UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

For the fiscal year ended December 31, 1997

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 333-18295

COLONIAL DOWNS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


---------------------------------                       54-1826807
VIRGINIA                                             (I.R.S. Employer
(State or other jurisdiction of                      Identification No.)
incorporation or organization)

10515 Colonial Downs Parkway
New Kent, VA 23124
(Address of principal executive offices)

Registrant's telephone number, including area code 804-966-7223

Securities registered pursuant to Section 12(b)of the Act: None

Securities registered pursuant to Section 12(g) of the Act:


Title of Each Class on Which Registered                  Name of Each Exchange

Class A Common Stock par value .01 per share             NASDAQ National Market

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [ ] No [X]

Aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 26, 1998 was approximately $6,678,437.50

Number of Shares of Class A Common Stock outstanding as of March 26, 1998 -
5,000,000

Number of Shares of Class B Common Stock outstanding as of March 26, 1998-
2,250,000

Documents Incorporated by Reference

Registrant's Definitive Proxy Statement with respect to annual meeting of
Shareholders to be held on May 8, 1998.

This Annual Report contains forward-looking statements that inherently involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those discussed in this Annual Report. Statements
regarding anticipated arbitration, referenda, results of operations, liquidity,
the opening of additional Racing Centers, and certain other statements contained
in this report are forward-looking statements and, as such, involve known and
unknown risks, uncertainties, and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance, or achievements, expressed or implied by
such forward-looking statements. Such potential risks, uncertainties, and
factors include, but are not limited to, acts by parties outside the control of
the Corporation, including the Maryland Jockey Club and the Virginia Racing
Commission, political trends, the effects of adverse general economic
conditions, and governmental regulation, including licensing of additional
Racing Centers. The forward-looking statements contained herein speak only as of
the date of this report. References to "Colonial Downs Holdings" or the
"Company" include Colonial Downs Holdings, Inc. and its subsidiaries, Colonial
Downs, L.P., a Virginia limited partnership (the "Partnership"), and Stansley
Racing Corporation, a Virginia corporation ("Racing").


<PAGE>


                                     PART I

ITEM 1   BUSINESS

General

         The Company, which was incorporated in 1996, owns the sole licenses in
Virginia to own and operate a horse racing facility and up to six racing centers
("Racing Centers") at which pari-mutuel wagering is permitted. The Company
currently provides pari-mutuel wagering opportunities on both live and simulcast
thoroughbred and harness horse races at one racetrack and four Racing Centers.

         The Company owns and operates Colonial Downs Racetrack in New Kent,
Virginia (the "Track") and four Racing Centers located in Richmond, Chesapeake,
Brunswick, and Hampton, Virginia. The Company intends to develop two additional
Racing Centers that are authorized under Virginia law; however, each additional
Racing Center may only be developed in additional locations after a local
referendum approving a Racing Center in such locality and licenses are granted
by the Virginia Racing Commission (the "Commission").

         The Company conducts pari-mutuel wagering at all of its locations on
thoroughbred and harness races run at the Track and on simulcast broadcasts of
thoroughbred and harness races from other racetracks ("Import Simulcasting").
The Company also simulcasts races conducted at the Track for wagering at other
locations throughout the United States ("Export Simulcasting").

         Pari-mutuel wagering on thoroughbred or harness racing is pooled
wagering, in which a totalisator system totals the amounts wagered and adjusts
the odds on each horse to reflect the relative amounts wagered on each horse and
various possible outcomes. Under Virginia law, a portion of the pooled wagers is
retained by the wagering facility, a portion is paid to the applicable local
governments and Virginia, a portion is paid to the Virginia Breeders' Fund, and
a portion is distributed to the Track's horsemen in the form of "purses" which
encourage owners and trainers to enter their horses in races at the Track. The
balance of the pooled wagers is paid out to wagerers as winnings in accordance
with the payoffs determined by the totalisator system.

         The Company derives its revenue from wagers placed at the Track and its
Racing Centers, export simulcasting of its races, admissions to these
facilities, program sales, food and beverage sales, rental of suites and group
facilities at the Track and sponsorship income and advertising at the Track. In
Virginia, racetrack ownership and operation is a precondition to Racing Center
ownership and operation.

         The Company's plan is to open additional Racing Centers as attractive
opportunities arise. The Company will seek to increase the number of venues for
pari-mutuel wagering while simultaneously increasing the number of races
available for simulcast. The Company may seek legislative changes to allow more
than six Racing Centers in Virginia. In addition, the Company will actively seek
out export simulcast opportunities in other states. The Company plans to promote
attendance and wagering business at the Track and its Racing Centers by
introducing additional entertainment activities, including family fun days,
premium giveaway programs, contests and special events.

Strategy

         The Company intends to be a leading participant in the wagering
industry by capitalizing upon its unique dirt and turf track capabilities for
live racing, its horse racing expertise and expanding its wagering network.

Capitalizing upon the Track's Unique Racing Surfaces

         The Track's mile and a quarter dirt track is one of the largest tracks
in North America and its 180 foot wide mile turf track is the largest turf
course. These unique configurations are expected to attract quality horses to
the Track. The 1998 Breeders Crown, one of the premier North American
standardbred racing events, will be held at the Track in November 1998. The
inaugural Virginia Derby, a race for three-year old thoroughbreds, will be held
in October 1998 on the Company's turf course. The Company intends to develop the
Virginia Derby as a graded stakes race as a warm up to the Breeders' Cup. Both
the Breeders Crown and the Virginia Derby are expected to be televised on
national cable networks.

         By hosting and creating marquee racing events, the Company intends to
improve its market visibility, attract additional patrons to the Track and its
Racing Centers, and enhance its ancillary revenues from corporate sponsorship,
group sales events, and food and beverage sales.

Opening Additional Racing Centers

         The Company's goal is to expand its operations and increase its Racing
Center revenues by opening the two additional Racing Centers which are
authorized under the Virginia Racing Act. The Company intends to hold referenda
in localities that it perceives to be strategically located. Upon a positive
vote in a localities referenda, the Company intends to apply for licenses from
the Commission and to open two additional Racing Centers in Virginia.

Maintaining Quality Import Simulcasting and Increasing Export Simulcasting

         The Company intends to maintain the quality of the Import Simulcasting
races that it makes available for wagering by customers at the Track and Racing
Centers and to increase its revenues from the volume of Export Simulcasting of
Company races for wagering at the facilities of others. The Company believes
that by Import Simulcasting high quality races from nationally known racetracks
it can increase the number of wagerers as well as the size of the average wager.
The Company also intends to try to increase Export Simulcasting as a way of
increasing overall revenue. The Company plans to conduct evening thoroughbred
racing in 1998 at times when the Company's signal will encounter little
competition from other thoroughbred races.

Live Racing

         The Company ran its first thoroughbred meet from September 1, 1997
through October 12, 1997. Racing was conducted Wednesday through Sunday of each
week with an average of nine races per day. The Company will hold its first
harness racing meet beginning April 24, 1998 through July 5, 1998. The Company
will hold its next thoroughbred meeting commencing August 24, 1998 through
October 12, 1998. The Company has also been selected to host the Breeders Crown
races which will be held on the weekends of November 7 and 8 and November 13 and
14, 1998.

         Revenues from live racing at the Track consist of the total amount
wagered, less the amount paid as winning wagers. Of the amount not returned to
bettors as winning wagers, a portion is paid to New Kent County, Virginia (where
the Track is located), the Commonwealth of Virginia and the Virginia Breeders'
Fund, and the balance is divided between the Company and purses for the horsemen
at the Track. The Virginia Racing Act specifies the maximum percentages of each
dollar wagered on horse races in Virginia which can be retained by the Company
(prior to required payments to the Breeders' Fund and applicable taxing
authorities). The percentages vary, based on the type of wager. For win, place
and show wagering the amount of the take out is 18% of the amounts wagered. For
all other forms of wagering (exacta, trifica and other "exotic" wagers), the
permitted take out is 22%. The average percentage is approximately 21%. The
balance of each dollar wagered must be paid out to the public as winning wagers.
The Company's revenues on each race are determined pursuant to the Virginia
Racing Act. Amounts payable for purses are determined under agreements with the
Virginia Horseman's Benevolent and Protective Association ("VaHBPA") and the
Virginia Harness Horse Association ("VHHA") (collectively, the "Associations").
See Purses; Agreements With Horsemen.

Racing Center Wagering

         At the Racing Centers, as at the Track, customers place wagers on
thoroughbred and harness races simulcast from the Company's Track and on import
simulcast races from other tracks around the country. Under the Virginia Racing
Act, only licensed owners and operators, such as the Company, can operate Racing
Centers or accept customer wagers on simulcast races at a Virginia racetrack.
The Company, through its subsidiaries, is the sole holder of such licenses. The
Company currently operates four Racing Centers in Richmond, Chesapeake,
Brunswick and Hampton and under Virginia law can open two additional facilities.
The Company is in the process of identifying localities for referenda on
additional Racing Centers. The Company unsuccessfully sought approval in
referenda in Manassas Park (November 1996), Fredericksburg (November 1997),
Martinsville (November 1997) and Roanoke (November 1997). The Company intends to
continue pursuing possible locations until such time as the Company has opened
as many Racing Centers as are authorized under Virginia law.

Simulcasting

         Simulcasting involves broadcasting a live race to other locations.
Wagers are then placed on the race being broadcast. The Company both imports
simulcast races from other tracks around the country as well as exports
simulcasts of its races to other venues. Generally, wagering conducted on
simulcast races is aggregated with the pool of wagers placed at the track at
which the live race is run and wherever the race is broadcast, so that track
odds are maintained. The Company has been receiving import simulcasts at its
Chesapeake Racing Center from racetracks in other states since February 1996 and
at its Richmond Racing Center since December 1996. The Company has been
receiving import simulcasts at its Brunswick and Hampton Racing Centers since
December 18, 1997 and December 23, 1997, respectively. At the Racing Centers,
the Company regularly receives import simulcasts from over 15 different
racetracks (including Belmont Park, Saratoga, Gulfstream Park, and Santa Anita)
during a day of operation.

         The Company currently receives simulcast signals from these tracks
pursuant to an agreement with Penn National (the "Hubbing Agreement") under
which the Company receives the benefit of Import Simulcasting terms negotiated
by Penn National with other racetracks. The Company believes that these terms
may be more favorable than the terms it could separately negotiate with such
racetracks because of the economies of scale achieved under the Hubbing
Agreement. The original term of the Hubbing Agreement expired December 31, 1996,
and the Company and Penn National have elected to extend the agreement on a
month-to-month basis.

         The Company intends to increase the number and quality of races it
imports for simulcast wagering in the future. The Company believes that by
simulcasting high-quality races from nationally known racetracks it will
increase the number of wagerers as well as the size of the average wager. The
Company's success in implementing this strategy will depend upon the terms it
negotiates individually and in conjunction with Penn National with such tracks.

         The Company believes that simulcasting diminishes the negative effect
of inclement weather on wagering. Indoor facilities featuring simulcasting make
available wagering on races from racetracks regardless of local weather.

         Typical simulcast arrangements usually require the receiver of a signal
to pay a fee equal to approximately 2% to 4% of the handle (the total amount
wagered at the off-track facilities) attributable to such signal. The Company
has entered into an agreement with Maryland-Virginia Racing Circuit, Inc., which
is affiliated with the owners of the Pimlico and Laurel racetracks in Maryland
(collectively, "Maryland Jockey Club"). The Company sends its live racing signal
to the Maryland tracks and the Maryland tracks send their live racing signals to
the Track and the Company's current and future Racing Center facilities at no
cost to either party. Wagers placed at the Company's Racing Centers on races run
at other racetracks are treated as part of the common pari-mutuel wagering pool
at that track. From such a pool, a fixed percentage is paid out as winning
wagers. Winning wagers paid at the Company's Racing Centers may be
disproportionate to the winning wagers to be paid from the entire pari-mutuel
pool for a particular race. Accordingly, to the extent the Company paid out more
or less than its share of winning wagers, it is obligated to pay or be paid
funds from the track at which the race originated. In contracting for the
receipt of simulcast signals, the Company agrees with the originators of the
signals for the reconciliation of winning wagers. The reconciliation occurs on a
daily basis with cash reconciliation occurring each week. Through the Hubbing
Agreement, Penn National handles the Company's weekly reconciliation with other
tracks, and the Company settles with Penn National each week. It is possible
that the Company could fail to receive reimbursement for funds to which it is
entitled under the Hubbing Agreement. Historically, the Company has not
experienced such collection problems.

         Import Simulcasting of races from other tracks, especially from
nationally known tracks in other states, may compete with wagering on live races
run at the Track. The Company believes, however, that simulcasting of
out-of-state races, and making available wagering on higher quality races, will
increase the number of wagerers as well as the size of the average wager.

