interest in HRTV(TM).
            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 will also
            purchase 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
            will exchange their respective horse racing signals. To
            facilitate the sale of 50% of HRTV(TM) 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
            $0.8 million has been contributed to June 30, 2007.

        (i) On November 15, 2006, the Company opened phase one of the slots
            facility at Gulfstream Park with 516 slot machines and on
            March 20, 2007 the Company opened phase two of the slots facility
            at Gulfstream Park with an additional 705 slot machines. The
            Company opened the slots facilities despite an August 2006
            decision rendered by the Florida District Court of Appeals First
            District that reversed a lower court decision granting summary
            judgment in favor of "Floridians for a Level Playing Field"
            ("FLPF"), a group in which Gulfstream Park is a member. The Court
            ruled that a trial is necessary to determine whether the
            constitutional amendment adopting the slots initiative, approved
            by Floridians in the November 2004 election, was invalid because
            the petitions bringing the initiative forward did not contain the
            minimum number of valid signatures. FLPF filed an application for
            a rehearing, rehearing en banc before the full panel of the First
            District Court of Appeals and Certification by the Florida
            Supreme Court. On November 30, 2006, in a split decision, the en
            banc court affirmed the August 2006 panel decision and certified
            the matter to the Florida Supreme Court, which stayed the
            appellate court ruling pending its jurisdictional review of the
            matter. The Florida Supreme Court has confirmed that it will hear
            the matter and oral arguments are scheduled for September 17,
            2007. The Company believes that the August 2006 decision rendered
            by the Florida District Court of Appeals is incorrect, and
            accordingly, the Company has proceeded to open the slots
            facilities.

        (j) In May 2005, a Limited Liability Company Agreement was entered
            into with Forest City Enterprises, Inc. ("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, however, to June 30, 2007, the
            Company has not made any such contributions. In the event the
            development does not proceed, the Company may have an obligation
            to fund a portion of those pre-development costs incurred to that
            point in time. At June 30, 2007, approximately $17.4 million of
            costs have been incurred by The Village at Gulfstream Park, LLC,
            which have been funded entirely by Forest City. The Company has
            reflected its share of equity amounts in excess of $15.0 million,
            of approximately $1.2 million, as an obligation which is included
            in "other accrued liabilities" on the accompanying consolidated
            balance sheets. 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 late 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.


        (k) 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
            lands 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. If either Westfield or
            Arcadia First! is ultimately successful in its challenge,
            development efforts could potentially be delayed or suspended. To
            June 30, 2007, the Company has expended approximately
            $8.5 million on these initiatives, of which $2.2 million was paid
            during the six months ended June 30, 2007. 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, 2007, the Company has not
            made any such payments.

        (l) On January 18, 2007, the Company announced that the 2007 race
            meet will be the last meet that MI Racing, Inc., a wholly-owned
            subsidiary of the Company, will run at Great Lakes Downs. For the
            year ended December 31, 2006, Great Lakes Downs incurred a loss
            before income taxes of $1.8 million.

        (m) A subsidiary of the Company participates in a multi-employer
            defined benefit pension plan for which the pension plan's total
            vested liabilities exceed its assets. Based on allocation
            information provided by the plan, the portion of the estimated
            unfunded liability for vested benefits attributable to the
            Company's subsidiary is approximately $3.7 million. Under
            specific circumstances, a "withdrawal liability" may be triggered
            by certain actions, which includes withdrawal from the pension
            plan. The Company does not have any present intention to withdraw
            from the pension plan.

    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 the Palm Meadows
        Training Center; (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,
        Remington Park's racing and gaming operations and its off-track
        betting network; (5) Northern U.S. operations include The Meadows and
        its off-track betting network, Thistledown, Great Lakes Downs,
        Portland Meadows and the Oregon off-track betting network and the
        North American production and sales operations for StreuFex(TM); (6)
        European operations include Magna Racino(TM) and the European
        production and sales operations for StreuFex(TM); (7) PariMax
        operations include XpressBet(R), HRTV(TM) 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 include 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 Company's residential housing
        development. Comparative amounts reflected in segment information for
        the three and six months ended June 30, 2006 have been reclassified
        to reflect MagnaBet(TM) and RaceONTV(TM) in PariMax operations rather
        than in European 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" section
        of the Company's annual report on Form 10-K for the year ended
        December 31, 2006.

