##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period endedFebruary 28, 2005ORo
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _________ to _________.Commission file number 0-9385
 Bull Run Corporation  Georgia
    
    58-2458679(State of incorporation
    
    (I.R.S. Employeror organization)
    
    Identification No.)
 4370 Peachtree Road, N.E., Atlanta, GA
    
    30319(Address of principal executive offices)
    
    (Zip Code)
 (404) 266-8333
(Registrants telephone number, including area code) 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.þ Yes o No Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: 6,889,767 shares of Common Stock, par value $.01 per share, were
outstanding as of March 31, 2005. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act).o Yes þ No




---



TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersItem 6. ExhibitsSIGNATURESEX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements BULL RUN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands) February 28,
    
    
    August 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    480
    
    
    $
    450Accounts receivable, net of allowance of $345 and $309 as of
February 28, 2005 and August 31, 2004, respectively
    
    
    13,699
    
    
    
    5,219Inventories
    
    
    898
    
    
    
    663Prepaid costs and expenses
    
    
    1,802
    
    
    
    1,757Total current assets
    
    
    16,879
    
    
    
    8,089Property and equipment, net
    
    
    2,937
    
    
    
    3,184Goodwill
    
    
    40,364
    
    
    
    40,364Customer relationships and trademarks
    
    
    7,949
    
    
    
    8,308Other assets
    
    
    1,324
    
    
    
    997$
    69,453
    
    
    $
    60,942LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Current portion of long-term debt (including $4,519 payable to related
parties as of February 28, 2005 and none as of August 31, 2004)
    
    $
    69,125
    
    
    $
    590Accounts payable
    
    
    4,325
    
    
    
    5,866Deferred revenue
    
    
    3,940
    
    
    
    4,819Accrued fees payable to related party
    
    
    1,354
    
    
    
    1,721Advances from stockholder
    
    
    6,050
    
    
    
    4,550Accrued and other liabilities
    
    
    14,905
    
    
    
    9,215Net current liabilities of discontinued segment
    
    
    810
    
    
    
    474Total current liabilities
    
    
    100,509
    
    
    
    27,235Long-term debt (including $3,019 payable to related parties)
    
    
    
    
    
    
    64,625Other liabilities, excluding redeemable preferred stock
    
    
    198
    
    
    
    497Net noncurrent liabilities of discontinued segments
    
    
    554
    
    
    
    840Redeemable preferred stock:Series D preferred stock, $.01 par value (authorized 100 shares;
issued and outstanding 12.5 shares; $12,497 liquidation value)
    
    
    12,497
    
    
    
    12,497Series E preferred stock, $.01 par value (authorized 25 shares;
issued and outstanding 7.6 shares as of February 28, 2005
and 9.8 shares as of August 31, 2004; $7,606 and $9,799
liquidation value, respectively)
    
    
    7,606
    
    
    
    9,799Series F preferred stock, $.01 par value (authorized 25 shares;
issued and outstanding 2.0 shares; $2,000 liquidation value)
    
    
    2,000
    
    
    
    2,000Total liabilities
    
    
    123,364
    
    
    
    117,493Commitments and contingenciesStockholders deficit:Common stock, $.01 par value (authorized 100,000 shares;
issued 6,887 and 5,386 shares as of February 28, 2005
and August 31, 2004, respectively)
    
    
    69
    
    
    
    54Additional paid-in capital
    
    
    84,450
    
    
    
    81,706Accumulated deficit
    
    
    (138,430
    )
    
    
    (138,311
    )Total stockholders deficit
    
    
    (53,911
    )
    
    
    (56,551
    )$
    69,453
    
    
    $
    60,942
 The accompanying notes are an integral part of these condensed consolidated financial statements. 2




---



##### Table of Contents



BULL RUN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in thousands, except per share data) Three Months Ended
    
    
    Six Months EndedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue from services rendered
    
    $
    18,034
    
    
    $
    16,343
    
    
    $
    41,109
    
    
    $
    35,838Operating costs and expenses:Direct operating costs of services rendered
    
    
    13,020
    
    
    
    10,645
    
    
    
    28,796
    
    
    
    23,603Selling, general and administrative
    
    
    4,283
    
    
    
    4,451
    
    
    
    8,626
    
    
    
    8,859Amortization of acquisition intangibles
    
    
    180
    
    
    
    314
    
    
    
    359
    
    
    
    627Total operating costs and expenses
    
    
    17,483
    
    
    
    15,410
    
    
    
    37,781
    
    
    
    33,089Operating income
    
    
    551
    
    
    
    933
    
    
    
    3,328
    
    
    
    2,749Other income (expense):Net change in value of derivative instrument
    
    
    102
    
    
    
    241
    
    
    
    412
    
    
    
    547Interest expense, related parties
    
    
    (83
    )
    
    
    (10
    )
    
    
    (162
    )
    
    
    (10
    )Interest expense, other
    
    
    (1,005
    )
    
    
    (1,098
    )
    
    
    (2,097
    )
    
    
    (2,184
    )Debt issue cost amortization, related parties
    
    
    (240
    )
    
    
    (217
    )
    
    
    (436
    )
    
    
    (435
    )Debt issue cost amortization, other
    
    
    (111
    )
    
    
    (76
    )
    
    
    (164
    )
    
    
    (149
    )Other income (expense)
    
    
    (3
    )
    
    
    (17
    )
    
    
    9
    
    
    
    (11
    )Income (loss) from continuing operations
    
    
    (789
    )
    
    
    (244
    )
    
    
    890
    
    
    
    507Income (loss) from discontinued operations
    
    
    132
    
    
    
    (1,446
    )
    
    
    23
    
    
    
    (3,319
    )Net income (loss)
    
    
    (657
    )
    
    
    (1,690
    )
    
    
    913
    
    
    
    (2,812
    )Preferred dividends
    
    
    (503
    )
    
    
    (558
    )
    
    
    (1,032
    )
    
    
    (1,090
    )Net loss available to common stockholders
    
    $
    (1,160
    )
    
    $
    (2,248
    )
    
    $
    (119
    )
    
    $
    (3,902
    )Earnings (loss) per share available to common stockholders,
basic:Continuing operations
    
    $
    (0.20
    )
    
    $
    (0.18
    )
    
    $
    (0.02
    )
    
    $
    (0.13
    )Discontinued operations
    
    
    0.02
    
    
    
    (0.32
    )
    
    
    0.00
    
    
    
    (0.75
    )$
    (0.18
    )
    
    $
    (0.50
    )
    
    $
    (0.02
    )
    
    $
    (0.88
    )Earnings (loss) per share available to common stockholders,
diluted:Continuing operations
    
