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, 1999

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

                        Commission file number 333-18295


                         COLONIAL DOWNS HOLDINGS, INC.
            (Exact Name of Registrant as Specified in Its Charter)

             VIRGINIA                                 54-1826807
  (State or Other Jurisdiction of       (I.R.S. Employer Identification No.)
   Incorporation or Organization)


                          10515 Colonial Downs Parkway
                            New Kent, VA  23124
                  (Address of Principal Executive Offices)

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

     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 $0.01 per share      NASDAQ Small Cap 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 the  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]

Number of  Shares of Class A Common  Stock  outstanding  as of March 27,  2000 -
5,025,239  Number of Shares of Class B Common Stock  outstanding as of March 27,
2000 - 2,242,500


                  DOCUMENTS INCORPORATED BY REFERENCE - None
<PAGE>   2
                                     PART I

ITEM 1.     BUSINESS

GENERAL

     Colonial Downs Holdings, Inc., (the "Company"), a Virginia Corporation, was
incorporated  in 1996. The Company owns and operates,  through its wholly- owned
subsidiaries,  Colonial  Downs  Racetrack  (the "Track") in New Kent,  Virginia,
which primarily conducts  pari-mutuel  wagering on thoroughbred and standardbred
horse  racing.  The  Company  also owns and  operates  four  satellite  wagering
facilities ("Racing Centers"),  which provide simulcast  pari-mutuel wagering on
thoroughbred and standardbred horse racing from selected  racetracks through out
the United States.

     The Company sends its race signal from the Track to out-of-state  satellite
wagering  facilities  and receives  race signals from  out-of-state  racetracks.
Depending upon the format permitted at each facility, patrons may participate in
a commingled pool or a separate pool. In commingled pool wagering,  patrons at a
satellite wagering facility  participate in the same pari-mutuel pool payouts as
those  patrons at the host  facility  where the race is held.  In separate  pool
wagering,  patrons at a  satellite  wagering  facility  participate  in the pool
generated by wagers at that facility.  Under Virginia law, a majority portion of
the pooled wagers is paid out as winnings,  a portion is paid to the  applicable
local  governments and the  Commonwealth  of Virginia,  a portion is paid to the
Virginia Breeders' Fund, a portion is distributed to the Track's horsemen in the
form of "purses", and the remainder is retained by the wagering facility.

     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) admission fees,  program
and racing form sales, and certain other ancillary activities;  (iv) Commissions
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.

STRATEGY

     The  Company  intends  to be a  leading  participant  in  the  industry  by
capitalizing  upon its unique dirt and turf track  capabilities for live racing,
expansion of its Racing Center  network,  and its alliance with Maryland  Jockey
Club to provide experienced management for the Track and Racing Centers.

     Track - The Track's one and a quarter mile dirt track is one of the largest
tracks in the United States and its 180 foot wide mile turf track is the largest
turf track in North America.  These unique  configurations have and are expected
to attract quality horses to the Track.  The Track was host to the 1998 Breeders
Crown, one of the premier North American standardbred racing events, in November
1988. The Virginia Derby, a race for three-year old  thoroughbreds,  was held in
October  1998 and 1999 on the  Company's  turf  track.  The  Company  intends to
develop the Virginia Derby as a graded stakes race as a warm up to the Breeders'
Cup. The Company  believes that by hosting and creating  marquee  racing events,
the Company will be able to improve its market  visibility,  attract  additional
patrons to the Track and its Racing Centers, and
<PAGE> 3

enhance its ancillary revenues from export simulcasting, corporate sponsorships,
group sales events, and food and beverage sales.

     The  track  facility  was  designed  to  provide  patrons  with a  pleasant
atmosphere to enjoy quality horse racing. The outside grandstand area located on
the first floor of the track facility has an occupancy capacity of approximately
4,000  patrons.  Also  located on the first floor of the track  facility are two
simulcast/TV amphitheaters,  two covered patio-seating areas, four bars, a large
concession  food court,  gift shop, and wagering  locations  with  approximately
sixty tellers.  The Jockey Club, which is in the main grandstand area located on
the third floor of the track facility,  includes a full-service dining area with
a seating  capacity of 548 patrons,  two separate  lounge areas,  and additional
wagering locations with 38 tellers. The Turf Club, a private club, as well as 10
luxury suites with skybox seating,  are located on the fourth floor of the track
facility.

     Racing  Centers - By state law,  the  Company  can operate up to six Racing
Centers in Virginia.  The Company currently operates four Racing Centers located
in Richmond,  Chesapeake,  Hampton, and Alberta,  Virginia. These Racing Centers
employ  state-of-the-art  audio/visual technology for maintaining quality import
simulcast  thoroughbred and standardbred races from nationally known racetracks.
The Racing Centers are structured to  accommodate  the needs of various  patrons
from the seasoned  handicapper to the novice wagerer. The Racing Centers provide
patrons with a comfortable upscale environment  including a full bar and a range
of restaurant services.  In addition,  automated wagering equipment is available
to patrons in order to make wagering more  user-friendly  to the novice and more
efficient  for the  expert.  This  automated  wagering  equipment,  touch-screen
interactive  terminals and personalized  portable  wagering  terminals,  provide
patrons with current odds information and enable them to place wagers and credit
winning tickets to their accounts  without  waiting in line.  Under current law,
before the Company can open its last two Racing  Centers,  it is required to win
approval  through a local  referendum  process in the  municipality in which the
facility  will be located.  The Company  intends to open the  additional  Racing
Centers by no later than 2003.

     Strategic  Alliance - The Company  entered into a Management and Consulting
Agreement (the  "Agreement")  with  Maryland-Virginia  Racing  Circuit,  Inc. an
affiliate of the Maryland Jockey Club ("MJC"), to provide experienced management
for the Track and Racing Centers and to create a Virginia-Maryland  thoroughbred
racing circuit. Under the Agreement, Maryland Jockey Club agreed to suspend live
racing at their  racetracks,  Laurel Park and Pimlico  Race  Course,  during the
Company's  live  thoroughbred  meets.  Parties to the  Agreement  also agreed to
exchange  simulcast  signals for their live meets at no cost to either party. An
amendment to the Agreement (the "Amended  Agreement") was signed by both parties
on  January   15,   1999,   which   restructured   among  other   terms,   MJC's
responsibilities as manager and the management fee paid to MJC. On July 1, 1999,
MJC assumed operating  responsibilities for the Company's Racing Centers as well
as the live standardbred and thoroughbred meets. Prior to the Amended Agreement,
MJC agreed to manage the Company's  thoroughbred meet, and the Company agreed to
reimburse  MJC for the  personnel  it provided  to manage  such meet.  Under the
amended  agreement,  MJC is no longer  reimbursed  for expenses  incurred  while
acting as manager of these operations.  Also, under the Amended  Agreement,  the
management  fees  were  reduced  from 2% of  amounts  wagered  at the  Company's
facilities  (other than on live  standardbred  meets  conducted at the Track) to
1.0% of the first $75 million of the aggregate gross amounts
<PAGE> 4

wagered in any calendar year in the Commonwealth of Virginia  excluding  certain
conditions  ("Handle") specified in the Amended Agreement and 2.0% of all Handle
in excess of $75 million per  calendar  year.  Management  fees  relating to the
Company's  new  Racing  Centers,  if any,  will be  either 2% or 3.25% of Handle
depending upon their location and the amount of handle.

PURSE STRUCTURE

     The Company has  previously  taken  steps to ensure  competitive  purses to
attract quality horses at the Track by way of a guaranteed purse structure.  The
Company  generally  contributes  to  the  thoroughbred  and  standardbred  purse
accounts,   respectively,   a  certain   percentage  of  all   thoroughbred  and
standardbred  wagers at its Racing  Centers.  The purse  structure is negotiated
with the respective  horsemen's groups, the Virginia  Horsemen's  Benevolent and
Protective  Association  ("VaHBPA") for  thoroughbred  horsemen and the Virginia
Harness Horse Association ("VHHA") for standardbred horsemen. The agreement with
the VaHBPA expires December 31, 2001. There is not a current  agreement with the
VHHA; however, a new agreement is anticipated under legislation that is expected
to become effective in April 2000.

     The Company's purses have been competitive with purses at racetracks in the
mid-Atlantic  market that conduct meets  concurrently  with the Company's meets,
with the possible  exception of Delaware Park, which has video lottery terminals
("VLTs") or slot  machines.  Revenues  from VLTs have enabled  Delaware  Park to
increase the purses  offered.  The racetrack in  Charlestown,  West Virginia has
acquired  slot  machines  and the purses it offers are  expected  to increase to
become more competitive with those offered by the Company.

COMPETITION

     The Company competes with 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  neighboring  states.
The Company also faces  competition from a wide range of entertainment  options,
including live and televised sporting events and other  recreational  activities
such as theme parks (Kings  Dominion to the  northwest  and Busch Gardens to the
southeast) and more recently internet based pari-mutuel wagering.

     The possible  legalization  of other forms of gaming in  Virginia,  such as
riverboat  casinos could have an adverse  effect on the  Company's  performance.
Although bills for the creation of riverboat casinos 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.

     The Company  competes and will compete for wagering  dollars and  simulcast
fees with live  racing and races  simulcast  from  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.  The  Company  believes  that  the  Management
Agreement with MJC will continue to promote  coordination of thoroughbred events
between  Maryland and  Virginia.  However,  if the  Virginia or Maryland  Racing
<PAGE> 5

Commissions  do  not  approve  the  party's  proposed  racing  days,  or if  the
Virginia-Maryland  thoroughbred  racing circuit is otherwise  unsuccessful,  the
Track may compete directly with Pimlico Race Course and Laurel Park in Maryland.

     The Company  anticipates  that it will experience  adverse effects from the
continued  legalization  of VLT and slot machines in neighboring  states such as
Delaware and West Virginia.  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  which can make it  difficult  for the  Company to attract
horsemen to race at the Track.

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
National  Gaming  Commission  (the "NGC")  conducted 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. The NGC published its findings and recommendations in It is
not possible to predict the future impact of any of these recommendations on the
Company and its operations;  however,  adoption of these  recommendations  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 was 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 a review  annually 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. 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.

     During the 2000 session of the Virginia General  Assembly,  an amendment to
the Racing Act was passed  that is likely to be  effective  April 2000 that will
require the Company to enter into  contracts with each  representative  horsemen
<PAGE> 6

group that  provides for the Company to  contribute a minimum of 5% of the first
$75 million of simulcast handle, 6% of the next $75 million and 7% of all handle
over $150  million to the purse  account of the  respective  breed.  An existing
contract with the VaHBPA will not be affected by the change.  The amendment also
provides for the breakage generated by pari-mutuel  wagering to be allocated 70%
to capital expenditures and 30% to backstretch benevolent activities. Currently,
the  Company  receives  all  breakage.   Finally,  the  amendment  empowers  the
Commission to summarily suspend the Company's licenses if it believes the Racing
Act or the regulations have been violated.

     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
origination state. To conduct export  simulcasting,  the Company must obtain the
consent of the Virginia Horseman's Benevolent and Protective  Association or the
Virginia Harness Horse Association, 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 Centers 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
<PAGE> 7

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

     As of December 31, 1999,  the Company had  approximately  116 full-time and
160 part-time  employees.  During the live meets,  the Company employs up to 150
temporary  employees.  The Company considers its relations with its employees to
be good.

ITEM 2.     PROPERTIES

     Information  regarding the Company's  facilities as of December 31, 1999 is
As follows:
<TABLE>
<CAPTION>
                                                                        Size
    Location                        Use              Leased/Owned     (Sq. Ft.)
    --------                        ---              ------------    ----------
  <S>                              <S>                   <S>             <C>
Colonial Downs Racetrack
------------------------
New Kent, VA(1)              Race Track and               Owned         152,000
                             Administrative Offices
Racing Centers
--------------
Richmond, VA                 Satellite Wagering           Owned          20,000
Chesapeake, VA               Satellite Wagering           Leased         15,000
Hampton, VA                  Satellite Wagering           Owned          13,500
Alberta, VA                  Satellite Wagering           Owned           8,000

</TABLE>
(1) Colonial Downs Racetrack is located on approximately  345 acres of land with
    paved parking to accommodate over 1,825 vehicles. Additional unpaved parking
    is available for large and capacity crowds.












<PAGE>   8

ITEM 3.     LEGAL PROCEEDINGS

     Mechanic Lien Litigation.  In connection with the dispute with Norglass,
     ------------------------
that two subcontractors of Norglass filed mechanic's liens against the
property.  In Baker Roofing Company v. Colonial Downs Holdings, Inc., et al.
              -------------------------------------------------------------
(New Kent County Circuit Court Case No. CH98-76), a roofing subcontractor seeks
payment of $137,790.10 and its subcontractor in turn seeks payment of
$40,541.32 in NCI Building Components v. Baker Roofing Company, et al. (New
              -------------------------------------------------------
Kent County Circuit Court Case No. CH98-78).  The Company is contesting these
matters and is seeking a final resolution to all pending claims.

