<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                          AMENDMENT NO. 1 TO 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, 2000

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

                        Commission file number 333-18295

                            COLONIAL 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            Over the counter bulletin board
per share

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, 2001 -
                                   5,025,239
  Number of Shares of Class B Common Stock outstanding as of March 27, 2001 -
                                   2,242,500

                   DOCUMENTS INCORPORATED BY REFERENCE - None
<PAGE>

                                     PART I

Item 1.   Business

General

          This Amendment No. 1 to Form 10-K is submitted for the sole purpose of
providing the signature of the Chief Financial Officer of Colonial Holdings,
Inc. which was inadvertently omitted in the original filing.  The Amendment to
Form 10-K is identical in all other respects.


          Colonial Holdings, Inc., (the "Company") formerly Colonial Downs
Holdings, Inc., 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 throughout the United States.  In addition, in
February 2001, the Company, through its wholly owned subsidiary, Colonial
Holdings Management, began managing certain truckstops in Louisiana that were
acquired by an affiliate of the Company's principal shareholder.

          The Company sends its live race signal from the Track to out-of-state
satellite wagering facilities and receives race signals from out-of-state
racetracks.  Under Virginia law, the 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", a
portion is paid to the racetrack from which the signal originates and the
remainder is retained by the Company.

          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; (v) fees from wagering
at out-of-state locations on races run at the Track using export simulcasting
and (vi) starting in 2001, management fees from truckstops in Louisiana.

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 continue 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 1998.  The Virginia Derby, a race for three-year old
thoroughbreds, was held in October 1998, 1999 and 2000 on the Company's turf
track.  The Company intends to continue to develop the Virginia Derby as a
graded stakes race as a warm up to the Breeders' Cup.  The Company

                                       2
<PAGE>

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

                                       3
<PAGE>

          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 24 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, self-serve 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 with 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.

          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, MJC 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 wagered in any
calendar year in the Commonwealth of Virginia excluding certain conditions
specified in the Amended Agreement ("Handle") 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.

                                       4
<PAGE>

Purse Structure

          The Company contributes to the thoroughbred and standardbred purse
accounts, respectively, a certain percentage of all thoroughbred and
standardbred wagers at its Racing Centers and the Track.  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
current agreements with both the VaHBPA and the VHHA expire December 31, 2001;
however, the VaHBPA agreement is subject to a three year renewal term at either
party's election and subject to the Virginia Racing Commission's approval.

          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 operates slot machines and the purses it offers are competitive with
those offered by the Company but are expected to continue to increase.

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 and account wagering on horse racing that operates from Pennsylvania.

          The possible legalization of other forms of gaming in Virginia, such
as Indian and 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 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 VLTs 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

                                       5
<PAGE>

the Track. The Company also is encountering competition with patrons in Virginia
that are participating in account wagering operated in Pennsylvania through the
ability to watch live horse racing via home satellite television. Although
illegal in Virginia, patrons are establishing accounts with operators in
Pennsylvania and placing wagers over the telephone while watching races at home
via satellite.

                                       6
<PAGE>

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 1999.  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 requires the Company to enter into contracts
with each representative horsemen group and 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.  The existing contracts with the VaHBPA and VHHA were
not 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. Prior to this amendment, the
Company received 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.

                                       7
<PAGE>

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

Employees

          As of December 31, 2000, the Company had approximately 92 full-time
and 167 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.

                                       8
<PAGE>

Item 2.   Properties

          Information regarding the Company's facilities as of December 31, 2000
is as follows:
                                                                      Size
         Location                  Use                Leased/Owned  (Sq. Ft.)
         --------                  ---                ------------  ---------

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

     (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.

Item 3.   Legal Proceedings

          Mechanic's Lien Litigation.  In connection with the construction of
the Racetrack, there remained two unresolved mechanic's lien litigation matters
as of December 31, 2000.  In Baker Roofing Company v. Colonial Downs Holdings,
                             -------------------------------------------------
Inc., et al (New Kent County Cir. Ct. Case No. CH98-76), a roofing contractor
-----------
sought payments of approximately $137,800 and its contractor, in turn, sought
payment of approximately $40,500 in NCI Building Components v. Baker Roofing
                                    ----------------------------------------
Company, et al (New Kent County Cir. Ct. Case No. CH98-78).  The Company
--------------
contested these matters vigorously and ultimately settled these matters in March
2001 for not materially more than previously accrued.

Item 4.   Submission of Matters to a Vote of Security Holders

          None.

                                       9
<PAGE>

                                    PART II

Item 5.   Market for Common Equity and Related Stockholder Matters

          The Company's Common Stock is quoted on the NASDAQ over the counter
bulletin board as of October 19, 2000 under the symbol "CHLD".  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 and the over the counter
bulletin board.

                     2000 - By Quarter                 1999 - By Quarter
               -----------------------------     -----------------------------
                1ST     2ND     3RD     4TH       1ST     2ND     3RD     4TH
                ---     ---     ---     ---       ---     ---     ---     ---

High Bid       $1.56   $1.22   $0.97   $0.53     $1.69   $2.56   $2.63   $1.50
Low Bid        $0.75   $0.75   $0.38   $0.16     $0.63   $1.38   $1.00   $0.81

          The closing price as of March 27, 2001 was $0.69 per share of Class A
Common Stock.  There were approximately 726 holders of record of Class A Common
Stock on March 27, 2001.

          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 October 19, 2000, the Company received notification from The NASDAQ
Small Cap Market that the Company had failed to meet certain market
capitalization criteria.  As a result, the Company's stock was delisted and is
now traded on the over the counter bulletin board.



                                       10
<PAGE>

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,
                                               2000       1999       1998       1997
                                              -------   --------   --------   --------
<S>                                          <C>        <C>        <C>        <C>
Income Statement Data:
Total revenues                                $29,202   $ 29,351   $ 29,447   $ 23,647
Income (loss) from operations                    (166)     1,701     (3,597)      (467)
Net earnings (loss) before income taxes        (2,869)    (1,139)    (5,372)        92
Net earnings (loss)                            (2,869)    (1,139)    (5,288)         8

Basic and diluted net earnings (loss)
  per share                                   $ (0.39)  $  (0.16)  $  (0.73)  $   0.01

Balance Sheet Data (at period end):
Working capital (deficiency)                  $(4,129)  $(26,565)  $(14,661)  $ (9,466)
Total assets                                   65,853     67,405     68,581     67,875
Current maturities of long-term debt              936     24,774      9,184      1,373
Long-term debt excluding current
  maturities                                   26,898      2,975     15,008     15,390
Stockholders' equity                           32,657     35,526     36,634     36,922

Cash Flow Data:
Net cash provided by (used in)
  operating activities                        $   121   $    632   $ (2,289)  $  3,053
Net cash used in investing activities          (2,249)    (1,546)    (5,884)   (48,851)
Net cash provided by financing activities       1,934      1,072      5,980     47,766

EBITDA (1)                                    $ 1,530   $  3,540   $ (1,995)  $    188

</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.