Marketing

         The Company seeks to increase wagering by broadening its customer base
and increasing the wagering activity of its existing customers. To attract new
customers, the Company seeks to increase the racing knowledge of its customers
by providing "user friendly" automated wagering systems and comfortable
surroundings. The Company also seeks to attract new customers by offering
various types of promotions including premium give-away programs, contests and
handicapping seminars.

         The Company also seeks to expand its patron base by establishing the
Track as a tourist destination. The Track is centrally located among existing
tourist attractions - Paramount's Kings Dominion to the northwest and Colonial
Williamburg and Busch Gardens to the west, each of which are within forty-five
miles by highway of the Track. The Company is working with tour and bus
companies to include the Track in their itineraries.

Automated Wagering Systems

         To make wagering more "user friendly" to the novice and more efficient
for the expert, the Company leases Autotote Corporation's automated wagering
equipment for its Racing Centers. These wagering systems enable the customer to
choose a variety of ways to place a bet through touch-screen interactive
terminals and personalized portable wagering terminals, provide current odds
information and enable customers to place bets and credit winning tickets to
their accounts.

Modern Facilities

         The Company provides a comfortable, upscale environment at each of its
Racing Centers, including a full bar, a range of restaurant services and an area
devoted to televised sporting events. The Company believes that its attractive
facilities appeal to its current customers and to new customers, including those
who have not previously visited a Racing Center.

         At the Track, the grandstand has an occupancy capacity of approximately
4,000 patrons. The front apron accommodates an additional 4,000 people and, on
special event days, the grass picnic area east of the grandstand accommodates an
additional 3,000 non-reserved seats in bleachers and on benches. Valet and
general paved parking is available for over 1,825 vehicles. Additional unpaved
parking is available for large and capacity crowds.

         The grandstand and clubhouse has five levels. A grandstand area is on
the first level where patrons enter the facility, together with two simulcast/TV
amphitheaters, two covered patio seating areas, four bars, one large concession
center court, gift shop, restrooms, and wagering locations with approximately 60
tellers. The second level houses administrative offices and a kitchen. The main
grandstand area is located on the third level together with a full-service
dining area with a seating capacity of 548 patrons, an additional 304 box seats,
two separate lounge areas and additional wagering locations with 38 tellers. Ten
suites with sky box seating and a private club are located on the fourth level.
The fifth level houses the judges' room, stewards' room, a press agents' room,
photo finish services, a video room, the announcers' room, the audio/video
control room and a VIP room.

Virginia-Maryland Thoroughbred Circuit

         To provide experienced management for the Track and promote
thoroughbred racing in Virginia and Maryland, the Company has entered into an
agreement with Maryland Jockey Club, to create a Virginia-Maryland thoroughbred
racing circuit. Under this agreement (the "Management and Consulting
Agreement"), the Maryland Jockey Club will seek permission each year to cease
live racing during the Company's thoroughbred meets. While the Maryland
thoroughbred tracks are not conducting live racing, the Company expects to
attract the thoroughbred race horses that typically have run at the Maryland
racetracks at that time. The Management and Consulting Agreement further
provides that the Maryland Jockey Club will provide experienced personnel from
Laurel Park and Pimlico Race Course to assist the Company in managing its live
thoroughbred meet at the Track. The Company has agreed to pay the Maryland
Jockey Club a management fee equal to two percent of all amounts wagered at the
Company's facilities other than on live standardbred racing, which management
fee represents approximately 10% of the Company's revenues from wagering.

         The Virginia-Maryland thoroughbred circuit was created in part to
address the perceived shortage of quality thoroughbred race horses available for
racing at U.S. tracks. During its inaugural meet, the Company appears to have
successfully attracted a substantial number of thoroughbred horses that have
historically raced at Laurel Park and Pimlico Race Course. During the 1997
season, only racing on the Track's dirt course was available. Turf racing is
expected to be conducted at the 1998 meet, which is expected to result in
additional Maryland horses racing at the Track. Additionally, the Company will
intensify its efforts to recruit quality thoroughbred horses from other locales
for the 1998 meet. The availability of the turf course for the 1998 season is
anticipated to enhance the Company's ability to attract such horses.

Purse Structure

         The Company has taken steps to ensure competitive purses to attract
horse owners to race at the Track. The Company guaranteed purses of $150,000 per
day for not less than 30 days of racing for each of the 1997 and 1998
thoroughbred meets, and minimum purses of $50,000 per day for not less than 50
days for each of the 1998 and 1999 standardbred meets. The Company expects its
purses to be competitive with purses at tracks in the mid-Atlantic market that
conduct meets concurrently with the Company's meets, with the possible exception
of Delaware Park and Charles Town, West Virginia, each of which have recently
legalized VLTs or slot machines, which will likely increase the purses offered
at such racetracks. (Charles Town's purses are not currently competitive with
the Company's purses. Delaware Park's purses exceed the Company's purses.)

         The guaranteed purse structure arises from the Company's agreements
(the "Purse Agreements") with the Associations. Pursuant to the agreements with
the VaHBPA, the Company has agreed, among other things, to contribute to its
thoroughbred purse account, a certain percentage (approximately 5.25%) of all
money wagered on thoroughbreds at its Racing Centers until such account
accumulates a total of $4.5 million. (Under the Virginia Racing Act, the Company
is also required to contribute, on average, approximately 8.5% of all money
wagered at the Track on live racing to the purse account and these funds are
credited to the $4.5 million guarantee.) If such funds are less than $4.5
million, the Company will contribute one half of the deficiency and loan the
remaining one half of the deficiency. The agreements with the VHHA reflect a
similar arrangement, and requires the Company, among other things, to contribute
to its standardbred purse account a certain percentage (approximately 5%) of all
money wagered on harness racing at its Racing Centers until such account
accumulates a total of $2.5 million.

         If the total thoroughbred and standardbred purse contributions for any
year are greater than $4.5 million and $2.5 million, the Company may be required
to make a purse contribution in excess of the minimum amounts based upon a
formula which adjusts the Company's net income for items such as cost of equity
capital and certain operating expenses. For the year ended December 31, 1997,
the Company was not required to make a purse account contribution in excess of
the minimum amounts. These additional contributions, if any, to the purse
accounts are expected to enhance the Company's ability to attract quality horses
to the Track and, as a result, to sell the Company's export simulcast signal.

         In addition, the Purse Agreements address, among other things, the
sharing of export simulcast net revenues, the setting of a schedule of purse
amounts, preparation of conditions for races, reconciliation of any over or
under payment of purse amounts, the number of Virginia-bred races to be run at
each meet, the availability of stalls and track facilities during and after
meets, and the sharing of revenues, if any, from television (other than
simulcasting) or radio broadcasts of races run at the Track.

         Each Purse Agreement expires on December 31, 1998 (except as it relates
to the 1999 standardbred meet), and renews automatically for successive one year
terms. Contributions to the purse accounts after December 31, 1998 are to be
negotiated in good faith by the parties based upon annual budgets prepared by
the Company. These budgets will contain provisions for net after-tax return
consistent with prior years and purse contributions necessary to attract quality
horses to race at the Track.

         Because the Company commenced simulcast operations prior to the
commencement of live racing, it has entered into two separate agreements--a live
racing agreement and a Simulcast Wagering agreement--with each horsemen group.
After 1998, the Company likely will enter into a single agreement with each
horsemen group. The agreements are not mandated by law; however, each contains
the horsemen group's consent to the receipt and sending of simulcast signals in
compliance with the Interstate Horse Racing Act.

Competition

         The Company is subject to competition from racetracks located outside
Virginia (including several in Delaware, Maryland, New Jersey, New York,
Pennsylvania, and West Virginia) and other forms of gaming, such as land-based
casinos, including those in Atlantic City, and statewide lotteries in Virginia
and in neighboring states. The Company will also face competition from a wide
range of entertainment options, including live and televised sporting events and
other recreational activities. The possible legalization of other forms of
gaming in Virginia, such as riverboat casino gaming, also could have an adverse
effect on the Company's business. Although bills for the creation of riverboat
gaming have failed in the Virginia legislature, proponents of riverboat gaming
in Virginia may continue to seek legislative approval. It is not possible, at
this time, to determine if or when additional forms of gaming will be permitted
in Virginia or neighboring states and, if so, the impact, if any, on the
Company. If additional gaming opportunities become available in or around
Virginia, such as in Maryland, and the Company is unable to participate in such
gaming opportunities, it could have a material adverse effect on the Company and
its operations.

         The Company competes and will compete for wagering dollars and
simulcast fees with live racing and races simulcast from horse racetracks in
other states, particularly racetracks in neighboring states such as Charles Town
in West Virginia, Pimlico Race Course, Laurel Park and Rosecroft Raceway in
Maryland, and Delaware Park in Delaware. In addition, patrons may be attracted
to thoroughbred races in Maryland during the Company's harness racing meet. The
Company believes that the Management and Consulting Agreement will promote
coordination of thoroughbred events between the two states. However, if the
Virginia or Maryland Racing Commissions do not approve a party's proposed racing
days, or if the Virginia-Maryland thoroughbred racing circuit is otherwise
unsuccessful, the Track may compete directly with thoroughbred racetracks in
Maryland. In addition, new racetracks could be constructed in adjacent states
that would compete with the Track, or new licenses could be granted to Company
competitors in Virginia. Based on the stated intent of the Virginia Racing
Commission, the Company does not believe that the Virginia Racing Commission is
likely to grant licenses to other entities in the foreseeable future.

         The Company anticipates competition from VLTs and slot machines, in
particular. Delaware legalized slot machines at three racetracks as of January
1, 1996. Slot machines have been installed at Delaware Park, Dover Downs and
additionally, VLTs have been legalized and installed at Charles Town racetrack
in Lewistown, West Virginia. VLTs and slot machines are prohibited in Virginia.
The Company believes that the legalization of VLTs and slot machines in
neighboring states may adversely affect its business in two ways. First, VLTs
and slot machines may attract the Company's potential Racing Center and Track
customers, thereby reducing the Company's revenues. Second, racetracks with VLTs
and/or slot machines generally are required to devote a significant portion of
VLT and/or slot machine revenues to the purses for which horses race. As a
result, such racetracks may be able to offer higher purses than the Track, and,
consequently, the Company may encounter difficulty in attracting horsemen to
race at the Track if other nearby racetracks offer higher purses.

Seasonality and the Effects of Inclement Weather

         Revenues (and expenses relating to the Track) may be higher during
scheduled live racing than at other times of the year. In addition, weather
conditions sometimes cause cancellation of outdoor horse races or curtail
attendance, both of which reduce wagering. Attendance and wagering at both
outdoor races and indoor Racing Centers also may be adversely affected by
certain holidays and professional and college sports seasons as well as other
recreational activities. Conversely, attendance and wagering may be favorably
affected by special racing events which stimulate interest in horse racing, such
as the Triple Crown races in May and June and the Breeders' Cup in November and
the hosting of the Breeders Crown at the Track. As a result, the Company's
revenues and net income may fluctuate from quarter to quarter. Given that a
substantial portion of the Company's Track expenses are fixed, the loss of
scheduled racing days could have a material adverse affect on the Company's
profitability. The Company believes that simulcasting diminishes the effect of
inclement weather on wagering.

Government Regulation

         The Company's success is dependent upon continued government and public
acceptance of horse racing as a form of legalized gaming. Although the Company
believes that pari-mutuel wagering on horse racing will continue to be legal in
Virginia, gaming has come under increasing scrutiny nationally and locally. The
United States Congress recently passed legislation creating a national gaming
study commission (the "National Gaming Commission"). The National Gaming
Commission has the duty to conduct a comprehensive legal and factual study
of gambling in the United States and existing federal, state, and local policies
and practices with respect to the legalization or prohibition of gambling
activities, to formulate and propose changes in such policies and practices, and
to recommend legislation and administration actions for such changes. It is not
possible to predict the future impact of any such proposals on the Company and
its operations. Any such proposals could have a material adverse effect on the
Company's business. Opposition to the Virginia Racing Act has been
unsuccessfully introduced in the Virginia legislature in the past, but
additional legislative opposition may arise in the future. If the Virginia
Racing Act were repealed or materially amended, such action could have a
material adverse effect on the Company's business of pari-mutuel wagering.