    $
    (0.20
    )
    
    $
    (0.18
    )
    
    $
    (0.02
    )
    
    $
    (0.13
    )Discontinued operations
    
    
    0.02
    
    
    
    (0.32
    )
    
    
    0.00
    
    
    
    (0.75
    )$
    (0.18
    )
    
    $
    (0.50
    )
    
    $
    (0.02
    )
    
    $
    (0.88
    )Weighted average number of common shares outstanding:Basic
    
    
    6,529
    
    
    
    4,500
    
    
    
    6,121
    
    
    
    4,420Diluted
    
    
    6,529
    
    
    
    4,500
    
    
    
    6,121
    
    
    
    4,420
 The accompanying notes are an integral part of these condensed consolidated financial statements. 3




---



##### Table of Contents



BULL RUN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS DEFICIT (Unaudited)
(Amounts in thousands) RedeemablePreferred
    
    
    Common StockStock
    
    
    Shares
    
    
    AmountAs of September 1, 2004
    
    $
    24,296
    
    
    
    5,386
    
    
    $
    54Conversion of redeemable preferred stock
to shares of common stock
    
    
    (2,193
    )
    
    
    313
    
    
    
    3Issuance of common stock
    
    
    
    
    
    
    1,188
    
    
    
    12As of February 28, 2005
    
    $
    22,103
    
    
    
    6,887
    
    
    $
    69
 Additional
    
    
    
    
    
    
    TotalPaid-In
    
    
    Accumulated
    
    
    StockholdersCapital
    
    
    Deficit
    
    
    DeficitAs of September 1, 2004
    
    $
    81,706
    
    
    $
    (138,311
    )
    
    $
    (56,551
    )Conversion of redeemable preferred stock
to shares of common stock
    
    
    2,190
    
    
    
    
    
    
    
    2,193Issuance of common stock
    
    
    554
    
    
    
    
    
    
    
    566Preferred dividends
    
    
    
    
    
    
    (1,032
    )
    
    
    (1,032
    )Net income
    
    
    
    
    
    
    913
    
    
    
    913As of February 28, 2005
    
    $
    84,450
    
    
    $
    (138,430
    )
    
    $
    (53,911
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements. 4




---



##### Table of Contents



BULL RUN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands) Six Months EndedFebruary 28,
    
    
    February 29,2005
    
    
    2004Cash flows from operating activities:Net income (loss)
    
    $
    913
    
    
    $
    (2,812
    )Loss (income) from discontinued operations
    
    
    (23
    )
    
    
    3,319Adjustments to reconcile net income (loss) to net cash
used in continuing operations:Provision for bad debts
    
    
    77
    
    
    
    (63
    )Depreciation and amortization
    
    
    1,260
    
    
    
    1,736Net change in value of derivative instrument
    
    
    (412
    )
    
    
    (547
    )Change in operating assets and liabilities:Accounts receivable
    
    
    (8,556
    )
    
    
    (4,082
    )Inventories
    
    
    (235
    )
    
    
    (316
    )Prepaid costs and expenses
    
    
    29
    
    
    
    310Accounts payable and other current liabilities
    
    
    2,126
    
    
    
    (655
    )Other long-term liabilities
    
    
    113
    
    
    
    (20
    )Net cash used in continuing operations
    
    
    (4,708
    )
    
    
    (3,130
    )Net cash used in discontinued operations
    
    
    (976
    )
    
    
    (4,753
    )Net cash used in operating activities
    
    
    (5,684
    )
    
    
    (7,883
    )Cash flows from investing activities:Capital expenditures
    
    
    (45
    )
    
    
    (188
    )Other investing activities
    
    
    9
    
    
    
    (58
    )Net cash used in continuing operation investing activities
    
    
    (36
    )
    
    
    (246
    )Net cash provided by (used in) discontinued operation
investing activities
    
    
    1,039
    
    
    
    (15
    )Net cash provided by (used in) investing activities
    
    
    1,003
    
    
    
    (261
    )Cash flows from financing activities:Borrowings from revolving line of credit
    
    
    3,000Borrowings on note issued by related party
    
    
    1,500Cash advances made by stockholder
    
    
    1,500
    
    
    
    1,800Repayments on long-term debt
    
    
    (590
    )Debt issue costs
    
    
    (445
    )
    
    
    (41
    )Preferred stock dividends paid
    
    
    (254
    )Issuance of preferred stock
    
    
    
    
    
    
    2,000Net cash provided by continuing operation financing activities
    
    
    4,711
    
    
    
    3,759Net increase (decrease) in cash and cash equivalents
    
    
    30
    
    
    
    (4,385
    )Cash and cash equivalents, beginning of period
    
    
    450
    
    
    
    4,520Cash and cash equivalents, end of period
    
    $
    480
    
    
    $
    135
 The accompanying notes are an integral part of these condensed consolidated financial statements. 5




---



##### Table of Contents



BULL RUN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Bull Run Corporation
(Bull Run or the Company) have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting solely of normal, recurring adjustments) considered
necessary for a fair presentation of the Companys financial position and results of operations
have been included. Operating results for the three-month and six-month period ended February 28,
2005 are not necessarily indicative of the results that may be expected for the fiscal year ending
August 31, 2005. For further information, refer to the consolidated financial statements and
footnotes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended
August 31, 2004. The accompanying condensed consolidated financial statements include the accounts of Bull Run and
its wholly owned subsidiaries, including Host Communications, Inc. (Host), after elimination of
intercompany accounts and transactions. Bull Run, through Host, provides comprehensive sales,
marketing, multimedia, special event and convention/hospitality services, primarily for National
Collegiate Athletic Association (NCAA) Division I universities and conferences, and
national/global associations. Discontinued OperationsIn August 2004, the Company announced its intent to suspend and sell its
Affinity Events business segment due to the segments historical operating losses and the
Companys intention to focus on its Collegiate Marketing and Production Services segment and its
Association Management Services segment. As a result, the Affinity Events segment has been
reflected in the Companys financial statements as a discontinued operation for all periods
presented. In December 2004, the principal assets of the Affinity Events segment were sold.
Proceeds on the sale received at closing of $870 were used to reduce current liabilities, $295 of
which pertained to the cancellation of the remaining principal amount on subordinated debt
previously issued by the Company to an officer of the company purchasing the assets. In addition,
the Company received a $675 subordinated installment note issued by the purchaser and other future
consideration estimated to be valued at approximately $150. At this time, the Company has judged
that the collection of the note is in doubt, due to its subordinate nature and the amount of time
before which scheduled payments are to be made. As a result, the Companys loss on its
discontinued operations reported in the fiscal year ended August 31, 2004 was presented net of the
$870 proceeds then anticipated on, and ultimately received at the closing of, the sale of the
Affinity Events assets. If the Company ultimately receives more than $870 on the sale, such income
will be reported in the future as income from discontinued operations. Unless otherwise indicated, amounts provided in these notes to the condensed consolidated financial
statements pertain to continuing operations. Stock-Based Compensation The Company follows the provisions of Statement of Financial Accounting
Standards No. 123 Accounting for Stock-Based Compensation (SFAS 123). SFAS 123 allows
companies to either expense the estimated fair value of stock options or continue to follow the
intrinsic value method set forth in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25), but disclose the pro forma effects on net income (loss) had
the fair value of the options been expensed. The Company has elected to continue to apply APB 25
in accounting for its stock option incentive plans. In December 2004, the Financial Accounting
Standards Board issued a revision to SFAS 123 entitled Share-Based Payment (SFAS 123(R)). SFAS
123(R) will require the Company to measure the cost of employee services received in exchange for
certain awards of equity instruments, including stock options, based on the grant-date fair value
of the award over the requisite service period (usually the vesting period). SFAS 123(R) is
effective for the first interim period beginning after June 15, 2005. The Company intends to adopt
SFAS 123(R) prospectively as of its effective date, and therefore the Company does not anticipate
that the adoption of SFAS 123(R) will have any affect on the Companys financial statements in
connection with any currently outstanding stock options, since all such stock options are currently
vested in full. However, stock options or other awards of equity instruments issued after August
31, 2005 in exchange for employee services will likely result in additional operating expense over
the vesting period. 6




