In announcing these results, Frank Stronach, Chairman and Interim Chief Executive Officer of MEC, remarked: "Our second quarter's EBITDA is marginally below the prior year as operational improvements and EBITDA gains were more than offset by severance costs, asset write-offs and other charges. While EBITDA is positive, net loss from continuing operations continues to be impacted by significant interest charges. We remain focused on reducing debt in the months ahead, and with the expected collection in the fourth quarter of 2006 of the $175.0 million note from the sale of The Meadows, the proceeds of which will primarily be used to repay debt, we expect that our balance sheet will be much stronger by year end."

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.

Our financial results for the three and six months ended June 30, 2006 reflect the full quarter's operations for all of MEC's racetracks and related pari-mutuel wagering operations. Discontinued operations for the three and six months ended June 30, 2006 include the operations of a restaurant and related real estate in the United States, the sale of which was completed on May 26, 2006. Discontinued operations for the three and six months ended June 30, 2005 include the operations of the above noted restaurant and related real estate in the United States, Flamboro Downs, the sale of which was completed on October 19, 2005, and Maryland-Virginia Racing Circuit, Inc., the sale of which was completed on September 30, 2005.

Revenues were $184.8 million in the three months ended June 30, 2006, compared to $168.3 million in the three months ended June 30, 2005, an increase of $16.5 million or 9.8%. The increased revenues were primarily a result of:

- Southern U.S. operations revenues above the prior year period by

$12.5 million due to gaming revenues at the Remington Park casino

facility, which opened in November 2005, partially offset by

decreased handle and revenues at Lone Star Park due to five fewer

live race days this quarter compared to the prior year and increased

competition from racetracks in surrounding states and internet

wagering operations;

- Maryland operations revenues above the prior year period by $2.1

million due to increased food and beverage revenues from Maryland

Turf Caterers, the food and beverage operations at Laurel Park and

Pimlico, which was acquired in September 2005. These operations are

now being consolidated into the Maryland operations, whereas

previously the operations were accounted for on an equity basis;

- California operations revenues above the prior year period by $2.0

million due to increased handle and wagering revenues at Santa Anita

Park as a result of four additional live race days this quarter

compared to the prior year, partially offset by a change in the

racing calendar at Golden Gate Fields, which resulted in four fewer

live race days this quarter compared to the prior year; and

- European operations revenues above the prior year period by $1.2

million due to increased wagering revenues at MagnaBet(TM), our

European account wagering platform.

Revenues were $465.2 million in the six months ended June 30, 2006, an increase of $52.3 million or 12.7% compared to $412.9 million for the six months ended June 30, 2005. The increased revenues in the six months ended June 30, 2006 compared to the prior year comparative period are primarily due to the same factors noted above for the three months ended June 30, 2006, except that for the six months ended June 30, 2006, revenues at Golden Gate Fields increased from the prior year comparative period due to a change in the racing calendar whereby live race days were increased from 50 days in the six months ended June 30, 2005 to 65 days in the six months ended June 30, 2006. Our Florida operations also experienced increased revenues due to the opening of the new clubhouse facility at Gulfstream Park.

EBITDA of $2.8 million in the three months ended June 30, 2006 was relatively consistent with the prior year comparative period of $3.0 million, but is impacted by the following:

- Southern U.S. operations above the prior year period by $2.0 million

due to the opening of the casino facility at Remington Park in

November 2005, which contributed $4.1 million in EBITDA this quarter,

partially offset by increased costs in Remington Park's racing

operations due to eight more live race days this quarter compared to

the prior year and decreased revenues at Lone Star Park;

- European operations above the prior year by $1.8 million due to

increased wagering revenues at MagnaBet(TM) and cost reduction

initiatives at all European operations; partially offset by

- Corporate office below the prior year period by $2.9 million due to

severance costs and increased professional fees, stock-based

compensation expense and bank charges; and

- Technology operations below the prior year period by $2.6 million due

to adjustments recorded at XpressBet(R) this quarter related to asset

write-offs and increased accruals.