         Virginia Racing Act. Under the Virginia Racing Act, the Virginia Racing
Commission is vested with control over all aspects of horse racing with
pari-mutuel wagering and the power to prescribe regulations and conditions under
which such racing and wagering are conducted. The Virginia Racing Commission is
responsible for, among other things, (i) conducting an annual review of the
Company's Track and Racing Center licenses, (ii) annually approving the
Company's proposed schedule of racing days, (iii) approving new or modified
types of pari-mutuel wagering pools requested by the Company, (iv) issuing
permits to all officers, directors, racing officials, and other employees of the
Company, and (v) approving simulcast schedules at the Track and at the Racing
Centers. The Virginia Racing Commission also has the authority to promulgate
regulations pertaining to the Company's Track facilities, equipment, safety and
security measures, and controls the issuing of licenses and permits for
participants in pari-mutuel racing, including Company employees at the Track and
at the Racing Centers and the Maryland Jockey Club as manager of the Company's
thoroughbred meets pursuant to the Management and Consulting Agreement. In
addition, the Virginia Racing Commission must approve any acquisition or
continuing ownership of a 5% or greater interest in the Company. Action by the
Virginia Racing Commission that is inconsistent with the Company's business plan
could have a material adverse effect on the Company.

         The licenses issued by the Virginia Racing Commission to the Company
are for a period of not less than 20 years, but are subject to annual review by
the Virginia Racing Commission. It is possible that such licenses will not be
renewed or that such licenses could be suspended or revoked by the Virginia
Racing Commission for violations of the Virginia Racing Act or Virginia Racing
Commission rules.

         Other State and Local Regulation. The Company, the Track, and the
Racing Centers are also subject to a variety of other laws and regulations,
including zoning, construction, and land-use laws and the regulations of the
Virginia Alcoholic Beverage Control Board. Such laws and regulations may affect
the selection of Racing Center sites because of parking, traffic flow, and other
similar considerations. Any interruption or termination of the Company's
ability, or that of its concessionaires, to serve alcoholic beverages could have
a material adverse effect on the Company.

         Federal Regulation. The Company's interstate simulcast operations are
subject to the provisions of the federal Interstate Horse Racing Act, which
regulates interstate off-track wagering. In order to conduct wagering on import
simulcasting at the Track or any Racing Center, the Interstate Horse Racing Act
requires the Company to obtain the consent of the Virginia Racing Commission,
the consent of the racing commission of the state where the horse racing meet
originates and the consent of the representative horsemen groups in the
originating state. To conduct Export Simulcasting, the Company must obtain the
consent of the VaHBPA or the VHHA, as the case maybe, and the Virginia Racing
Commission. Also, in the case of off-track wagering to be conducted at any of
the Company's Racing Centers, the Interstate Horse Racing Act requires the
Company to obtain the approval of all currently operating horse racetracks
within sixty miles of the Racing Center or, if there are no currently operating
tracks within sixty miles, the approval of the closest operating horse
racetrack, if any, in an adjoining state. Significant delay in obtaining such
consents and approvals or failure to obtain such consents or approvals could
have a material adverse effect on the Company.

         Future Regulation. The Company's operations may become subject to
additional regulation from any of the foregoing or from other governmental
bodies. Such additional regulation could have a material adverse effect on the
Company.

Taxation

         The Company is subject to a number of federal, state, and local taxes
and fees. These include fees to support the Virginia Breeders' Fund, taxes
payable to the Commonwealth of Virginia, taxes payable to New Kent County where
the Track is located, and taxes payable to localities in which Racing Centers
are located based upon the amount of monies wagered both at the Track and at the
Company's Racing Centers. The Company believes that the public acceptance of
pari-mutuel wagering on horse races, as well as other forms of gaming, is based,
in part, on the governmental revenues it generates from taxes and fees on such
activities. It is possible that gaming activities, including horse racing, may
become a target for additional federal, state, or local taxes and fees. A
significant increase in such taxes or fees or the creation of significant
additional taxes or fees could have a material adverse effect on the Company.

Employees And Labor Relations

         At December 31, 1997, the Company had 376 permanent employees, of whom
36 were full-time and 340 part-time. Of the total employees, 52 were employed at
the Track, and 324 were employed at the Company's Racing Centers. During the
live thoroughbred meet, the Company hires 250 to 300 additional persons and
during the standardbred meet an additional 150 to 200 persons.

ITEM 2   PROPERTIES

Track

         The Track site consists of approximately 345 acres of land located
approximately 25 miles east of Richmond, Virginia and approximately 25 miles
west of Williamsburg, Virginia. The Track includes a dirt race track, a unique
180 foot wide turf track, a five-level grandstand with ten luxury sky suites,
bleachers, six bars, a gift shop, two simulcast/TV amphitheaters, and over 95
wagering stations. The Track site is located in an area that Chesapeake
Corporation, its subsidiaries and possibly other developers, plan to develop
into a resort area. An 18-hole golf course adjacent to the Track site was opened
in July 1996 by The Legends Golf Group, a golf course developer based in Hilton
Head, South Carolina. Future development plans for the area include hotels,
theaters, restaurants, additional golf courses, commercial offices, and
residential development. This development is planned to occur in four phases
over the next 25 years. The first phase of development is in the areas adjacent
to the Track site and the golf course and is expected to be completed over the
next eight years. According to plans filed with New Kent County by the
developer, 460 residential units and approximately 930,000 square feet of
commercial space will be completed in the next three years. New Kent residents
have demonstrated support for this development, but the Company has no control
over the extent and timing of the development or the grant of governmental
approvals required for its completion as planned.

Racing Centers

         The Company's Racing Centers provide areas for viewing import
simulcasts and televised sporting events, placing pari-mutuel wagers and dining.
The facilities also provide convenient parking.

         The Company's current Racing Center properties are described in the
following chart:

Location                    Owned or Leased       Building Size (in square feet)

Brunswick                       Owned                    Approx.  8,000
Chesapeake                     Leased                    Approx. 15,000
Hampton                         Owned                    Approx. 13,500
Richmond                        Owned                    Approx. 20,000

ITEM 3   LEGAL PROCEEDINGS

         The following claims were asserted as of December 31, 1997:

         Norglass, Inc. The Partnership is engaged in a contract dispute under
the Construction Agreement, dated February 10, 1997 (the "Construction
Contract") between the Partnership and Norglass, Inc. ("Norglass"). Pursuant to
the terms of the Construction Contract, the Partnership is proceeding before the
American Arbitration Association ("AAA") against Norglass, the general
contractor engaged to manage the construction of Colonial Downs' racetrack. In
the proceeding, the Partnership challenges the validity of Norglass' mechanic's
liens for approximately $11.8 million (subsequently reduced to $6.5 million) and
asserts a damage claim against Norglass in an amount not less than $4.4 million.
The Partnership is vigorously pursuing its claims against Norglass and is
vigorously defending against claims for payment by Norglass under the
Construction Contract. If the Partnership does not prevail in its claims and
assuming it receives credit against Norglass' claims for the amount the
Partnership has paid directly to the subcontractors, its potential liability,
included in accounts payable at December 31, 1997, is approximately $1.9 million
in construction costs, plus interest, from a date to be established and legal
fees. Additionally, it will be unable to recover approximately $3.8 million it
has paid to subcontractors of Norglass.

         Subcontractor Liens. In connection with the dispute with Norglass,
subcontractors of Norglass and parties claiming direct contracts with the
Partnership and the Corporation filed mechanic's liens against the property in
the aggregate amount of approximately $4 million. As of the date hereof, all but
$501,000.00 of such mechanic's liens have been released. Colonial Downs is
negotiating with these subcontractors and contractors for the release of the
balance of such liens.

         Maryland-Virginia Racing Circuit, Inc. On January 8, 1998, Colonial
Downs filed a demand for arbitration against the Maryland-Virginia Racing
Circuit, Inc. ("MVRC") before the Virginia Racing Commission (the "Commission").
In its arbitration demand, Colonial Downs challenged the management fee claimed
to be due by MVRC pursuant to a Management and Consulting Agreement dated as of
April 22, 1996 (the "Consulting Agreement") between Colonial Downs and MVRC. The
arbitration is based upon the fact that the demanded compensation under the
Consulting Agreement has failed to consider certain changed circumstances as
well as the original intent of the parties. Specifically, the compensation
demanded by MVRC has been based upon the assumptions that MVRC was to manage a
102-day thoroughbred racing season at Colonial Downs' racetrack and during that
102-day season the Maryland tracks owned and operated by MVRC would be closed.
In reality, however, the number of thoroughbred race days has been (and will be
for the foreseeable future) much less and MVRC has failed to close its Maryland
tracks as contemplated. As a result, Colonial Downs has requested that the
Commission (as provided in the Agreement) arbitrate this dispute and reform the
Consulting Agreement accordingly, thereby reducing the compensation to MVRC to
reflect the fewer number of race days during which MVRC is actually managing
Colonial Downs' thoroughbred season. In the alternative, Colonial Downs has
requested the Commission to declare the Consulting Agreement null and void and
to direct the parties to enter into a new agreement. The Commission declined
Colonial Downs' request that it arbitrate the dispute on January 21, 1998; hence
a third-party arbitrator must be named. As of December 31, 1997, Colonial Downs
had withheld payment of $487,648.00 of the management fee purported due MVRC.

         Richmond Racing Center. The Partnership intervened as a defendant in
Robin J. Pearsall and Monument Avenue Park Association v. The Virginia Racing
Commission (Case No. HH777-3) then pending in the Circuit Court of the City of
Richmond. The plaintiffs challenged the award of licenses to the Partnership and
Racing for the ownership and operation of a Racing Center in Richmond, Virginia.
The plaintiffs asserted that the requisite referendum held in Richmond was void
and that the Commission exceeded its statutory authority in considering the
Partnership's amendment to its application for the licenses and granting the
licenses. Accordingly, the plaintiffs asserted that the licenses were void.
Pursuant to an order and opinion dated February 20, 1997, the Circuit Court
ruled that the plaintiffs had no standing to bring suit and dismissed the case.
The plaintiffs appealed to the Virginia Court of Appeals. The Virginia Court of
Appeals affirmed the Circuit Court's decision by order and opinion dated January
20, 1998. The time for the appeal of the Court of Appeal's decision has expired.

         Vendor Dispute. One of the Company's vendors that provides marketing
services has asserted a claim for an additional $30,000 to $150,000 against the
Company. McGrath/Crossen Associates claims that it provided services in addition
to those for which it was previously paid and has demanded additional payment.
Although a claim has been threatened, no suit has been filed. The Company
disputes that any amounts are due.

         The Company has a number of other outstanding claims that arise in the
ordinary course of business and that individually and in the aggregate are
immaterial.

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          None.


<PAGE>


                                    PART II

ITEM 5   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

         The Company's Common Stock is quoted on The NASDAQ National Market
under the symbol "CDWN". The following table sets forth for the periods
indicated the high and low closing sales prices per share of the Company's
Common Stock as reported on The NASDAQ National Market since the date on which
the Class A Common Stock commenced trading.

                           HIGH                       LOW
1997
First Quarter              9.500                     7.375
Second Quarter             7.875                     6.500
Third Quarter              9.375                     6.438
Fourth Quarter             7.250                     3.500

         The closing price as of March 26, 1998 was $4.375 per share of Class A
Common Stock. There are approximately 3,100 holders of record of Class A Common
Stock. The Company's stock began trading on March 18, 1997.

         There is no established market for the Class B Common Stock. There are
five holders of record of Class B Common Stock.

Dividend Policy

         The Company has not paid any dividends to date and does not anticipate
paying any dividends on any class of its Common Stock in the foreseeable future
and intends to retain earnings to finance the development and expansion of its
operations. The payment of any future dividends will be at the discretion of the
Company's Board of Directors and will depend upon, among other things, future
earnings, operations, capital requirements, the financial condition of the
Company and general business conditions.

Recent Sales of Unregistered Securities

         None.


<PAGE>


ITEM 6   SELECTED CONSOLIDATED FINANCIAL DATA

         The following selected consolidated financial data of the Company for
the years ended December 31, 1997, 1996, 1995, 1994 and 1993, except for Other
Data, are derived from financial statements that have been audited by BDO
Seidman, LLP independent certified public accountants, adjusted as described in
the notes below. The selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements, and Notes related
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other financial information included herein.