---



##### Table of Contents



For purposes of the following pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options vesting period: Three Months Ended
    
    
    Six Months EndedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss available to common stockholders, as reported
    
    $
    (1,160
    )
    
    $
    (2,248
    )
    
    $
    (119
    )
    
    $
    (3,902
    )Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related effects
    
    
    (1
    )
    
    
    (92
    )
    
    
    (2
    )
    
    
    (184
    )Net loss available to common stockholders, pro forma,
for computation of basic earnings (loss) per share
    
    $
    (1,161
    )
    
    $
    (2,340
    )
    
    $
    (121
    )
    
    $
    (4,086
    )Earnings (loss) per common share, basic:As reported
    
    $
    (0.18
    )
    
    $
    (0.50
    )
    
    $
    (0.02
    )
    
    $
    (0.88
    )Pro forma
    
    $
    (0.18
    )
    
    $
    (0.52
    )
    
    $
    (0.02
    )
    
    $
    (0.92
    )Net loss available to common stockholders, as reported
    
    $
    (1,160
    )
    
    $
    (2,248
    )
    
    $
    (119
    )
    
    $
    (3,902
    )Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    (1
    )
    
    
    (92
    )
    
    
    (2
    )
    
    
    (184
    )Net income (loss) available to common stockholders,
pro forma, for computation of diluted income (loss)
per share
    
    $
    (1,161
    )
    
    $
    (2,340
    )
    
    $
    (121
    )
    
    $
    (4,086
    )Earnings (loss) per common share, diluted:As reported
    
    $
    (0.18
    )
    
    $
    (0.50
    )
    
    $
    (0.02
    )
    
    $
    (0.88
    )Pro forma
    
    $
    (0.18
    )
    
    $
    (0.52
    )
    
    $
    (0.02
    )
    
    $
    (0.92
    )
 2. LIQUIDITY As of February 28, 2005, the Companys negative working capital was $83,630, including $58,932 of
bank debt maturing on November 30, 2005, $8,693 of subordinated debt maturing on January 17, 2006
(of which, $3,019 is payable to the Companys Chairman) and $1,500 of subordinated debt (payable to
a company affiliated with the Companys Chairman) maturing on February 28, 2006. Certain current
liabilities, including deferred revenue of $3,940, advances from stockholder of $6,050 and certain
accrued preferred stock dividends of $2,836, do not represent cash obligations or do not represent
liabilities expected to be paid in cash prior to the November 30, 2005 maturity date of the bank
credit facility. In prior fiscal years, the Company reported substantial losses and consumed
substantial cash in its operations. The Company has previously funded its liquidity needs through
the sale of investments, the issuance of preferred stock and other cash advances made by the
Companys majority stockholder and Chairman of the board, and the issuance of subordinated debt to
the Chairman and companies affiliated with the Chairman. During the six months ended February 28,
2005, a company affiliated with the Companys Chairman provided cash of $1,500 used for working
capital purposes in connection with the Companys issuance of the previously-discussed $1,500
subordinated note. The Companys Chairman has committed to fund the necessary cash to ultimately
repay this note, and in addition, the Chairman provided an additional $1,500 cash advance to the
Company during the current fiscal year, the proceeds from which were used for working capital
purposes. Based upon the Companys forecasted operating cash flows and capital expenditures for
the remainder of its fiscal year ending August 31, 2005, management believes the Company has
sufficient liquidity until the November 30, 2005 maturity date of its bank credit agreement. As further discussed in Note 6, the Company currently has $58,932 of debt outstanding under its
bank credit agreement. As further discussed in Note 6, the Companys Chairman has guaranteed
repayment of up to $55,932 of the outstanding bank debt. Amounts outstanding under the credit
agreement are due on November 30, 2005. The Companys ability to continue this or similar
financing beyond the November 30, 2005 maturity date is significantly dependent on the continued
support of the Companys Chairman and, in part, on the Companys future operating results. There
can be no assurances with respect to either the Companys future operating results or the continued
support of its Chairman. 7




---



##### Table of Contents



3. DISCONTINUED OPERATIONS The Company discontinued its Affinity Events business segment during the fiscal year ended August
31, 2004. In August 2004, the Company announced its decision to suspend the Affinity Events
business, and declared its intent to offer the business unit for sale, and ultimately sold the
principal assets of the segment in December 2004. Accordingly, the operating results and net
assets associated with the Consulting and the Affinity Events business segments as of and for all
fiscal periods presented herein have been reflected as discontinued operations in the accompanying
consolidated financial statements. As a result of the suspension of its Affinity Events business, the Company incurred certain costs
charged to discontinued operations in the fiscal year ended August 31, 2004, including (a) employee
severance costs; (b) the present value of future lease obligations, net of estimated sublease
income, to be incurred through 2010; and (c) the present value of consulting agreement commitments
through 2010 for arrangements under which no future benefits are expected to be derived; less (d)
the estimated proceeds to be derived from the sale of Affinity Events assets. A reconciliation of the accrued liability associated with the suspension and sale of the Affinity
Events segment is as follows: Accrued liability as of August 31, 2004
    