                                       11
<PAGE>

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;
and (vi) commencing in February 2001, management fees for the operation of
truckstops and gaming assets owned by an affiliate of the Company's largest
shareholder.

          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 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 their simulcast
facilities with respect to wagering on races run at the Track.

          The immediate challenge facing the Company is its liquidity.  However,
the Company expects that cash flows from operations and the availability of
other capital and financial resources, primarily through support of its
principal shareholder, will provide sufficient liquidity to meet its normal
operating requirements and capital expenditure plans over the next twelve
months.

                                       12
<PAGE>

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

                                              (Percentage of Net Revenues)
                                                Years Ended December 31,
                                              ----------------------------
                                                2000     1999       1998
                                              --------  ------    --------
Revenues:
    Pari-mutuel and simulcasting commissions    93.7%     93.0%     90.8%
    Other                                        6.3%      7.0%      9.2%
                                              --------  ------    --------
        Total revenues                         100.0%    100.0%    100.0%
Direct operating expenses:
    Purses, fees, and pari-mutuel taxes         40.3%     32.6%     39.1%
    Simulcast and other direct expenses         40.9%     38.9%     46.8%
                                              --------  ------    --------
        Total direct operating expenses         81.2%     71.5%     85.9%
Selling, general, and administrative expenses   13.6%     16.4%     20.9%
Depreciation and amortization                    5.8%      6.3%      5.4%
                                              --------  ------    --------
Income (loss) from operations                  (0.6)%      5.8%   (12.2)%
Interest expense, net                          (9.2)%    (9.7)%    (6.0)%
                                              --------  ------    --------
Earnings (loss) before taxes                   (9.8)%    (3.9)%   (18.2)%
                                              ========  =======   ========

Comparison of Fiscal Years 2000 and 1999

          Total Revenues.  Total revenues in 2000 were $29.2 million, a decrease
of $.1 million from 1999 revenues of  $29.3 million.  Total revenue reflects a
decrease of  $.1 million in live harness meet revenue and a $.4 million decrease
in revenues from the Racing Centers, offset by an increase of $.4 million in
thoroughbred meet revenue.  The decrease in live harness meet revenues was
primarily due to a decrease in attendance despite an increase in the number of
race days (from 30 in 1999 to 40 in 2000).  Attendance appears to have been
adversely affected by changing the harness meet from May through August in 1999
to October through December in 2000.  The increase in live thoroughbred meet
revenue was primarily due to an increase in the number of race days (from 25 in
1999 to 32 in 2000).  Revenues at the Hampton and Brunswick Racing Centers
increased $.3 million and $.1 million, respectively, while revenues at the
Richmond and Chesapeake Racing Centers decreased by $.6 million and $.2 million,
respectively compared to 1999.  Current year revenues have been adversely
affected by passage of legislation sponsored by the Virginia Racing Commission
in April 2000 requiring the Company to remit 30% of breakage revenue to
horseman's benevolent associations.  Prior to enactment of this law, the Company
was entitled to retain all breakage.  The reduction in breakage revenue in 2000
due to this change was approximately $.1 million.

          Direct Operating Expenses.  As a percentage of revenues, direct
operating expenses increased 9.7%, or $2.7 million from the prior year.  The
increase in operating expenses was principally attributed to increases in purse
expense, fees, and simulcast and other direct expenses.  Purse expense increased
to $5.7 million for 2000 from $3.5 million for 1999 due to the new agreements
with the VaHBPA and the VHHA.

                                       13
<PAGE>

          Selling, General and Administrative Expenses ("SG&A").  As a
percentage of revenues, SG&A decreased approximately 2.8% from 1999.  The
decrease in SG&A as a percentage of revenues was due primarily to reductions in
professional, consulting and legal fees of approximately $.9 million.  This
reduction was due to the termination of the consulting agreement with Premier
Development Company, the settlement of the Norglass litigation and the non
recurring expenses in 1999 related to the Company's unsuccessful effort to
obtain a racetrack license in Dumfries, Virginia.  Other Racing Center and
corporate SG&A costs increased $.1 million attributable primarily to increased
insurance costs offsetting reductions in other areas.

          Interest Expense, Net.  Interest expense, net of interest income,
decreased $.1 million to $2.7 million in 2000 from $2.8 million in 1999.  The
decrease in net interest expense is due to the nonrecurring $.3 million interest
provision related to the Norglass arbitration award recorded in June 1999,
cessation of guarantee fees in August 2000 due to the refinancing of the
Company's debt, and an increase in interest income offset by a slight increase
in debt and a slight rise in interest rates.

     Net Loss.  Net loss increased to $2.9 million in 2000 from $1.1 million in
1999.  The increase in net loss was a result of the factors discussed above.

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 affected 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 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.

                                       14
<PAGE>

          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 $.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 $.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 $.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 $.9 million and $.6
million for 1999 thoroughbred purses to an affiliate of a shareholder and the
Maryland Jockey Club, respectively.  The Company also received loans aggregating
$.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 conditions 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 impact of the loss on net income net of insurance
recoveries was approximately $162,000.

Liquidity and Capital Resources

          During 2000, 1999 and 1998, the Company incurred aggregate net losses
of approximately $9.3 million and has a working capital deficit of $4.1 million
at December 31, 2000.  The Company's continued existence is dependent upon its
ability to 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 through affiliated
entities and related parties is the holder of $25.7 million of debt from the
Company as of December 31, 2000.  The Company is seeking continued financial
support from this stockholder.

          Cash Flows.  After adjusting the net loss of $2.9 million for non-cash
items such as depreciation and amortization, $1.1 million in cash was used.  The
increase in accounts payable and other operating liabilities and the decreases
in accounts receivable and other assets and horsemen's deposits and purses
provided $1.2 million of cash resulting in net cash provided by operating
activities of $.1 million.  Investing activities utilized approximately $2.2
million of cash, with $1.8 million consisting of payments on prior year
construction related liabilities and $.4 million of capital expenditures.
Financing activities provided approximately $1.9 million of cash primarily from
the refinancing of the debt.

                                       15
<PAGE>

          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 was considered to be an advance of purse money due in years 2000 and
2001.  In 2000, the Company paid 5 1/4% of the Handle generated on simulcast
thoroughbred racing to the thoroughbred purse account.  Then the VaHBPA repaid
$750,000 of the advance plus interest at approximately the prime rate back to
the Company, effectively reducing the Company's 2000 purse expense.  The
remaining $750,000 balance of the advance plus interest at approximately the
prime rate will be repaid by the VaHBPA in 2001 from the 5 1/4% contributed by
the Company to the purse account.