<TABLE>
<CAPTION>

                                                        Year Ended December 31, (1)

                                                     1997            1996          1995          1994          1993(2)
                                                     ----            ----          ----          ----          -------
                                                                (in thousands)
<S> <C>

Income Statement Data:
Total Revenues                                  $   23,647     $    8,527    $      --      $      --      $      --
                                               -----------    -----------    -----------    -----------    -----------


Loss from operations                                  (467)          (469)          (318)           (19)            (17)
                                               -----------    -----------    -----------    -----------    -----------

Net earnings (loss) before income taxes                 92           (645)          (320)           (19)            (17)

Taxes on income                                         84             --             --             --              --
                                               -----------    -----------    -----------    -----------    -------------
Net earnings (loss)                             $        8     $     (645)   $      (320)   $       (19)   $        (17)
                                               ===========    ===========    ===========    ============   =============
Basic and diluted net earnings (loss) per share $     0.01     $    (0.22)   $     (0.11)   $     (0.01)   $      (0.01)

Weighted average number of shares
outstanding(3)                                   6,318,000      3,000,000      3,000,000      3,000,000       3,000,000

</TABLE>

<PAGE>


<TABLE>
<CAPTION>
                                                            At December 31,

                                                 1997            1996          1995          1994          1993
                                                 ----            ----          ----          ----          ----
                                                                         (in thousands)
<S> <C>

Balance Sheet Data:
Current assets                                $  6,013        $  1,765       $    330       $      2       $      --
Total assets                                    67,875          12,176          3,142            667             227
Working capital                                 (9,467)         (5,925)        (1,589)          (669)           (213)
Short-term debt, including
  current portion of long-term
  debt                                           1,373           1,685            632            671             213
Long-term debt, excluding
  current portion                               15,390           3,491          1,548             --              --
Total liabilities                               30,954          11,182          3,467            671             213
Shareholders' equity (deficit)                  36,921             995           (325)            (4)             14



                                                           At December 31,
                                                 1997            1996           1995
Other Data (in thousands):                       ----            ----           ----

EBITDA (4)                                   $     188        $   (184)      $   (315)

Net cash provided (absorbed) by:

   Operating activities                      $   3,053        $    327       $   (160)
   Investing activities                      $ (48,851)       $ (3,999)      $   (920)
   Financing activities                      $  47,767        $  4,722       $  1,408



<PAGE>

                                       Brunswick       Chesapeake        Hampton        Richmond       Track
                                       ---------       ----------        -------        --------       -----


Operating Data:
Days of operation                             14             363              7             363           64
Total pari-mutuel wagering (in
thousands)                              $    226      $   35,139     $      328      $   51,302   $    7,891

Average daily wagering (in thousands)   $     16      $       97     $       47      $      141   $      123
Total attendance                           1,522         148,290          1,454         205,491      111,626
Average daily attendance                     109             409            208             566        1,744
Average daily per capita wager          $    148      $      237     $      226      $      250   $       71

</TABLE>

(1)    The consolidated financial statements of the Company include entities
       which prior to the Reorganization (see Note 1 to consolidated financial
       statements) were affiliated through common ownership and control.

(2)    From inception on September 30, 1993 to December 31, 1993.

(3)    Based on 3,000,000 shares of Common Stock outstanding before the initial
       public offering ("IPO") and 7,250,000 shares of Common Stock outstanding
       after the IPO.

(4)    EBITDA consists of the sum of the Company's net earnings (loss), net
       interest expense and depreciation and amortization. EBITDA data is
       unaudited and is presented because such data is used by certain investors
       to determine the Company's ability to meet debt service requirements. The
       Company considers EBITDA to be an indicative measure of the Company's
       ability to service debt and fund capital expenditures. However, such
       information should not be considered as an alternative to net earnings
       (loss), operating loss, cash flows from operations, or any other
       operating or liquidity performance measure prescribed by generally
       accepted accounting principles. EBITDA is not a measurement under
       generally accepted accounting principles and may not be comparable to
       other similarly titled measures presented by other companies. Cash
       expenditures for various long-term assets and interest expense have been,
       and will be, incurred which are not reflected in the EBITDA presentation.

ITEM 7   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Overview

         The Company was organized to pursue opportunities for horse racing and
pari-mutuel wagering and holds the only licenses to own and operate a racetrack
and racing centers in Virginia. The Company currently operates Racing Centers in
Chesapeake, Richmond, Hampton, and Brunswick, and may apply for licenses for up
to two additional Racing Centers if suitable opportunities are identified. In
September and October 1997, the Company completed its inaugural thirty day
thoroughbred live meet at the Track in New Kent County, Virginia. Both
thoroughbred and standardbred live meets are planned for 1998.

         The Company's revenues are comprised of (i) pari-mutuel commissions
from wagering on races broadcast from out-of-state racetracks to the Company's
Racing Centers and the Track using Import Simulcasting; (ii) wagering at the
Track and the Company's Racing Centers on its live races; (iii) admissions fees,
program, racing form and tip sheet sales, and certain other ancillary
activities; (iv) rent from food and beverage sales and concessions; and (v) fees
from wagering at out-of-state locations on races run at the Track using Export
Simulcasting.

         The amount of revenue the Company earns from each wager depends on
where the race is run and where the wagering takes place. Revenues from Import
Simulcasting of out-of-state races and from wagering at the Track and at the
Racing Centers on races run at the Track consist of the total amount wagered at
the Company's facilities, less the amount paid as winning wagers. The percentage
of each dollar wagered on horse races that must be returned to the public as
winning wagers (typically approximately 79%) is legislated by the state in which
a race takes place. Revenues from Export Simulcasting will consist of amounts
payable to the Company by the out-of-state racetracks and the racing centers
with respect to wagering on races run at the Track.

         The Company's revenues are heavily dependent on the operations of its
Racing Centers. Revenues from the Racing Centers help support live racing at the
Track. Until the Company opens its fifth and sixth Racing Centers or acquires
other sources of revenues, the Company expects to achieve results similar to
those in 1997. Although revenues from the first months of operations of the
Hampton and Brunswick Racing Centers have been lower than anticipated,
management expects additional marketing efforts will improve those centers'
performance.

          The Company's operating expenses include (i) purses payable to the
horsemen for races run at the Track; (ii) amounts payable to host racetracks for
import simulcast races (approximately 3% of amounts wagered on such races at the
Company's Racing Centers and Track); (iii) a management fee of 2% of amounts
wagered (other than on standardbred races run at the Track) payable to the
Maryland Jockey Club, which represents approximately 10% of the Company's
revenues; (iv) pari-mutuel taxes payable to the Commonwealth of Virginia, New
Kent County, and the locality of each Racing Center, which represents about 2.5%
of all amounts wagered and 12.5% of the Company's revenues; (v) 1% of all
amounts wagered payable to the Virginia Breeders Fund (about 4.9% of revenues);
(vi) totalisator, video and audio expenses at the Company's Racing Centers and
the Track; (vii) direct salaries, payroll, and benefit expenses; and (viii)
other direct and indirect operating expenses.

         For further information on the Company's business environment and
strategies, refer to the discussion in Item 1 - Business.

Results Of Operations

         The following table presents the major components from the Company's
consolidated statements of earnings as a percent of total revenues:

                                                Year Ended December 31
                                                ----------------------

                                                  1997      1996
                                                  ----      ----
Revenues:
     Pari-mutuel and simulcasting commissions..    88.3%     92.0%
     Other ....................................    11.7       8.0
                                                  -----     -----
          Total revenues ......................   100.0     100.0

Direct operating expenses:

     Purses, fees, and pari-mutuel taxes ......    43.0      47.0
     Simulcast and other direct expenses ......    37.8      35.0
                                                  -----     -----
          Total direct operating expenses .....    80.8      82.0

Selling, general, and administrative expenses..    21.2      23.5
                                                  -----     -----

Loss from operations ..........................    (2.0)     (5.5)

Interest income (expense) .....................     2.4      (2.1)
                                                  -----     -----

Earnings (loss) before taxes ..................      .4%     (7.6)%
                                                  =====     =====
Comparison of Fiscal 1997 to Fiscal 1996

         Total revenues in fiscal 1997 were $23.6 million, an increase of $15.1
million (177%) over fiscal 1996 revenue of $8.5 million. The increase primarily
reflects the operation of the Richmond Racing Center for a full year in 1997
versus only 21 days in 1996 ($11.1 million), and the operation of the thirty day
inaugural live thoroughbred meet held September-October 1997 ($3.5 million).

         Operating expenses in 1997 of $24.1 million increased $15.1 million
(168%) from $9.0 million in 1996. The overall increase was primarily
attributable to higher expenses ($8.6 million) resulting from a full year of
operations in the Richmond Racing Center versus only twenty-one days in 1996,
and the costs associated with conducting the inaugural thirty day live
thoroughbred meet in 1997 ($6.1 million). Also affecting the 1997 increase over
1996 operating expenses were referenda campaign costs incurred ($.59 million) in
the Company's attempt to win voter approval for additional Racing Centers in
targeted Virginia localities, start-up marketing expenses of approximately
$900,000 to familiarize Virginians with pari-mutuel wagering and an increase in
depreciation expense as a result of the completion of the Track. The Company
also incurred expenses of approximately $300,000 in connection with its
day-to-day operations of the thoroughbred meet that it does not expect to incur
in 1998.

         The loss from  operations  of  $466,692  remained  substantially
unchanged  from 1996 due to the  factors discussed above.

         Other income increased to $559,000 in 1997 compared to other expense of
$177,000 in 1996, primarily reflecting the interest income earned on the
proceeds from the Company's initial public offering in March 1997.

         Net income increased by approximately $653,000 from a loss of $645,000
in 1996 to earnings of $7,863 for the year ended December 31, 1997, reflecting
the factors described above.

Prior Fiscal Years

         The Company had no meaningful operations prior to the opening of the
Chesapeake facility in February 1996. The Company had four employees before
staffing the Chesapeake Racing Center; after its opening, the Company had
approximately 160 employees. As a result, the Company reported no revenue from
its inception on September 30, 1993 until February 1996. The Company incurred
costs since its inception in obtaining the licenses and developing the Track and
Racing Centers. The majority of costs specific to the acquisition and
development of the Chesapeake Racing Center were incurred in fiscal 1995,
whereas those relating to the Richmond Racing Center generally were not incurred
until 1996.

Liquidity And Capital Resources

         The Company's primary sources of liquidity and capital resources have
been proceeds from the initial public offering of the Company's stock, long-term
debt, and stockholders loans. The Company believes that its cash on hand, cash
generated from operations, its existing unused line of credit, and access to
other capital and financial resources will be sufficient to cover its
anticipated operating expenses and other cash requirements for 1998.

         Net cash provided by operating activities grew to $3.1 million in 1997,
an increase of about $2.7 million from $327,000 in 1996. The increase was
primarily attributable to a $653,000 increase in earnings and a $3.1 million
increase in accounts payable, partially offset by increases in accounts
receivable and other assets.

         Net cash used in investing activities totaled $48.9 million for fiscal
1997 and primarily included $47.1 million in capital expenditures for the
continued construction and completion of both the Track and the Company's new
Racing Centers in Hampton and Brunswick. The Company anticipates that its
capital spending in fiscal 1998 will approximate $800,000.

         Net cash provided by financing activities was $47.8 million in fiscal
1997 compared to $4.7 million in the same period of the prior year. The increase
was primarily the result of the March 1997 initial public offering of 4,250,000
shares of common stock, which provided net proceeds of approximately $36.3
million, and a net increase in borrowing of $11.6 million. These proceeds were
primarily used to complete the construction of the Track, Hampton and Brunswick
Racing Centers.

         The Company is currently assessing the impact of the year 2000 on the
processing of date-sensitive information by the Company's computerized
information systems and products purchased by the Company. The Company believes
that its internal information systems are either year 2000 compliant or will be
so prior to the year 2000 without incurring material costs. There can be not
assurance, however, that the Company will not experience unexpected costs and
delays in achieving year 2000 compliance for its internal information systems
and current products, which could result in a material adverse effect on the
Company's future results of operations.


ITEM 8   FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

<TABLE>
<CAPTION>

December 31,                                                      1997              1996
--------------------------------------------------------------------------------------------
<S> <C>

   Assets

Current assets

 Cash and cash equivalents                                 $ 3,348,110       $ 1,379,884
 Horsemen's deposits                                         1,656,529           337,738
 Accounts receivable                                           293,101            38,519
 Prepaid expenses and other                                    497,143             9,335
 Refundable income taxes                                       217,956               -
--------------------------------------------------------------------------------------------


Total current assets                                         6,012,839         1,765,476
--------------------------------------------------------------------------------------------


Property and equipment                                      61,500,165         9,364,587
  Less accumulated depreciation and amortization               659,957           126,167
--------------------------------------------------------------------------------------------


Net property and equipment                                  60,840,208         9,238,420
--------------------------------------------------------------------------------------------


Other

  Licensing and organization costs, net of accumulated
  amortization of $207,063 and $160,867                        841,029           789,205
  Miscellaneous                                                180,653           383,389
--------------------------------------------------------------------------------------------


Total other                                                  1,021,682         1,172,594
--------------------------------------------------------------------------------------------





Total assets                                               $67,874,729       $12,176,490
============================================================================================
          See accompanying notes to consolidated financial statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                 Consolidated Balance Sheets

December 31,                                                          1997           1996
---------------------------------------------------------------------------------------------
<S> <C>

   Liabilities and Stockholders' Equity

Current liabilities
  Accounts payable                                             $11,678,242    $ 3,567,388
  Accrued expenses                                                 637,063        480,356
  Current maturities of long-term debt
     and capital lease obligations                               1,373,059         47,678
  Notes payable - related parties                                      -        1,637,619
  Deferred revenue                                                 194,625            -
  Purses due horsemen                                            1,597,075      1,957,683

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

Total current liabilities                                       15,480,064      7,690,724
---------------------------------------------------------------------------------------------

Long-term liabilities
  Long-term debt and capital lease obligations,
    net of current maturities                                    9,889,592         42,159
  Notes payable - related parties                                5,500,000      3,448,782
  Deferred income taxes                                             84,000              -
---------------------------------------------------------------------------------------------

Total long-term liabilities                                     15,473,592      3,490,941
---------------------------------------------------------------------------------------------

Total liabilities                                               30,953,656     11,181,665
---------------------------------------------------------------------------------------------

Stockholders' equity

  Common stock
    Class A, $.01 par value, 12,000,000 shares
      authorized; 5,000,000 and 750,000 shares outstanding          50,000          7,500
    Class B, $.01 par value, 3,000,000 shares
      authorized; 2,250,000 shares outstanding                      22,500         22,500
  Additional paid-in capital                                    37,842,054      1,966,169
  Retained earnings (deficit)                                     (993,481)    (1,001,344)
---------------------------------------------------------------------------------------------

Total stockholders' equity                                      36,921,073        994,825
---------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity                     $67,874,729    $12,176,490
=============================================================================================

          See accompanying notes to consolidated financial statements.