    $
    2,625Proceeds on sale of Events assets
    
    
    870Costs incurred during the period
    
    
    (828
    )Accrued liability as of February 28, 2005
    
    $
    2,667
 Potential income subsequent to February 28, 2005 to be derived from subleasing vacated office space
has been estimated to be approximately $950 over the remaining lives of the leases. The estimated
proceeds to be derived from the sale of Affinity Events assets do not include amounts payable to

the Company in the future which are anticipated to be subordinated to the purchasers bank
financing. Actual amounts received in connection with deferred proceeds on the sale and any other
unanticipated income or expenses, including income from the future subleases of vacated office
space, could differ materially from amounts assumed in arriving at the loss on termination of the
business. To the extent actual proceeds or other amounts differ from the estimates that are
reflected as of February 28, 2005, or as managements estimates are revised, the variance will be
reported in discontinued operations in future periods. Likewise, the results of any remaining
Events operations occurring subsequent to February 28, 2005 will be reported in discontinued
operations in future periods. Proceeds of $870 derived from the sale of the Affinity Events assets
at closing in December 2004 were used to repay a subordinated note totaling $295 and certain
liabilities associated with the prior operations of the business. The Company consummated the sale of Datasouths computer printer manufacturing operation on
September 29, 2000. Certain of the proceeds to be realized on the sale of Datasouths assets are
deferred under a subordinated note agreement with the purchaser that was amended during the fiscal
year ended August 31, 2004. The amended note agreement provides for gradually reducing discounts
on the amount due to the Company which are earned by the purchaser as payments are made through the
notes maturity in December 2006. As of February 28, 2005, the amount due to the Company was
$2,217; however the Company has recorded a $1,122 reserve on the note receivable as of February 28,
2005 as an estimate of the amounts that might ultimately become uncollectible and/or discounted.
To the extent actual proceeds on the note differ from managements current estimate of the proceeds
to be ultimately received, such differences will be reported as discontinued operations in future
periods. There are no material contingent liabilities related to discontinued operations, such as product or
environmental liabilities or litigation, which remain with the Company after the termination and/or
disposal of its discontinued operations. Assets and liabilities of the discontinued operations have been reflected in the consolidated
balance sheets as current or noncurrent based on the original classification of the accounts,
except that current liabilities are presented net of current assets and noncurrent liabilities are
presented net of noncurrent assets. 8




---



##### Table of Contents



The following is a summary of assets and liabilities of discontinued operations: February 28,
    
    
    August 31,2005
    
    
    2004Current liabilities:Accounts payable and accrued expenses
    
    $
    125
    
    
    $
    1,429Restructuring obligations
    
    
    1,020
    
    
    
    513Deferred revenue
    
    
    20
    
    
    
    831Current assets:Accounts receivable, net
    
    
    (348
    )
    
    
    (2,163
    )Inventories
    
    
    
    
    
    
    (6
    )Prepaid costs and expenses
    
    
    (7
    )
    
    
    (130
    )Net current liabilities of discontinued segment
    
    $
    810
    
    
    $
    474Noncurrent liabilities:Restructuring obligations
    
    $
    1,647
    
    
    $
    2,112Other liabilities
    
    
    4Noncurrent assets:Note receivable, net
    
    
    (1,095
    )
    
    
    (1,245
    )Property and equipment, net
    
    
    (2
    )
    
    
    (12
    )Other assets
    
    
    
    
    
    
    (15
    )Net noncurrent liabilities of discontinued segments
    
    $
    554
    
    
    $
    840
 The following summarizes revenues and operating results from discontinued operations: Three Months Ended
    
    
    Six Months EndedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,2005
    
    
    2004
    
    
    2005

    
    
    2004Revenues, Affinity Events
    
    $
    363
    
    
    $
    578
    
    
    $
    655
    
    
    $
    2,717Costs and expenses, Affinity Events:Direct operating costs of services rendered
    
    $
    124
    
    
    $
    422
    
    
    $
    409
    
    
    $
    2,855Selling, general and administrative
    
    
    107
    
    
    
    1,602
    
    
    
    223
    
    
    
    3,181$
    231
    
    
    $
    2,024
    
    
    $
    632
    
    
    $
    6,036Income (loss) from discontinued operations,
Affinity Events
    
    $
    132
    
    
    $
    (1,446
    )
    
    $
    23
    
    
    $
    (3,319
    )
 4. SUPPLEMENTAL CASH FLOW DISCLOSURES Supplemental cash flow information follows: Six Months EndedFebruary 28,
    
    
    February 29,2005
    
    
    2004Interest paid
    
    $
    2,524
    
    
    $
    2,320Income taxes paid
    
    
    
    
    
    
    27Noncash investing and financing activities:Exchange of subordinated debt for shares
of preferred stock
    
    
    
    
    
    
    8,016Issuance of common stock in payment of
preferred stock dividends
    
    
    
    
    
    
    503Issuance of common stock in connection
with debt issuance costs
    
    
    499
    
    
    
    479Issuance of common stock to a retirement
plan and as a component of directors fees
    
    
    67
    
    
    
    150Conversion of Series E preferred stock to
shares of common stock
    
    
    2,193
 9




---



##### Table of Contents



5. GOODWILL AND OTHER ACQUISITION INTANGIBLE ASSETS As of February 28, 2005 and February 29, 2004, the carrying amount of goodwill associated with the
Collegiate Marketing and Production Services business segment was $33,889 and $37,189,
respectively. As of each of February 28, 2005 and February 29, 2004, the carrying amount of
goodwill associated with the Association Management Services business segment was $6,475. The net change in the carrying amount of customer relationships and trademarks by reportable
business segment is as follows: CollegiateMarketing and
    
    
    AssociationProduction
    
    
    ManagementServices
    
    
    Services
    
    
    TotalAs of September 1, 2003
    
    $
    7,306
    
    
    $
    2,256
    
    
    $
    9,562Amortization
    
    
    (556
    )
    
    
    (71
    )
    
    
    (627
    )As of February 29, 2004
    
    $
    6,750
    
    
    $
    2,185
    
    
    $
    8,935As of September 1, 2004
    
    $
    6,193
    
    
    $
    2,115
    
    
    $
    8,308Amortization
    
    
    (288
    )
    
    
    (71
    )
    