          EBITDA is a widely accepted financial indicator of a company's ability
to service and incur debt. The Company's EBITDA for 2000 and 1999 was
approximately $1.5 million and $3.5 million, respectively.  The decrease in
EBITDA is primarily due to lower 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.

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.

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.

Going Private Transaction

          On March 1, 2001, the Company announced that its Board of Directors
received an offer from Jeffrey P. Jacobs, Chairman of the Board, Chief Executive
Officer, and the Company's largest shareholder, to acquire the Company.  Upon
receipt of the offer, the Company formed a Special Committee to evaluate the
proposal.

          Mr. Jacobs indirectly owns approximately 43.5% of the stock of the
Company.  He

                                       16
<PAGE>

proposed a transaction to purchase all of the remaining shares for a cash price
of $1.00 per share. U.S. Bancorp Libra, a division of U.S. Bancorp Investments,
Inc., is acting as advisor to Mr. Jacobs.

          Jacobs proposed price per share of $1.00 was approximately four times
the closing price of the Company's registered common stock on February 27, 2001,
as stated on the NASDAQ OTC Market (which closing price was $0.24 per share).
The final price will be based on negotiations with the Special Committee, and
will be payable in cash.  The Special Committee intends to employ independent
legal counsel and a financial advisor to assist it in analyzing the offer and
negotiating with Mr. Jacobs.

          Consummation of the transaction is subject to various conditions,
including the negotiation and execution of definitive agreements, approval by
the Company's Board of Directors and shareholders, the obtaining of various
regulatory approvals, and Mr. Jacobs' ability to obtain financing necessary for
the transaction.  If a transaction with Mr. Jacobs occurs, it is anticipated
that it would close in mid to late summer of 2001.

Management Agreement with Jalou

          The Company's subsidiary, Colonial Holdings Management, Inc., has
signed a management contract with Jalou, an affiliate of Mr. Jacobs, the
Chairman and CEO of the Company, to manage two truckstops that Jalou recently
acquired in Louisiana and to manage the rights to a portion of the gaming
revenues from a third truckstop.  Under the management contract, the Company
will oversee all aspects of the operations of the truckstops acquired.  The
management agreement calls for the Company to provide these services in return
for a fee of 3% of the truckstops' revenue and 5% of the truckstops' EBITDA.
Each truckstop offers fueling, convenience store and restaurant facilities as
well as 50 video poker gaming devices.

New Accounting Standards

          In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments" ("SFAS 133").  SFAS 133, as amended by SFAS 137 and 138, 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, 137 and 138 is not expected to
have a material impact on its financial position or results of operations.

          The Securities and Exchange Commission ("SEC") has issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101").  SAB 101 is effective in the fourth quarter of fiscal years beginning
after December 15, 1999.  SAB 101 summarizes appropriate criteria to be
considered in determining recognition of revenue.  Adoption of SAB 101 did not
have a material impact on the Company's financial position or results of
operations.

          In March 2000, the FASB issued interpretation No. 44 ("FIN 44"),
Accounting for Certain Transactions Involving Stock Compensation, , an
Interpretation of APB Opinion No. 25.  FIN 44 clarifies the application of
applying APB No. 25 for (a) the definition of employee for purposes of applying
APB 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various modifications
to a previously fixed stock option or award

                                       17
<PAGE>

and (d) the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 became effective July 2, 2000, but certain
conclusions cover specific events that occur after either December 15, 1998 or
January 12, 2000.

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, 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, 2000 were
either fixed rate obligations or variable rate obligations with its majority
shareholder, 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.

                                       18
<PAGE>

Item 8.   Financial Statements and Supplementary Data

                         Index to Financial Statements

                                                                           Page
                                                                           ----

Report of Independent Certified Public Accountants                         17

Consolidated Balance Sheets at year end 2000 and 1999                      18

Consolidated Statements of Operations for years 2000, 1999 and 1998        19

Consolidated Statements of Changes in Stockholders' Equity for years
 2000, 1999 and 1998                                                       20

Consolidated Statements of Cash Flows for years 2000, 1999 and 1998        21

Notes to Consolidated Financial Statements                                 22-36

                                       19
<PAGE>

              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of Colonial
Holdings, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted
in the United States of America.  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 Holdings,
Inc. and subsidiaries at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America.

The Company has been and continues to be largely dependent on the financial
support of it's principal stockholder, who through an affiliated entity is the
holder of $25.7 million of debt from the Company as of December 31, 2000.  In
addition, on March 1, 2001, the Company's Board of Director's received an offer
from its principal stockholder, who beneficially owns approximately 43% of the
Company's outstanding shares, to acquire all of the remaining shares for a cash
price of $1.00 per share.  The Company has formed a special committee to
evaluate the proposal.


                                           /s/ BDO Seidman, LLP

Richmond, Virginia
March 23, 2001

                                       20
<PAGE>

                            COLONIAL HOLDINGS, INC.
                          CONSOLIDATED BALANCE SHEETS
                     (In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                                        December 31,   December 31,
                                                                           2000           1999
                                                                        ------------   ------------
<S>                                                                     <C>            <C>
                       ASSETS
Current assets:
 Cash and cash equivalents                                                  $  1,119        $ 1,313
 Horsemen's deposits                                                             602            659
 Accounts receivable                                                             351            253
 Prepaid expenses and other assets                                                97            114
                                                                        ------------   ------------
     Total current assets                                                      2,169          2,339

Property, plant and equipment
 Land and improvements                                                        15,640         15,554
 Buildings and improvements                                                   48,586         48,472
 Equipment, furnishings, and fixtures                                          2,972          2,853
 Leasehold improvements                                                        1,124          1,124
                                                                        ------------   ------------
                                                                              68,322         68,003
 Less accumulated depreciation and amortization                                5,433          3,817
                                                                        ------------   ------------
     Property, plant and equipment, net                                       62,889         64,186
Licensing costs, net of accumulated amortization of $337
and $311, respectively                                                           703            729
Other assets                                                                      92            151
                                                                        ------------   ------------
     Total assets                                                           $ 65,853        $67,405
                                                                        ============   ============

    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable                                                           $  2,967        $ 2,764
 Purses due horsemen                                                             306            182
 Accrued liabilities and other                                                 2,089          1,184
 Current maturities of long-term debt, and capital lease obligations             936         15,974
 Current maturities of long-term debt - related parties                            -          8,800
                                                                        ------------   ------------
     Total current liabilities                                                 6,298         28,904
Long-term debt and capital lease obligations                                   1,160          1,750
Notes payable - related parties                                               25,738          1,225
                                                                        ------------   ------------
     Total liabilities                                                        33,196         31,879