</TABLE>

                                                      F-3


<PAGE>

<TABLE>
<CAPTION>

                                                                     Consolidated Statements of Earnings

Year Ended December 31,                                    1997                  1996              1995
----------------------------------------------------------------------------------------------------------------
<S> <C>

Revenues
  Pari-mutuel and simulcasting commissions            $20,876,330            $7,847,822      $        -
  Other                                                 2,770,953               679,488               -
----------------------------------------------------------------------------------------------------------------

Total revenues                                         23,647,283             8,527,310               -
----------------------------------------------------------------------------------------------------------------

Operating expenses
Direct operating expenses
  Purses, fees and pari-mutuel taxes                   10,164,135             4,001,805               -
  Simulcast and other direct expenses                   8,936,255             2,986,438               -
----------------------------------------------------------------------------------------------------------------

Total direct operating expenses                        19,100,390             6,988,243               -

Selling, general and administrative expenses            5,013,585             2,007,584           318,235
----------------------------------------------------------------------------------------------------------------

Total operating expenses                               24,113,975             8,995,827           318,235
----------------------------------------------------------------------------------------------------------------

Loss from operations                                     (466,692)             (468,517)         (318,235)
----------------------------------------------------------------------------------------------------------------

Other income (expense)
 Interest expense                                        (278,667)             (183,118)           (2,252)
----------------------------------------------------------------------------------------------------------------
 Interest income                                          837,222                 6,220              -
----------------------------------------------------------------------------------------------------------------

Total other income (expense)                              558,555              (176,898)           (2,252)
----------------------------------------------------------------------------------------------------------------

Earnings (loss) before income taxes                        91,863              (645,415)         (320,487)

Income taxes                                               84,000                   -                 -
----------------------------------------------------------------------------------------------------------------

Net earnings (loss)                                   $     7,863            $ (645,415)     $   (320,487)
----------------------------------------------------------------------------------------------------------------

Earnings per share data:
  Basic and diluted earnings per share                $       .01            $    (0.22)     $      (0.11)
----------------------------------------------------------------------------------------------------------------

  Weighted average number of shares outstanding         6,318,493             3,000,000         3,000,000
================================================================================================================

          See accompanying notes to consolidated financial statements.

</TABLE>

                                                      F-4

<PAGE>


<TABLE>
<CAPTION>

                                                                              Consolidated Statements of Stockholders' Equity

                                                        Common Stock
                                                  -----------------------
                                           Class A                   Class B    Additional      Retained
                                         -----------              -------------   Paid-in        Earnings
                               Shares      Amount       Shares       Amount        Capital       (Deficit)         Total
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>

Balance, December 31,
  1994                         750,000     $ 7,500     2,250,000     $22,500  $     1,100    $   (35,442)      $    (4,342)

Net loss                           -           -             -           -            -         (320,487)         (320,487)
-----------------------------------------------------------------------------------------------------------------------------

Balance, December 31,
  1995                         750,000       7,500     2,250,000      22,500        1,100       (355,929)         (324,829)

Conversion of shareholder
  debt to equity                   -           -             -           -      1,965,069            -           1,965,069

Net loss                           -           -             -           -            -         (645,415)         (645,415)
-----------------------------------------------------------------------------------------------------------------------------

Balance, December 31,
  1996                        750,000       7,500      2,250,000     22,500     1,966,169     (1,001,344)          994,825

Sale of common stock        4,250,000      42,500            -          -      35,875,885            -          35,918,385

Net earnings                      -           -              -          -             -            7,863             7,863
-----------------------------------------------------------------------------------------------------------------------------

Balance, December 31,
  1997                      5,000,000     $50,000      2,250,000    $22,500   $37,842,054      $(993,481)      $36,921,073
=============================================================================================================================

          See accompanying notes to consolidated financial statements.

                                           F-5

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                        Consolidated Statements of Cash Flows

Year Ended December 31,                                                     1997                 1996                1995
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>

Operating activities
  Net earnings (loss)                                               $      7,863         $   (645,415)          $(320,487)
  Adjustments to net earnings (loss)
    Depreciation and amortization                                        654,778              283,974               3,060
    Increase in accounts receivable
      and other assets                                                (1,094,224)             (47,854)              -
    Increase in accounts payable - trade                               3,108,604              638,867             112,922
    Increase in accrued expenses and other                               435,333              435,595              44,761
    Increase in horsemen's deposits and purses                           (59,400)            (337,738)              -
-----------------------------------------------------------------------------------------------------------------------------

Net cash provided (absorbed) by operating activities                   3,052,954              327,429            (159,744)
-----------------------------------------------------------------------------------------------------------------------------

Investing activities
  Purchases of property and equipment                                (47,133,328)          (5,770,738)           (436,570)
  (Decrease) increase in purse notes payable due horsemen             (1,620,000)           1,957,683               -
  Investment in other assets                                             (98,020)            (186,332)           (483,649)
-----------------------------------------------------------------------------------------------------------------------------

Net cash absorbed by investing activities                            (48,851,348)          (3,999,387)           (920,219)
-----------------------------------------------------------------------------------------------------------------------------

Financing activities
  Increase in financing costs                                            (70,215)            (200,793)           (100,000)
  Proceeds from long-term debt and capital leases                     11,388,503               45,796              15,489
  Payments on long-term debt and capital leases                         (215,689)             (10,931)              -
  Proceeds from notes payable                                          4,612,381            4,987,704           1,492,117
  Payments on notes payable                                           (4,198,782)            (100,000)              -
  Proceeds from sale of common stock, net                             36,250,422                  -                 -
-----------------------------------------------------------------------------------------------------------------------------

Net cash provided by financing activities                             47,766,620            4,721,776           1,407,606
-----------------------------------------------------------------------------------------------------------------------------

Net increase in cash and cash equivalents                              1,968,226            1,049,818             327,643

Cash and cash equivalents, beginning of year                           1,379,884              330,066               2,423
-----------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of year                              $  3,348,110          $ 1,379,884          $  330,066
=============================================================================================================================

          See accompanying notes to consolidated financial statements.

</TABLE>

                                                      F-6

<PAGE>




                                   Notes to Consolidated Financial Statements

1. Significant
   Accounting
   Policies

Principles of Consolidation

The consolidated financial statements include the following entities of Colonial
Downs Holdings, Inc. (collectively, the "Company"), which prior to the
reorganization, were affiliated through common ownership and control:

      Colonial Downs, L.P. ("Partnership")
      Stansley Racing Corp. ("SRC")
      Colonial Downs Holdings, Inc. ("CD Holdings")

The consolidated financial statements have been prepared as if the entities had
operated as a single consolidated group and assuming that the reorganization had
taken place as of December 31, 1993. All significant intercompany accounts and
transactions have been eliminated.

Reorganization

The Company's licenses to own and operate the racetrack and its racing centers
("Racing Centers") are held by the Partnership and SRC. Prior to the
Reorganization (defined below), Stansley Management Corp. ("SMC") and CD
Entertainment Ltd. each owned 50% of the Partnership. The ownership and
operating licenses held by the Partnership and SRC are non-transferable under
the Virginia Racing Act. In order to bring the licenses under the control of one
entity while avoiding transfer of the licenses, CD Holdings became a holding
company for the Partnership and SRC pursuant to an Agreement and Plan of
Reorganization ("Reorganization"). Pursuant to the Reorganization, CD Holdings
acquired, in exchange for 3,000,000 shares of its common stock, a 99% limited
partner interest in the Partnership and 100% of the outstanding stock of SRC.
Also, in conjunction with the Reorganization, SRC acquired a 1% general partner
interest in the Partnership. The Reorganization became effective on March 12,
1997.

                                                      F-7


<PAGE>



                                   Notes to Consolidated Financial Statements
                                                                  (continued)

1. Significant
   Accounting
   Policies
   (continued)

As a result of the Reorganization, the Company owns, directly, or through its
wholly-owned subsidiaries, the operating licenses for the racetrack and the
Chesapeake, Richmond, Hampton, and Brunswick Racing Centers; the property for
the Richmond, Hampton and Brunswick Racing Centers; the rights to apply for
licenses to own and operate up to two additional Racing Centers in Virginia; the
345 acres on which the racetrack exists; and the racetrack facilities and
certain related infrastructure.

Description of Business

The Company, which was organized in 1993, currently owns and operates the
Colonial Downs racetrack (the "Track") on approximately 345 acres between
Interstate Highway 64 and State Route 155 in New Kent County. The facility
accommodates thoroughbred and standardbred racing as well as simulcast wagering.

The Company also operates four Racing Centers. The first Racing Center began
operations in Chesapeake, Virginia during February 1996. The second facility
opened in Richmond, Virginia in December 1996. The third and fourth Racing
Centers began operations in Hampton, Virginia and Brunswick County, Virginia in
December 1997. The Company plans to work towards obtaining licenses for the
remaining two Racing Centers authorized by the Commission.

Cash and Cash Equivalents

For the purposes of preparing the Company's statement of cash flows, investments
with maturities of less than three months are considered to be cash equivalents.

                                   Notes to Consolidated Financial Statements
                                                                  (continued)

1.    Significant
      Accounting
      Policies
      (continued)

Interest Expense

Interest expense of approximately $1,068,000 and $72,000 was capitalized during
1997 and 1996, respectively, in connection with the construction of the
racetrack and development of the Racing Centers.

Property, Equipment, Depreciation and Amortization

Property and equipment is stated at cost. Expenditures for ordinary maintenance
and repairs are charged to income as incurred. Costs of betterments, renewals,
and major replacements are capitalized. At the time properties are retired or
otherwise disposed of, the related cost and allowance for depreciation and
amortization are eliminated from the accounts and any gain or loss on
disposition is reflected in income.

Depreciation and amortization is computed using the straight-line method over
the following estimated useful lives:

                                                 Years

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

      Land improvements                          20-40
      Building and improvements                  5-40
      Leasehold improvements                     7-40
      Equipment, furnishings and fixtures        3-15

Licensing Costs and Amortization

Licensing costs, which are being amortized over a period of twenty years,
consist primarily of professional fees associated with the application for the
racetrack licenses and related licensing fees for the Racing Centers, which are
20 year licenses.

                                      F-8


<PAGE>




                                   Notes to Consolidated Financial Statements
                                                                  (continued)

1.    Significant
      Accounting
      Policies
      (continued)

Revenue Recognition

The Company primarily derives revenue from import simulcasting, which is the
Company's share of wagering at its Racing Centers on races simulcast from other
racetracks. Revenue also is derived from live racing at the Company's track as
well as export simulcasting of its live racing to other racetracks.

Horsemen's Purses and Awards

Amounts due under agreements with the Virginia Horsemen's Benevolent and
Protective Association, Inc. and the Virginia Harness Horse Association (Note 9)
are accrued based on the terms of the agreements.  Funds not yet remitted to the
associations to satisfy the liability are held in a restricted cash account.  As
of December 31, 1997 and 1996 approximately $1,656,500 and $337,800,
respectively, were held in the restricted cash accounts.

Income Taxes

The Company and its subsidiaries file a consolidated income tax return.

However, prior to the reorganization on March 12, 1997, the Partnership and SRC
(an "S" Corporation for income tax purposes) filed income tax returns as
separate entities. Colonial Downs Holdings, Inc. was incorporated in November
1996 but had no activities until the Reorganization and IPO, and therefore had
no activity for tax purposes for the periods prior to the reorganization.

Deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.

                                      F-9


<PAGE>




                                   Notes to Consolidated Financial Statements
                                                                  (continued)

1.    Significant
      Accounting
      Policies
      (continued)

Earnings Per Share

For the year ended December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." SFAS 128 is
effective for financial statements issued for periods ending after December 15,
1997. SFAS 128 provides for the calculation of basic and diluted earnings per
share. Basic earnings per share is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilutive
effect of securities that could share in earnings of an entity. At December 31,
1997, there were no securities which had a dilutive effect.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.

Reclassifications

Certain reclassifications have been made in prior years' financial statements to
conform to the December 31, 1997 presentation.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to credit risk
consist of cash equivalents, including horsemen's deposits, and accounts
receivable.

The Company's policy is to limit the amount of credit exposure to any one
financial institution and place funds with financial institutions evaluated as
being creditworthy. At December 31, 1997 and 1996, the Company had cash deposits
which exceeded federally insured limits by approximately $3,477,000 and
$899,000, respectively.

                                      F-10


<PAGE>




                                   Notes to Consolidated Financial Statements
                                                                  (continued)

1.  Significant
    Accounting
    Policies
    (continued)

Long-Lived Assets

Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and For Long-Lived Assets to Be Disposed Of." SFAS 121 requires that
long-lived assets and certain intangibles to be held and used by an entity be
reviewed for impairment when events or changes in circumstances indicate that
the carrying amount may not be recoverable. In addition, SFAS 121 requires
long-lived assets and certain intangibles to be disposed of to be reported at
the lower of carrying amount of fair value less costs to sell. The Company
reviews the carrying values of its long-lived and identifiable intangible assets
for possible impairment whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable based on undiscounted
estimated future operating cash flows. As of December 31, 1997, the Company has
determined no impairment has occurred.

Stock Based Compensation

Effective January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." SFAS
No. 123 allows companies to continue to account for their stock option plans in
accordance with APB Opinion 25 but encourages the adoption of a new accounting
method based on the estimated fair value of employee stock options. Companies
electing not to follow the new fair value based method are required to provide
expanded footnote disclosures, including pro forma net income and earnings per
share, determined as if the company had applied the new method. The application
of this pronouncement did not have a material effect on the financial statements
of the Company.

Fair Value of Financial Instruments

The following methods and assumptions are used to estimate the fair value of
each class of financial instruments for which it is practical to estimate.

Cash and Cash Equivalents - The carrying amount approximates the fair value due
to the short maturity of the cash equivalents.

Long-Term Debt and Capital Lease Obligations - The fair value of the Company's
long-term debt and capital lease obligations is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. The carrying amount
approximates fair value since the Company's interest rates approximate current
interest rates.

                                      F-11


<PAGE>




                                   Notes to Consolidated Financial Statements
                                                                  (continued)

1.    Significant
      Accounting
      Policies
      (continued)

Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 129 (SFAS 129), "Disclosure of
Information about Capital Structure," effective for periods ending after
December 15, 1997, establishes standards for disclosing information about an
entity's capital structure. SFAS 129 requires disclosure of the pertinent rights
and privileges of various securities outstanding (stock, options, warrants,
preferred stock, debt and participation rights) including dividend and
liquidation preferences, participant rights, call prices and dates, conversion
or exercise prices and redemption requirements. Adoption of SFAS 129 had no
effect on the Company because it currently discloses the information specified.

Statement of Financial Accounting No. 130 (SFAS 130), "Reporting Comprehensive
Income," effective for periods beginning after December 15, 1997, establishes
standards for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.

2.    Property and Equipment

-----------------------------------------------------------------------
December 31,                                  1997             1996

Land and improvements                  $ 8,243,180       $  800,000
Buildings and improvements              49,240,717        1,788,343
Leasehold improvements                   1,114,629          807,643
Equipment, furnishings and fixtures      2,901,639          888,503
Construction in progress                       -          5,080,098
                                      ---------------------------------

Total                                  $61,500,165       $9,364,587
                                      ---------------------------------



3.    Management and
      Consulting Agreement
      with Maryland -
      Virginia Racing
      Circuit

The Company entered into an agreement with the Maryland - Virginia Racing
Circuit, Inc. ("Circuit") an affiliate of the Maryland Jockey Club ("MJC").
Pursuant to the agreement, MJC will suspend live racing at the Pimlico and
Laurel, Maryland racetracks, which it controls, during the Company's live
thoroughbred racing period in order to manage the thoroughbred racing at the
Company's racing facility.

                                      F-12


<PAGE>

                                    Notes to Consolidated Financial Statements
                                                                   (continued)

3.  Management and
    Consulting Agreement
    with Maryland -
    Virginia Racing
    Circuit
    (continued)

The agreement provides that the Company pay the Circuit a fee of two percent of
gross amounts wagered on all racing, except for live harness racing at the
Company's racetrack. This fee represents approximately 10% of pari-mutuel
revenues. Additionally, the Company will pay a pro-rata share of the salaries
of the MJC employees that participate in the management of the Company's live
thoroughbred racing. The Company will bear all other expenses associated with
the management and operation of the thoroughbred meet. Under the agreement,
approximately $2,713,000 and $739,000 of costs were incurred for the years ended
December 31, 1997 and 1996, respectively. (See Note 12)

The Management and Consulting Agreement will remain in effect for so long as the
Company owns, controls or operates the Track, not to exceed a term of 50 years.
At the Company's option, the Company may terminate the agreement any time after
25 years upon payment of a fee equal to 17 times the average management fee paid
during the three years immediately preceding such termination.

4.    Land Conveyance
      and Land
      Development

Delmarva Properties, Inc. and Chesapeake Forest Products Company (collectively
"Delmarva") and the Company entered into an agreement in which Delmarva, at no
cost to the Company, conveyed the land required to build the racetrack and
facilities in New Kent county. The land is subject to reversion to Delmarva if
the Company fails to complete, open and operate for three years a racetrack
licensed by the Commission on the land. Conveyance occurred upon completion of
the IPO, at which time the land, which the Company estimates the fair value to
be approximately $5,000,000, was recorded as a refundable advance with an offset
to a liability account in the same amount. For financial statement purposes, the
liability has been recorded as a contra-asset against the refundable advance,
and will remain so until the likelihood for reversion is remote.

                                      F-16

<PAGE>


                                   Notes to Consolidated Financial Statements
                                                                  (continued)

5.  Notes Payable,
    Notes Payable-
    Related Parties,
    and Capital
    Lease
    Obligations
-------------------------------------------------------------------------
Notes payable, notes payable-related parties, and capital lease obligations
consist of the following:

December 31,                                           1997               1996



Note payable to a Bank maturing June 2000,
  with two one year extensions,
  bearing interest at a variable rate
  (8.69% at December 31, 1997), with a $1,000,000
  principal payment due in December 1998 and
  quarterly principal payments of $500,000
  commencing in March 1999,
  collateralized by substantially all assets of
  the Company and guaranteed by
  certain shareholders and related parties         $10,000,000         $   -


Convertible subordinated note payable to
  CD Entertainment, Ltd., maturing March
  2000, with interest payable quarterly
  at a rate of 7.25%; collateralized by a
  second deed of trust on the racetrack
  facility                                           5,500,000             -

Note payable to a Bank, maturing August 1999,
  bearing interest at prime (8.5% at
  December 31, 1997) plus 1%, with monthly
  principal payments of $15,000, collateralized
  by certain fixed assets                              840,000             -

Note payable to an Insurance Company,
  maturing October 1999, bearing interest at
  6.83%, with monthly payments of $8,622
  including interest                                   170,186             -

Installment notes and capitalized leases
  collateralized by certain vehicles,
  machinery and equipment, maturing at
  various dates through September 2000, at
  interest rates ranging from 3% to 9%                 252,465        69,737



                                      F-13


<PAGE>




                                     Notes to Consolidated Financial Statements
                                                                    (continued)

5.  Notes Payable,
    Notes Payable-
    Related Parties,
    and Capital
    Lease
    Obligations
    (continued)

December 31,                                    1997                    1996


Note payable to CD Entertainment, Ltd.,
  maturing January 1998 bearing interest
  at LIBOR (5.625% at December 31, 1996)
  plus 2%; collateralized by land
  and building                               $      -                $3,000,000

Note payable to CD Entertainment, Ltd.,
  bearing interest at LIBOR (5.625% at
  December 31, 1996) plus 2% with maximum
  borrowings of $5,000,000, unsecured               -                 1,387,619

Notes payable to Arnold Stansley,
  maturing January 1997 and March 1998,
  non-interest bearing, unsecured                   -                   386,788

Notes payable to Norglass, Inc.,
  maturing January 1997 and March 1998,
  non-interest bearing, unsecured                   -                   311,994

Demand note payable to a
  Bank, with interest payable at
  prime plus 2%; unsecured                          -                    20,100
                                           ----------                 ---------
                                           16,762,651                 5,176,238
Less current maturities                     1,373,059                 1,685,297
                                           ----------                 ---------

Long-term debt                            $15,389,592                $3,490,941
                                           ==========                 =========


The notes payable to Arnold Stansley and Norglass, Inc. were repaid with
proceeds from the IPO in 1997. A portion of outstanding debt to CD
Entertainment, Ltd. at December 31, 1996 was repaid with proceeds from the IPO
and the remainder was refinanced in 1997.

Capital lease obligations as of December 31, 1997 and 1996 were approximately
$207,600 and $29,300, respectively. The amount of leased fixed assets
capitalized at December 31, 1997 and 1996 was approximately $233,200 and
$39,500, respectively.

                                      F-14


<PAGE>




                                     Notes to Consolidated Financial Statements
                                                                    (continued)

5.  Notes Payable,
    Notes Payable-
    Related Parties
    and Capital
    Lease Obligations
    (continued)

Arnold Stansley, Norglass, Inc. and CD Entertainment, Ltd. are related to the
Company either directly or indirectly (See Notes 1 and 7).

The aggregate amounts of notes payable and capital lease obligations at December
31, 1997 mature as follows:

      Through December 31,                         Amount

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

    1998                                        $ 1,373,059
    1999                                          2,831,339
    2000                                         12,558,253
  -----------------------------------------------------------

                                                $16,762,651
  ===========================================================


6.    Income Taxes

Income tax expense for the year ended December 31, 1997 consists of the
following:

                                    Federal          State        Total

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


Current                           $      --         $     --    $      --
Deferred expense                     57,000           27,000       84,000
                                  ---------         --------    ---------
                                  $  57,000         $ 27,000    $  84,000
                                  =========         ========    =========

Deferred income tax assets (liabilities) at December 31, 1997 consist of the
following:

                                         Noncurrent



Assets
 Net operating loss                       $ 276,000

Liabilities
 Depreciation and
  amortization                             (360,000)
                                          ----------
Net deferred tax liability                $ (84,000)
                                          ==========



                                      F-15


<PAGE>




                                     Notes to Consolidated Financial Statements
                                                                    (continued)

6. Income Taxes
   (continued)

Income tax expense as reported differs from the amounts computed by applying the
statutory federal income tax rate to pre-tax income as follows:

Year ended December 31, 1997                             Amount



Income taxes at statutory
 rate                                                   $ 31,000
Increases (decreases)
 resulting from
  State taxes, net of federal
   income tax benefit                                    (10,000)
  Campaign costs                                         211,000
  Income allocable to entities
    prior to reorganization                             (158,000)
  Other                                                   10,000
                                                       ---------
                                                       $  84,000
                                                       =========



7.    Related Party
      Transactions

The Company had a management agreement to pay directly and indirectly to SRC and
CD Entertainment Ltd. a monthly management fee of $10,000 and $5,000,
respectively, per month. The Company incurred management fees of $180,000 and
$30,000 under this agreement during the years ended December 31, 1996 and
December 31, 1995, respectively. Upon consummation of the IPO, these agreements
were terminated and the Company entered into a new five year consulting
agreement with Arnold Stansley. Under the agreement, Mr. Stansley receives
$75,000 annually. Total expense under the agreement was $59,375 for the year
ended December 31, 1997.

                                      F-16


<PAGE>




                                     Notes to Consolidated Financial Statements
                                                                    (continued)

7. Related Party
   Transactions
   (continued)

Virginia Concessions, L.L.C., an affiliate of a shareholder, has an agreement
with the Company to manage the food and beverage concessions at the initial six
Racing Centers. Under the agreement, Virginia Concessions, L.L.C. pays
commissions to the Company based upon a percentage of gross sales at each Racing
Center. The Company had approximately $146,500 and $89,000 of rental income
generated from the Company's Racing Centers for the years ended December 31,
1997 and 1996, respectively.