    
    (359
    )As of February 28, 2005
    
    $
    5,905
    
    
    $
    2,044
    
    
    $
    7,949
 As of February 28, 2005, customer relationships constitute $6,244 and trademarks represent $1,705
of the $7,949 carrying amount presented above, and as of August 31, 2004, customer relationships
constitute $6,525 and trademarks represent $1,783 of the $8,308 carrying amount. A goodwill impairment charge of $3,300 was recognized during the fiscal year ended August 31, 2004,
upon managements consideration of current fiscal year operating results and the forecasted
operating results and business plans for one of the Companys business units. The Company
currently estimates that annual amortization expense of customer relationships and trademarks for
the fiscal year ending August 31, 2005 will total approximately $718 per year until fully amortized
in December 2015. Accumulated amortization of acquisition intangibles and impairment charges was $39,740 as of
February 28, 2005 and $39,381 as of August 31, 2004, including $29,689 associated with goodwill as
of each of the respective dates. 6. LONG-TERM DEBT Long-term debt and notes payable consist of the following: February 28,
    
    
    August 31,2005
    
    
    2004Term Loans
    
    $
    35,932
    
    
    $
    35,932Revolving Loans
    
    
    23,000
    
    
    
    20,000Subordinated Notes
    
    
    10,193
    
    
    
    9,28369,125
    
    
    
    65,215Less current portion
    
    
    69,125
    
    
    
    590$
    0
    
    
    $
    64,625
 As amended in October 2004, the Companys bank credit agreement provides for (a) two term loans
(the Term Loans) for borrowings totaling $35,932 and (b) two revolving loan commitments (the
Revolving Loans) for aggregate maximum borrowings of $23,000. All amounts outstanding bear
interest at either (a) the banks prime rate or (b) the London Interbank Offered Rate (LIBOR)
plus 2.75%, payable monthly. Under the October 2004 amendment, the Company was provided a new
$3,000 revolving loan commitment (the Revolver B included as a component of the Revolving Loans),
which was funded in full in October 2004, thereby increasing the bank indebtedness to $58,932. As
amended, the agreement has a maturity date of November 30, 2005, at which time all amounts
outstanding become due and payable. The amended agreement does not require any payments of
principal prior to maturity, nor does it 10




---



##### Table of Contents



provide for any additional borrowing capacity beyond the Revolver B. The Company anticipates that it will continue to utilize fully the availability under
the Revolving Loans throughout the remaining term of the credit agreement. In September 2004, a company under the Chairmans control provided the Company $1,500 of cash,
which was used for working capital purposes, in exchange for a subordinated note bearing interest
at 6% per annum, having a maturity date of December 31, 2004. This note was refinanced by another
company under the Chairmans control, by substituting a subordinated note bearing interest at 6%
per annum, having a maturity date of February 28, 2006. Under the terms of the amended credit
agreement, up to an aggregate of $10,000 in funding for working capital purposes, if necessary, may
be sourced from the issuance of equity securities, including shares of the Companys preferred
stock, or by the issuance of subordinated debt. Of this amount, $1,500 was received from the
Companys Chairman in January 2005 and used for working capital purposes. During the fiscal year
ended August 31, 2004, the Company received $6,550 from the Companys Chairman, of which $2,000 was
invested in newly-issued shares of the Companys preferred stock. The remaining investment of
$4,550, plus the $1,500 received in January 2005, is presented in the consolidated balance sheet as
Advances from stockholder. Management believes that it is the Chairmans intention to ultimately
convert these advances to subordinated debt or equity securities. In connection with the credit
agreement amendment, the Chairman committed to the Company an additional aggregate cash investment
of up to $3,000 as and when needed at any time and from time to time on or prior to the maturity
date, provided that up to $1,500 of such cash investments would be used to repay the $1,500
subordinated note issued by his affiliated company. The cash investment made in January 2005 was
made to fulfill the remaining $1,500 commitment. The bank credit agreement, as amended, contains certain financial covenants, including the
maintenance of minimum interest coverage ratios determined quarterly. The Company is presently in
compliance with all provisions of the credit agreement as last amended. Long-term debt is
collateralized by all of the Companys assets. In addition, the Companys Chairman personally
guarantees up to $55,932 of the debt outstanding under the bank credit agreement, and if the
Company is unable to meet payment obligations under the agreement, it is likely that the bank
lenders would call the guarantee, thereby requiring the Chairman to repay the amount of the loan to
the banks. The Chairmans guarantee is collateralized by certain personal holdings of marketable
securities pledged to the Companys bank lenders. Under the terms of his guarantee, the Chairman
has the option to purchase the entire loan from the banks, and thereby becoming the holder of the
debt currently payable to the banks and the related lien on the Companys assets. The Chairman is
compensated by the Company for his guarantee in the form of newly issued shares of the Companys
common stock, valued at an annual rate of 1.625% of the guarantee amount. The guarantee amount
will reduce in the future if principal payments are made to the bank lenders on the outstanding
term loans, and may increase if additional bank financing is made available to the Company. During
the six months ended February 28, 2005, the Chairman was compensated by the Company for his
personal guarantee in the form of 1,018 restricted shares of the Companys common stock then valued
at $473. During the six months ended February 29, 2004, the Chairman was provided such
compensation in the form of 151 restricted shares of the Companys common stock then valued at
$479. In December 1999, the Company issued 8% subordinated notes in connection with the acquisition of
Host, representing long-term debt of $8,693 as of February 28, 2005 and August 31, 2004. During the
six months ended February 29, 2004, holders of 8% subordinated notes representing an aggregate face
value of approximately $8,016 exchanged their notes for shares of Series E Preferred Stock.
Interest is payable quarterly in cash on all but a $3,019 subordinated note payable to the
Companys Chairman, on which interest is payable at maturity in the form of cash or shares of the
Companys common stock, at the Companys option. The notes all have a maturity date of January 17,
2006. In connection with the acquisition of certain business operations, the Company also issued
two 9% subordinated notes in September 2000, representing long-term debt of $590 as of August 31,
2004. One note for $295 was cancelled in connection with the Companys sale of its Affinity Events
segment assets (discussed in Notes 1 and 3) and the outstanding balance of $295 on the other note
was repaid during the six months ended February 28, 2005.Payment of interest and principal on all
subordinated notes is subordinate to the Companys bank credit agreement. As of February 28, 2005, principally all borrowings under the bank credit agreement were subject to
the banks LIBOR rate-based rate of 5.42%. All of the Companys long-term debt currently matures
in the fiscal year ending August 31, 2006. The Company was a party to an interest rate swap agreement that terminated on December 31, 2004,
which involved the exchange of interest at a fixed rate of 6.71% for interest at a variable rate,
determined quarterly, equal to the 90-day LIBOR rate, without an exchange of the $25,000 notional
amount upon which the payments were based. The differential paid or received as interest rates
changed was settled quarterly and was accrued and recognized as an adjustment of interest expense
related to the debt. 11