Commitments and contingencies

Stockholders' equity
 Class A, common stock, $0.01 par value; 12,000 shares authorized;
  5,025 shares issued and outstanding                                             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         42,873
 Accumulated deficit                                                         (10,289)        (7,420)
                                                                        ------------   ------------
     Total stockholders' equity                                               32,657         35,526
                                                                        ------------   ------------
     Total liabilities and stockholders' equity                             $ 65,853        $67,405
                                                                        ============   ============
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       21
<PAGE>

                            COLONIAL HOLDINGS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In Thousands, Except Per Share Data)

                                                     Years Ended December 31,
                                                  -----------------------------
                                                    2000      1999      1998
                                                  -------- --------- ----------
Revenues
 Pari-mutuel and simulcasting commissions         $27,366   $27,285   $26,737
 Other                                              1,836     2,066     2,710
                                                  -------- --------- ----------
     Total revenues                                29,202    29,351    29,447

Operating expenses
 Direct operating expenses
     Purses, fees, and pari-mutuel taxes           11,767     9,564    11,509
     Simulcast and other direct expenses           11,936    11,418    13,791
                                                  -------- --------- ----------
       Total direct operating expenses             23,703    20,982    25,300

 Selling, general, and administrative expenses      3,969     4,829     6,142
 Depreciation and amortization                      1,696     1,839     1,602
                                                  -------- --------- ----------
     Total operating expenses                      29,368    27,650    33,044
                                                  -------- --------- ----------

Income (loss) from operations                        (166)    1,701    (3,597)
Interest expense                                   (2,826)   (2,905)   (1,825)
Interest income                                       123        65        50
                                                  -------- --------- ----------
 Loss before income taxes                          (2,869)   (1,139)   (5,372)
Provision for (benefit from) income taxes               -         -       (84)
                                                  -------- --------- ----------
          Net Loss                                $(2,869)  $(1,139)  $(5,288)
                                                  ======== ========= ==========

Loss per share data:
 Basic and diluted loss per share                 $ (0.39)  $ (0.16)  $ (0.73)
 Weighted average number of shares outstanding      7,267     7,260     7,250

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       22
<PAGE>

                            COLONIAL HOLDINGS, INC.
                CONSOLIDATED 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,
 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
Net loss                        -       -       -        -           -         (2,869)       (2,869)
                           ------  ------  -------  ------  ----------  --------------  ------------
Balance at December 31,
 2000                       5,025     $50   2,242      $23     $42,873       $(10,289)      $32,657
                           ======  ======  ======   ======  ==========  ==============  ============
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       23
<PAGE>

                            COLONIAL HOLDINGS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                                 Years Ended
                                                                 ------------------------------------------
                                                                 December 31,   December 31,   December 31,
                                                                    2000           1999            1998
                                                                 ------------   ------------   ------------
<S>                                                              <C>            <C>            <C>
Operating Activities
Net loss                                                          $ (2,869)       $(1,139)       $(5,288)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
 Depreciation and amortization                                       1,696          1,680          1,602
 Amortization of finance costs                                          28            159
 Deferred income taxes and other                                         1             31            (78)
Changes in operating assets and liabilities:
 Decrease (increase) in accounts receivable and other assets           (23)            44            470
 Increase (decrease) in trade accounts payable and
   accrued liabilities                                               1,107            342            (51)
 Decrease (increase) in horsemen's deposits and purses                 181           (485)         1,056
                                                                 ------------   ------------   ------------
Net cash provided by (used in) operating activities               $    121        $   632        $(2,289)
                                                                 ------------   ------------   ------------

Investing activities:
 Capital expenditures                                                 (399)          (500)        (5,884)
 Decrease in construction payables                                  (1,850)        (1,046)             -
                                                                 ------------   ------------   ------------
Net cash used in investing activities                               (2,249)        (1,546)        (5,884)
                                                                 ------------   ------------   ------------
Financing activities:
 Proceeds from long-term debt and capital leases                    25,932          2,375          6,398
 Payments on long-term debt and capital leases                     (23,998)        (1,303)          (418)
                                                                 ------------   ------------   ------------
Net cash provided by financing activities                            1,934          1,072          5,980
                                                                 ------------   ------------   ------------
    Net change in cash and cash equivalents                           (194)           158         (2,193)
Cash and cash equivalents, beginning of year                         1,313          1,155          3,348
                                                                 ------------   ------------   ------------
Cash and cash equivalents, end of year                            $  1,119        $ 1,313        $ 1,155
                                                                 ============   ============   ============

Supplemental Cash Flow Information:
 Supplemental disclosure of noncash investing and
  financing activities
     Land contribution                                            $      -        $     -        $ 5,000
 Cash paid for interest                                              2,320          2,083          1,915
 Conversion of accounts payable to long-term debt                        -          2,485          1,450
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       24
<PAGE>

                            COLONIAL HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               December 31, 2000

1.   Description of Business and Significant Accounting Policies

Description of Business

     Colonial Holdings, Inc., ("Colonial") formerly Colonial Downs Holdings,
Inc., 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 Colonial and its
subsidiaries, Colonial Downs, L.P. ("Partnership") and Stansley Racing Corp.
("SRC" and collectively with Colonial and the Partnership, the "Company").  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.

Capitalized Interest

     Interest in the amount of $146,000 was capitalized during 1998, in
connection with the construction of the Track and development of the Racing
Centers. No interest was capitalized during 1999 and 2000.

                                       25
<PAGE>

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

1.   Description of Business and Significant Accounting Policies - (Continued)

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 $1,666,000, $1,631,000 and $1,541,000 for fiscal
years 2000, 1999 and 1998, respectively.

     Costs of betterments, 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 9)
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, 2000
and 1999 approximately $602,000 and $659,000, respectively, were held in the
restricted cash accounts.  The Company deposits 30% of breakage revenue into a
Benevolent Fund account, as required by law.  As of December 31, 2000,
approximately $63,000 was included in restricted cash accounts.

                                       26
<PAGE>

                            COLONIAL HOLDINGS, INC.
            NOTES TO CONSOLIDATED 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 the
evidence of impairment, 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, 2000 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, 2000 the Company had cash
deposits which exceeded federally insured limits by approximately $1,244,000.

                                       27
<PAGE>

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

1.   Description of Business and Significant Accounting Policies - (Continued)

New Accounting Standards

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments" ("SFAS 133").  SFAS 133, as amended by SFAS 137 and 138, 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, 137 and 138 is not expected to have an
impact on the Company's financial position or results of operations.

     The Securities and Exchange Commission ("SEC") has issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101").
SAB 101 is effective in the fourth quarter of fiscal years beginning after
December 15, 1999.  SAB 101 summarizes appropriate criteria to be considered in
determining recognition of revenue.  Adoption of SAB 101 did not have a material
impact on the Company's financial position or results of operations.