EBITDA of $28.9 million for the six months ended June 30, 2006 increased $14.2 million or 97.4% from $14.6 million in the six months ended June 30, 2005. The improvement in EBITDA is primarily a result of the same factors noted above which affected EBITDA in the second quarter combined with improvement in our California and Florida operations primarily due to revenue increases as noted above.

Net loss from continuing operations for the three months ended June 30, 2006 was $27.4 million compared to a loss of $17.5 million in the three months ended June 30, 2005. The increased net loss is due to increased interest expense on our Gulfstream Park and Remington Park project financings and bridge loan facility with our parent company, MI Developments Inc., and increased depreciation expense primarily as a result of the opening of the new clubhouse facility at Gulfstream Park in the first quarter of 2006 and the opening of the Remington Park casino facility in November 2005. Net loss from continuing operations in the six months ended June 30, 2006 of $25.3 million increased from a loss of $22.3 million in the six months ended June 30, 2005 as EBITDA improvements in the period were offset by increased interest and depreciation for reasons noted above.

In the three months ended June 30, 2006, cash used in operations before changes in non-cash working capital was $10.5 million, compared to $8.2 million in the three months ended June 30, 2005, primarily due to the increased net loss in the current year period, partially offset by an increase in items not involving current cash flows. Total cash used in investment activities during the three months ended June 30, 2006 was $23.3 million, which included real estate property, fixed and other asset additions of $24.7 million, partially offset by proceeds on the sale of real estate properties and fixed assets of $1.4 million. Total cash provided from financing activities in the three months ended June 30, 2006 was $9.9 million, which included $18.4 million of cash proceeds received from long-term debt with our parent and the issuance of other long-term debt of $5.2 million, partially offset by repayments of long-term debt of $6.4 million, repayment of bank indebtedness of $5.5 million and repayment of long-term debt with our parent of $1.8 million.

We will hold a conference call to discuss our second quarter results on Thursday August 3, 2006 at 10:00 a.m. Eastern Standard time. The number to use for this call is 1-877-871-4098. Please call 10 minutes prior to the start of the conference call. The dial-in number for overseas callers is 416-620-8834. Frank Stronach, Chairman and Interim Chief Executive Officer of MEC, will chair the conference call. 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.

This press release contains "forward-looking statements" within the meaning of applicable securities legislation, including the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. These forward-looking statements may include, among others, statements regarding: our strategies and plans; 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; estimates of costs relating to environmental remediation and restoration; proposed new racetracks or other developments, products and services; expectations as to the timing and receipt of government approvals and regulatory changes in gaming and other racing laws and regulations; expectations that claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements, or other matters will not have a material adverse effect on our consolidated financial position, operating results, prospects or liquidity; projections, predictions, expectations, estimates, beliefs or forecasts as to our financial and operating results and future economic performance; and other matters that are not historical facts.

Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or the times at or by which such performance or results will be achieved. Undue reliance should not be placed on such statements. Forward-looking statements are based on information available at the time and/or management's good faith assumptions and analyses made in light of our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances and are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond 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 information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. 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.

MEC, North America's number one owner and operator of horse racetracks, based on revenues, acquires, develops, and operates horse racetracks and related casino and pari-mutuel wagering operations, including off-track betting facilities. Additionally, MEC owns and operates XpressBet(R), a national Internet and telephone account wagering system, and Horse Racing TV(TM), a 24-hour horse racing television network.

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,

--------------------------------------------

2006 2005 2006 2005

-------------------------------------------------------------------------

(restated (restated

- note 4) - note 4)