     Virginia Racing Commission's December 1999 Rulings.  Certain rulings of
     --------------------------------------------------
the  Commission  made at its  December  15, 1999  Meeting and its written  Order
pertaining  thereto issued on December 20, 1999 (the "December Order") gave rise
to certain  litigation  initiated by Colonial  Downs,  L.P. (the  "Partnership),
Stansley  Racing Corp.  ("Racing")  and others during the first quarter of 2000.
The Commission rulings included:  its order that the Partnership continue to set
aside and to deposit into the Standardbred Purse Account 5% of handle wagered on
standardbred  simulcast  races at the  Partnership's  Racing Centers (the "Purse
Requirement")  based upon the Commission's  finding that certain agreements (the
"VHHA  Agreements")  between the  Partnership,  Racing and the Virginia  Harness
Horse Association (the "VHHA") had renewed and were in force; its order that the
Partnership make all payments necessary to have no accounts payable aged over 90
days by  February  29,  2000 (the  "Payables  Requirement");  its order that the
Partnership not make certain credit enhancement,  development and consulting fee
payments to Diversified  Opportunities  Group, Ltd., Premier Development Co. and
Arnold W. Stansley (all related parties)  (hereinafter,  the "Related Parties");
its order that the Partnership  and Racing conduct 40 days of live  standardbred
racing in 2000; and its direction to the Commission's  Executive  Secretary that
he  withhold  approval  of the  Partnership's  and  Racing's  monthly  simulcast
schedules  unless he was satisfied that they were making progress toward meeting
the terms of the December  Order. In January 2000,  Partnership,  Racing and the
Related Parties  appealed  certain of the  Commission's  December  rulings,  and
Partnership  and  Racing  filed  a  related  declaratory  judgment  action  (the
"Declaratory  Judgment Action") against the VHHA seeking a judicial  declaration
that the VHHA  Agreements,  which  the  Commission  found to have  renewed,  had
expired as of August 4, 1999.

     In connection with the appeal of the Commission's December Order,
(Colonial Downs, L.P., et al v. Virginia Racing Commission, Circuit Court of
----------------------------------------------------------
the City of Richmond,  Case No. HN-256),  the Partnership and Racing argued that
the Commission  violated  Virginia's  Administrative  Process Act and Freedom of
Information  Act and exceeded its authority  under the Virginia Horse Racing and
Pari-Mutuel Wagering Act (the "Racing Act"). In particular,  they challenged the
Commission's  procedures in finding that the VHHA  Agreements  were currently in
force since it purported to conduct a fact-finding hearing on the matter without
notice to the Partnership or Racing pursuant to Virginia Code Section
<PAGE> 9

9.6-14:11.  It was further argued that because the VHHA  Agreements  were not in
force,  the Commission had no authority to order the Partnership to deposit five
percent (5%) of the simulcast  standardbred  handle into the Standardbred  Purse
Account.  It was also asserted that the Commission  violated the  Administrative
Process  Act and  Freedom  of  Information  Act  with  respect  to the  Payables
Requirement and the requirement that Related Party fees be waived as a condition
of live racing.  Further,  it was argued that the  Commission  procedurally  and
substantively  improperly  delegated  authority  to its  Executive  Secretary by
empowering him to withhold  approval of the  Partnership's  and Racing's monthly
simulcast  schedules  unless he was  satisfied  that they were  making  progress
towards complying with the Commission's December Order. Finally, in light of the
other procedural and substantive  errors reflected in the December Order, it was
alleged  that  the  Commission   committed  reversible  error  and  ignored  the
substantial  evidence  presented to it by arbitrarily  requiring 40 days of live
standardbred racing in 2000.

     By order entered on January 27, 2000, the Richmond  Circuit Court entered a
stay of the Commission's  rulings with respect to the Purse  Requirement and the
Payables Requirement.  The Court did not address the Commission's  delegation of
authority  to its  Executive  Secretary  to  withhold  approval  of the  monthly
simulcast schedules in light of its other rulings. Colonial Downs, L.P. and
                                                   ------------------------
Stansley Racing Corp. v. Virginia Racing Commission, Case No. HN-59 (January
---------------------------------------------------
27, 2000)(Markow,  J.). The Commission appealed the issuance of the stay, and by
order entered February 22, 2000, the portion of the stay pertaining to the Purse
Requirement was reversed by the Virginia Court of Appeals.

     In the Declaratory Judgment Action,  Partnership and Racing argued that the
VHHA  Agreements  terminated  on August 4, 1999 based upon the terms of a Second
Amendment,  dated as of March 16,  1999,  between the parties,  written  notices
provided  to the  VHHA  and a  continuing  course  of  conduct  by  the  parties
reflecting  that the  Agreements  had  terminated.  The VHHA argued that written
notice had not been properly provided under the terms of the VHHA Agreements and
that the VHHA's  course of conduct was  inadequate to constitute a waiver of its
alleged  rights  under the VHHA  Agreements  to  assert  the  position  that the
Agreements had automatically renewed and did not terminate. A settlement of that
case has been reached. The terms of the settlement include an acknowledgement by
the parties that the VHHA Agreements are not in force,  Partnership's  agreement
to continue,  nevertheless,  to make purse  contributions  of 5% of standardbred
simulcast handle into the Standardbred  Purse Account through the execution of a
new  contract,  and the payment to  Partnership  of the sum of $315,000 from the
Standardbred  Purse Account.  The  settlement is contingent  upon the Commission
taking no steps to modify the terms of the settlement.  If the Commission  seeks
to do so, the  settlement  will be of no force or effect and the matter  will be
submitted for  adjudication  by the Circuit Court.  The Commission has expressed
its approval of the settlement in concept.

     The  effect  of the  settlement  was to moot  certain  of the  Commission's
December  rulings.  By order entered on March 15, 2000,  the Circuit Court found
that the Commission violated Virginia's Freedom of Information Act and committed
other   procedural   errors  with  regard  to  the  issues   raised  on  appeal.
Notwithstanding  these  conclusions,  however,  the Court found  that,  with the
exception of the ruling  pertaining to the Related Party fees, the  Commission's
<PAGE> 10

actions should not be reversed.  The appeal period for any appeal of the Circuit
Court's rulings expires on April 14, 2000.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            None.

                                     PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The  Company's  Common Stock is quoted on The NASDAQ Small Cap Market under
the symbol  "CDWN".  The Company's  stock began  trading on March 18, 1997.  The
following  table sets forth for the periods  indicated  the high and low closing
prices per share of the  Company's  Common Stock as reported on The NASDAQ Small
Cap Market.

                  1999 - By Quarter                    1998 - By Quarter
              1ST     2ND     3RD     4TH        1ST     2ND     3RD     4TH
            ------------------------------     ------------------------------
High Bid    $ 1.69  $ 2.56  $ 2.63  $ 1.50     $ 4.63  $ 4.38  $ 2.56  $ 1.50
Low Bid     $ 0.63  $ 1.38  $ 1.00  $ 0.81     $ 3.75  $ 2.31  $ 0.88  $ 0.38

     The  closing  price as of March  27,  2000 was  $1.00  per share of Class A
Common Stock.  There are  approximately  706 holders of record of Class A Common
Stock on March 27, 2000.

     There is no  established  market  for the Class B Common  Stock.  There are
three 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. Current debt covenants
with a lender preclude the Company from declaring and paying dividends.

     On November 18, 1998,  the Company  received  notification  from The NASDAQ
National   Market  that  the  Company   had  failed  to  meet   certain   market
capitalization  criteria. As a result, the Company's stock was reclassified as a
small capitalization issue.











<PAGE>   11

ITEM 6.     SELECTED FINANCIAL DATA

     The following table sets forth selected  historical  financial data derived
from the Company's  financial  statements and should be read in conjunction with
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations and the Financial  Statements and Notes thereto,  included  elsewhere
herein.
<TABLE>
<CAPTION>
                                                   (In thousands)
                                               Years Ended December 31,
                                  1999        1998        1997        1996
                               ---------   ---------   ---------   ---------
<S>                             <C>         <C>         <C>         <C>
Income Statement Data:
Total revenues                 $  29,351   $  29,447   $  23,647   $   8,527
Income (loss) from operations      1,701      (3,597)       (467)       (468)
Net earnings (loss) before
 income taxes                     (1,139)     (5,372)         92        (645)
Net earnings (loss)               (1,139)     (5,288)          8        (645)

Basic and diluted net
 earnings (loss) per share     $   (0.16)  $   (0.73)  $    0.01   $   (0.22)

Balance Sheet Data (at period end):
Working capital (deficiency)   $ (26,565)  $ (14,661)  $  (9,466)  $  (5,925)
Total assets                      67,405      68,581      67,875      12,176
Current maturities of
 long-term debt                   24,774       9,184       1,373       1,685
Long-term debt excluding
 current maturities                2,975      15,008      15,390       3,491
Stockholders' equity              35,526      36,634      36,922         995

Cash Flow Data:
Net cash provided by (used in)
 operating activities          $     632   $  (2,289)  $   3,053   $     327
Net cash used in investing
 activities                       (1,546)     (5,884)    (48,851)     (3,999)
Net cash provided by
 financing activities              1,072       5,980      47,766       4,722

EBITDA (1)                     $   3,540   $  (1,995)  $     188   $    (184)
</TABLE>

(1)   EBITDA is defined as the sum of the  Company's  net earnings  (loss),  net
      interest expense, income taxes, depreciation, and amortization.  EBITDA is
      presented  because  it  is a  widely  accepted  financial  indicator  of a
      company's  ability  to  service  and  incur  debt.  EBITDA  should  not be
      considered  in isolation  from or as a  substitute  for net income or cash
      flow measures  prepared in accordance with generally  accepted  accounting
      principles or as a measure of a company's profitability or liquidity.



<PAGE>   12

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

     The  following  is an analysis of the  financial  condition  and results of
operations of the Company.  This analysis should be read in conjunction with the
Company's Financial Statements and Notes thereto, appearing elsewhere herein.

GENERAL

     The Company,  through its subsidiaries,  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 Alberta, Virginia,
and may open  two  additional  Racing  Centers  if  suitable  opportunities  are
identified.

     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) admission fees,  program
and racing form sales, and certain other ancillary  activities;  (iv) net income
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 about 79%) is legislated by the state in which a race
takes place.  Revenues from export  simulcasting  consists 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. The Company plans to open two additional  Racing Centers by no later than
2003, which if opened, will improve the Company's earnings.

     The most  immediate  challenge  facing the  Company is its  liquidity.  The
Company  expects that cash flows from  operations and the  availability of other
capital and financial  resources will provide  sufficient  liquidity to meet its
normal operating requirements and capital expenditure plans over the next twelve
months.  However,  the Company  has $24.5  million of debt coming due within the
next twelve months. The Company will be required to refinance this debt on terms
acceptable  to the  lenders,  obtain  debt  financing  from new sources or raise
additional equity.  There is no assurance that the Company will be successful in
these efforts, or if successful,  that the terms of such additional capital will
be favorable to the Company.





<PAGE>   13

     The following table sets forth certain operating results as a percentage of
total revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                        (Percentage of Net Revenues)
                                                          Years Ended December 31,
                                                     ----------------------------------
                                                         1999       1998       1997
                                                        ------     ------     ------
<S>                                                     <C>        <C>        <C>
Revenues:
     Pari-mutuel and simulcasting commissions            93.0%      90.8%      88.1%
     Other                                                7.0%       9.2%      11.9%
                                                        ------     ------     ------
          Total revenues                                100.0%     100.0%     100.0%

Direct operating expenses:
     Purses, fees, and pari-mutuel taxes                 32.6%      39.1%      43.0%
     Simulcast and other direct expenses                 38.9%      46.8%      38.7%
                                                        ------     ------     ------
          Total direct operating expenses                71.5%      85.9%      81.7%
Selling, general, and administrative expenses            16.4%      20.9%      17.5%
Depreciation and amortization                             6.3%       5.4%       2.8%
                                                        ------     ------     ------
Income (loss) from operations                             5.8%     (12.2)%     (2.0)%
Interest income (expense), net                           (9.7)%     (6.0%)      2.4%
                                                        ------     ------     ------
Earnings (loss) before taxes                             (3.9)%    (18.2)%      0.4%
                                                        ======     ======     ======

</TABLE>

COMPARISON OF FISCAL YEARS 1999 AND 1998

     Total  revenues.  Total revenues in 1999 were $29.3 million,  a decrease of
$.1  million  from 1998  revenues of $29.4  million.  Total  revenue  reflects a
decrease of $1.2 million in live harness meet revenue and a $.3 million decrease
in live thoroughbred meet revenue,  offset by an increase of $1.4 million at the
Racing Centers.  The decrease in live harness meet revenues was primarily due to
the  reduction  in the number of race days (from 46 in 1998 to 30 in 1999).  The
decrease  in live  thoroughbred  meet  revenue  was  impacted  by a decrease  in
attendance.  In an effort to maximize export simulcasting  revenue,  the Company
scheduled the thoroughbred meet with a mid afternoon post time of 3:00. In doing
so, attendance was negatively affected. Through effective advertising campaigns,
the Company was able to increase  revenue at the Racing  Centers even though the
Brunswick Racing Center was only opened five days per week in 1999. From January
until late April 1998, Brunswick Racing Center was opened seven days per week.