          In March 2000, the FASB issued interpretation No. 44 ("FIN 44"),
Accounting for Certain Transactions Involving Stock Compensation, , an
Interpretation of APB Opinion No. 25.  FIN 44 clarifies the application of
applying APB No. 25 for (a) the definition of employee for purposes of applying
APB 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various modifications
to a previously fixed stock option or award and (d) the accounting for an
exchange of stock compensation awards in a business combination.  FIN 44 became
effective July 2, 2000, but certain conclusions cover specific events that occur
after either December 15, 1998 or January 12, 2000.

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, 2000, 1999
and 1998.

2.   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
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

                                       28
<PAGE>

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

2.   Management and Consulting Agreement- (Continued)

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 specified in the Amended Agreement ("Handle") 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 2000, 1999 and 1998 were approximately $1.7
million, $1.7 million and $1.1 million, respectively.

3.   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.

4.   Long-Term Debt, Notes Payable-Related Parties, and Capital Leases

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

                                                 December 31,  December 31,
                                                     2000          1999
                                                 ------------  ------------

Credit facility payable to CD Entertainment, Ltd., maturing
June 2005, with monthly interest payments at LIBOR plus
three percent (approximately 9.96% at December 31, 2000)
and principal payments of $1 million each due June 30, 2002,
2003 and 2004, with all unpaid principal and interest due

                                       29
<PAGE>

2005, collateralized by substantially all assets of
the Company                                           $ 25,737,937     $     -

                                       30
<PAGE>

                            COLONIAL HOLDINGS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

4.   Long-Term Debt, Notes Payable-Related Parties, And Capital Leases -
(Continued)
<TABLE>
<CAPTION>

                                                                   December 31,  December 31,
                                                                       2000          1999
                                                                   ------------  ------------
<S>                                                                <C>           <C>


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 to Maryland Jockey Club, bearing interest at
the prime rate (9.5% at December 31, 2000), payable in two
equal installments during the years 2000 and 2001                       300,308       600,000

Note payable to a bank, maturing October 2001, bearing
interest at prime plus 1.0% (10.5% at December 31, 2000),
with monthly principal payment of $15,000, collateralized
by certain fixed assets                                                 300,000       480,000

Notes payable to an insurance company, maturing January 2001,
and April 2001, bearing interest at 8.70% and 7.52%,
respectively                                                             45,398             -

Note payable to a bank maturing June 2000, bearing
interest at a variable rate, collateralized by
substantially all assets, except the Racing Centers,
of the Company and guaranteed by certain
shareholders and related parties                                              -    10,000,000

Note payable under the revolving credit facility with a bank,
bearing interest at a variable rate, 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

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

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

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

                                       31
<PAGE>

                            COLONIAL HOLDINGS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

4.   Long-Term Debt, Notes Payable-Related Parties, And Capital Leases -
(Continued)
<TABLE>
<CAPTION>

                                                                 December 31,  December 31,
                                                                     2000          1999
                                                                 ------------  ------------
<S>                                                              <C>           <C>

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                                                       -       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                                                 -       475,000

Installment loans and capitalized leases collateralized by
certain vehicles, machinery and equipment, maturing at
various dates through September 2000, at interest rates
ranging from 8.125% to 10.5%                                                -        51,543

Note payable to Ryan Incorporated Central, bearing monthly
interest at 10%, payable in six equal monthly payments
commencing January 1, 2000                                                  -       142,735
                                                                 ------------  ------------
                                                                   27,833,643    27,749,278
Less current maturities                                               935,706    15,974,278
Current maturities - related parties                                        -     8,800,000
                                                                 ------------  ------------
                                                                   26,897,937     2,975,000
Less long-term debt - related parties                              25,737,937     1,225,000
                                                                 ------------  ------------
Long-term debt, including capital lease obligations               $ 1,160,000   $ 1,750,000
                                                                 ============  ============
</TABLE>

     In August 2000, the Company entered into an agreement with CD Entertainment
Ltd. ("CD Entertainment"), an affiliate of the Chairman and CEO of the Company,
to refinance the $15 million in loans from PNC Bank ("PNC") that came due on
June 30, 2000.  The refinanced former PNC debt and the Company's existing debt
to related parties was consolidated into a $25.7 million credit facility with a
term of five years and an interest rate of LIBOR on the date funds are drawn,
plus 3%.  The Company drew on the credit facility's available balance to payoff
the $1.85 million Norglass, Inc. debt.  The credit facility's remaining
available balance of approximately $.7 million was drawn in October 2000 to meet
short-term working capital obligations.  Under the terms of the Credit facility,
principal payments of $1 million each are due on June 30, 2002, 2003 and 2004
with the balance due on June 30, 2005.  In addition, the Company has agreed to
make an additional annual principal payment commencing in 2002 contingent upon
the Company's annual cash flow.  The Company's racetrack property and the Racing
Center located in Hampton serve as collateral for the loan.  Additionally, the
Company has pledged its limited partnership interest in Colonial Downs, L.P. and
its shares of Stansley Racing Corp., both of

                                       32
<PAGE>

                            COLONIAL HOLDINGS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

4.   Long-Term Debt, Notes Payable-Related Parties, And Capital Leases -
(Continued)

which are subsidiaries of the Company, to CD Entertainment.  This collateral
package is identical to that provided to PNC for the PNC Credit Facility with
the additional deeds of trust on the Racing Centers.  The maturities of long-
term debt reflect the terms of the new refinancing agreement with CD
Entertainment.

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

<S>                         <C>
     2001                   $   935,706
     2002                     1,290,000
     2003                     1,290,000
     2004                     1,290,000
     2005                    23,027,937
                            -----------
                            $27,833,643
                            ===========

5.   Income Taxes

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

                                               (In Thousands)
                                           Years Ended December 31,
                                         2000        1999        1998
                                         ----------------------------
     Current:
        Federal                          $  -        $  -        $  -
        State                               -           -           -
                                         ----------------------------
     Deferred:
        Federal                             -           -         (57)
        State                               -           -         (27)
                                         ----------------------------
                                            -           -         (84)
                                         ----------------------------
     Total                               $  -        $  -        $(84)
                                         ============================
</TABLE>

                                       33
<PAGE>

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


5.    Income Taxes - (Continued)

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


                                         (In Thousands)
                                          December 31,
                                    2000       1999     1998
                                    ------------------------
Assets
 Net operating loss               $ 5,131   $ 3,795   $ 2,828
Liabilities
 Depreciation and amortization     (1,374)     (848)     (276)
                                  -------   -------   -------
Net deferred tax asset              3,757     2,947     2,552
Valuation allowance                (3,757)   (2,947)   (2,552)
                                  -------   -------   -------
Deferred tax asset                $     -   $     -   $     -
                                  =======   =======   =======

     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,
                                                     2000     1999      1998
                                                     -----------------------
Income taxes at statutory rate                       $(975)  $(386)  $(1,798)
Increases (decreases) resulting from state taxes,
 net of federal income tax benefit                    (113)    (45)     (209)
Other                                                  278      36         -
Valuation allowance                                    810     395     1,923
                                                     ------  ------  -------
                                                     $   -   $   -   $   (84)
                                                     ======  ======  =======

     At December 31, 2000, the Company has net operating loss carryforwards of
approximately $13.5 million for income tax purposes that expire in years 2012
through 2020.  A valuation allowance has been recognized to reduce the deferred
tax assets by the entire amount.