Revenues

Racing and gaming

Pari-mutuel wagering $ 124,621 $ 125,261 $ 355,040 $ 339,236

Gaming 14,649 - 29,489 -

Non-wagering 38,896 35,803 69,688 61,610

-------------------------------------------------------------------------

178,166 161,064 454,217 400,846

-------------------------------------------------------------------------

Real estate and other

Golf and other 6,654 7,277 10,989 12,061

-------------------------------------------------------------------------

184,820 168,341 465,206 412,907

-------------------------------------------------------------------------

Costs and expenses

Racing and gaming

Pari-mutuel purses, awards

and other 77,085 74,740 222,629 209,564

Gaming taxes, purses and

other 7,445 - 14,366 -

Operating costs 74,000 68,736 154,502 143,468

General and administrative 17,453 15,108 34,229 31,905

-------------------------------------------------------------------------

175,983 158,584 425,726 384,937

-------------------------------------------------------------------------

Real estate and other

Operating costs 4,267 5,275 7,159 7,342

General and administrative 342 304 587 703

-------------------------------------------------------------------------

4,609 5,579 7,746 8,045

-------------------------------------------------------------------------

Predevelopment, pre-opening

and other costs 1,660 1,610 3,094 5,829

Depreciation and amortization 10,788 9,614 21,436 19,298

Interest expense, net 16,136 7,714 30,208 15,165

Equity income (192) (430) (210) (517)

-------------------------------------------------------------------------

208,984 182,671 488,000 432,757

-------------------------------------------------------------------------

Loss from continuing

operations before income

taxes (24,164) (14,330) (22,794) (19,850)

Income tax expense 3,230 3,215 2,494 2,482

-------------------------------------------------------------------------

Net loss from continuing

operations (27,394) (17,545) (25,288) (22,332)

Net income (loss) from

discontinued operations 1,056 (9,359) 1,162 (8,692)

-------------------------------------------------------------------------

Net loss (26,338) (26,904) (24,126) (31,024)

Other comprehensive income

(loss)

Foreign currency translation

adjustment 5,591 (7,488) 7,278 (14,260)

Change in fair value of

interest rate swap 26 (132) 100 257

-------------------------------------------------------------------------

Comprehensive loss $ (20,721) $ (34,524) $ (16,748) $ (45,027)

-------------------------------------------------------------------------

Earnings (loss) per share for

Class A Subordinate

Voting Stock or Class B

Stock:

Basic and Diluted

Continuing operations $ (0.26) $ (0.16) $ (0.23) $ (0.21)

Discontinued operations 0.01 (0.09) 0.01 (0.08)

-------------------------------------------------------------------------

Loss per share $ (0.25) $ (0.25) $ (0.22) $ (0.29)

-------------------------------------------------------------------------

Average number of shares of

Class A Subordinate

Voting Stock or Class B

Stock outstanding during

the period (in thousands):

Basic and Diluted 107,463 107,359 107,419 107,353

-------------------------------------------------------------------------

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,

--------------------------------------------

2006 2005 2006 2005

-------------------------------------------------------------------------

(restated (restated

- note 4) - note 4)

Cash provided from (used for):

Operating activities

Net loss from continuing

operations $ (27,394) $ (17,545) $ (25,288) $ (22,332)

Items not involving current

cash flows 16,889 9,309 33,699 14,255

-------------------------------------------------------------------------

(10,505) (8,236) 8,411 (8,077)

Changes in non-cash working

capital balances 3,361 5,885 (18,992) (7,936)

-------------------------------------------------------------------------

(7,144) (2,351) (10,581) (16,013)

-------------------------------------------------------------------------

Investing activities

Real estate property and

fixed asset additions (23,777) (24,192) (56,422) (46,340)

Other asset additions (944) (558) (851) (666)

Proceeds on disposal of

real estate properties

and fixed assets 1,388 2,021 2,825 3,631

Proceeds on real estate

sold to a related party - 1,400 5,578 1,400

-------------------------------------------------------------------------

(23,333) (21,329) (48,870) (41,975)

-------------------------------------------------------------------------

Financing activities

Decrease in bank indebtedness (5,500) - (5,500) (500)

Proceeds from advances and

long-term debt with parent 18,444 8,666 60,577 20,096

Repayment of advances and

long-term debt with parent (1,800) - (1,800) -

Issuance of long-term debt 5,207 16,465 5,207 27,505

Repayment of long-term debt (6,438) (1,707) (15,725) (3,452)

-------------------------------------------------------------------------

9,913 23,424 42,759 43,649

-------------------------------------------------------------------------

Effect of exchange rate

changes on cash and

cash equivalents 112 355 196 (558)