---



##### Table of Contents



7. INCOME TAXES The Company has recognized a full valuation allowance for net deferred tax assets. The differences
between the federal statutory tax rate of 34% and the effective tax rate of zero are principally
due to increases (decreases) in the valuation allowance for potentially non-realizable deferred tax
assets of $190 and $(455) for the three months and six months ended February 28, 2005,
respectively, and $577 and $929 for the three months and six months ended February 29, 2004,
respectively. 8. PREFERRED STOCK As of February 28, 2005, 12.497 shares of the Companys series D convertible preferred stock
(Series D Preferred Stock) were outstanding, having an aggregate face value of $12,497, all of
which are currently convertible at the holders option into an aggregate 1,250 shares of the
Companys common stock. Each holder of the Series D Preferred Stock is entitled to receive
dividends at an annual rate of $90.00 per share in cash or in shares of the Companys common stock
at the holders option, except that, until the second anniversary of the date of issuance, the
Company has the option to pay such dividends in cash or in shares of the Companys common stock.
The liquidation and redemption price of the Series D Preferred Stock is $1,000 per share, and
dividends are cumulative. The Company has the option to redeem the Series D Preferred Stock at any
time. As of February 28, 2005, all shares of Series D Preferred Stock were held by either the
Companys Chairman or companies affiliated with the Companys Chairman. As of February 28, 2005, 7.606 shares of the Companys series E convertible preferred stock
(Series E Preferred Stock) were outstanding, having an aggregate face value of $7,606. Each
share of the Series E Preferred Stock is convertible at the holders option into 0.14286 shares of
the Companys common stock beginning one year following the date of issuance of the Series E
Preferred Stock (initially, October 2004). Each holder of the Series E Preferred Stock is entitled
to receive dividends at an annual rate of $90.00 per share in cash or in shares of the Companys
common stock at the holders option, except that, no dividend is payable prior to June 30, 2005, or
upon conversion to common stock, if earlier. The liquidation and redemption price of the Series E
Preferred Stock is $1,000 per share. The Company has the option to redeem the Series E Preferred
Stock at any time. During the six months ended February 28, 2005, certain holders of Series E
Preferred Stock, including a former director of the Company and his spouse, elected to convert an
aggregate 2.193 shares of Series E Preferred Stock to an aggregate 313 shares of the Companys
common stock, in accordance with terms of the Series E Preferred Stock. During the six months
ended February 29, 2004, subordinated note holders elected to exchange an aggregate $8,016 of
subordinated debt for an aggregate 8.016 shares of Series E Preferred Stock, including subordinated
notes having an aggregate face amount of $5,257 acquired by the Companys Chairman immediately
prior to the exchange. Also during the six months ended February 29, 2004, 1.783 shares of Series
D Preferred Stock issued to the former director and his spouse were exchanged for the same number
of shares of Series E Preferred Stock. As of February 28, 2005, an aggregate total of 5,411.163
shares of Series E Preferred Stock (representing an aggregate face value of $5,411), were held by
the Companys Chairman, companies affiliated with the Companys Chairman, or other members of the
Companys board or directors. As of February 28, 2005, 2.0 shares of the Companys series F convertible preferred stock (Series
F Preferred Stock) were outstanding, having an aggregate face value of $2,000, all of which were
issued to the Companys Chairman in the six months ended February 29, 2004. Each share of the
Series F Preferred Stock is convertible at the holders option into 0.78125 shares of the Companys
common stock beginning in November 2006. The holder of Series F Preferred Stock is entitled to
receive dividends at an annual rate of $90.00 per share in cash or in shares of the Companys
common stock at the holders option, except that, until the second anniversary of the date of
issuance, the Company has the option to pay such dividends in cash or in shares of the Companys
common stock. The liquidation and redemption price of the Series F Preferred Stock is $1,000 per
share. The Company has the option to redeem the Series F Preferred Stock at any time. All shares of preferred stock issued by the Company are redeemable by the Company at solely the
Companys option. Since the Chairmans beneficial ownership of the Companys common stock is more
than 50%, all issued and outstanding preferred stock is required to be classified as liabilities in
the consolidated balance sheet in accordance with Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards No. 150 Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity issued in May 2003. As of February 28, 2005,
89.4% of the aggregate carrying amount of all preferred stock was held by the Chairman or one of
his affiliates. Management does not believe that any of the preferred stock issued to the Chairman
or his affiliates or any other party will be redeemed in the foreseeable future. All shares of preferred stock rank, as to payment of dividends and as to distribution of assets
upon liquidation or dissolution of the Company, on a parity with all other currently issued
preferred stock and any preferred stock issued by the Company in the future, and senior to the

Companys currently issued common stock and common stock issued in the future. 12




---



##### Table of Contents



9. EARNINGS (LOSS) PER SHARE The following table sets forth the computation of basic and diluted earnings (loss) per share: Three Months Ended
    
    
    Six Months EndedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,2005
    
    
    2004
    
    
    2005
    
    
    2004Income (loss) for computation of basic earnings (loss) per share:Income (loss) from continuing operations
    
    $
    (789
    )
    
    $
    (244
    )
    
    $
    890
    
    
    $
    507Preferred dividends
    
    
    (503
    )
    
    
    (558
    )
    
    
    (1,032
    )
    
    
    (1,090
    )Loss from continuing operations available to common stockholders
    
    
    (1,292
    )
    
    
    (802
    )
    
    
    (142
    )
    
    
    (583
    )Income (loss) from discontinued operations
    
    
    132
    
    
    
    (1,446
    )
    
    
    23
    
    
    
    (3,319
    )Net loss available to common stockholders
    
    $
    (1,160
    )
    
    $
    (2,248
    )
    
    $
    (119
    )
    
    $
    (3,902
    )Weighted average number of common shares outstanding for the
computation of basic earnings (loss) per share
    
    
    6,529
    
    
    
    4,500
    
    
    
    6,121
    
    
    
    4,420Basic earnings (loss) per share:Continuing operations
    
    $
    (0.20
    )
    
    $
    (0.18
    )
    
    $
    (0.02
    )
    
    $
    (0.13
    )Discontinued operations
    
    
    0.02
    
    
    
    (0.32
    )
    
    
    0.00
    
    
    
    (0.75
    )Net income (loss) available to common stockholders
    
    $
    (0.18
    )
    
    $
    (0.50
    )
    
    $
    (0.02
    )
    
    $
    (0.88
    )Income (loss) for computation of diluted earnings (loss) per share:Income (loss) from continuing operations
    
    $
    (789
    )
    
    $
    (244
    )
    