     Direct Operating  Expenses.  As a percentage of revenues,  direct operating
expenses  decreased  14.4%, or $4.3 million from the prior year. The decrease in
operating  expenses was  principally  attributed to decreases in purse  expense,
fees, and simulcast and other direct expenses.  Purse expense  decreased to $3.5
million for 1999 from $6.1 million for 1998 due to the new thoroughbred and

<PAGE>   14

amended harness horsemen's contracts. This purse expense reduction was offset by
an increase in the fees due to MJC of $.6 million. The decrease in simulcast and
other direct expenses was primarily a result of the changes in Track  operations
(approximately $2.0 million of the decrease in direct operating expenses) due to
the reduction in live race days, a reduction in the thoroughbred meet management
costs due to the revised and amended MJC  agreement  and the  implementation  of
cost saving measures,  and improvements in operating  efficiencies.  Signal fees
and  pari-mutuel  taxes  increased $.4 million at the Racing  Centers due to the
increase in revenue.  Cost saving  measures in the Racing Centers  reduced other
direct operating expenses by $.7 million.

     Selling,  General and  Administrative  Expenses (SG&A).  As a percentage of
revenues, SG&A decreased 4.5% from 1998. The decrease in SG&A as a percentage of
revenues  was  primarily  attributed  to efforts to reduce  personnel  and other
expenses  and  resulted in net cost  savings of $1.3  million  from 1998.  These
savings  were  achieved  in spite of  non-recurring  legal and  consulting  fees
relating to the Norglass  arbitration  of  approximately  $0.7 million and costs
relating  to the  Dumfries  project,  an  unsuccessful  effort to  develop a new
racetrack and simulcast wagering center in Dumfries, Virginia, of $0.3 million.

     Interest expense, Net. Interest expense, net of interest income,  increased
$1.1  million  from 1998 to $2.8  million  for 1999.  The  increase  in interest
expense was  primarily  a result of an  increase  in debt from $24.2  million at
December  31, 1998 to $27.7  million at December  31, 1999,  the  provision  for
interest of $0.3  million  relating to the  Norglass  arbitration  award and $.4
million loan  guarantee fee to a shareholder  which had been waived in 1998. The
increase in debt is largely attributable to the issuance of $1.8 million note to
Norglass  in  settlement  of  an  award  ordered  by  the  American  Arbitration
Association  and the issuance of notes  payable of $0.9 million and $0.6 million
for 1999  thoroughbred  purses to an affiliate of a shareholder and the Maryland
Jockey Club,  respectively.  The Company also received  loans  aggregating  $0.9
million from an affiliate of a shareholder and converted $.2 million of accounts
payable to a note.

     Net Loss.  Net loss decreased to $1.1 million in 1999 from $5.3 million in
1998.  The decrease in net loss was a result of the factors discussed above.

     Effect of Hurricane Floyd. The Company's  operations were suspended for two
days in September 1999 due to treacherous  weather condition caused by Hurricane
Floyd.  The loss of revenues is estimated  to be $181,000.  As a good portion of
the Company's  costs are fixed,  the loss of revenues'  impact on net income was
severe.  The Company  estimates  the loss impact on net income net of  insurance
recoveries to be approximately $100,000.

COMPARISON OF FISCAL YEARS 1998 AND 1997

     Total Revenues.  Total revenues in 1998 were $29.4 million,  an increase of
$5.8 million  (24.5%) over 1997 total  revenues of $23.6  million.  The increase
primarily  reflects  a full  twelve  months of  operations  of the  Hampton  and
Brunswick Racing Centers and an increase from thirty live racing days in 1997 to
seventy-one  days  in 1998 at the  Track  (an  increase  of  approximately  $7.6
million) net of a decrease of revenues at the Company's  other Racing Centers (a
decrease of approximately $1.8 million).


<PAGE>   15

     Operating  Expenses.  As  a  percentage  of  revenues,  operating  expenses
increased 10.2%,  from 102% in 1997 to 112.2% in 1998. The increase in operating
expenses was  principally  attributed  to the  increase in  simulcast  and other
direct expenses  resulting from an increase from thirty live racing days in 1997
to  seventy-one  days  in  1998  (approximately  $2.5  million  or  8.5% of 1998
revenues) and an increase in purse expense  (approximately  $2.0 million or 6.8%
of 1998 revenues),  net of a decrease in the Maryland Jockey Club management fee
(from $2.7 million in 1997 to $1.1 million in 1998).

     Interest Income  (Expense).  Interest  expense  increased $1.5 million from
$0.3 million in 1997 to $1.8 million in 1998.  The increase in interest  expense
was  primarily  due to the  increase  in  short-term  and  long-term  debt  from
approximately  $16.8 million in 1997 to $24.2 million in 1998. Also contributing
to the increase in interest  expense was capitalized  interest of  approximately
$1.1 million in 1997 during construction of the Track as compared to capitalized
interest of  approximately  $146,000 in 1998.  Interest  income  decreased  $0.8
million in 1998 as compared to 1997.  Interest  income earned in 1997  primarily
relates to interest  earned on the proceeds  from the Company's  initial  public
offering, which were used to complete construction of the Track.

     Net Loss. The net loss incurred in 1998 was $5.3 million as compared to
net earnings of $7,863 in 1997, reflecting the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's  consolidated financial statements are presented on the going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.

     During  1999 and  1998,  the  Company  incurred  aggregate  net  losses  of
approximately  $6,400,000  and has a working  capital  deficit of $26,565,000 at
December 31, 1999. In addition,  approximately $24,800,000 of the Company's debt
is due in 2000.

     The  Company's  continued  existence  is  dependent  upon  its  ability  to
refinance or renew maturing debt and obtain adequate  working capital to support
its operations until they become profitable.  The Company has been and continues
to be largely dependent on the financial  support of its principal  stockholder,
who has  personally  guaranteed  $16,850,000  of the  maturing  debt  and  whose
affiliate is the holder of $8,800,000 of additional debt. The Company is seeking
continued financial support from this stockholder.

     The  financial  statements  do not include any  adjustments  to reflect the
possible future effects on the  recoverability  and  classification of assets or
the amounts and classifications of liabilities that may result from the possible
inability  of the  company  to  continue  as a  going  concern.  The  Report  of
Independent  Certified Public  Accountants  contains a qualification that raises
substantial doubt about the Company's ability to continue as a going concern.

     Cash Flows. After adjusting the net loss of $1.1 million for non-cash items
such as depreciation  and  amortization,  $.7 million in cash was provided.  The
increase in accounts  payable and other operating  liabilities and the decreases
in accounts  receivable and other assets and horsemen's deposits and purses used
$.1 million of cash resulting in net cash provided by operating
<PAGE> 16

activities of $.6 million.  Investing  activities  utilized  approximately  $1.5
million  of  cash,  with  $1  million  consisting  of  payments  on  prior  year
construction  related  liabilities  and $.5  million  of  capital  expenditures.
Financing activities provided approximately $1.1 million of cash, primarily from
the loans for purses as the Norglass  liability had been previously  recorded as
accounts payable.

     In June 1999,  the Company  entered  into a  three-year  contract  with the
Virginia  Horsemen's  Benevolent  and Protective  Association  ("the VaHBPA") to
provide for thoroughbred purses.  Under the contract,  $3,125,000 was guaranteed
to be  available  for purses for the 1999  thoroughbred  meet.  Of this  amount,
$1,500,000  is  considered to be an advance of purse money due in years 2000 and
2001.  In years  2000 and 2001,  the  Company is  required  to pay 5 1/4% of the
handle  generated on simulcast  thoroughbred  racing to the  thoroughbred  purse
account.  The  advance  will be  repaid by the  VaHBPA  in an  annual  amount of
$750,000  plus  interest  at  approximately  the prime rate from the 5 1/4% that
would otherwise be contributed to the purse account in year 2000 and 2001.

     EBITDA is a widely accepted  financial  indicator of a company's ability to
service and incur debt. The Company's EBITDA for 1999 and 1998 was approximately
$3.5  million  and  $(2.0)  million,  respectively.  The  increase  in EBITDA is
primarily  due to higher  income  before  interest  and income  taxes due to the
changes in revenues,  operating expenses and selling, general and administrative
expenses  discussed  in  "Results of  Operations"  above.  EBITDA  should not be
considered  in  isolation  from or as a  substitute  for net income or cash flow
measures prepared in accordance with generally accepted accounting principles or
as a measure of a company's profitability or liquidity. EBITDA is defined as the
sum of income before interest, income taxes, and depreciation and amortization.

     On January 11, 1999,  the Company  negotiated  an agreement  with PNC Bank,
N.A. ("PNC"),  which restructured the principal payments of the Credit Agreement
dated June 26, 1997. Under the agreement,  in lieu of making principal  payments
on the due dates,  the  guarantors  were  required  to deliver to PNC letters of
credit in the face amount of future  principal  payments.  The letters of credit
have an expiration date of July 31, 2000.  Guarantors of the debt posted letters
of credit  totaling  $2.5 million,  in lieu of the Company  making the principal
payments  due  December  31,  1998  through   December  31,  1999.  The  Company
anticipates  that the guarantors will continue to post letters of credit for the
principal payments due during 2000.

EFFECT OF INFLATION

     The  impact  of  inflation  on  the  Company's   operations  has  not  been
significant  in recent years.  There can be no assurance,  however,  that a high
rate of inflation in the future will not have an adverse effect on the Company's
operating results.








<PAGE>   17

SEASONALITY AND THE EFFECT 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
such as those from Hurricane  Floyd,  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.  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.

IMPACT OF YEAR 2000

     The result of computer  programs being written using two digits rather than
four to define the applicable year is known as the "Year 2000" issue. Any of the
Company's  computer programs that have  time-sensitive  software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a  system  failure  or  miscalculations   causing   disruptions  of  operations,
including, among other things, a temporary inability to process transactions, or
engage in similar normal business activities.

     As part of its Year 2000  readiness,  the  Company  reviewed  its  internal
systems  and  made  upgrades  where  necessary  and  to  the  extent   possible,
ascertained  the level of Year 2000  readiness  of third  party data  processors
utilized  by the  Company.  As most of the  Company's  data  processing  for its
operations in handled by a third party, the cost of internal system upgrades was
not significant.

     Currently,  the Company has experienced no negative  effects as a result of
the Year 2000  conversion.  However,  there can be no assurance  that during the
fiscal year ending December 31, 2000 that no such disturbances will occur.

NEW ACCOUNTING STANDARDS

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative  Instruments"
("SFAS133").  SFAS 133, amended,  is effective for all fiscal quarters of fiscal
years  beginning  after  June 15,  2000.  SFAS 133  establishes  accounting  and
reporting standards for derivative instruments and for hedging activities.  SFAS
133  requires  that an entity  recognize  all  derivatives  as either  assets or
liabilities and measure those instruments at fair market value.  Presently,  the
Company does not use derivative  instruments  either in hedging activities or as
investments.  Accordingly, the Company's adoption of SFAS 133 is not expected to
have a material impact on its financial position or results of operations.




<PAGE>   18

FORWARD LOOKING INFORMATION

     The  statements  contained in this report which are not  historical  facts,
including,  but not limited to, statements found under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" above,
are forward looking statements that involve a number of risks and uncertainties.
The actual  results of the  future  events  described  in such  forward  looking
statements in this report could differ  materially  from those  contemplated  by
such  forward  looking  statements.  Among the factors  that could cause  actual
results to differ  materially are the risks and  uncertainties  discussed in the
report,  including without limitations the portions of such statements under the
caption  referenced  above, and the uncertainties set forth from time to time in
the Company's other public reports and filings and public statements. Such risks
include  but are not  limited  to acts by  parties  outside  the  control of the
Company, including the Maryland Jockey Club, horsemen associations, the Virginia
Racing  Commission,  political  trends,  the effects of adverse general economic
conditions,  the  approval  of future  Racing  Centers by  referenda  and/or the
Commission and governmental regulation.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Most of the  Company's  debt  obligations  at December 31, 1999 were either
fixed rate  obligations or variable rate  obligations  which provide the Company
various options in determining the rate of interest.  Management  therefore does
not  believe  that  the  Company  has any  material  market  risk  from its debt
obligations.


<PAGE>   19

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS

                                                                         Page
                                                                         ----

Report of Independent Certified Public Accountants                        20

Balance Sheets at year end 1999 and 1998                                  21

Consolidated Statements of Operations for years 1999, 1998 and 1997       22

Consolidated Statements of Changes in Stockholders' Equity for years
 1999, 1998 and 1997                                                      23

Consolidated Statements of Cash Flows for years 1999, 1998 and 1997       24

Notes to Financial Statements                                             25-39





<PAGE>   20

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Colonial Downs Holdings, Inc.

We have audited the accompanying  consolidated  balance sheets of Colonial Downs
Holdings,  Inc.  and  subsidiaries  as of December  31,  1999 and 1998,  and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for each of the three years in the period ended  December 31, 1999.  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, 1999 and 1998, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated  financial statements,  the Company incurred net losses during 1999
and 1998  aggregating  $6.4  million  and has a working  capital  deficiency  of
approximately  $26.6  million at December 31, 1999,  which  results in part from
$15.5  million  of  bank  debt  maturing  June  2000.   These  conditions  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans in regard to these matters are also described in Note 2. The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.