        The following summary presents key information about reported
        segments for the three and six months ended June 30, 2007 and 2006
        and as at June 30, 2007 and December 31, 2006:

                                 Three months ended        Six months ended
                                       June 30,                June 30,
                               ----------------------------------------------
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Revenues
        California operations  $  48,908   $  42,333   $ 159,746   $ 161,107
        Florida operations        21,096      10,997      98,556      78,667
        Maryland operations       43,226      43,697      69,569      71,735
        Southern U.S.
         operations               44,694      45,748      73,212      75,650
        Northern U.S.
         operations               23,532      24,822      43,667      46,769
        European operations        2,417       2,785       4,185       4,256
        PariMax operations        22,597       9,644      44,500      23,092
        ---------------------------------------------------------------------
                                 206,470     180,026     493,435     461,276
        Corporate and other           56          36         106          84
        Eliminations              (4,521)     (1,896)     (9,195)     (7,143)
        ---------------------------------------------------------------------
        Total racing and
         gaming operations       202,005     178,166     484,346     454,217
        Total real estate and
         other operations          1,058       1,550       2,891       3,025
        ---------------------------------------------------------------------
        Total revenues         $ 203,063   $ 179,716   $ 487,237   $ 457,242
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                                 Three months ended        Six months ended
                                       June 30,                June 30,
                               ----------------------------------------------
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Earnings (loss)
         before interest,
         income taxes,
         depreciation and
         amortization
         ("EBITDA")
        California operations  $   3,244   $   2,584   $  20,063   $  22,688
        Florida operations        (6,275)     (3,092)      5,283      10,426
        Maryland operations        9,829       9,929       9,791       9,939
        Southern U.S.
         operations                5,632       7,345       7,041       9,517
        Northern U.S.
         operations               (1,038)       (350)     (1,622)       (286)
        European operations       (1,659)     (3,330)     (2,866)     (5,824)
        PariMax operations         1,304      (2,769)      2,751      (2,525)
        ---------------------------------------------------------------------
                                  11,037      10,317      40,441      43,935
        Corporate and other       (6,906)     (7,942)    (12,100)    (15,234)
        Predevelopment,
         pre-opening and
         other costs                (888)     (1,660)     (1,418)     (3,094)
        ---------------------------------------------------------------------
        Total racing and
         gaming operations         3,243         715      26,923      25,607
        Total real estate and
         other operations            216         580         752         688
        ---------------------------------------------------------------------
        Total EBITDA           $   3,459   $   1,295   $  27,675   $  26,295
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Reconciliation of EBITDA to Net Loss

                                            Three months ended June 30, 2007
                                         ------------------------------------
                                            Racing   Real Estate
                                          and Gaming   and Other
                                          Operations  Operations       Total
        ---------------------------------------------------------------------

        EBITDA from continuing
         operations                        $   3,243   $     216   $   3,459
        Interest expense, net                 12,118          49      12,167
        Depreciation and amortization         10,791           8      10,799
        ---------------------------------------------------------------------
        Income (loss) from continuing
         operations before income taxes    $ (19,666)  $     159     (19,507)
        Income tax expense                                             3,930
        ---------------------------------------------------------------------
        Net loss                                                   $ (23,437)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                                            Three months ended June 30, 2006
                                         ------------------------------------
                                            Racing   Real Estate
                                          and Gaming   and Other
                                          Operations  Operations       Total
        ---------------------------------------------------------------------