-------------------------------------------------------------------------

Net cash flows provided from

(used for) continuing

operations (20,452) 99 (16,496) (14,897)

Net cash flows provided from

(used for) discontinued

operations 1,214 (1,979) 1,405 (262)

-------------------------------------------------------------------------

Net decrease in cash and

cash equivalents during

the period (19,238) (1,880) (15,091) (15,159)

Cash and cash equivalents,

beginning of period 55,029 46,726 50,882 60,005

-------------------------------------------------------------------------

Cash and cash equivalents,

end of period $ 35,791 $ 44,846 $ 35,791 $ 44,846

-------------------------------------------------------------------------

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,

2006 2005

-------------------------------------------------------------------------

(restated -

notes 3 & 4)

ASSETS

-------------------------------------------------------------------------

Current assets:

Cash and cash equivalents $ 35,791 $ 50,882

Restricted cash 24,041 24,776

Accounts receivable 56,364 51,918

Prepaid expenses and other 12,137 7,369

Assets held for sale 79,890 79,312

Discontinued operations - 254

-------------------------------------------------------------------------

208,223 214,511

-------------------------------------------------------------------------

Real estate properties, net 989,897 960,449

Fixed assets, net 69,524 61,672

Racing licenses 109,868 109,868

Other assets, net 15,296 14,976

Future tax assets 54,161 52,439

Discontinued operations - 362

-------------------------------------------------------------------------

$ 1,446,969 $ 1,414,277

-------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

-------------------------------------------------------------------------

Current liabilities:

Bank indebtedness $ 24,994 $ 30,260

Accounts payable 63,853 63,201

Accrued salaries and wages 9,047 8,187

Customer deposits 2,504 2,549

Other accrued liabilities 46,574 68,762

Income taxes payable 2,023 3,825

Long-term debt due within one year 59,416 38,033

Due to parent 100,045 72,060

Deferred revenue 11,908 8,846

Liabilities related to assets held for sale 27,797 27,737

Discontinued operations - 373

-------------------------------------------------------------------------

348,161 323,833

-------------------------------------------------------------------------

Long-term debt 156,758 182,830

Long-term debt due to parent 155,408 113,500

Convertible subordinated notes 220,892 220,347

Other long-term liabilities 13,213 12,872

Future tax liabilities 105,043 101,301

-------------------------------------------------------------------------

999,475 954,683

-------------------------------------------------------------------------

Shareholders' equity:

Class A Subordinate Voting Stock

(Issued: 2006 - 48,999; 2005 - 48,895) 318,809 318,105

Class B Stock

(Issued: 2006 and 2005 - 58,466) 394,094 394,094

Contributed surplus 20,826 17,943

Other paid-in-capital 1,061 -

Deficit (333,073) (308,947)

Accumulated comprehensive income 45,777 38,399

-------------------------------------------------------------------------

447,494 459,594

-------------------------------------------------------------------------

$ 1,446,969 $ 1,414,277

-------------------------------------------------------------------------

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. Summary of Significant Accounting Policies

Going Concern

These financial statements 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 a working capital deficiency of $139.9

million as at June 30, 2006. 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 and maintain its obligations with respect

to secured and unsecured creditors, neither of which is assured. On

November 9, 2005, the Company announced that it had entered into a

share purchase agreement with PA Meadows, LLC and a fund managed by

Oaktree Capital Management, LLC (together, "Millenium-Oaktree")

providing for the acquisition by Millenium-Oaktree of all of the

outstanding shares of the Company's wholly-owned subsidiaries through

which the Company currently owns and operates The Meadows, a

standardbred racetrack in Pennsylvania. The share purchase agreement

was amended on July 26, 2006 (refer to Note 13(d)) to reflect the

issuance of two notes representing the purchase price in the amounts

of $175.0 million (the "First Note") and $25.0 million (the "Second

Note"). The First Note will be repaid within 35 days of the earlier

of the approval of the issuance of the gaming license provided that

Millenium-Oaktree's lenders are reasonably satisfied with the

conditions imposed by the Pennsylvania Gaming Control Board ("PGCB")