                                                /s/  BDO Seidman, LLP

Richmond, Virginia
March 24, 2000









<PAGE>   21

                         COLONIAL DOWNS HOLDINGS, INC.
                                 BALANCE SHEETS
                      (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
                                                           December 31,  December 31,
                                                               1999         1998
                                                           -----------   -----------
<S>                                                          <C>         <C>
                            ASSETS
Current assets:
  Cash and cash equivalents                                 $   1,313     $   1,155
  Horsemen's deposits                                             659           600
  Accounts receivable                                             253           296
  Prepaid expenses and other assets                               114           227
                                                             ---------     ---------
      Total current assets                                      2,339         2,278
Property, plant and equipment
  Land and improvements                                        15,554        15,581
  Buildings and improvements                                   48,472        48,042
  Equipment, furnishings, and fixtures                          2,853         2,765
  Leasehold improvements                                        1,124         1,122
                                                            ---------     ---------
                                                               68,003        67,510
  Less accumulated depreciation and amortization                3,817         1,122
                                                            ---------     ---------
      Property, plant and equipment, net                       64,186        65,324
Licensing costs, net of accumulated amortization of $311
 and $266, respectively                                           729           772
Other assets                                                      151           207
                                                            ---------     ---------
Total assets                                                $  67,405     $  68,581
                                                            =========     =========

     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                           $  2,764       $ 6,417
  Purses due horsemen                                             182           608
  Accrued liabilities and other                                 1,184           730
 Current maturities of long-term debt,
   and capital lease obligations                               15,974         9,184
Current maturities of long-term debt - related parties          8,800             -
                                                            ---------     ---------
      Total current liabilities                                28,904        16,939
Long-term debt and capital lease obligations                    1,750         8,508
Notes payable - related parties                                 1,225         6,500
                                                            ---------     ---------
      Total liabilities                                        31,879        31,947

Commitments and contingencies

Stockholders' equity
  Class A, common stock, $0.01 par value;  12,000 shares
   authorized;  5,025 and 5,008 shares issued and
   outstanding, respectively                                       50            50
  Class B, common stock, $0.01 par value; 3,000 shares
   authorized; 2,242 shares issued and outstanding                 23            23
  Additional paid-in capital                                   42,873        42,842
  Accumulated deficit                                          (7,420)       (6,281)
                                                            ---------     ---------
      Total stockholders' equity                               35,526        36,634
                                                            ---------     ---------
Total liabilities and stockholders' equity                  $  67,405     $  68,581
                                                            =========     =========
</TABLE>
 The  accompanying  notes are an  integral  part of the  consolidated  financial
statements.

<PAGE>   22

                         COLONIAL DOWNS HOLDINGS, INC.
                            STATEMENTS OF OPERATIONS
                      (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
                                                         Years Ended December 31,
                                                ----------------------------------------
                                                    1999           1998           1997
                                                 ----------     ----------     ----------
<S>                                               <C>            <C>           <C>
Revenues
  Pari-mutuel and simulcasting commissions        $ 27,285       $ 26,737       $ 20,824
  Other                                              2,066          2,710          2,823
                                                 ----------     ----------     ----------
    Total revenues                                  29,351         29,447         23,647

Operating expenses
  Direct operating expenses
    Purses, fees, and pari-mutuel taxes              9,564         11,509         10,164
    Simulcast and other direct expenses             11,418         13,791          9,165
                                                 ----------     ----------     ----------
      Total direct operating expenses               20,982         25,300         19,329

  Selling, general, and administrative expenses      4,829          6,142          4,130
Depreciation and amortization                        1,839          1,602            655
                                                 ----------     ----------     ----------
    Total operating expenses                        27,650         33,044         24,114
                                                 ----------     ----------     ----------

Income (loss) from operations                        1,701         (3,597)          (467)
Interest expense                                    (2,905)        (1,825)          (278)
Interest income                                         65             50            837
                                                 ----------     ----------     ----------
Earnings (loss) before income taxes                 (1,139)        (5,372)            92
Provision for (benefit from) income taxes                -            (84)            84
                                                 ----------     ----------     ----------
             Net earnings (loss)                   $(1,139)      $ (5,288)      $      8
                                                  =========     ==========     ==========

Earnings (loss) per share data:
  Basic and diluted earnings (loss) per share      $ (0.16)      $  (0.73)      $   0.01
  Weighted average number of shares outstanding      7,260          7,250          6,318

</TABLE>
   The  accompanying  notes are an integral part of the  consolidated  financial
statements.


<PAGE>   23

                             COLONIAL DOWNS HOLDINGS, INC.
                         STATEMENTS OF STOCKHOLDERS' EQUITY
                                    (In Thousands)
<TABLE>
<CAPTION>

                                    Common Stock         Additional                 Total
                              Class A         Class B      Paid-In   Accumulated Stockholders'
                           Shares  Amount  Shares  Amount  Capital    (Deficit)     Equity
                           ------  ------   ------  ------  -------    ---------  ----------
<S>                        <C>     <C>      <C>     <C>     <C>         <C>         <C>
Balance at December 31,
 1996                         750   $  8     2,250   $ 23   $ 1,966     $(1,001)    $   996
  Sale of common stock      4,250     42         -      -    35,876           -      35,918
  Net earnings                  -      -         -      -         -           8           8
                           ------  ------   ------  ------  -------    ---------   ----------
Balance at December 31,
 1997                       5,000     50     2,250     23    37,842        (993)     36,922
  Conversion of Class B         8      -        (8)     -         -           -           -
  Land contribution             -      -         -      -     5,000           -       5,000
  Net loss                      -      -         -      -         -      (5,288)     (5,288)
                           ------  ------   ------  ------   -------    ---------   ---------
Balance at December 31,
 1998                       5,008     50     2,242     23    42,842      (6,281)     36,634
Stock in lieu of
 Directors' fees               17      -         -      -        31           -          31
Net loss                        -      -         -      -         -      (1,139)     (1,139)
                           ------  ------   ------  ------  --------    ---------   ---------
Balance at December 31,
 1999                       5,025   $ 50     2,242  $  23   $42,873    $ (7,420)   $ 35,526
                           ======  ======   ======  ======   =======    =========   =========
</TABLE>
    The accompanying  notes are an integral part of the  consolidated  financial
statements.

<PAGE>   24
                             COLONIAL DOWNS HOLDINGS, INC.
                               STATEMENTS OF CASH FLOWS
                                    (In Thousands)
<TABLE>
<CAPTION>

                                                                     Years Ended
                                                      -----------------------------------------
                                                      December 31,  December 31,  December 31,
                                                          1999          1998          1997
                                                      -----------   -----------   ------------
<S>                                                   <C>          <C>           <C>
OPERATING ACTIVITIES
Net earnings (loss)                                    $ (1,139)    $ (5,288)     $      8
Adjustments to reconcile net earnings (loss) to
 net cash provided by (used in) operating activities:
  Depreciation and amortization                           1,839        1,602           655
  Deferred income taxes and other                            31          (78)           84
Changes in operating assets and liabilities:
  Decrease (increase) in accounts receivable
    and other assets                                         44          470        (1,094)
  Increase (decrease) in trade accounts payable and
    accrued liabilities                                     342          (51)        3,459
  Decrease (increase) in horsemen's deposits
    and purses                                             (485)       1,056           (59)
                                                      -----------   -----------   ------------
Net cash provided by (used in) operating activities    $    632     $ (2,289)      $ 3,053
                                                      -----------   -----------   ------------
Investing activities:
  Capital expenditures                                   (1,546)      (5,884)      (47,133)
  Increase (decrease) in purse notes payable
    due horsemen                                              -            -        (1,620)
  Other                                                       -            -           (98)
                                                      -----------   -----------   -----------
Net cash used in investing activities                    (1,546)      (5,884)      (48,851)
                                                      -----------   -----------   -----------
Financing activities:
  Proceeds from long-term debt and capital leases         2,375        6,398        11,389
  Payments on long-term debt and capital leases          (1,303)        (418)         (216)
  Proceeds from notes payable                                 -            -         4,612
  Payment on notes payable                                    -            -        (4,199)
  Increase in financing costs                                 -            -           (70)
  Proceeds from issuance of common stock, net                 -            -        36,250
                                                      -----------   -----------   -----------
Net cash provided by financing activities                 1,072        5,980        47,766
                                                      -----------   -----------   -----------
     Net change in cash and cash equivalents                158       (2,193)        1,968
Cash and cash equivalents, beginning of year              1,155        3,348         1,380
                                                      -----------   -----------   -----------
Cash and cash equivalents, end of year                 $  1,313     $  1,155       $ 3,348
                                                      ===========   ===========   ==========

Supplemental Cash Flow Information:
  Supplemental disclosure of noncash investing
  and financing activities
    Land contribution                                  $      -     $  5,000        $    -
    Capital lease obligation incurred                         -            -           229
  Cash paid for interest                                  2,083        1,915         1,094
  Conversion of accounts payable to long-term debt        2,485        1,450             -
  Cash paid for income taxes                                  -            -           218

</TABLE>
     The accompanying  notes are an integral part of the consolidated  financial
statements.


<PAGE>   25

                      COLONIAL DOWNS HOLDINGS, INC.
                     NOTES TO  FINANCIAL STATEMENTS
                            December 31, 1999

1.   DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

     Colonial Downs Holdings,  Inc., ("Colonial"),  a Virginia Corporation,  was
incorporated  in 1996.  Colonial  owns and  operates,  through its  wholly-owned
subsidiaries,  Colonial  Downs  Racetrack  (the "Track") in New Kent,  Virginia,
which primarily conducts  pari-mutuel  wagering on thoroughbred and standardbred
horse racing.  Colonial also owns and operates four Racing Centers which provide
simulcast  pari-mutuel  wagering on thoroughbred and  standardbred  horse racing
from selected racetracks throughout the United States.

     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.

Principles of Consolidation

     The consolidated financial statements include the following entities of
Colonial and its subsidiaries (collectively, the "Company"), Colonial Downs,
L.P. ("Partnership"), Stansley Racing Corp. ("SRC") and Colonial Downs
Holdings, Inc. ("CD Holdings").  All significant intercompany accounts and
transactions have been eliminated.

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
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

     The Company  considers all demand  deposits and time deposits with original
maturities of three months or less to be cash equivalents.


<PAGE>   26

                         COLONIAL DOWNS HOLDINGS, INC.
                  NOTES TO  FINANCIAL STATEMENTS - (Continued)

1.   DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Capitalized Interest

     Interest in the amount of $146,000 and  $1,068,000 was  capitalized  during
1998 and 1997,  respectively,  in connection with the  construction of the Track
and development of the Racing Centers. No interest was capitalized during 1999.

Property, Plant and Equipment

     Property,  plant and equipment are stated at historical cost.  Depreciation
is computed using the  straight-line  method based on the estimated useful lives
of the related assets. Estimated useful lives used are as follows:

     Land improvements                          20 to 40 years
     Building and improvements                   5 to 40 years
     Equipment, furnishings, and fixtures        2 to 20 years
     Leasehold improvements                      7 to 40 years

     Depreciation  expense was  $1,631,000,  $1,541,000  and $534,000 for fiscal
years 1999, 1998 and 1997, respectively.

     Costs of betterment,  renewals,  and major  replacements  are  capitalized.
Maintenance,  repairs and minor replacements are expensed as incurred. Gains and
losses from dispositions are included in the results from operations.

Licensing Costs and Amortization

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

Revenue

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

Horsemen's Purse and Awards

     Amounts due under  agreements with the Virginia  Horsemen's  Benevolent and
Protective  Association,  Inc. and the Virginia Harness Horse  Association (Note
10) are  accrued  based on the terms of the  agreements.  Funds for  purses  for
future live race meets are held in restricted cash accounts.  As of December 31,
1999 and 1998 approximately  $659,000 and $600,000,  respectively,  were held in
the restricted cash accounts.




<PAGE>   27

                         COLONIAL DOWNS HOLDINGS, INC.
                  NOTES TO FINANCIAL STATEMENTS - (Continued)

1.   DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Long-Lived Assets

     The  carrying  values  of  long-lived  assets,   principally   identifiable
intangibles,   property,   plant  and  equipment,  are  reviewed  for  potential
impairment  when events or changes in  circumstances  indicate that the carrying
amount  of such  assets  may not be  recoverable,  as  determined  based  on the
undiscounted cash flows over the remaining amortization periods. In such a case,
the  carrying  value of the  related  assets  would be reduced by the  estimated
shortfall of discounted cash flows.

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.

Reclassifications

     Certain  reclassifications  have been made in the  prior  years'  financial
statements in order to conform to the December 31, 1999 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,  1999 the Company had cash
deposits which exceeded federally insured limits by approximately $1,008,000.

<PAGE>   28
                          COLONIAL DOWNS HOLDINGS, INC.
                  NOTES TO FINANCIAL STATEMENTS - (Continued)

1.   DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

New Accounting Standards

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative  Instruments"
("SFAS133").  SFAS 133, amended,  is effective for all fiscal quarters of fiscal
years  beginning  after  June 15,  2000.  SFAS 133  establishes  accounting  and
reporting standards for derivative instruments and for hedging activities.  SFAS
133  requires  that an entity  recognize  all  derivatives  as either  assets or
liabilities and measure those instruments at fair market value.  Presently,  the
Company does not use derivative  instruments  either in hedging activities or as
investments.  Accordingly,  the  adoption of SFAS 133 is not expected to have an
impact on the Company's financial position or results of operations.