        EBITDA from continuing operations  $     715   $     580   $   1,295
        Interest expense (income), net        15,614        (164)     15,450
        Depreciation and amortization         10,040          10      10,050
        ---------------------------------------------------------------------
        Income (loss) from continuing
         operations before income taxes    $ (24,939)  $     734     (24,205)
        Income tax expense                                             3,126
        ---------------------------------------------------------------------
        Loss from continuing operations                              (27,331)
        Income from discontinued operations                              993
        ---------------------------------------------------------------------
        Net loss                                                   $ (26,338)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                                              Six months ended June 30, 2007
                                         ------------------------------------
                                            Racing   Real Estate
                                          and Gaming   and Other
                                          Operations  Operations       Total
        ---------------------------------------------------------------------

        EBITDA from continuing
         operations                        $  26,923   $     752   $  27,675
        Interest expense, net                 24,591          77      24,668
        Depreciation and amortization         21,197          16      21,213
        ---------------------------------------------------------------------
        Income (loss) from continuing
         operations before income taxes    $ (18,865)  $     659     (18,206)
        Income tax expense                                             2,762
        ---------------------------------------------------------------------
        Net loss                                                   $ (20,968)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

                                              Six months ended June 30, 2006
                                         ------------------------------------
                                            Racing   Real Estate
                                          and Gaming   and Other
                                          Operations  Operations       Total
        ---------------------------------------------------------------------

        EBITDA from continuing operations  $  25,607   $     688   $  26,295
        Interest expense (income), net        29,195        (331)     28,864
        Depreciation and amortization         19,975          24      19,999
        ---------------------------------------------------------------------
        Income (loss) from continuing
         operations before income taxes    $ (23,563)  $     995     (22,568)
        Income tax expense                                             2,415
        ---------------------------------------------------------------------
        Loss from continuing operations                              (24,983)
        Income from discontinued operations                              857
        ---------------------------------------------------------------------
        Net loss                                                   $ (24,126)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                                                        June 30, December 31,
                                                           2007         2006
        ---------------------------------------------------------------------
        Total Assets
        California operations                       $   284,414  $   309,443
        Florida operations                              364,994      361,550
        Maryland operations                             167,292      171,135
        Southern U.S. operations                        144,215      141,213
        Northern U.S. operations                         48,654       46,913
        European operations                              54,014       55,624
        PariMax operations                               46,394       41,625
        ---------------------------------------------------------------------
                                                      1,109,977    1,127,503
        Corporate and other                              95,529       85,498
        ---------------------------------------------------------------------
        Total racing and gaming operations            1,205,506    1,213,001

        Total real estate and other operations            9,554       33,884
        ---------------------------------------------------------------------
        Total assets                                $ 1,215,060  $ 1,246,885
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    16. Subsequent Events

        (a) On August 9, 2007, the Company announced that its Board of
            Directors had approved a number of actions designed to reduce
            debt and improve the profitability of the Company. These
            initiatives include the relinquishment of the Company's racing
            license in Romulus, Michigan, termination of its development
            plans for Dixon, California and listing the property for sale,
            the cessation of racing at Magna Racino(TM) in Austria at the
            conclusion of its current meet in November 2007 and the listing
            of real estate properties in Ocala, Florida and Porter, New York
            for sale. The Company expects that the total gross proceeds from
            these disposals will exceed the aggregate net book value of these
            assets, which was approximately $71.0 million at June 30, 2007.
            The Company also announced that it has engaged Greenbrook Capital
            Partners Inc. ("Greenbrook") to conduct a strategic review of the
            Company and develop a plan to substantially reduce debt and
            improve profitability. The strategic review will be led by
            Greenbrook's Senior Partner, Tom Hodgson, a former President and
            Chief Executive Officer of the Company. Greenbrook expects to
            make its report to the Board of Directors in early September,
            following which the Company will provide a further update.

        (b) On July 24, 2007, one of the Company's European subsidiaries
            amended and extended its Euros 3.9 million bank term loan by
            increasing the amount available under the bank term loan to
            Euros 4.0 million, bearing interest at the Euro Overnight Index
            Average rate plus 3.0% per annum, and extending the term to
            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

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MAGNA ENTERTAINMENT CORP.

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