or issuance of the gaming license. At the time the First Note is

repaid, the Second Note, which secures the holdback amount, will be

replaced with a letter of credit or corporate guaranty. Funds

received on the repayment of the First Note will be used to repay the

bridge loan with the Company's parent, MI Developments Inc. ("MID"),

which matures on December 5, 2006. Funds received on repayment of the

First Note will also be used to repay, in part, the Company's senior

secured credit facility, which matures on November 6, 2006, unless

further extended with the consent of both parties. Although, the

Company expects Millenium-Oaktree to receive approval of the issuance

of the gaming license and repay the First Note before the end of

October 2006, there is still uncertainty as to the timing of approval

of the issuance of a gaming license, which is largely dependant on

the applicable Pennsylvania regulatory approval process. The Company

is also continuing to pursue other funding sources in connection with

the previously announced Recapitalization Plan, which may include

further asset sales, partnerships and raising equity. However, the

successful realization of these efforts is not determinable at this

time. These 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 accompanying financial statements.

Basis of Presentation

The accompanying unaudited 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

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, 2005.

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 revenue and operating results.

Comparative Amounts

Certain of the comparative amounts have been reclassified to reflect

discontinued operations and changes in assets held for sale.

2. Accounting Change

Prior to January 1, 2006, the Company accounted for stock-based

compensation under the recognition and measurement provisions of APB

Opinion No. 25, Accounting for Stock Issued to Employees, and related

Interpretations, as permitted by FASB Statement No. 123 ("SFAS 123"),

Accounting for Stock-Based Compensation. No stock-based compensation

expense was recognized in the accompanying unaudited consolidated

statements of operations and comprehensive loss related to stock

options for the three and six months ended June 30, 2005 as all

options granted had an exercise price no less than the fair market

value of the Company's Class A Subordinate Voting Stock at the date

of grant.

Effective January 1, 2006, the Company adopted the fair value

recognition provisions of FASB Statement No. 123(R) ("SFAS 123(R)"),

Share-Based Payment, using the modified-prospective method. Under the

modified-prospective method, compensation expense recognized in the

three and six months ended June 30, 2006, includes: (a) compensation

expense for all share-based payments granted prior to, but not yet

vested as of January 1, 2006, based on the grant-date fair value

estimated in accordance with the original provisions of SFAS 123, and

(b) compensation expense for all share-based payments granted

subsequent to January 1, 2006, based on the grant-date fair value

estimated in accordance with the provisions of SFAS 123(R). Results

for the three and six months ended June 30, 2005, have not been

restated.

The Company's net loss from continuing operations and net loss for

the three months ended June 30, 2006 would have been $27.1 million

and $26.0 million, respectively, if the Company had not adopted SFAS

123(R) on January 1, 2006 and continued to account for share-based

compensation under APB Opinion No. 25 compared to reported net loss

from continuing operations and net loss of $27.4 million and

$26.3 million, respectively and basic and diluted loss per share for

the three months ended June 30, 2006 would have been $0.24, compared

to reported basic and diluted loss per share of $0.25.

The Company's net loss from continuing operations and net loss for

the six months ended June 30, 2006 would have been $24.2 million and

$23.1 million, respectively, if the Company had not adopted SFAS

123(R) on January 1, 2006 and continued to account for share-based

compensation under APB Opinion No. 25 compared to reported net loss

from continuing operations and net loss of $25.3 million and

$24.1 million, respectively and basic and diluted loss per share for

the six months ended June 30, 2006 would have been $0.21 compared to

a reported basic and diluted loss per share of $0.22.

As a result of the adoption of SFAS 123(R), for the three and six

months ended June 30, 2006, the Company recognized $0.3 million and

$1.1 million, respectively, of stock-based compensation expense

related to stock options which has been recorded on the accompanying

unaudited consolidated balance sheets as "other paid-in-capital". The

Company has estimated a nominal annual effective tax rate for the

entire year (refer to Note 5) and accordingly has applied this

effective tax rate to the stock-based compensation expense recognized

for the three and six months ended June 30, 2006, resulting in a

nominal income tax impact related to stock-based compensation

expense.