    $
    890
    
    
    $
    507Preferred dividends
    
    
    (503
    )
    
    
    (558
    )
    
    
    (1,032
    )
    
    
    (1,090
    )Loss from continuing operations available to common stockholders
    
    
    (1,292
    )
    
    
    (802
    )
    
    
    (142
    )
    
    
    (583
    )Income (loss) from discontinued operations
    
    
    132
    
    
    
    (1,446
    )
    
    
    23
    
    
    
    (3,319
    )Net income (loss) available to common stockholders for the
computation of diluted earnings (loss) per share
    
    $
    (1,160
    )
    
    $
    (2,248
    )
    
    $
    (119
    )
    
    $
    (3,902
    )Weighted
average number of common shares outstanding for the computation of
diluted earnings (loss) per share
    
    
    6,529
    
    
    
    4,500
    
    
    
    6,121
    
    
    
    4,420Diluted earnings (loss) per share:Continuing operations
    
    $
    (0.20
    )
    
    $
    (0.18
    )
    
    $
    (0.02
    )
    
    $
    (0.13
    )Discontinued operations
    
    
    0.02
    
    
    
    (0.32
    )
    
    
    0.00
    
    
    
    (0.75
    )Net income (loss) available to common stockholders
    
    $
    (0.18
    )
    
    $
    (0.50
    )
    
    $
    (0.02
    )
    
    $
    (0.88
    )
 13




---



##### Table of Contents



10. SEGMENT INFORMATION The Company has two business segments associated with its continuing operations that provide
different products or services: (a) marketing and production services, which primarily include
services rendered in connection with college athletics (Collegiate Marketing and Production
Services); and (b) association management services (Association Management Services).
Discontinued operations include event management and marketing services (Affinity Events) and
computer printer manufacturing and related sales and services formerly operated by wholly-owned
Datasouth Computer Corporation (Datasouth). Information for each of the Companys segments associated with continuing operations follows: Three Months Ended
    
    
    Six Months EndedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,2005
    
    
    2004
    
    
    2005
    
    
    2004Net revenues, continuing operations:Collegiate Marketing and Production Services
    
    $
    16,266
    
    
    $
    13,990
    
    
    $
    37,202
    
    
    $
    31,323Association Management Services
    
    
    1,768
    
    
    
    2,353
    
    
    
    3,907
    
    
    
    4,515$
    18,034
    
    
    $
    16,343
    
    
    $
    41,109
    
    
    $
    35,838Operating income, continuing operations:Collegiate Marketing and Production Services
    
    $
    679
    
    
    $
    744
    
    
    $
    3,382
    
    
    $
    2,686Association Management Services
    
    
    310
    
    
    
    862
    
    
    
    818
    
    
    
    1,372Amortization of acquisition intangibles
    
    
    (180
    )
    
    
    (314
    )
    
    
    (359
    )
    
    
    (627
    )Unallocated general and administrative costs
    
    
    (258
    )
    
    
    (359
    )
    
    
    (513
    )
    
    
    (682
    )$
    551
    
    
    $
    933
    
    
    $
    3,328
    
    
    $
    2,749
 14




---



##### Table of Contents



Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Bull Run Corporation (Bull Run or the Company), based in Atlanta, Georgia, is a sports and
affinity marketing and management company through its sole operating business, Host Communications,
Inc. (Host), acquired in December 1999 (the Host-USA Acquisition). Hosts Collegiate
Marketing and Production Services business segment provides sports marketing and production
services to a number of collegiate conferences and universities, and on behalf of the National
Collegiate Athletic Association (NCAA). Hosts Association Management Services business
segment provides various associations with services such as member communication, recruitment and
retention, conference planning, Internet web site management, marketing and administration. The Company discontinued its Affinity Events business segments during the fiscal year ended
August 31, 2004. In August 2004, the Company announced its decision to suspend the Affinity Events
business, and declared its intent to offer the business unit for sale. Accordingly, the operating
results and net assets associated with the Affinity Events business segments presented herein are
reflected as discontinued operations in the accompanying consolidated financial statements. In
November 2004, the Company reached an agreement to sell the assets associated with the basketball
and soccer tours operated within the Affinity Events business segment, and closed the sale in
December 2004. Accrued restructuring charges associated with the discontinuation of this segment
recognized in the fiscal year ended August 31, 2004 have been reduced by the estimated amount of
proceeds to be ultimately derived from the sale. Actual amounts ultimately realized on the sale
and any other unanticipated income or expenses, including income from the future subleases of
vacated office space, could differ materially from amounts assumed in arriving at the loss on
termination of the business. To the extent actual proceeds or other amounts differ from the
estimates that are reflected as of February 28, 2005, or as managements estimates are revised, the
variance will be reported in discontinued operations in future periods. CERTAIN RELATIONSHIPS J. Mack Robinson, Chairman of the board of the Company, is the beneficial owner of approximately
58.6%of the Companys common stock as of February 28, 2005, and Mr. Robinson and his affiliates
also own shares of the Companys convertible preferred stock having an aggregate face amount of
approximately $19.8 million as of that date representing approximately 89.4%of the aggregate face
amount of all outstanding preferred stock on that date. Mr. Robinson is also Chief Executive
Officer, Chairman and a director of Gray Television, Inc. (Gray), and the beneficial owner of
Gray common stocks representing approximately 28.8% of the combined voting power of Grays two
classes of common stock as of March 22, 2004. Robert S. Prather, Jr., President, Chief Executive
Officer and a director of the Company, is President, Chief Operating Officer and a director of
Gray, and the beneficial owner of Gray common stocks representing approximately 2.6% of the
combined voting power of Grays two classes of common stock as of March 22, 2004. Hilton H.
Howell, Jr., the Companys Vice President and Secretary, is Vice Chairman and a director of Gray,
and the beneficial owner of Gray common stocks representing approximately 7.0% of the combined
voting power of Grays two classes of common stock as of the same date. Beneficial ownership
percentages include warrants and options to acquire shares of Gray common stocks that were
exercisable on, or within 60 days after, such date. Mr. Robinson personally guarantees substantially all of the debt outstanding under the Companys
bank credit facility. Under the terms of his guarantee, Mr. Robinson has the option to purchase
the entire loan from the banks, and thereby would become the holder of the debt currently payable
to the banks and the related lien on the Companys assets. W. James Host, a director of the Company until his resignation in January 2004, previously owned
along with his wife, shares of the Companys convertible preferred stock having an aggregate face
amount of approximately $1.8 million. In October 2004, Mr. Host and his wife exercised their right
to convert their shares of preferred stock to approximately 255,000 shares of the Companys common
stock. As of February 28, 2005, other officers or directors of the Company own shares of the
Companys preferred stock having an aggregate face value of approximately $0.2 million. Through a rights-sharing agreement with Gray, the Company participates jointly with Gray in
the marketing, selling and broadcasting of certain collegiate sporting events and in related
programming, production and other associated activities on behalf of a university. The current
agreement commenced in April 2000 and terminates in April 2005. As a result of the current
rights-sharing agreement, Gray may be called upon for payment of a share of certain guaranteed
rights fees to the university. During the fiscal year ended August 31, 2004, Gray had paid
approximately $1.5 million under this provision, and as of February 28, 2005, the Company has
accrued fees payable to Gray of approximately $1.4 million. In October 2004, both the Company and
Gray executed a new 10-year multimedia rights-sharing agreement with the university commencing in
April 2005 at the end of the Companys current contract. The Company and Gray will share equally
the costs of the rights, and will jointly administer and manage the rights over the term of the
agreement. 15