                                       34
<PAGE>

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

6.   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
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 $9,100,
$10,400 and $2,400 for 2000, 1999 and 1998, respectively.

7.   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 for each of the years ended December 31, 2000, 1999 and 1998.

     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.  The amended agreement states that the Company
receives 100% of VAC's net income or loss.  VAC had net income of approximately
$70,000 (unaudited) and $141,000 (unaudited) in 2000 and 1999, respectively and
incurred a loss of approximately $7,000 in 1998.  Accounts receivable from VAC
related to these agreements amounted to approximately $243,000, $245,000 and
$181,000 at December 31, 2000, 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
of $1,850,000 plus interest at 6% was paid in September 2000 in satisfaction of
a note accepted by Norglass.

     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 and $226,000 under the agreement for the years ended
December 31, 1999 and 1998, respectively.  The provisions under the agreement
continued until December 31, 1999 on a month-to-month basis.  No fees were
incurred during the year ended December 31, 2000.

                                       35
<PAGE>

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

7.   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 $450,000 in 1999 and $300,000 in 2000.  This agreement
was terminated in connection with the refinancing of the Company's long term
debt in August 2000.

     In August 2000 the Company entered into an agreement with CD Entertainment,
Ltd. ("CD Entertainment"), an affiliate of the Chairman and CEO of the
Corporation, to refinance the $15 million in loans from PNC Bank that cam due on
June 30, 2000.  The refinanced former PNC debt and the Company's existing debt
to related parties was consolidated into a $25.7 million credit facility with a
term of five (5) years and an interest rate of LIBOR on the date funds are
drawn, plus 3%.  Under the terms of the Credit facility, principal payments of
$1 million each are due on June 30, 2002, 2003 and 2004, with the balance due on
June 30, 2005.  In addition, the Company has agreed to make an additional annual
principal payment commencing in 2002 contingent upon the Company's annual cash
flow.  The Company's racetrack property and the Racing Center located in Hampton
serve as collateral for the loan.  Additionally, the Company has pledged its
limited partnership interest in Colonial Downs, L.P. and its shares of Stansley
Racing Corp., both of which are subsidiaries of the Company, to CD
Entertainment.  This collateral package is identical to that provided to PNC for
the PNC Credit Facility with the additional deeds of trust on the Racing
Centers.

8.   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 through 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 $1,755,000, $1,604,000
and $1,821,000 for the years ended December 31, 2000, 1999 and 1998,
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 $243,200, $230,000 and $207,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.

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

                                       36
<PAGE>

                                   Broadcasting
                                   Simulcasting
                                        and
Year ended December 31,             Totalisator      Other        Total
-----------------------            ------------    --------    ----------

         2001                        $1,240,000    $185,000    $1,425,000
         2002                           689,000     179,000       868,000
         2003                                 -     155,000       155,000
         2004                                 -     112,000       112,000
         2005                                 -      57,000        57,000
                                     ----------    --------    ----------
                                     $1,929,000    $688,000    $2,617,000
                                     ==========    ========    ==========

                                       37
<PAGE>

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

8.    Commitments and Contingencies - (Continued)

      In 2000, the Company entered into an agreement to manage truckstops in
Louisiana owned by an affiliate of the Company's principal shareholder.  The
agreement may be terminated on 60 days written notice from the affiliate of the
principal shareholder.

      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
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.  In 2001, the Company was
deemed to have complied with the terms of this agreement.

     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, 2000, approximately $60,000 has been accrued related to these claims.  An
agreement was reached to settle these claims in March 2001 for not materially
more than previously accrued.

9.   Horsemen's Agreement

     Purse agreements 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 Corporation entered into a new agreement with the VHHA as of August 1,
2000 relating to standardbred racing at the Racetrack and simulcast standardbred
racing at the Corporation's satellite racing facilities.  Pursuant to the
agreement, and in compliance with a law passed during the 2000 session of the
Virginia General Assembly, the Corporation contributes five percent (5%) of the
first $75 million of simulcast Handle, six percent (6%) of the next $75 million
of simulcast Handle, and seven percent (7%) of all Handle in excess of $150
million to the purse account of the VHHA.  Simulcast standardbred Handle has not
exceeded $75 million in the four-year operation of the satellite wagering
facilities.  The agreement with the VHHA automatically renews year to year
unless notice is given prior to November 1 of a party's election not to renew
the agreement.  In accordance with the Virginia Racing Act, the Company deposits
approximately 8.5% of the Handle generated by live standardbred racing at the
Track.  Standardbred purse expense for 2000, 1999 and 1998 was approximately
$1.6 million, $.9 million and $1.6 million, respectively.

     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 considered to
be an advance of purse money due in years 2000 and 2001.  In 2000, the Company
paid 5 1/4% of the Handle generated on simulcast thoroughbred racing to the
thoroughbred purse account and will continue to do so in 2001.  In 2000, the
VaHBPA repaid $750,000 of the advance plus interest thereon back to the Company,
effectively reducing the Company's 2000 purse expense.

                                       38
<PAGE>

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

9.   Horsemen's Agreement - (Continued)

          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.  Thoroughbred purse expense for
2000, 1999 and 1998 was approximately $4.2 million, $2.6 million and $4.6
million, respectively.  Prior to 1999, the Company contributed to the
thoroughbred purse accounts a certain percentage of all thoroughbred wagers at
its Racing Centers.

10.  Stock Options

     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, 195,000 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, 2000:

                                       39
<PAGE>

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

10.  Stock Options - (Continued)

                                     Weighted
                                     Average
                                     Exercise   Available        Options
                                       Price     for Grant    Outstanding
                                     --------  -----------    -----------

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           $2.93       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           $2.28      156,200        238,800
Granted                                 1.06       (2,500)         2,500
Forfeited                               1.00        3,200         (3,200)
                                     --------  -----------    -----------
Balance at December 31, 2000           $2.29      156,900        238,100
                                     ========  ===========    ===========



<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                    208,100            6.99            $   1.11         122,300         $ 1.10
$10.45                           30,000            6.26               10.45          30,000          10.45
                              -----------     --------------     -----------      -----------     ----------
                                238,100            6.97            $   2.29         152,300         $ 2.94
</TABLE>

                                       40
<PAGE>

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

10.  Stock Options - (Continued)

     In October 1995, the Financial Accounting Standards Board ("FASB") 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
2000, 1999 and 1998 loss would have been as follows (In Thousands, Except Per
Share Data):


                                               2000       1999       1998
                                               ----       ----       ----
Net loss:
  Reported                                   $(2,869)   $(1,139)   $(5,288)
  Proforma                                    (2,871)    (1,148)    (5,299)
Basic and diluted loss per share:
  Reported                                   $ (0.39)   $ (0.16)   $ (0.73)
  Proforma                                     (0.39)     (0.16)     (0.73)

     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 70%, risk-free interest rate of 6.62%, 6.08% and 5.04%,
respectively, and expected lives of seven,-two to ten, and three 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 the years
ended December 31, 2000, 1999 and 1998 are is $.76, $1.38 and $1.47 per share,
respectively.