The pro-forma impact on net loss and loss per share if the Company

had applied the fair value recognition provisions of SFAS 123 to

stock-based compensation for the three and six months ended June 30,

2005 is as follows:

Three Six

months months

ended ended

June 30, June 30,

2005 2005

---------------------------------------------------------------------

Net loss, as reported $ (26,904) $ (31,024)

Pro-forma stock compensation expense

determined under the fair value method,

net of tax (387) (596)

---------------------------------------------------------------------

Pro-forma net loss $ (27,291) $ (31,620)

---------------------------------------------------------------------

Loss per share

Basic - as reported $ (0.25) $ (0.29)

Basic - pro-forma $ (0.25) $ (0.29)

---------------------------------------------------------------------

Diluted - as reported $ (0.25) $ (0.29)

Diluted - pro-forma $ (0.25) $ (0.29)

---------------------------------------------------------------------

3. Assets Held for Sale

(a) On November 3, 2005, the Company announced that one of its

subsidiaries that owns approximately 157 acres of excess real

estate in Palm Beach County, Florida had entered into an

agreement to sell the real property to Toll Bros., Inc. (the

"purchaser"), a Pennsylvania real estate development company for

$51.0 million in cash. The proposed sale was subject to the

completion of due diligence by the purchaser by April 3, 2006 and

a closing by April 28, 2006. On April 3, 2006, the Company

announced the termination of the sale agreement and, as such, the

purchaser was not proceeding with the proposed sale as stipulated

in the agreement. Upon termination of this agreement, a mortgage

in favor of MID was registered against the property under the

terms of the bridge loan. The Company is considering its options

with respect to this property. The Company has determined that

the plan of sale criteria under FASB Statement No.144, Accounting

for Impairment or Disposal of Long-Lived Assets, are no longer

met and accordingly, the property has been reclassified to

reflect the carrying amount of the property in "real estate

properties, net" rather than in "assets held for sale" on the

accompanying unaudited consolidated balance sheets.

(b) On November 9, 2005, the Company announced that it had entered

into a share purchase agreement (the "Initial SPA") with 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"), providing for the acquisition by Millennium-Oaktree of

all of the outstanding shares of Washington Trotting Association,

Inc., Mountain Laurel Racing, Inc. and MEC Pennsylvania Racing,

Inc. (collectively "The Meadows Entities"), each wholly-owned

subsidiaries of the Company, through which the Company currently

owns and operates The Meadows, a standardbred racetrack in

Pennsylvania. Under the terms of the Initial SPA, Millennium-

Oaktree would pay the Company $225.0 million and the Company will

continue to manage the racing operations at The Meadows on behalf

of Millennium-Oaktree pursuant to a minimum five-year racing

services agreement. The purchase price is payable in cash at

closing, subject to a holdback amount of $39.0 million, which is

to be released over time in accordance with the terms of the

Initial SPA (refer to Note 13(d)).

June 30, 2006 and December 31, 2005 are shown below. All assets

held for sale and related liabilities have been classified as

current at June 30, 2006 and December 31, 2005 as the assets and

related liabilities described in section (b) above are expected

to be sold within one year from the balance sheet date.

June 30, December 31,

2006 2005

-----------------------------------------------------------------

ASSETS

-----------------------------------------------------------------

Current assets:

Restricted cash $ 492 $ 443

Accounts receivable 281 450

Income taxes receivable 1,320 857

Prepaid expenses and other 724 969

Real estate properties, net 16,485 16,154

Fixed assets, net 1,677 1,576

Racing license 58,266 58,266

Other assets, net 200 200

Future tax assets 445 397

-----------------------------------------------------------------

$ 79,890 $ 79,312

-----------------------------------------------------------------

LIABILITIES

-----------------------------------------------------------------

Current liabilities:

Accounts payable $ 2,262 $ 2,012

Accrued salaries and wages 33 44

Other accrued liabilities 708 623

Deferred revenue 36 312

Future tax liabilities 24,758 24,746

-----------------------------------------------------------------

$ 27,797 $ 27,737

-----------------------------------------------------------------

(d) In accordance with the terms of the senior secured revolving

credit facility and the Company's bridge loan agreement with MID,

the Company is required to use the net proceeds from the sale of

The Meadows, as described in section (b) above, to fully pay down

principal amounts outstanding under the bridge loan and to

permanently pay down a portion of the principal amounts

outstanding under the senior secured revolving credit facility up

to $12.0 million (refer to Note 13(a)).

