10-K/A 1 d10ka.txt AMENDMENT NO. 1 TO FORM 10-K 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 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 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 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 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 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 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 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 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 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 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.

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

The accompanying notes are an integral part of the consolidated financial statements. 21 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 COLONIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands)

The accompanying notes are an integral part of the consolidated financial statements. 23 COLONIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)

The accompanying notes are an integral part of the consolidated financial statements. 24 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 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 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 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 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 2005, collateralized by substantially all assets of the Company $ 25,737,937 $ - 30 COLONIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 4. Long-Term Debt, Notes Payable-Related Parties, And Capital Leases - (Continued)

31 COLONIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 4. Long-Term Debt, Notes Payable-Related Parties, And Capital Leases - (Continued)

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 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: 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) ============================

33 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 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 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 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 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 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 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 ======== =========== ===========

40 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:

41 ~~Loss per share 0.07 (0.14) (0.09) -~~

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 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 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 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 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

(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 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

/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 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

(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 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 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 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 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 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 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

COLONIAL HOLDINGS INC 10-K/A