Earnings (Loss) Per Share

     Basic earnings (loss) 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  (which can consist of stock  options and  warrants)  that
could share in earnings of an entity.  The Company had no securities which had a
dilutive  effect on earnings per share for years ended  December 31, 1999,  1998
and 1997.

2.   MANAGEMENT'S PLANS

     During  1999 and  1998,  the  Company  incurred  aggregate  net  losses  of
approximately  $6,400,000  and has a working  capital  deficit of $26,565,000 at
December 31, 1999. In addition,  approximately $24,800,000 of the Company's debt
is due in 2000.

     The  Company's  continued  existence  is  dependent  upon  its  ability  to
refinance or renew maturing debt and obtain adequate  working capital to support
its operations until they become profitable.  The Company has been and continues
to be largely dependent on the financial  support of its principal  stockholder,
who has  personally  guaranteed  $16,850,000  of the  maturing  debt  and  whose
affiliate is the holder of $8,800,000 of additional debt. The Company is seeking
the continued financial support from this stockholder.

     The  financial  statements  do not include any  adjustments  to reflect the
possible future effects on the  recoverability  and  classification of assets or
the amounts and classifications of liabilities that may result from the possible
inability of the Company to continue as a going concern.

3.   MANAGEMENT AND CONSULTING AGREEMENT

     The  Company  entered  into a  Management  and  Consulting  Agreement  (the
"Agreement") with  Maryland-Virginia  Racing Circuit,  Inc., an affiliate of the
Maryland Jockey Club ("MJC"),  to provide  experienced  management for the Track
and  Racing  Centers  and to  create  a  Virginia-Maryland  thoroughbred  racing
circuit. Under the Agreement, Maryland Jockey Club agreed to suspend live

<PAGE>   29

                          COLONIAL DOWNS HOLDINGS, INC.
                  NOTES TO FINANCIAL STATEMENTS - (Continued)

3.   MANAGEMENT AND CONSULTING AGREEMENT- (CONTINUED)

racing at their  racetracks,  Laurel Park and Pimlico  Race  Course,  during the
Company's  live  thoroughbred  meets.  Parties to the  Agreement  also agreed to
exchange  simulcast  signals for their live meets at no cost to either party. An
amendment to the Agreement (the "Amended  Agreement") was signed by both parties
on January 15, 1999, which restructured among other terms MJC's responsibilities
as manager  and the  management  fee paid to MJC.  Effective  July 1, 1999,  MJC
became  responsible  for the  Company's  Racing  Centers  as  well  as the  live
standardbred  and  thoroughbred  meets. MJC no longer is reimbursed for expenses
incurred  while  acting  as  manager  of these  operations.  Under  the  Amended
Agreement,  the management  fees were reduced from 2% of amounts  wagered at the
Company's  facilities  (other than on live  standardbred  meets conducted at the
Track),  to 1.0% of the first $75 million of the aggregate gross amounts wagered
in  any  calendar  year  in  the  Commonwealth  of  Virginia  excluding  certain
conditions ("Handle") specified in the Amended Agreement and 2.0% of all amounts
wagered in excess of $75 million per calendar year.  Management fees relating to
the Company's new Racing Centers will be either 2% or 3.25% of Handle  depending
upon their location and the amount of handle.

     The  Agreement  will  remain in  effect  for as 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.

     Management  fees incurred in 1999,  1998, and 1997 were $1.7 million,  $1.1
million and $2.7 million, respectively.

4.   LAND CONVEYANCE

     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 original  agreement  contained
certain land use restrictions and a reconveyance provision. On January 14, 1999,
Delmarva and the Company  entered into an agreement  pursuant to which  Delmarva
agreed to relinquish their rights to require reconveyance of the property and to
execute a deed of release to such effect.  Delmarva also agreed to the following
additional  potential  uses for the  land and  facilities:  i)  performing  arts
center;  ii)  athletic  training  facility;  or iii)  hotel  conference  center.
Additional uses for the facilities are allowed upon approval by all parties.  As
of December 31, 1998, the $5.0 million  estimated value of the land was recorded
by the Company as a contribution to equity.

<PAGE>   30

                          COLONIAL DOWNS HOLDINGS, INC.
                  NOTES TO FINANCIAL STATEMENTS - (Continued)

5.   LONG-TERM DEBT, NOTES PAYABLE-RELATED PARTIES, AND CAPITAL LEASES

     Long-Term  Debt,  Notes   Payable-Related   Parties,  and  Capital  Leases,
consisted of the following:

<TABLE>
<CAPTION>
                                                                          December 31,
                                                                   ---------------------------
                                                                       1999          1998
                                                                   -----------    ------------
  <S>                                                                <C>           <C>
Note payable to a bank maturing June 2000, bearing
interest at a variable rate (9.06% at December 31, 1999),
collateralized by substantially all assets, except the
Racing Centers, of the Company and guaranteed by certain
shareholders and related parties                                   $ 10,000,000   $ 10,000,000

Convertible subordinated note payable to CD Entertainment,
Ltd., maturing September 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      5,500,000

Note payable to a bank, maturing October 2000, bearing
interest at prime plus 1.0% (9.50% at December 31, 1999),
with monthly principal payment of $15,000, collateralized
by certain fixed assets                                                 480,000        645,000

Installment loans 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%                                                    51,543        153,974

Note payable to Maryland Jockey Club, maturing December
2005, Bearing interest at a rate of 7.75% payable
quarterly for the first two years and equal installments
of interest and principal to be paid quarterly over the
remaining five year term of the note, beginning in the
first quarter of 2001                                                 1,450,000      1,450,000

Note payable under the revolving credit facility with a
bank, bearing interest at a variable rate (9.06% at
December 31, 1999), due June 30, 2000, collateralized by
substantially all assets, except the Racing Centers, of
the Company and guaranteed by certain shareholders and
related parties                                                       5,000,000      5,000,000

Convertible subordinated note payable to CD Entertainment,
Ltd., maturing August 2000, with an interest rate of 8.5%,
Collateralized by the Hampton Racing Center                           1,000,000      1,000,000
</TABLE>


<PAGE>   31

                         COLONIAL DOWNS HOLDINGS, INC.
                  NOTES TO FINANCIAL STATEMENTS - (Continued)

5.   LONG-TERM DEBT, NOTES PAYABLE-RELATED PARTIES, AND CAPITAL LEASES -
     (CONTINUED)

<TABLE>
<CAPTION>
                                                                          December 31,
                                                                   ---------------------------
                                                                       1999          1998
                                                                   -----------    ------------
  <S>                                                                <C>           <C>

Note payable to Norglass, Inc. maturing September 24, 2000,
monthly interest payment at a rate of 6% until maturity.              1,850,000              -

Note payable to Maryland Jockey Club, bearing interest at
the prime rate, payable in two equal installments during
the years 2000 and 2001.                                                600,000              -

Note payable to CD Entertainment, Ltd., bearing interest
at the prime rate, payable in two equal installments during
the years 2000 and 2001.                                                900,000              -

Note payable to CD Entertainment, Ltd., maturing August 2001,
With monthly interest payment at the Lender's cost of funds
plus one-half percent (approximately 8.5% at December 31, 1999).        300,000              -

Note payable to CD Entertainment, Ltd., maturing September
2001, with monthly interest payment at the Lender's cost
of funds plus one-half percent (approximately 8.5% at
December 31, 1999).                                                     475,000              -

Note payable to Ryan Incorporated Central, bearing monthly
interest at 10%, payable in six equal monthly payments
commencing January 1, 2000.                                             142,735              -

Note payable from the thoroughbred purse account, due
August 1999, with interest rate of 5.48%, collateralized
by the Hampton Racing Center.                                                 -        360,000

Note payable to an insurance company, maturing October
1999, bearing interest at 6.83%, with monthly payments of
$8,622 including interest.                                                    -          83,557
                                                                    -----------     -----------
                                                                     27,749,278      24,192,531
Less current maturities.                                             15,974,278       9,184,378
Current maturities - related parties.                                 8,800,000               -
                                                                    -----------     -----------
                                                                      2,975,000      15,008,153
Less long-term debt - related parties.                                1,225,000       6,500,000
                                                                    -----------     -----------
Long-term debt, including capital lease obligations.                $ 1,750,000     $ 8,508,153
                                                                    ===========     ===========
</TABLE>

<PAGE>   32

                          COLONIAL DOWNS HOLDINGS, INC.
                  NOTES TO  FINANCIAL STATEMENTS - (Continued)

5.   LONG-TERM DEBT, NOTES PAYABLE-RELATED PARTIES, AND CAPITAL LEASES -
     (CONTINUED)

     The terms of the $10 million bank note and  revolving  credit loan with the
bank contain, among other provisions,  affirmative and negative covenants. As of
December 31, 1998,  the Company was in violation of certain  covenants set forth
in the loan agreement and as such, on January 11, 1999, the Company entered into
a forebearance  agreement with PNC Bank, N.A. ("PNC").  Under the agreement,  in
lieu of making principal  payments on the due dates, the Guarantors are required
to  deliver  to PNC a letter  of  credit  in the face  amount  of the  principal
payment. Guarantors have posted $2.5 million in letters of credit in lieu of the
Company making principal  payments which had become due as of December 31, 1999.
The letters of credit shall have an expiration of July 31, 2000.

     Scheduled  maturities of notes payable and capital lease obligations are as
follows:

     2000                        $  24,774,278
     2001                            1,815,000
     2002                              290,000
     2003                              290,000
     2004                              290,000
     Thereafter                        290,000
                                 -------------
                                  $ 27,749,278
                                 =============

6.   INCOME TAXES

     Significant components of the provision for (benefit from) income taxes are
as follows:

                                         (In Thousands)
                                     Years Ended December 31,
                          1999                 1998                 1997
                      ------------         ------------         ------------
Current:
  Federal               $    -               $    -                    -
  State                      -                    -                    -
                      ------------         ------------         ------------
                             -                    -                    -

Deferred:
  Federal                    -                  (57)                  57
  State                      -                  (27)                  27
                      ------------         ------------         ------------
                             -                  (84)                  84
                      ------------         ------------         ------------
Total                   $    -               $  (84)             $    84
                      ============         ============         ============

<PAGE>   33

                         COLONIAL DOWNS HOLDINGS, INC.
                  NOTES TO FINANCIAL STATEMENTS - (Continued)

6.   INCOME TAXES - (CONTINUED)

     Deferred income tax assets (liabilities) consist of the following:

                                                (In Thousands)
                                                 December 31,
                                            1999        1998        1997
                                         ----------  ----------  ----------
Assets
  Net operating loss                     $   3,795   $   2,828   $     276
Liabilities
  Depreciation and amortization               (848)       (276)       (360)
                                         -----------  ----------  ----------
Net deferred tax asset (liability)           2,947       2,552         (84)
Valuation allowance                         (2,947)     (2,552)          -
                                         ----------   ----------  ----------
Deferred tax liability                   $       -    $      -    $    (84)
                                         ==========   ==========  ==========

     Income tax expense  (benefit) 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,
                                             1999        1998        1997
                                          ----------  ----------  ----------
Income taxes at statutory rate            $    (386)  $  (1,798)  $      31
Increases (decreases) resulting
  from state taxes, net of federal
  income tax benefit                            (45)       (209)        (10)
Valuation allowance                             395       1,923           -
Campaign costs                                    -           -         211
Income allocable to entities prior
  to reorganization                               -           -        (158)
Other                                            36           -          10
                                          ----------   ----------  ---------
                                          $       -    $    (84)   $     84
                                          ==========   ==========  =========

     At December 31, 1999, the Company has net operating loss  carryforwards  of
approximately  $10  million  for income tax  purposes  that expire in years 2012
through 2019. A valuation  allowance has been  recognized to reduce the deferred
tax assets to amounts expected to be realized.

7.   EMPLOYEE BENEFIT PLANS

     In June 1998, the Company  implemented a 401(k) Plan in which all full time
and part  time  employees  are  eligible  to  participate  after  six  months of
employment. Employees may elect to make pre-tax contributions up to 15% of their
annual salary or the applicable statutory maximum limits to the 401(k) Plan. The
Company makes discretionary matching contributions (subject to


<PAGE>   34

                         COLONIAL DOWNS HOLDINGS, INC.
                  NOTES TO FINANCIAL STATEMENTS - (Continued)

7.   EMPLOYEE BENEFIT PLANS - (CONTINUED)

statutory  limits) in an amount  equal to 20% of the first 6% of the  employee's
contribution.  Company  contributions  are fully  vested  after  three  years of
employment.

     The Company's  contributions to the 401(k) Plan were approximately  $10,400
and $2,400 for 1999 and 1998.