4. Discontinued Operations

(a) 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 on disposition of approximately $1.5 million.

The terms of the senior secured revolving credit facility require

that the Company use the net proceeds from this transaction to

repay principal amounts outstanding under that credit facility.

(b) On August 16, 2005, the Company and Great Canadian Gaming

Corporation ("GCGC") entered into a share purchase agreement

under which GCGC acquired all of the outstanding shares of

Ontario Racing, Inc. ("ORI"). Required regulatory approval for

the sale transaction was obtained on October 17, 2005 and the

Company completed the transaction on October 19, 2005. On

closing, GCGC paid Cdn. $50.7 million and U.S. $23.6 million, in

cash and assumed ORI's existing debt.

into a share purchase agreement with Colonial Downs, L.P.

("Colonial LP") pursuant to which Colonial LP purchased all of

the outstanding shares of Maryland-Virginia Racing Circuit, Inc.

("MVRC"). MVRC was an indirect subsidiary of the Company that

managed the operations of Colonial Downs, a thoroughbred and

standardbred horse racetrack located in New Kent, Virginia,

pursuant to a management agreement with Colonial LP, the owner of

Colonial Downs. Required regulatory approval for the sale

transaction was obtained on September 28, 2005 and the Company

completed the transaction on September 30, 2005. On closing, the

Company received cash consideration of $6.8 million, net of

transaction costs, and a one-year interest-bearing note in the

principal amount of $3.0 million, which is included in accounts

receivable on the accompanying unaudited consolidated balance

sheets.

(d) The Company's results of operations and cash flows related to

discontinued operations for the three and six months ended

June 30, 2006 and 2005 is as follows:

Three months ended Six months ended

June 30, June 30,

-------------------------------------------

2006 2005 2006 2005

-------------------------------------------

Results of Operations

Revenues $ 480 $ 7,662 $ 1,564 $ 15,458

Costs and expenses 510 5,723 1,416 11,566

-----------------------------------------------------------------

(30) 1,939 148 3,892

Depreciation and

amortization 2 249 4 517

Interest expense

(income), net (2) 619 (3) 1,253

Write-down of racing

license - 12,290 - 12,290

-----------------------------------------------------------------

Income (loss) before

gain on disposition (30) (11,219) 147 (10,168)

Gain on disposition 1,495 - 1,495 -

-----------------------------------------------------------------

Income (loss) before

income taxes 1,465 (11,219) 1,642 (10,168)

Income tax expense

(benefit) 409 (1,860) 480 (1,476)

-----------------------------------------------------------------

Net income (loss) $ 1,056 $ (9,359) $ 1,162 $ (8,692)

-----------------------------------------------------------------

Cash Flows

Operating activities $ (784) $ (909) $ (593) $ 1,332

Investing activities 1,998 353 1,998 141

Financing activities - (2,019) - (2,019)

-----------------------------------------------------------------

Net cash flows during

the period from

operations 1,214 (2,575) 1,405 (546)

Payments from (to)

MEC's continuing

operations (1,214) 1,979 (1,405) 262

-----------------------------------------------------------------

Net decrease in cash

and cash equivalents

during the period - (596) - (284)

Cash and cash

equivalents, beginning

of period - 948 - 636

-----------------------------------------------------------------

Cash and cash

equivalents, end of

period $ - $ 352 $ - $ 352

-----------------------------------------------------------------

The Company's assets and liabilities related to discontinued

operations as at June 30, 2006 and December 31, 2005 are as

follows:

June 30, December 31,

2006 2005

-----------------------------------------------------------------

ASSETS

-----------------------------------------------------------------

Current assets:

Income taxes receivable $ - $ 32

Prepaid expenses and other - 222

-----------------------------------------------------------------

- 254

-----------------------------------------------------------------

Fixed assets, net - 344

Future tax assets - 18

-----------------------------------------------------------------

$ - $ 616

-----------------------------------------------------------------

LIABILITIES

-----------------------------------------------------------------

Current liabilities:

Accounts payable $ - $ 181

Accrued salaries and wages - 67

Other accrued liabilities - 125

-----------------------------------------------------------------

$ - $ 373

-----------------------------------------------------------------

5. 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, 2006 and 2005, resulting in an income tax

expense of $3.2 million and $2.5 million for the three and six months

ended June 30, 2006 and 2005, respectively. The income tax expense

for the three and six months ended June 30, 2006 and 2005 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.

6. Bank Indebtedness

(a) The Company has a $50.0 million senior secured revolving credit

facility, which expires on July 31, 2006. The credit facility is

available by way of U.S. dollar loans and letters of credit for

general corporate purposes. 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,

2006, the Company had borrowings of $21.8 million (December 31,

2005 - $27.3 million), had issued letters of credit totaling

$21.9 million (December 31, 2005 - $21.7 million) and had

permanently repaid principal amounts outstanding of $5.5 million

under the credit facility, such that $0.8 million was unused and

available (refer to Note 13(a)).

The loans under the facility bear interest at either the U.S.

Base rate plus 3% or the London Interbank Offered Rate ("LIBOR")

plus 4%. The weighted average interest rate on the loans

outstanding under the credit facility as at June 30, 2006 was

9.3% (December 31, 2005 - 9.3%).

(b) One of the Company's European subsidiaries has a bank term line

of credit agreement of Euros 2.5 million (U.S. $3.2 million),

bearing interest at the European Interbank Offered Rate

("EURIBOR") plus 0.75% per annum (June 30, 2006 - 3.6 %). The

term line of credit is due on July 31, 2006. A European

subsidiary has provided two first mortgages on real estate as

security for this facility. At June 30, 2006, the bank term line

of credit is fully drawn (refer to Note 13(f)).

7. Long-term Debt

On November 17, 2005, a subsidiary of the Company entered into a loan

agreement with BE&K, Inc., the parent company of Suitt Construction

Co. Inc., the general contractor for the reconstruction of the

racetrack facilities at Gulfstream Park, for a loan of up to

$13.5 million to assist in the financing of costs as a result of

additional material and labor costs and changes in scope of work

related to the reconstruction. The loan agreement was amended on

June 30, 2006, and the loan amount was increased to $16.6 million.

The loan matures on July 31, 2007 and may be extended at the lender's

option to July 31, 2008. The loan bears interest at the U.S. prime

rate plus 0.40% per annum and may be repaid at any time, in whole or

in part, without penalty. Loans under the facility are secured by a

mortgage over land in Ocala, Florida and a guarantee of $5.0 million

by the Company. The Company is required to repay $2.0 million upon

closing of the sale of The Meadows, after repaying the MID bridge

loan and the $39.0 million required under the senior secured

revolving credit facility (refer to Note 13(a)), within 30 days after

the sale of The Meadows. On June 30, 2006, $5.2 million was advanced

under the loan facility.

8. Capital Stock and Long-Term Incentive Plan

(a) Capital Stock

Changes in the Class A Subordinate Voting Stock and Class B Stock

for the three and six months ended June 30, 2006 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, 2005 48,895 $318,105 58,466 $394,094 107,361 $712,199

Issued

under the

Long-term

Incentive

Plan 100 680 - - 100 680

-----------------------------------------------------------------

Issued and

outstanding

at March

31, 2006 48,995 318,785 58,466 394,094 107,461 712,879

Issued

under the

Long-term

Incentive

Plan 4 24 - - 4 24

-----------------------------------------------------------------

Issued and

outstanding

at June

30, 2006 48,999 $318,809 58,466 $394,094 107,465 $712,903

-----------------------------------------------------------------

Source: newswire

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