Norglass, Inc. ("Norglass"), an affiliate of shareholder James M. Leadbetter,
was engaged as the general contractor to construct the race track and related
facilities in New Kent County, Virginia. The original contract value with
Norglass, Inc. for the facilities (which does not include approximately $8.1
million for certain equipment, furniture, fixtures and improvements) was
estimated at approximately $29.5 million. The Company is currently engaged in a
contract dispute under the construction agreement, dated February 10, 1997
between the Company and Norglass, See Note 8.

The Company paid and capitalized a $125,000 development fee to Premier
Development Co. ("Premier"), an affiliate of a shareholder, pursuant to
a 1996 agreement. On October 1, 1997, the Company entered into a new
agreement with Premier to pay annual consulting fees in the amount of $226,000
through September 30, 1999. The Company paid $50,000 under the new agreement,
of which $35,000 was capitalized and included in property and equipment at
December 31, 1997.

8.    Commitments and Contingencies

In 1995, the Company entered into an agreement with a totalisator company which
provides wagering services and designs, programs, and manufactures totalisator
systems for use in wagering applications. The basic terms of the agreement state
that the totalisator company shall provide totalisator services to the Company
for all wagering held at the Company's facilities during the first six years of
operations. As a part of the agreement, the Company agreed to pay the
totalisator company certain percentages of the gross amounts wagered at the
facilities, as well as a minimum of $37,500, payable annually for equipment
installed at the racetrack for live race meets. In addition, the Company agreed
to use certain equipment provided by the totalisator company.

                                      F-17


<PAGE>




                                     Notes to Consolidated Financial Statements
                                                                    (continued)

8. Commitments and
   Contingencies
   (continued)

In 1996, the Company entered into agreements with a company which provides
closed circuit television service and equipment. The basic terms of the
agreement state that the company shall provide closed circuit television at the
track and the Company's Racing Centers. As a part of the agreement, the Company
agreed to pay the company certain amounts per simulcast day. Total expense
incurred for totalisator and TVs (excluding host fees) was approximately
$493,000 and $190,000 for the years ended December 31, 1997 and 1996,
respectively.

The Company is liable under several operating leases for automobiles, equipment
and buildings expiring at various dates. Total rental expense under these
non-cancelable leases was approximately $393,000 and $144,000 for the years
ended December 31, 1997 and 1996, respectively.

The following are the future estimated minimum commitments relating to
non-cancelable operating agreements and leases.

                              TVs and
Year Ending December 31,    Totalisator        Other         Total



1998                         $1,626,300     $116,000    $1,742,300
1999                          1,371,000      108,500     1,479,500
2000                          1,246,000       48,800     1,294,800
2001                          1,246,000        1,700     1,247,700
2002                          1,246,000          500     1,246,500
                             ----------     --------    ----------
                             $6,735,300     $275,500    $7,010,800
                             ==========     ========    ==========

The Company has a $200,000 letter of credit that secures the Company's
obligations under certain erosion control bonds related to construction of the
racetrack.

                                      F-18


<PAGE>




                                     Notes to Consolidated Financial Statements
                                                                    (continued)

8. Commitments and
   Contingencies
   (continued)

At December 31, 1997, the Company had a $5,000,000 line of credit with a
commercial bank at various interest rates, which expires in June 2000. The line
of credit is secured by substantially all assets of the Company and assignment
of certain rights and revenues of the Company. The line of credit is also
guaranteed by certain shareholders and related parties of the Company. The
credit facility contains various covenants in conjunction with the $10,000,000
note payable with the same commercial bank which include tangible net worth,
profitability, and debt coverage ratios. No amounts were outstanding under this
line of credit facility at December 31, 1997.

Pursuant to an agreement to provide credit support to the Company, Diversified
Opportunities Group Ltd. ("Diversified"), an affiliate of a shareholder, will
receive an annual fee equal to 3% of the amount of any letters of credit or
guarantees provided to the Company (subject, in the case of a letter of credit,
to a minimum annual fee of $50,000). Costs incurred under this agreement were
$165,124 in 1997.

To assist in the development and improvement in certain public roads adjacent to
the racetrack facility, the Company entered into an agreement in July 1996 with
New Kent County and the Capital Area Training Consortium for a Community
Development Block Grant of $700,000. In addition to the grant, an additional
amount of approximately $700,000 was allocated by the Virginia Department of
Transportation to complete a project which widened State Route 155 from I-64 to
the entrance of the racetrack grounds.

Under the above agreements, the Company must take affirmative steps to employ a
minimum number of low and moderate income persons based on HUD Section 8 Income
Limits. In the event that the Company fails to honor its commitment to take such
affirmative steps, the Company must repay any local or grant funds already
expended in full to the locality and the Virginia Department of Housing and
Community Development. The Company is in compliance with the requirements.

                                      F-19


<PAGE>


                                    Notes to Consolidated Financial Statements
                                                                   (continued)

8.    Commitments and
      Contingencies
      (continued)

Pursuant to the terms of the Construction Contract with Norglass, the Company is
proceeding before the American Arbitration Association ("AAA") against Norglass,
the general contractor engaged to manage the construction of the Company's
racetrack. In the proceeding, the Company challenges the validity of Norglass'
mechanic's liens for approximately $11.8 million at December 31, 1997
(subsequently reduced to $6.5 million) and asserts a damage claim against
Norglass in an amount not less than $4.4 million. The Company is vigorously
pursuing its claims against Norglass and is vigorously defending against claims
for payment by Norglass under the Construction Contract. If the Company does not
prevail in its claims, and assuming the Company receives a credit against
Norglass' claim for amounts the Company has paid directly to subcontractors, its
potential liability, included in accounts payable at December 31, 1997, is
approximately $1.9 million in construction costs, plus interest, from a date to
be established and legal fees. Additionally, it will be unable to recover
approximately $3.8 million it has paid to subcontractors of Norglass as of
December 31, 1997.

In connection with the dispute with Norglass, subcontractors of Norglass and
parties claiming direct contracts with the Company filed mechanic's liens
against the property in the aggregate amount of approximately $4 million. As of
the date hereof, all but $501,000 of such mechanic's liens have been released.
The Company is negotiating with these subcontractors and contractors for the
release of the balance of such liens.

9.    Horsemen's Agreement

The Company entered into an agreement effective February 17, 1996 with the
Virginia Horsemen's Benevolent and Protective Association, Inc. ("VAHBPA")
applicable to revenue generated from pari-mutuel wagering on simulcast
thoroughbred races at all facilities owned and operated by the Company in
Virginia, and simulcasting of live thoroughbred races at the racetrack. In
accordance with the agreement, the Company maintains a separate joint bank
account (the "Thoroughbred Partner Account") into which the Company deposits an
amount equal to 5.25%, which is approximately 26.25% of thoroughbred pari-
mutuel revenues, of the thoroughbred handle at each Racing Center. Also, 5% of
net revenue derived from export simulcasting of live thoroughbred races at the
racetrack is due to the Virginia Breeders Fund. The initial period of the
agreement runs through December 31, 1998, and renews automatically for
successive one year terms.

If the sum of 5.25% of the Racing Centers' thoroughbred handle plus the total
amount of handle generated by live thoroughbred racing at the racetrack for each
period is less than a guaranteed $4.5 million, then the Company shall pay the
difference into the Thoroughbred Partner Account, used to pay purses, with half
of such amount being considered a loan by the Company to the VAHBPA. The Company
met the $4.5 milion guarantee during the year ended December 31, 1997.

                                      F-20


<PAGE>

                                     Notes to Consolidated Financial Statements
                                                                    (continued)

9.    Horsemen's
      Agreements
      (continued)

The Company entered into another agreement effective February 17, 1996 with the
Virginia Harness Horse Association ("VHHA") applicable to revenue generated from
pari-mutuel wagering on simulcast standardbred races at all facilities owned and
operated by the Company in Virginia, and simulcasting of live races held at the
racetrack. In accordance with the agreement, the Company maintains a separate
joint bank account (the "Standardbred Partner Account") into which the Company
deposits an amount equal to 5%, which is approximately 25% of standardbred
pari-mutuel revenue, of the Racing Center standardbred handle. Under the
agreement, 5% of the revenue derived from export simulcasting of live
standardbred races at the racetrack is due to the Virginia Breeders Fund, 47.5%
is shared between VHHA and the breeders, and the remaining 47.5% retained by the
Company. The initial period of the agreement runs through completion of the 1999
standardbred race meet, and renews automatically for successive one year terms.

If the sum of 5% of the standardbred handle plus the total amount of handle
generated by live standardbred racing at the racetrack for the initial period is
less than a guaranteed $2.5 million, then the Company shall pay the difference
into the Standardbred Partner Account, used to pay purses, with half of such
amount being considered a loan by the Company to the VHHA.

Under the VAHBPA and VHHA agreements, the Company may be required to make purse
contributions in excess of the minimum amounts based upon a formula which
adjusts the Company's net income. For the year ended December 31, 1997, the
Company was not required to make any additional purse account contributions.

Under the Virginia Racing Act, the Company is required to contribute
approximately 8.5% of all money wagered at the racetrack on live racing to the
purse accounts and these funds will count towards the required minimum $4.5
million and $2.5 million for thoroughbred and standardbred purses, respectively.

10. Stockholders' Equity

In March 1997, the Company completed its initial public offering. The proceeds,
net of expenses, amounted to $35,918,385 for 4,250,000 shares of common stock
issued. The offering price per share was $9.50.

                                      F-21


<PAGE>


                                     Notes to Consolidated Financial Statements
                                                                    (continued)

10.   Stockholders Equity
      (continued)

In conjunction with the Reorganization and IPO, the Company implemented a stock
option plan. Options granted under the plan may be either Incentive Stock
Options or Non-qualified Stock Options, based on the discretion of the Board of
Directors. The maximum aggregate number of shares which may be optioned and sold
under the plan is 300,000 shares of Class A Common Stock. The exercise price per
share for Incentive Stock Options will be no less than the fair value of the
stock at the grant date. The exercise of Non-qualified Options is determined by
the Board of Directors on the grant date. The term of the plan is ten years.

                         Weighted
                          Average
                         Exercise    Available       Options       Vested and
                          Price      for Grant     Outstanding     Exercisable

Balance at March 21,
 1997 (plan inception)    $   -       300,000             -                -

Granted                    9.86      (242,000)      242,000                -
Vested                        -             -             -                -
Exercised                     -             -             -
Forefeited                    -        50,000       (50,000)               -
                         ------       -------       -------           -------

Balance at December 31,
 1997                    $ 9.86       108,000       192,000                -
                         ======       =======       =======           =======

The Company applies APB Opinion 25 and related interpretations in accounting for
its plan. Accordingly, no compensation cost has been recognized. The weighted
average fair value of options granted at December 31, 1997 is $3.22. The
proforma effect of options issued and outstanding under the provisions of SFAS
123 for the year ended December 31, 1997 are is follows:

Net earnings:
  As reported                           $    7,863
  Proforma                                (125,637)

Basic and diluted earnings per share:
  As reported                           $     0.01
  Proforma                                   (0.02)

For the purposes of computing the pro forma amounts indicated above, the fair
value of each option on the date of grant is estimated using the Black-Scholes
option pricing model with the following assumptions: no dividend yield, expected
volatility of 25%, risk-free interest rate of 6.74% and an expected life of 5
years. Substantially all options become vested and exerciseable evenly over a
five year period.


11.   Supplemental
      Disclosures of
      Cash Flow

Year ended December 31,                  1997             1996          1995


Cash paid for interest                $1,094,380     $    94,674        $ 2,400

Conversion of debt to equity          $   -          $ 1,965,069        $    -

Capital lease obligation incurred     $  229,353     $    39,483        $    -

Income taxes paid                     $  217,956     $         -        $    -


                                      F-22


<PAGE>


                                     Notes to Consolidated Financial Statements
                                                                    (continued)

11.   Supplemental
      Disclosures of
      Cash Flows
      (continued)

At December 31, 1997 and 1996, $7,964,354, and $2,815,599, respectively, were
due vendors for property and equipment purchases.

During the year ended December 31, 1996, $1,965,069 of debt due to CD
Entertainment, Ltd. was converted to equity and treated as capital
contributions. No shares of common or preferred stock were issued in connection
with the conversion.