8.   RELATED PARTY TRANSACTIONS

     Upon  consummation of the Initial Public  Offering,  ("IPO"),  in 1997, the
Company entered into a five year  consulting  agreement at $75,000 per year with
the Vice Chairman of the Board of  Directors.  Total expense under the agreement
was $75,000, $75,000 and $59,375 for the years ended December 31, 1999, 1998 and
1997, respectively.

     Virginia Concessions,  L.L.C., ("VAC"), an affiliate of a shareholder,  has
an agreement with the Company to manage the food and beverage concessions at the
Company's  Racing Centers.  Prior to 1998,  under the agreement,  VAC was to pay
commissions of  approximately  $46,000 to the Company based upon a percentage of
gross sales at each Racing  Center.  The  agreement was amended in 1998 to state
that the Company  receives 100% of VAC's net income or loss.  VAC had net income
of  approximately  $141,000  (unaudited)  and  incurred a loss of  approximately
$7,000 (unaudited) in 1999 and 1998, respectively.  Accounts receivable from VAC
related to these agreements  amounted to approximately  $245,000 and $181,000 at
December 31, 1999 and 1998, respectively.

     The Company filed an arbitration claim against Norglass, the general
contractor engaged to manage the construction of the Track and an affiliate of
a shareholder, in which Norglass counterclaimed.  In August 1999, the American
Arbitration Association rendered a decision favorable to Norglass.  Colonial
Downs, L.P. was ordered to pay Norglass $1,965,000 in the arbitration.  In
addition, Colonial Downs, L.P. was ordered to pay interest of approximately
$285,000 and arbitration costs of approximately $98,000.

     The  Company  settled  with  Norglass,  in  September  1999  for a total of
$2,325,000, of which $475,000 was paid in October 1999 and the remaining balance
was accepted by Norglass as a note payable  maturing  September  24, 2000,  with
monthly  interest due at a rate of 6%. The note is secured by a letter of credit
which was provided by a  shareholder  of the Company.  The Company has agreed to
reimburse the shareholder for the cost of the letter of credit.

     On October 1, 1997,  the Company  entered  into an  agreement  with Premier
Development  Co.  ("Premier"),  an  affiliate  of a  shareholder,  to pay annual
consulting  fees in the amount of  $226,000  through  September  30,  1999.  The
Company paid  $225,000,  $226,000 and $50,000  under the agreement for the years
ended December 31, 1999, 1998 and 1997,  respectively.  The provisions under the
agreement have continued  subsequent to September 30, 1999 on a month-  to-month
basis.


<PAGE>   35

                         COLONIAL DOWNS HOLDINGS, INC.
                  NOTES TO FINANCIAL STATEMENTS - (Continued)

8.   RELATED PARTY TRANSACTIONS - (CONTINUED)

     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).  The 1998 fee of $450,000
is not  payable  until such time that the Company  has  successfully  opened two
satellite wagering facilities in Northern Virginia.  If such events do not occur
by January 1, 2007, the fee will be waived in its entirety. Costs incurred under
this agreement were $165,124 in 1997 and $450,000 in 1999.

9.     COMMITMENTS AND CONTINGENCIES

     The Company has 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  for 1999,  2000 and 2001. In
addition,   the  Company  agreed  to  use  certain  equipment  provided  by  the
totalisator company.

     The Company has  entered  into  agreements  with a company  which  provides
broadcasting and simulcasting equipment and services. These agreements expire at
various  times  through  2002.  Total  expense  incurred  for  totalisator,  and
broadcasting and simulcasting equipment was approximately $1,462,000, $1,662,000
and  $796,000  for  the  years  ended   December  31,  1999,   1998,  and  1997,
respectively.

     The Company leases automobiles, building space, and certain equipment under
operating  leases  expiring at various  dates.  Total rental expense under these
non-cancelable leases was approximately $230,000,  $207,000 and $393,000 for the
years ended December 31, 1999, 1998, and 1997, respectively.

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

                                  Broadcasting
                                  Simulcasting
                                       and
Year ended December 31,         Totalisator          Other            Total
-----------------------       ---------------     -----------    --------------
       2000                    $ 1,340,000         $  97,000       $ 1,437,000
       2001                      1,240,000             6,800         1,246,800
       2002                        689,000             2,900           691,900
                              ---------------     -----------    --------------
                               $ 3,269,000         $ 106,700       $ 3,375,700
                              ===============     ===========    ==============

     Under the terms of a $700,000 Community Development Block Grant received in
1996 from New Kent County, the Company must take affirmative steps to employ

<PAGE>   36

                         COLONIAL DOWNS HOLDINGS, INC.
                  NOTES TO FINANCIAL STATEMENTS - (Continued)

9.     COMMITMENTS AND CONTINGENCIES - (CONTINUED)

a minimum  number of low and  moderate  income  persons  based on HUD  Section 8
Income Limits.  If a good faith effort has not been made to honor its commitment
to take such  affirmative  steps,  the Company may repay all or a portion of any
local or grant funds  already  expended to the  locality.  The Company has until
December 31, 2000 to comply.

     In connection with the Norglass  dispute,  two  subcontractors  of Norglass
have filed  mechanics  liens  against  the Track  seeking  payments  aggregating
approximately  $178,000. The Company is contesting these claims. At December 31,
1999, approximately $60,000 has been accrued related to these claims.

10.  HORSEMEN'S AGREEMENT

     Purse structures are negotiated with the respective  horsemen's groups, the
Virginia  Horsemen's  Benevolent  and  Protective   Association  ("VaHBPA")  for
thoroughbred   and  the  Virginia   Harness  Horse   Association   ("VHHA")  for
standardbred.

     The Company entered into a three year agreement with the VaHBPA,  effective
January 1, 1999,  that set a minimum  payment of $3.125 million for 1999 purses,
with 25 days of live racing with average daily purses of no less than  $125,000.
Of the total  $3.125  million  guaranteed  payments,  $1.5 million was funded by
advances  from MJC and CD  Entertainment  as evidenced  by the notes  payable of
$900,000 and $600,000 described in Note 5, respectively.

     In years 2000 and 2001,  the Company is  required  to deposit  5.25% of the
handle generated on import  thoroughbred racing to a separate joint bank account
(the "Thoroughbred Partner Account"), which is classified as Horsemen's Deposits
in the accompanying balance sheet. In addition,  in accordance with the Virginia
Racing Act,  the Company  must  continue  to deposit  approximately  8.5% of the
handle  generated by live  thoroughbred  racing conducted at the Track. The $1.5
million  advance will be repaid in an annual amount of $750,000 plus interest at
the prime rate out of the 5.25%  contributed  to the purse account in years 2000
and 2001.  Thoroughbred  purse expense for 1999, 1998 and 1997 was approximately
$2.6 million, $4.6 million, and $3.2 million,  respectively.  Prior to 1999, the
Company  contributed to the thoroughbred  purse accounts a certain percentage of
all thoroughbred wagers at its Racing Centers.

     Prior to 1999, the Company  entered into agreements with the VHHA regarding
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  agreements,  the
Company  maintains  a  separate  joint  bank  account  which  is  classified  as
Horsemen's Deposits (the "Standardbred Partner Account"). In accordance with the
Virginia  Racing Act,  the Company  deposited  approximately  8.5% of the handle
generated  by live  standardbred  racing  conducted  at the Track.  The contract
between the  Company and the VHHA was amended in March 1999 to provide  that the
maximum   standardbred  purses  to  be  paid  in  1999  was  $1.5  million.  The
standardbred purse expense for 1999, 1998, and 1997 was approximately  $950,000,
$1.5 million and $1.0 million, respectively.
<PAGE>   37

                         COLONIAL DOWNS HOLDINGS, INC.
                  NOTES TO FINANCIAL STATEMENTS - (Continued)

10.  HORSEMEN'S AGREEMENT - (CONTINUED)

     In March 2000,  the Company and the VHHA  reached a  settlement  of pending
litigation in which both parties agreed that all previous contracts between them
had expired.  The Company has agreed to deposit 5% of  standardbred's  simulcast
handle  and the VHHA  agreed to return to the  Company  $315,000  which had been
previously deposited in the purse account.

     During the 2000 session of the Virginia General Assembly,  a law was passed
that effective  April 2000 will require the Company to enter into contracts with
each representative horsemen group that provides for the Company to contribute a
minimum of 5% of the first $75 million of simulcast  handle,  6% of the next $75
million  and 7% of all  handle  over $150  million  to the purse  account of the
respective breed.

11.  STOCK OPTIONS

     In conjunction with the IPO, the Company implemented a stock option plan on
March 31, 1997.  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 395,000 shares of Class A Common Stock. The exercise price per
share for Incentive  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.  On June 14,
1999,  20,000  granted and  outstanding  options  were  repriced  from $10.45 to
$1.7875 per share. On December 15, 1998, 96,000 granted and outstanding  options
were  repriced  from $9.50 per share to $1.00 per share.  The  following  tables
summarize activity of the Stock Option Plan and the stock options outstanding at
December 31, 1999:


<PAGE>   38

                         COLONIAL DOWNS HOLDINGS, INC.
                  NOTES TO FINANCIAL STATEMENTS - (Continued)

11.  STOCK OPTIONS - (CONTINUED)

<TABLE>
<CAPTION>
                                 Weighted
                                 Average
                                 Exercise       Available       Options
                                  Price         For Grant     Outstanding
                               -----------     -----------   -------------
  <S>                            <C>            <C>              <C>
Balance at March 31, 1997        $     -         300,000               -
Granted                             9.86        (242,000)        242,000
Forfeited                              -          50,000         (50,000)
                               -----------     -----------   -------------
Balance at December 31, 1997        9.86         108,000         192,000
Granted                             1.00         (79,000)         79,000
Forfeited                           1.00          26,000         (26,000)
                               -----------     -----------   -------------
Balance at December 31, 1998     $  3.69          55,000         245,000
Granted                             1.50         (15,000)         15,000
Forfeited                           1.00          21,200         (21,200)
Shares added to plan                   -          95,000               -
                               -----------     -----------   -------------
Balance at December 31, 1999     $  3.07         156,200         238,800
                               ===========     ===========   =============
</TABLE>

<TABLE>
<CAPTION>
                               Options Outstanding           Options Exercisable
                          ------------------------------    --------------------
                                    Weighted    Weighted                Weighted
                                     Average     Average                 Average
                                    Remaining   Exercise                Exercise
                           Number  Contractual  Price Per     Number   Price Per
Range of Exercise Prices  of Shares Life (years)  Share      of Shares   Share
--------------------------------------------------------------------------------
  <S>                      <C>        <C>        <C>          <C>        <C>
$1.00 - 1.79               186,800     7.92      $ 1.12        71,600    $ 1.09
$9.50 - 10.45               52,000     7.26       10.05        40,000     10.21
                          --------    -----     -------       -------   -------
                           238,800     7.84      $ 3.07       111,600    $ 4.36
</TABLE>

<PAGE>   39

                         COLONIAL DOWNS HOLDINGS, INC.
                  NOTES TO FINANCIAL STATEMENTS - (Continued)

11.  STOCK OPTIONS - (CONTINUED)

     In October 1995, the Financial  Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  123,   Accounting  for  Stock-Based
Compensation (SFAS 123). SFAS 123 establishes  alternative methods of accounting
and disclosure for employee stock-based compensation  arrangements.  The Company
has elected to use the  intrinsic  value method of  accounting  as prescribed by
Accounting  Principles  Board  Opinion No. 25,  Accounting  for Stock  Issued to
Employees,  and  related  Interpretations,  for  stock  options  granted  to the
Company's  employees.  This  method  does  not  result  in  the  recognition  of
compensation  expense when  employee  stock  options are granted if the exercise
price of the option  equals or exceeds the fair market value of the stock at the
date of grant.

     If the  accounting  provisions of SFAS 123 had been adopted,  the effect on
1999,  1998 and 1997 earnings  (loss) would have been as follows (In  Thousands,
Except Per Share Data):

<TABLE>
<CAPTION>
                                               1999        1998        1997
                                            ----------  ----------  ----------
<S>                                          <C>          <C>         <C>
Net earnings (loss):
   Reported                                 $   (1,139) $   (5,288) $        8
   Proforma                                     (1,148)     (5,299)       (126)
Basic and diluted earnings (loss) per share:
   Reported                                 $    (0.16) $    (0.73) $     0.01
   Proforma                                      (0.16)      (0.73)      (0.02)
</TABLE>

     For purposes of computing the proforma  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 50%, risk-free interest rate of 6.08% and expected lives of two to
ten years. Substantially all options become vested and exercisable evenly over a
five-year  period.  The weighted  average fair value of options  granted  during
December 31, 1999 is $1.38.

<PAGE>   40

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

          None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
          Name of Director     Age     Position with the Company
          ----------------     ---      -------------------------
            <S>                 <C>    <S>
          Arnold W. Stansley    67     Mr. Stansley is an owner and has been
                                       an executive officer of Raceway Park, a
                                       standardbred racetrack in Toledo, Ohio,
                                       for the last ten years.  From 1993 to
                                       1997, he served as President of
                                       Stansley Management Corp., Colonial
                                       Downs, L.P.'s managing general partner
                                       prior to the reorganization of the
                                       Company in connection with its initial
                                       public offering of stock.  He also
                                       served as President of Stansley Racing
                                       prior to the reorganization, from 1994
                                       to 1997.  Mr. Stansley has been a
                                       director of the Company since March
                                       1997. Mr. Stansley's term as a director
                                       of the Company expires in 2002.