11.  Quarterly Financial Data (Unaudited)

     Condensed quarterly consolidated financial data, in thousands (except per
share data), is shown as follows:

<TABLE>
<CAPTION>
2000 quarterly information:
                                 1st Quarter   2nd Quarter   3rd Quarter   4th Quarter
<S>                              <C>           <C>           <C>           <C>
             Net revenue            $6,900       $ 6,975        $7,656       $ 7,671
             Gross profit            1,727         1,560         1,425           787
             Net loss                 (186)         (328)         (832)       (1,523)
             Loss per share          (0.03)        (0.05)        (0.11)        (0.20)

1999 quarterly information:
                                 1st Quarter   2nd Quarter   3rd Quarter   4th Quarter
             Net revenue            $7,024       $ 7,233        $7,781       $ 7,313
             Gross profit            2,680         1,712         1,852         2,125
             Net loss                  515        (1,031)         (647)           24
</TABLE>

                                       41
<PAGE>

<TABLE>
<S>                                   <C>          <C>           <C>          <C>
             Loss per share           0.07         (0.14)        (0.09)            -
</TABLE>

12.  Subsequent Events

     On March 1, 2001, the Company announced that its Board of Directors
received an offer from Jeffrey P. Jacobs, Chairman of the Board, Chief Executive
Officer, and the Company's largest shareholder, to acquire the Company.  Upon
receipt of the offer, the Company formed a Special Committee to evaluate the
proposal.

     Mr. Jacobs indirectly owns approximately 43.5% of the stock of the Company.
He proposed a transaction to purchase all of the remaining shares for a cash
price of $1.00 per share.  U.S. Bancorp Libra, a division of U.S. Bancorp
Investments, Inc., is acting as advisor to Mr. Jacobs.

     Jacobs proposed price per share of $1.00 was approximately four times the
closing price of the Company's registered common stock on February 27, 2001, as
stated on the NASDAQ OTC Market (which closing price was $0.24 per share).  The
final price will be based on negotiations with the Special Committee, and will
be payable in cash.  The Special Committee intends to employ independent legal
counsel and a financial advisor to assist it in analyzing the offer and
negotiating with Mr. Jacobs.

     Consummation of the transaction is subject to various conditions, including
the negotiation and execution of definitive agreements, approval by the
Company's Board of Directors and shareholders, the obtaining of various
regulatory approvals, and Mr. Jacobs' ability to obtain financing necessary for
the transaction.  If a transaction with Mr. Jacobs occurs, it is anticipated
that it would close in mid to late summer of 2001.

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

Name of Director          Age      Position with the Company
----------------          ---      -------------------------

Arnold W. Stansley         68      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.

                                       42
<PAGE>

Stephen Peskoff            58      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 was a
                                   director of the Company from March 1997 until
                                   his resignation on September 18, 2000. He was
                                   reappointed to the Board in March 2001. His
                                   term as director expires in 2002.

Patrick J. McKinley        46      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
                                   expires in 2001.

                                       43
<PAGE>

Jeffrey P. Jacobs      47    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 and 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 2003.

Robert H. Hughes       60    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 (retired).  Mr. Hughes'
                             term as a director of the Company expires in 2003.

David C. Grunenwald    47    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 expires in
                             2003.

                                       44
<PAGE>

     The executive officers, in addition to Mr. Jacobs, of the Corporation are:

Name of Officer        Age   Position with the Company
---------------        ---   -------------------------

Ian M. Stewart         46    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       61    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.

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.

                                       45
<PAGE>

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 2000.

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 2000 exceeded $100,000:

                           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>
                          2000    $120,000      (1)         (2)             (1)           (1)              (1)           (1)
Jeffrey P. Jacobs         1999     120,000      (1)         (2)             (1)           (1)              (1)           (1)
Chief Executive           1998     120,000      (1)         (2)             (1)           (1)              (1)           (1)
Officer

                          2000    $150,000      (1)         (2)             (1)           (1)              (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)
</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 1998, 1999 and 2000. The Company did not grant any Stock
     Appreciation Rights during 1998, 1999 and 2000.

                                       46
<PAGE>

Item 11.  Executive Compensation - (Continued)

                 EMPLOYEE GRANTS OF STOCK OPTIONS IN 2000

          None

                  NON-EMPLOYEE GRANTS OF STOCK OPTIONS IN 2000

Exercise of Stock Options in 2000

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                                                                   Potential Realizable
                                                                                                           Value
                                         Percentage of Total                                      at Assumed Annual Rates
                          Number of            Options                                                of Stock Price
                         Securities           Granted to           Exercise                            Appreciation
                         Underlying         Non-Employees           Prices         Expiration       Per Option Term/1/
                                                                                                    ------------------
   Recipient           Option Granted       in Fiscal Year         Per Share          Date
   ---------           --------------       --------------         ---------          ----
--------------------------------------------------------------------------------------------------------------------------
<S>                    <C>              <C>                     <C>                <C>            <C>
                                                                                                        5%            10%
--------------------------------------------------------------------------------------------------------------------------
John Mooney                      2,500                    100%            $1.06         3/10/09                     $1,550
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

/1/  In accordance with Securities and Exchange Commission rules, these columns
showed gains that might exist for the respective options, assuming that the
market price of Colonial Holdings' common stock appreciates from the date of
grant over a period of ten 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.

Other Matters

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

                                       47
<PAGE>

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, 2001, 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>              <C>
CD Entertainment Ltd. (2)
1231 Main Avenue
Cleveland, OH 44113            26,106,456(3)    2,010,000       87.0%        89.6%          87.2%             87.7%

Jeffrey P. Jacobs (4)          26,126,456       2,010,000       87.1%        89.6%          87.3%             87.8%

Arnold W. Stansley                478,879          ---           1.5%         ---            1.4%              1.1%

James M. Leadbetter
110 Arco Drive
Toledo, Ohio 43607                216,581         225,000         *          10.0%           5.11.3%           3.2%

Stephen Peskoff (5)                67,518          ---            *           ---             *                 *

Ian M. Stewart (6)                 30,000          ---            *           ---             *                 *

David C. Grunenwald (6)            13,088          ---            *           ---             *                 *

Robert H. Hughes (6)               13,088          ---            *           ---             *                 *

Patrick J. McKinley (6)            13,150          ---            *           ---             *                 *

All executive officers
and directors as a group
(8 persons) (7)                27,008,760       2,010,000       90.0%        89.6%          90.0%             89.6%
* Represents less than 1%
</TABLE>

(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
Richard E. Jacobs Revocable Trust.