12.   Subsequent
      Events

On January 8, 1998, the Company filed a demand for arbitration against
Maryland-Virginia Racing Circuit, Inc. ("MVRC") before the Virginia Racing
Commission (the "Commission"). In its arbitration demand, the Company challenged
a management fee claimed to be due to MVRC pursuant to a Management and
Consulting Agreement (see Note 3), dated as of April 22, 1996 (the "Consulting
Agreement") between the Company and MVRC. The arbitration is based upon the fact
that the demanded compensation under the Consulting Agreement has failed to
consider certain changed circumstances as well as the original intent of the
parties. Specifically, the compensation demanded by MVRC has been based upon the
assumptions that MVRC was to manage a 102-day thoroughbred racing season at
Colonial Downs' racetrack and during that 102-day season the Maryland tracks
owned and operated by MVRC would be closed. In reality, however, the number of
thoroughbred race days has been (and will be for the foreseeable future) much
less and MVRC has failed to close its Maryland tracks as contemplated. As a
result, the Company has requested that the Commission (as provided in the
Agreement) arbitrate this dispute and reform the Consulting Agreement
accordingly, thereby reducing the compensation to MVRC to reflect the fewer
number of race days during which MVRC is actually managing the Company's
thoroughbred season. In the alternative, the Company has requested the
Commission to declare the Consulting Agreement null and void and to direct the
parties to enter into a new agreement. The Commission declined Colonial Downs'
request that it arbitrate the dispute on January 21, 1998; hence a third-party
arbitrator must be named.



                                      F-23


<PAGE>


Report of Independent Certified Public Accountants

Colonial Downs Holdings,Inc.
New Kent, Virginia

We have audited the accompanying consolidated balance sheets of Colonial Downs
Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Colonial Downs
Holdings, Inc. and subsidiaries at December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.

                                                        BDO Seidman, LLP

Richmond, Virginia
March 25, 1998


<PAGE>



ITEM 9   CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
         DISCLOSURE

    Not Applicable.

                                    PART III

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by Item 10 is incorporated by reference from
the Company's definitive proxy statement with respect to the Company's Annual
Meeting of Shareholders to be held on May 8, 1998. Such proxy statement shall be
filed pursuant to Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended, within 120 days after the end of the fiscal year covered by
this Annual Report on Form 10-K.


<PAGE>


ITEM 11  EXECUTIVE COMPENSATION

         The information required by Item 11 is incorporated by reference from
the Company's definitive proxy statement with respect to the Company's Annual
Meeting of Shareholders to be held on May 8, 1998. Such proxy statement shall be
filed pursuant to Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended, within 120 days after the end of the fiscal year covered by
this Annual Report on Form 10-K.

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by Item 12 is incorporated by reference from
the Company's definitive proxy statement with respect to the Company's Annual
Meeting of Shareholders to be held on May 8, 1998. Such proxy statement shall be
filed pursuant to Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended, within 120 days after the end of the fiscal year covered by
this Annual Report on Form 10-K.

ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by Item 13 is incorporated by reference from
the Company's definitive proxy statement with respect to the Company's Annual
Meeting of Shareholders to be held on May 8, 1998. Such proxy statement shall be
filed pursuant to Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended, within 120 days after the end of the fiscal year covered by
this Annual Report on Form 10-K.

ITEM 14  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)      (1) The  Financial  Statements  included  in the  Index  to Part  II,
             Item 8,  are  filed as part of this Report.


(B) Reports of Form 8-K

         The Company filed the following Form 8-K during the fourth quarter of
1997:

         1. On November 14, 1997 the Company filed Form 8-K which reflected the
intention of the Company to seek, through arbitration, a reduction in the fees
it pays to the Maryland Jockey Club. Further, the Form 8-K reflected an
announcement of Jeffrey P. Jacobs interest in proposing a combination of the
Company with Black Hawk Gaming & Development Co., Inc., in which Mr. Jacobs
holds a substantial interest. Additionally, the Form 8-K announced that the
Company may consider seeking referenda in other Virginia cities and counties in
connection with spring 1998 elections for city councils and the November 1998
Congressional elections.

         2. On December 10, 1997, the Company filed Form 8-K which reflected the
retirement of O.J. Peterson, III from the positions of President and Chief
Operating Officer of the Company effective January 1, 1998. It further announced
that Mr. Jacobs would take over as President and Ian Stewart was promoted to
Chief Operating Officer.

(C) Exhibits
     See Exhibit Index

(D) All financial statements and schedules except those items listed under items
    14(a)1 and (a)2 above are omitted because they are not applicable, or not
    required, or because the required information is included in the financial
    statements or notes thereto.

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                    COLONIAL DOWNS HOLDINGS, INC.

                   /s/ Jeffrey P. Jacobs
                   -----------------------------------------------
                   Jeffrey P. Jacobs, Chief Executive Officer and
                   President, Chairman of the Board and Director
                   March 30, 1998

                   /s/ Ian M. Stewart
                   -----------------------------------------------
                   Ian M. Stewart, Chief Operating Officer and
                   Chief Financial Officer
                   March 30, 1998

       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

                   /s/ Jeffrey P. Jacobs
                   -----------------------------------------------
                   Jeffrey P. Jacobs, Chairman of the Board, Director
                   March 30, 1998

                   /s/ Arnold W. Stansley
                   -----------------------------------------------
                   Arnold W. Stansley, Director
                   March 30, 1998

                   /s/ William J. Koslo
                   -----------------------------------------------
                   William J. Koslo, Jr., Director
                   March 30, 1998

                   /s/ Stephen Peskoff
                   -----------------------------------------------
                   Stephen Peskoff, Director
                   March 30, 1998

                   /s/ Robert H. Hughes
                   -----------------------------------------------
                   Robert H. Hughes, Director
                   March 30, 1998

                   /s/ David C. Grunenwald
                   -----------------------------------------------
                   David C. Grunenwald, Director
                   March 30, 1998

                   /s/ Patrick J. McKinley
                   -----------------------------------------------
                   Patrick J. McKinley, Director
                   March 30, 1998

<PAGE>

                                 EXHIBIT INDEX



EXHIBIT NOS.                            DESCRIPTION OF EXHIBIT

 2.1        Agreement and Plan of Reorganization (Incorporated by reference to
            the Company's registration statement on Form S-1, File # 333-18295,
            dated March 14, 1997)

 3.1        Amended and Restated Articles of Incorporation of Colonial Downs
            Holdings, Inc. (Incorporated by reference to the Company's
            registration statement on Form S-1, File # 333-18295, dated March
            14, 1997)

 3.2        Amended and Restated By-laws of Colonial Downs Holdings,  Inc.
            (Incorporated by reference to the Company's registration statement
            on Form S-1, File # 333-18295, dated March 14, 1997)

 4.1        Stock Certificate representing Colonial Downs Holdings, Inc. Common
            Stock (Incorporated by reference to the Company's registration
            statement on Form S-1, File # 333-18295, dated March 14, 1997)

10.1        Management and Consulting Agreement (Incorporated by reference to
            the Company's registration statement on Form S-1, File # 333-18295,
            dated March 14, 1997)

10.2        Amended and Restated Performance Guarantee Agreement (Incorporated
            by reference to the Company's registration statement on Form S-1,
            File # 333-18295, dated March 14, 1997)

10.3        Form of Deed for Track site (Incorporated by reference to the
            Company's registration statement on Form S-1, File # 333-18295,
            dated March 14, 1997)

10.4        Construction Agreement (Incorporated by reference to the Company's
            registration statement on Form S-1, File # 333-18295, dated March
            14, 1997)

10.5        Development Agreement (Incorporated by reference to the Company's
            registration statement on Form S-1, File # 333-18295, dated March
            14, 1997)

10.6        Hubbing Agreement (Incorporated by reference to the Company's
            registration statement on Form S-1, File # 333-18295, dated March
            14, 1997)

10.7        VHHA Simulcast Wagering Agreement (Incorporated by reference to the
            Company's registration statement on Form S-1, File # 333-18295,
            dated March 14, 1997)

10.8        VaHBPA Simulcast Wagering Agreement (Incorporated by reference to
            the Company's  registration  statement on Form S-1, File #
            333-18295,  dated March 14, 1997)

10.9        Form of Convertible Subordinated Note (Incorporated by reference to
            the Company's registration statement on Form S-1, File # 333-18295,
            dated March 14, 1997)

10.10       Forms of Employment  Agreements  (Incorporated  by reference to the
            Company's  registration  statement on Form S-1, File # 333-18295,
            dated March 14, 1997)

10.11       Form of Stansley Racing Agreement  (Incorporated by reference to the
            Company's registration  statement on Form S-1, File # 333-18295,
            dated March 14, 1997)

10.12       Amended and Restated Promissory Note to CD Entertainment Ltd.
            (Incorporated by reference to the Company's registration statement
            on Form S-1, File # 333-18295, dated March 14, 1997)

10.13       Agreement for Interim  Financing  (Incorporated by reference to the
            Company's  registration  statement on Form S-1, File # 333-18295,
            dated March 14, 1997)

10.14       Registration Rights Agreement (Incorporated by reference to the
            Company's registration statement on Form S-1, File # 333-18295,
            dated March 14, 1997)

10.16       Form of 1997 Stock Option Plan  (Incorporated  by reference to the
            Company's  registration  statement on Form S-1,  File # 333-18295,
            dated March 14, 1997)

10.17       Agreement for Provision of Credit (Incorporated by reference to the
            Company's  registration  statement on Form S-1, File # 333-18295,
            dated March 14, 1997)

10.18       Management  Agreement  between  Colonial  Downs,  L.P. and Virginia
            Concessions,  L.L.C.  (Incorporated  by reference to the Company's
            10-Q,  File # 333-18295, dated August 14, 1997)

10.19       Construction Loan Agreement between Colonial Downs, L.P. and PNC
            Bank, National Association (Incorporated by reference to the
            Company's 10-Q, File # 333-18295, dated August 14, 1997)

10.20       Revolving Line of Credit Agreement (Incorporated by reference to the
            Company's 10-Q, File # 333-18295, dated August 14, 1997)

10.21       Deed of Trust Note (Incorporated by reference to the Company's 10-Q,
            File # 333-18295, dated August 14, 1997)

10.22       Revolving Line of Credit Note (Incorporated by reference to the
            Company's 10-Q, File # 333-18295, dated August 14, 1997)

10.23       Deed of Trust and Security Agreement (Incorporated by reference to
            the Company's 10-Q, File # 333-18295, dated August 14, 1997)

10.24       Assignment of Leases and Rents (Incorporated by reference to the
            Company's 10-Q, File # 333-18295, dated August 14, 1997)

10.25       Agreement of Guaranty and Suretyship (Completion) between Stansley
            Racing Corp. and PNC Bank, National Association (Incorporated by
            reference to the Company's 10-Q, File # 333-18295, dated August 14,
            1997)

10.26       Agreement of Guaranty and Suretyship (Completion) between Colonial
            Downs Holdings, Inc. and PNC Bank, National Association
            (Incorporated by reference to the Company's 10-Q, File # 333-18295,
            dated August 14, 1997)

10.27       Agreement of Guaranty and Suretyship (Payment), between Stansley
            Racing Corp. and PNC Bank, National Association (Incorporated by
            reference to the Company's 10-Q, File # 333-18295, dated August 14,
            1997)

10.28       Agreement of Guaranty and Suretyship (Payment) between Stansley
            Racing Corp. and PNC Bank, National Association (Incorporated by
            reference to the Company's 10-Q, File # 333-18295, dated August 14,
            1997)

10.29       Promissory Note payable to Citizens and Farmers Bank (Incorporated
            by reference to the Company's 10-Q, File # 333-18295, dated
            September 14, 1997)

10.30       Business Loan Agreement between the Company, the Partnership and
            Citizens and Farmers Bank (Incorporated by reference to the
            Company's 10-Q, File # 333-18295, dated September 14, 1997)

10.31       Commercial Security Agreement among the Company, the Partnership and
            Citizens and Farmers Bank (Incorporated by reference to the
            Company's 10-Q, File # 333-18295, dated September 14, 1997)

10.32       Subordination Agreement (Lighting) among the Company, CD
            Entertainment, the Partnership and David F. Belkowitz and James W.
            Theobold (Incorporated by reference to the Company's 10-Q, File #
            333-18295, dated September 14, 1997)

10.33       Employment Agreement dated June 23, 1997 between the Company and Ian
            M. Stewart

10.34       Souvenir and Gift Concessions Agreement dated August 1, 1997, by and
            between the Partnership, and Stansley Racing Corp, and Colonial
            Gifts and Sportswear, Inc.

21.1        Subsidiaries  of the Registrant  (Incorporated  by reference to the
            Company's  registration  statement on Form S-1, File # 333-18295,
            dated March 14, 1997)

23.1        Consent of Hogan & Hartson L.L.P.  (Incorporated by reference to the
            Company's registration  statement on Form S-1, File # 333-18295,
            dated March 14, 1997)

23.2        Consent of BDO Seidman, LLP (Incorporated by reference to the
            Company's registration statement on Form S-1, File # 333-18295,
            dated March 14, 1997)

24.1        Power of Attorney (Incorporated by reference to the Company's
            registration statement on Form S-1, File # 333-18295, dated March
            14, 1997)

27.1        Financial Data Schedule