          William J. Koslo, Jr. 40     Mr. Koslo joined CIBC Oppenheimer Corp.,
                                       an investment banking subsidiary of the
                                       Canadian Imperial Bank of Commerce, as a
                                       director in September 1996.  From 1993
                                       to 1996, Mr. Koslo was an associate
                                       director of the investment bank Rodman &
                                       Renshaw, Inc.  In 1992 and 1993, he was
                                       a vice president with Creditanstalt-
                                       Bankverein, a commercial bank then
                                       affiliated with Rodman & Renshaw, Inc.
                                       Mr. Koslo has been a director of the
                                       Company since March 1997. Mr. Koslo's
                                       term as a director of the Company
                                       expires in 2002.
</TABLE>

<PAGE>   41

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (CONTINUED)
<TABLE>
<CAPTION>
          Name of Director     Age     Position with the Company
          ----------------     ---      -------------------------
            <S>                 <C>    <S>
          Stephen Peskoff       57     Mr. Peskoff has acted as a consultant to
                                       Friedman, Billings, Ramsey & Co. for the
                                       last five years and served as President
                                       of Underhill Investment Corp. since
                                       1976.  Mr. Peskoff was active in the
                                       thoroughbred horse industry from 1978 to
                                       1992 during which time he won two
                                       Eclipse Awards (1983 and 1991) and was
                                       the breeder of the 1991 horse of the
                                       year (Black Tie Affair).  Mr. Peskoff
                                       has been a director of the Company since
                                       March 1997.  Mr. Peskoff's term as a
                                       director of the Company expires in 2001.

          Patrick J. McKinley   45     Mr. McKinley has served as Executive
                                       Vice President of Jacobs Investment,
                                       Inc. for more than twenty years and is
                                       responsible for that company's day-to-
                                       day operations.  Mr. McKinley has over
                                       twenty years' experience in restaurant
                                       operations and real estate development
                                       and management.  Mr. McKinley has been a
                                       director of the Company since March
                                       1997.  Mr. McKinley's term as a director
                                       of the Company expires in 2001.

         Jeffrey P. Jacobs      46     Mr. Jacobs serves as Chairman of the
                                       Board and Chief Executive Officer of the
                                       Company.  From 1995 to the present, he
                                       has served as Chairman and Chief
                                       Executive Officer of Jacobs
                                       Entertainment Ltd., a company based in
                                       Cleveland, Ohio that has investments in
                                       other gaming companies and ventures,
                                       including Black Hawk Gaming &
                                       Development Company, Inc. based in Black
                                       Hawk, Colorado.  From 1975 to present he
                                       also has served as President and CEO of
                                       Jacobs Investments, Inc., a company
                                       engaged in the development, construction
                                       and operation of residential and
                                       commercial real estate and entertainment
                                       projects in Ohio.  Mr. Jacobs also
                                       served in the Ohio House of
                                       Representatives from 1982 until 1986.
                                       Mr. Jacobs' term as a director of the
                                       Company expires in 2000.

</TABLE>

<PAGE>42

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (CONTINUED)
<TABLE>
<CAPTION>
          Name of Director     Age     Position with the Company
          ----------------     ---      -------------------------
            <S>                 <C>    <S>
          Robert H. Hughes      59     Mr. Hughes served as Chief Financial
                                       Officer of Jacobs Investments, Inc. from
                                       1993 until May 1999.  Mr. Hughes is a
                                       director of Black Hawk Gaming and
                                       Development Co., Inc.  Mr. Hughes was
                                       partner in charge of the audit
                                       department of the Cleveland office of
                                       the accounting firm of Deloitte & Touche
                                       LLP until his retirement in 1991.  Mr.
                                       Hughes is a certified public accountant.
                                       Mr. Hughes' term as a director of the
                                       Company expires in 2000.

          David C. Grunenwald   46     Mr. Grunenwald has served as Vice
                                       President of Development and Leasing for
                                       Jacobs Investments, Inc. since 1988 and
                                       directs such company's development,
                                       construction, and leasing operations.
                                       Prior to joining Jacobs Investments,
                                       Inc., Mr. Grunenwald worked for Weston,
                                       Inc. (1987-88) in syndication and
                                       property management and Touche Ross &
                                       Company from 1981 to 1987 as a tax
                                       consultant.  Mr. Grunenwald's term as a
                                       director of the Company expires in 2000.
</TABLE>

<PAGE>   43

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (CONTINUED)

     The executive  officers,  in addition to Mr. Jacobs,  of the Company are as
follows:

<TABLE>
<CAPTION>
          Name of Director     Age     Position with the Company
          ----------------     ---      -------------------------
          <S>                  <C>     <S>
          Ian M. Stewart        45     Mr. Stewart has served as President
                                       since November 1998 and Chief Financial
                                       Officer since June 1997.  From January
                                       1998 through November 1998, Mr. Stewart
                                       served as Chief Operating Officer of the
                                       Company.  Prior to that time, Mr.
                                       Stewart was CFO for Barber Martin &
                                       Associates from March 1997 to June 1997.
                                       From October 1994 to March 1997, Mr.
                                       Stewart served as a consultant and a
                                       temporary CFO for several Virginia based
                                       businesses.  From December 1989 to
                                       September 1994, Mr. Stewart was Vice
                                       President and CFO of Hat Brands, Inc.
                                       Mr. Stewart is a certified public
                                       accountant.

          Jerry M. Monahan      60     Mr. Monahan has served as Vice President
                                       - Racing Operations since June 1997.
                                       Prior to that time, Mr. Monahan was Vice
                                       President and General Manager of the
                                       Lexington Trots Breeder Association.
                                       Prior to that, Mr. Monahan was Vice
                                       President and General Manager of Buffalo
                                       Raceway.
</TABLE>

     There  are  no  family  relationships  between  any of  the  directors  and
executive  officers.  No director or  executive  officer has been subject to any
material legal proceedings in the past five years.

<PAGE>   44

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (CONTINUED)

     SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section  16(a)  of the  Securities  Exchange  Act  requires  the  Company's
executive  officers and  directors  and persons who own more than ten percent of
the Company's Common Stock file reports of ownership and changes in ownership of
the Company's  Common Stock and any other equity  securities of the Company with
the  Securities and Exchange  Commission  (SEC) and the NASDAQ Small Cap Market.
Executive  officers,  directors  and greater than ten percent  shareholders  are
required by SEC  regulation  to furnish  the Company  with copies of all Section
16(a) forms they file.

     Based  solely on its review of the copies of Forms 3, 4 and 5 furnished  to
the Company, or written  representations  from certain reporting persons that no
such forms were required to be filed by such persons,  the Company believes that
all its executive officers, directors and greater than 10% shareholders complied
with all filing requirements applicable to them during 1999.

ITEM 11. EXECUTIVE COMPENSATION

     The  following  table  sets  forth a summary  of all  compensation  paid or
accrued by the Company for services  rendered for the last three fiscal years to
the Company's Chief Executive Officer and each executive officer whose aggregate
cash compensation in 1999 exceeded $100,000:

<PAGE>   45

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                    Annual Compensation               Long Term Compensation
                    -----------------------------------------------------------------------
                                                        Awards      Payouts
                                                   --------------------------
                                                    Restricted Options/ LTIP       All
Name and                                    Other      Stock     SARs  Payouts    Other
Principal Position  Year  Salary  Bonus  Compensation  Awards   (#)(3)   ($)   Compensation
------------------  ----  ------  -----  ------------  ------   ------   ---   ------------
<S>                  <C>   <C>     <C>    <C>          <C>       <C>     <C>    <C>
Jeffrey P. Jacobs   1999 $120,000  (1)        (2)       (1)       (1)    (1)        (1)
Chief Executive     1998  120,000  (1)        (2)       (1)       (1)    (1)        (1)
Officer             1997  120,000  (1)        (2)       (1)     20,000   (1)        (1)

Ian M. Stewart      1999 $135,584  (1)        (2)       (1)     10,000   (1)        (1)
President           1998  120,000  (1)        (2)       (1)     10,000   (1)        (1)
                    1997   46,420  (1)        (2)       (1)     10,000   (1)        (1)
</TABLE>
(1)  No compensation of this type received.
(2)..Other Annual  Compensation for executive  officers is not reported as it is
     less than the required  reporting  threshold of the Securities and Exchange
     Commission.
(3)  Number of shares of Common Stock issuable upon exercise of options  granted
     during  1997,   1998  and  1999.  The  Company  did  not  grant  any  Stock
     Appreciation Rights during 1997, 1998 and 1999.

                      EMPLOYEE GRANTS OF STOCK OPTIONS IN 1999
<TABLE>
<CAPTION>

               Number of  % of Total                             Potential Realizable Value
              Securities   Options                                 At Assumed Annual Rates
              Underlying  Granted to    Exercise                 Of Stock Price Appreciation
                Option   Employees in  Prices Per   Expiration         For Option Term (1)
                Granted   Fiscal Year    Share         Date              5%           10%
                ------    -----------    -----         ----              --           ---
<S>             <C>        <C>           <C>        <C>                <C>          <C>
Ian M. Stewart  10,000       66.66%      $1.75      12/15/2008        $11,000      $27,900
All other        5,000       33.34%      $1.00      12/15/2008        $     -      $ 3,100

</TABLE>

(1)  In accordance with Securities and Exchange  Commission rules, these columns
     show gains that might exist for the respective  options,  assuming that the
     market price of Colonial Downs' Common Stock  appreciates  from the date of
     grant  over a period  of 10 years  at the  annualized  rates of 5% and 10%,
     respectively. If the stock price does not increase above the exercise price
     at the time of exercise,  realized  value to the  individual  employee from
     these options will be zero.

<PAGE>   46

                 NON-EMPLOYEE GRANTS OF STOCK OPTIONS IN 1999

None

Exercise of Stock Options in 1999

     There were no stock  options  exercised in 1999.  There are no  outstanding
stock appreciation rights.

Other Matters

     The  Company  entered  into a two-year  employment  agreement  with Mr. Ian
Stewart in June 1999. This agreement contains customary terms and conditions and
provides minimum base salary of $150,000 each year.



<PAGE>   47

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                          SECURITY OWNERSHIP OF CERTAIN
                        BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table  sets  forth  certain  information  with  respect  to
beneficial  ownership of the Company's Common Stock as of March 10, 2000, by (i)
each person known to the Company to own  beneficially  more than five percent of
the Company's  outstanding  Common Stock,  (ii) each  director,  (iii) the chief
executive officer and each of the four other most highly  compensated  executive
officers of the Company  whose  salaries and bonuses were in excess of $100,000,
and (iv) all of the executive officers and directors of the Company as a group.

           AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP OF COMMON STOCK
<TABLE>
<CAPTION>
                                                                                 Voting Power
                                                  Percent of Common Outstanding  as Percent of
                                                                                 Common Stock
Name of Beneficial Owner     Class A     Class B      Class A  Class B    All    Outstanding(1)
------------------------     -------     -------      -------  -------    ---    --------------
<S>                          <C>         <C>          <C>       <C>       <C>    <C>
CD Entertainment Ltd.(2)
1231 Main Avenue
Cleveland, OH  44113      1,839,739(3)  2,767,500(4)    33.1%    92.3%    53.8%      76.3%

Jeffrey P. Jacobs(5)      1,859,739     2,767,500(4)    33.4%    92.3%    54.1%      76.3%

Arnold W. Stansley(6)       478,879           ---        8.6%     ---      5.6%       2.3%

James M. Leadbetter(7)
110 Arco Drive
Toledo, Ohio 43607          216,581       225,000        3.9%     7.5%     5.2%       6.5%

Stephen Peskoff(8)          117,518           ---        2.1%     ---      1.4%       *

Ian M. Stewart(9)            30,000           ---        *        ---      *          *

David C. Grunenwald(9)       13,088           ---        *        ---      *          *

Robert H. Hughes(9)          13,088           ---        *        ---      *          *

Patrick J. McKinley(9)       13,150           ---        *        ---      *          *

William J. Koslo, Jr.(9)     12,935           ---        *        ---      *          *

All executive officers
and directors as a group
(9 persons)(10)           2,414,978     2,767,500       43.4%    92.3%    60.5%      79.0%
* Represents less than 1%
</TABLE>

<PAGE>   48

(1) Except for votes on (i) a merger,  (ii) a sale of  substantially  all of the
assets of the Company,  (iii) an amendment to the Articles of  Incorporation  or
Bylaws of the Company,  in which case the voting power of the Company's officers
and directors will be equal to their total  respective  percentage  ownership of
Common Stock outstanding, as set forth herein.

(2)  CD Entertainment Ltd. is beneficially owned by Jeffrey P. Jacobs, and Gary
L. Bryenton and Jeffrey P. Jacobs as Trustees under the Opportunities Trust
Agreement dated February 1, 1996.

(3) Includes  300,000  shares of Class A Common Stock which may be acquired upon
the  exercise  of options  issued by  Messrs.  Arnold W.  Stansley  and James M.
Leadbetter to CD  Entertainment  Ltd. and 384,739 shares of Class A Common Stock
issuable upon the conversion of a Convertible  Subordinated Promissory Note held
by CD Entertainment.