(3)  Includes 24,951,456 shares of Class A Common Stock issuable upon the
conversion of an Amended and Restated Convertible Term Note and Credit Line
Convertible Note held by CD Entertainment. The percentage calculation assumes

                                       48
<PAGE>

that the issued and outstanding Class A Common Stock of the Company is
29,976,695. However, the aggregate number of shares of Class A Common Stock
which the Company currently has authority to issue is 12,000,000. The Company
will make efforts to authorize additional shares for such conversion rights.

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


(5)  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.

(6)  Includes stock options granted.

(7)  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.

Item 13.  Certain Relationships and Related Transactions

          Colonial Gifts & Sportswear.  The Corporation entered into an
agreement with Colonial Gifts & Sportswear, Inc., a Virginia corporation
("Sportswear"), in 1997 for the sale of gifts and apparel.  Pursuant to the
Agreement, the Corporation provides space at the Racetrack and Racing Centers to
Sportswear in exchange for a royalty based on Sportswear's gross sales.
Although the Corporation received less than $10,000 in 2000 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 Corporation to provide food and beverage concessions at the
Corporation's Racing Centers.  Under the agreement, the Corporation 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 owned by Mr. Jeffrey P. Jacobs, Chairman and
a director.

          CD Entertainment Ltd.  In August 2000 the Corporation entered into an
agreement with CD Entertainment Ltd. ("CD Entertainment"), an affiliate of the
Chairman and CEO of the Corporation, to refinance the $15 million in loans from
PNC Bank that came due on June 30, 2000.  The refinanced former PNC debt and the
Corporation's existing debt to related parties was consolidated into a $25.7
million credit facility with a term of five (5) years and an interest rate of
LIBOR on the date funds are drawn, plus 3%.  Under the terms of the Credit
facility, principal payments of $1 million each are due on June 30, 2002, 2003,
and 2004, with the balance due on June 30, 2005.  In addition, the Corporation
has agreed to make an additional annual principal payment commencing in 2002
contingent upon the Corporation's annual cash flow.  The Corporation's Racetrack
property and the Racing Center located in Hampton serve as collateral for the
loan.  Additionally, the Corporation has pledged its limited partnership
interest in Colonial Downs, L.P. and its shares of Stansley Racing Corp., both
of which are

Item 13.  Certain Relationships and Related Transactions - (Continued)

subsidiaries of the Corporation, to CD Entertainment.  This collateral package
is identical to that provided to PNC for the PNC Credit Facility with the
additional deeds of trust on the Racing Centers.

                                    PART IV

                                       49
<PAGE>

Item 14.  Exhibits and Reports on Form 8-K

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

             Report of Independent Auditors

             Consolidated Balance Sheets at year end 2000 and 1999

             Consolidated Statements of Operations for years 2000, 1999 and 1998

             Consolidated Statements of Changes in Stockholder's Equity for
             years 2000, 1999 and 1998

             Consolidated Statements of Cash Flows for years 2000, 1999 and 1998

             Notes to Consolidated Financial Statements

                                       50
<PAGE>

Item 14.  Exhibits and Reports on Form 8-K - (Continued)

          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)
           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)

                                       51
<PAGE>

Item 14.  Exhibits and Reports on Form 8-K - (Continued)

          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)
          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
          10.48  Assignment, dated as of August 30, 2000, between PNC Bank,
                 National Association , and CD Entertainment, Ltd.
          10.49  Amended and Restated Loan Agreement dated as of August 30, 2000
                 between Colonial Downs, L.P., the Company, and CD
                 Entertainment, Ltd.
          10.50  Amended and Restated Convertible Term Note dated as of August
                 30, 2000 between PNC Bank, National Association and Colonial
                 Downs, L.P.
          10.51  Credit Line Convertible Note dated as of August 30, 2000
                 between the Company and CD Entertainment, Ltd.
          10.52  Amendment to Second Deed of Trust dated August 30, 2000 between
                 the Company and CD Entertainment, Ltd.
          10.53  Jalou Management Agreement
          21.1   Subsidiaries of the Registrant (1)

                                       52
<PAGE>

Item 14.  Exhibits and Reports on Form 8-K - (Continued)

          24.1 Power of Attorney (1)

     (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.'s10-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.
     (10) Incorporated by reference to the Exhibits filed with Colonial Downs
          Holdings, Inc.'s 10-Q, dated May 3, 2000.
     (11) Incorporated by reference to the Exhibits filed with Colonial
          Holdings, Inc.'s 10-Q,, dated August 14, 2000.
     (12) Incorporated by reference to the Exhibits filed with Colonial
          Holdings, Inc.'s 10-Q, dated November 14, 2000.

     (b)  Reports on Form 8-K - The Company filed a Current Report on Form 8-K
                                during the three months ended December 31, 2000
                                relating to the transfer of the listing of its
                                securities from the NASDAQ Small Cap Market to
                                the NASDAQ OTC Bulletin Board. The Company filed
                                a Current Report on Form 8-K during the three
                                months ended June 30, 2000 relating to long-term
                                refinancing of its current debt maturities. The
                                Company filed Current Reports on Form 8-K during
                                the three months ended September 30, 2000
                                relating to the resignation of a member from the
                                Board of Directors and announcing a proposed
                                management contract with an affiliate of the
                                Chairman and CEO.

                                       53
<PAGE>

                                  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 HOLDINGS, INC.

                                        By: /s/      Ian M. Stewart
                                        ---------------------------
                                        Ian M. Stewart, President
                                        and Chief Financial Officer
                                        March 30, 2001

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 30, 2001                                 March 30, 2001

/s/    Arnold W. Stansley                      /s/      David C. Grunenwald
-------------------------                      ----------------------------
Arnold W. Stansley,                            David C. Grunenwald,
Director                                       Director
March 30, 2001                                 March 30, 2001

/s/    Stephen D. Peskoff                      /s/       Patrick J. McKinley
-------------------------                      -----------------------------
Stephen D. Peskoff,                            Patrick J. McKinley,
Director                                       Director
March 30, 2001                                 March 30, 2001

/s/    Ian M. Stewart
---------------------
Ian M. Stewart,
Chief Financial Officer
March 30, 2001


                                       54