(4) Includes  757,500 shares of Class B Common Stock issuable upon conversion of
two Convertible Subordinated Notes held by CD Entertainment.

(5)  Represents the shares owned by CD Entertainment Ltd. and options for
20,000 shares held pursuant to the Stock Option Plan.

(6)  Includes 210,000 shares that are subject to an option in favor of CD
Entertainment Ltd. from Mr. Arnold W. Stansley and 25,000 shares that are
subject to an option in favor of Stephen Peskoff.

(7)  Includes 90,000 shares that are subject to an option in favor of CD
Entertainment Ltd. from Mr. James M. Leadbetter and 25,000 shares that are
subject to an option in favor of Stephen Peskoff.

(8)  Represents 2,518 shares owned, 15,000 shares owned by Underhill Investment
Corp., an affiliate of Mr. Peskoff, options for 50,000 shares granted under the
Stock Option Plan, options for 25,000 shares from Mr. Arnold W. Stansley,
options for 25,000 shares from Mr. Leadbetter.

(9)  Includes stock options granted.

(10)  Includes (i) all shares  owned  directly or  indirectly,  (ii) all options
held, except those to purchase shares issued to another officer or director. The
address of all  directors and employees is c/o Colonial  Downs,  10515  Colonial
Downs Parkway, New Kent, Virginia 23124.

<PAGE>   49

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Premier  One  Development  Company.  At the  September  2,  1997  Board  of
Directors meeting,  the independent  directors of the Board were asked to review
and approve a transaction involving Premier One Development Company ("Premier").
Mr. Jacobs,  Mr. Hughes and Mr. Grunenwald are affiliated with Premier.  Premier
audits,  researches,  pre-develops,  and  assists  in  the  acquisition  of  new
opportunities for the Company. The Company's independent members of the Board of
Directors  approved the  entering of a two-year  agreement  with  Premier  which
commenced on October 1, 1997 and extends through  September 30, 1999 pursuant to
which  Premier  receives a fee of $226,000 per year for services  provided.  The
provisions of the agreement have continued subsequent to September 30, 1999 on a
month to month basis.

     Colonial Gifts & Sportswear. The Company has entered into an agreement with
Colonial Gifts & Sportswear,  Inc., a Virginia corporation  ("Sportswear"),  for
the sale of gifts and apparel.  Pursuant to the agreement,  the Company provides
space at the  racetrack  and racing  centers to  Sportswear  in  exchange  for a
royalty based on Sportswear's  gross sales.  Although the Company  received less
than $10,000 in 1999 under the agreement, the expected value of the contract may
be in excess of $60,000.  Sportswear is wholly owned by the wife and daughter of
Mr. Arnold Stansley, a director.

     Virginia Concessions, L.L.C.  Virginia Concessions, L.L.C. has an
agreement with the Company to provide food and beverage concessions at the
Company's Racing Centers.  Under the Agreement, the Company is responsible for
the management and administration of Virginia Concessions in exchange for all
earnings (or losses) from food and beverage sales.  Virginia Concessions,
L.L.C. is beneficially wholly owned by Mr. Jeffrey P. Jacobs.

     Friedman, Billings, Ramsey and Company.  Mr. Peskoff is a director of the
Company.  Friedman, Billings, Ramsey and Company is the beneficial shareholder
of more than 5% of the Company's stock.  Mr. Peskoff is also a consultant for
Friedman, Billings, Ramsey and Company.  Friedman, Billings, Ramsey and Company
were the lead underwriters for the Company in its initial public offering in
March 1997.

     CD Entertainment  Convertible Subordinated Promissory Notes. The Company is
maker  of  two  convertible  subordinated  promissory  notes,  in  the  original
principal  amounts of $5.5  million  and $1  million,  respectively,  held by CD
Entertainment,  Ltd.,  an entity that is an affiliate of Mr.  Jeffrey P. Jacobs.
The $5.5  million  note bears  interest  at a rate of 7.25% per  annum,  payable
quarterly.  The $1 million  note  bears  interest  at a rate of 8.5 %  annually,
payable at maturity.  The $5.5 million note matures  September 30, 2000, and the
$1 million note matures August 26, 2000. The outstanding  principal  balance and
accrued  interest  thereon  is  convertible  into  shares of Class A and Class B
Common Stock at $11.59 per share for the $5.5 million note, and $1.65 per share
for  the  $1  million  note.   Additionally,   there  are  three  notes  due  CD
Entertainment,  Ltd. in the original principal amounts of $900,000, $300,000 and
$475,000, respectively,  bearing interest at the prime rate, 8.75% and 8.75% per
year,  respectively,  that mature in the first quarter of 2001, August 2001, and
September 2001, respectively.



<PAGE>   50

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - (CONTINUED)

     Diversified  Opportunities  Group Ltd.  Pursuant to an agreement to provide
credit   support  to  the   Company,   Diversified   Opportunities   Group  Ltd.
("Diversified"),  an affiliate of Mr. Jeffrey P. Jacobs,  receives 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).  Diversified  waived  the  guaranteed  fees  for 1998  unless  certain
conditions  are met.  Costs  incurred under the agreement were $450,000 for 1999
and are recorded as an accrued liability at December 31, 1999.

     No director,  executive  officer or any family  member of the foregoing has
been  indebted to the Company in an amount in excess of $60,000  during the past
fiscal year.

                                     PART IV

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

(a)    1.    Financial Statements
             Included in Part II of this report:

                Report of Independent Auditors

                Balance Sheets at year end 1999 and 1998

                Statements of Operations for years 1999, 1998 and 1997

                Statements of Changes in Stockholder's Equity for years
                1999, 1998 and 1997

                Statements of Cash Flows for years 1999, 1998 and 1997

                Notes to Financial Statements

       2.    Financial Statement Schedule
             Included in Part IV of this report:

                All  required  schedules  are omitted  because of the absence of
             conditions  under which they are  required or because the  required
             information is given in the financial statements or notes thereto.

       3.    Exhibits
            2.1   Agreement and Plan of Reorganization (1)
            3.1   Amended and Restated Articles of Incorporation of Colonial
                  Downs Holdings, Inc. (1)
            3.2   Amended and Restated By-laws of Colonial Downs Holdings, Inc.
                  (1)
            4.1   Stock Certificate representing Colonial Downs Holdings, Inc.
                  Common Stock (1)



<PAGE>   51
            10.1  Management and Consulting Agreement (1)
            10.2  Amended and Restated Performance Guarantee Agreement (1)
            10.3  Form of Deed for Track site (1)
            10.4  Construction Agreement (1)
            10.5  Development Agreement (1)
            10.6  Hubbing Agreement (1)
            10.7  VHHA Simulcast Wagering Agreement (1)
            10.8  VaHBPA Simulcast Wagering Agreement (1)
            10.9  Form of Convertible Subordinated Note (1)
            10.10 Forms of Employment Agreements (1)
            10.11 Form of Stansley Racing Agreement (1)
            10.12 Amended and Restated Promissory Note to CD Entertainment Ltd.
                  (1)
            10.13 Agreement for Interim Financing (1)
            10.14 Registration Rights Agreement (1)
            10.15 Not used (1)
            10.16 Form of 1997 Stock Option Plan (1)
            10.17 Agreement for Provision of Credit (1)
            10.18 Management Agreement between Colonial Downs, L.P. and Virginia
                  Concessions, L.L.C. (2) 10.19 Construction Loan Agreement
                  between Colonial Downs, L.P. and PNC Bank, N.A. (2)
            10.20 Revolving Line of Credit Agreement (2)
            10.21 Deed of Trust Note (2)
            10.22 Revolving Line of Credit Note (2)
            10.23 Deed of Trust and Security Agreement (2)
            10.24 Assignment of Leases and Rents (2)
            10.25 Agreement of Guaranty and Suretyship (Completion) between
                  Stansley Racing Corp. and PNC Bank, N.A. (2)
            10.26 Agreement of Guaranty and Suretyship (Completion) between
                  Colonial Downs, Holdings, Inc. and PNC Bank, N.A.
            10.27 Agreement of Guaranty and Suretyship (Payment), between
                  Stansley Racing Corp. and PNC Bank, N.A. (2)
            10.28 Agreement of Guaranty and Suretyship (Payment), between
                  Colonial Downs Holdings, Inc. and PNC Bank, N.A. (2)
            10.29 Promissory Note payable to Citizens and Farmers Bank (3)
            10.30 Business Loan Agreement between the Company, the Partnership,
                  and Citizens and Farmers Bank (3)
            10.31 Commercial Security Agreement among the Company, the
                  Partnership, and Citizens and Farmers Bank (3)
            10.32 Subordinated Agreement (Lighting) among the Company, CD
                  Entertainment, the Partnership, and David F. Belkowitz and
                  James W. Theobold (3)
            10.33 Employment Agreement dated June 23, 1997 between the Company
                  and Ian M. Stewart (3)
            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. (4)
            10.35 First Amendment to Deed of Trust Note and Construction Loan
                  Agreement dated as of February 27, 1998, between Colonial
                  Downs, L.P., and PNC Bank, N.A. (5)
            10.36 Convertible Subordinated Note, dated August 26, 1998 in the
                  principal amount of $1.0 million issued to CD Entertainment
                  Ltd. (6)

<PAGE>   52
            10.37 Deed of Trust, Assignment of Rents and Leases, and Security
                  Agreement and Assignment thereto to CD Entertainment Ltd. (6)
            10.38 Amended and Restated Management and Consulting Agreement and
                  Addendum between the Company and Maryland-Virginia Racing
                  Circuit, Inc., dated January 15, 1999
            10.39 Agreement between Delmarva Properties, Inc. and the Company
                  dated January 15, 1999
            10.40 Forbearance Agreement dated January 11, 1999 between the
                  Company and PNC Bank, N.A.
            10.41 Second Amendment to Standardbred Horsemen's Agreement (1)
            10.42 Thoroughbred Horsemen's Agreement (8)
            10.43 Promissory note payable to Norglass, Inc. dated September 24,
                  1999 (9)
            10.44 Promissory note payable to CD Entertainment, Ltd., dated
                  September 30, 1999 (9)
            10.45 Promissory note payable to CD Entertainment, Ltd., dated
                  August 31, 1999 (9)
            10.46 Promissory note payable to CD Entertainment, Ltd., dated
                  August 15, 1999 (9)
            10.47 Employment Agreement, dated as of June 23, 1999, between Ian
                  M. Stewart and the Company.
            21.1  Subsidiaries of the Registrant (1)
            24.1  Power of Attorney (1)
            27    Financial Data Schedule

     (1)   Incorporated by reference to the Exhibits filed with Colonial Downs
           Holdings, Inc.'s Registration Statement on Form S-1 (Registration
           No. 333-18295).
     (2)   Incorporated  by reference to the Exhibits  filed with Colonial Downs
           Holdings, Inc.'s 10-Q, dated August 14, 1997.
     (3)   Incorporated  by reference to the Exhibits  filed with Colonial Downs
           Holdings, Inc.'s 10-Q, dated September 14, 1997.
     (4)   Incorporated  by reference to the Exhibits  filed with Colonial Downs
           Holdings, Inc.'s 10-K, dated March 30, 1998.
     (5)   Incorporated  by reference to the Exhibits  filed with Colonial Downs
           Holdings, Inc.'s 10-Q, dated May 15, 1998.
     (6)   Incorporated  by reference to the Exhibits  filed with Colonial Downs
           Holdings, Inc.'s 10-Q, dated November 16, 1997.
     (7)   Incorporated  by reference to the Exhibits  filed with Colonial Downs
           Holdings, Inc.'s 10-Q, dated May 4, 1999.
     (8)   Incorporated  by reference to the Exhibits  filed with Colonial Downs
           Holdings, Inc.'s 10-Q, dated August 16, 1999.
     (9)   Incorporated  by reference to the Exhibits  filed with Colonial Downs
           Holdings, Inc.'s 10-Q, dated November 15, 1999.

(b)    Reports on Form 8-K


<PAGE>   53

                               SIGNATURES

Pursuant to the requirements of Section 13 and 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.

                                    By: /s/    Ian M. Stewart
                                    ---------------------------------
                                    Ian M. Stewart, President
                                    and Chief Financial Officer
                                    March 31, 2000


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


/s/     Jeffrey P. Jacobs                        /s/     Robert H. Hughes
-------------------------                        ------------------------
Jeffrey P. Jacobs, Chief Executive Officer,      Robert H. Hughes,
Chairman of the Board, Director                  Director
March 31, 2000                                   March 31, 2000


/s/     Arnold W. Stansley                       /s/     David Grunenwald
--------------------------                       ------------------------
Arnold W. Stansley,                              David Grunenwald,
Director                                         Director
March 31, 2000                                   March 31, 2000

/s/     William J. Koslo                         /s/     Patrick J. McKinley
------------------------                         ---------------------------
William J. Koslo, Jr.,                           Patrick J. McKinley,
Director                                         Director
March 31, 2000                                   March 31, 2000

/s/     Stephen D. Peskoff
--------------------------
Stephen D. Peskoff,
Director
March 31, 2000