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make judgments and estimations that affect the amounts
reported in the financial statements and accompanying notes. Actual results could differ from
those estimates. The Company considers the following accounting policies to be critical policies
that require judgments or estimations in their application where variances in those judgments or
estimations could make a significant difference to future reported results. Revenue Recognition and Rights Fee Expenses  Revenue from services is recognized as the services are rendered, and consists primarily of
advertising revenues in connection with broadcast and print media sold by the Company, the rights
to which are generally acquired by the Company under the multi-media rights agreements with
collegiate institutions or associations. Advertising revenues are recognized when the event occurs
or the publication is publicly distributed. In addition, to a lesser extent, the Company derives
revenue from corporate sponsorship arrangements, association management fees, radio station rights
fees, sales of commercial printing and other miscellaneous revenues generated from product sales
and production services. Corporate sponsorships related to specific events are recognized when the
event occurs or as the events occur. Corporate sponsor license fee revenue that is not related to
specific events is recognized ratably over the term of the sponsorship. Association management
fees are recognized over the term of the contract year as the related services are performed.
Radio station rights fees are recognized ratably as games are broadcast. Sales of commercial
printing and other product sales are recognized when title passes to the customer, or in the case
of vending revenues, when the game is played. The allowance for doubtful accounts represents the Companys best estimate of the accounts
receivable that will be ultimately collected, based on, among other things, historical collection
experience, a review of the current aging status of customer receivables, and a review of specific
information for those customers that are deemed to be higher risk. The Company evaluates the
adequacy of the allowance for doubtful accounts on at least a quarterly basis. Unfavorable changes
in economic conditions might impact the amounts ultimately collected from advertisers and corporate
sponsors and therefore may result in an inadequate allowance. In certain circumstances, the Company enters into contractual arrangements with associations or
institutions it represents in various capacities which involve payment of guaranteed rights fees.
Guaranteed rights fee expense that is not related to specific events is recognized ratably over the
term specified in the contract. The Companys contractual arrangements with associations or
institutions may also involve net profit sharing arrangements (profit splits) based on the net
profit associated with services rendered under the contract. Profit split expense is accrued over
the contract period, based on estimates, and is adjusted at the end of the contract term in order
to reflect the actual profit split. Estimates used in the determination of profit split expense
are updated monthly and adjusted to actual when the profit split settlement is determined at the
end of each contract year. Goodwill and Other Intangible Assets  Prior to July 1, 2001, goodwill was amortized over 20 years. Effective July 1, 2001, the Company
adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets, (SFAS 142) which eliminated the requirement to amortize goodwill, and also affected the
Companys accounting for its equity in losses of affiliated companies. Under the provisions of
SFAS 142, the Company is required to periodically assess the carrying value of goodwill associated
with each of four distinct business units that comprise two business segments of the Companys
continuing operations to determine if an impairment in value has occurred. Prior to the fiscal
year ended August 31, 2004, such an assessment was also required in connection with a discontinued
business segment. Annual impairment tests prior to the fiscal year ended August 31, 2003 concluded
that the carrying amount of goodwill for each acquired business unit did not exceed its net
realizable value based on the Companys estimate of expected future cash flows to be generated by
each of the business units. However, the Company updated its assessment as of August 31, 2003 and
concluded that based on a valuation model incorporating expected future cash flows in consideration
of historical cash flows and operating results, a goodwill impairment charge of $23.4 million was
necessary to reduce the carrying value of goodwill to net realizable value, $2.4 million of which
was attributable to the discontinued business segment. Management further determined that an
additional goodwill impairment charge of $3.3 million was necessary during the fiscal year ended
August 31, 2004, upon managements consideration of current fiscal year operating results and the
forecasted operating results and business plans for one of the Companys business units. The impairment analysis is based on the Companys estimates of the net present value of future cash
flows derived from each of four business units, and judgment is used in assessing whether the
impairment analysis should be performed more frequently than annually. The determination of fair
value requires significant management judgment including estimating operating cash flow to be
derived in each of the four business units for the following three years, annual operating cash
flow growth rates for each business unit beyond the next three years, changes in working capital,
capital expenditures and the selection of an appropriate discount rate. For each of three of the
four business units, a 16




---



##### Table of Contents



future reduction in the estimated net present value of future cash flows derived from an affected
business unit would likely result in an impairment charge that could approximate the amount of the
reduction in the estimated net present value calculated for that business unit. Factors
potentially leading to a reduction in the estimated present value of future cash flows could
include (i) the loss of a significant customer or contract, (ii) significantly less favorable terms
of new contracts and contract renewals, and (iii) prolonged economic downturns affecting corporate
advertising spending. If the Company concludes in the future that the adjusted carrying value of goodwill for any of the
four business units comprising the Companys continuing operations exceeds its respective net
realizable value, the Company would expense such excess and decrease goodwill as reported in the
consolidated balance sheet. Other purchased intangibles, including customer relationships, are amortized primarily over a
16-year average life. The use of a 16-year average life for customer relationships acquired in the
acquisition of Host, amortized on a straight-line method, is not materially different from using
the estimated life of each individual relationship using a systematic allocation method. Prior to
the fiscal year ended August 31, 2003, the Company determined that an impairment charge of
approximately $6.6 million was necessary to reduce the carrying amount of certain customer
relationship intangible assets as a result of a significant change in the contractual nature of the
Companys underlying relationship with the NCAA. An updated impairment analysis performed as of
August 31, 2003 indicated the need for an additional charge to reduce customer relationships and
other acquisition intangibles by approximately $7.0 million at that date, all of which was
attributable to a discontinued operating segment. If the Company concludes in the future that
significant changes occur in its customer relationships, additional impairment charges may be
necessary. The remaining value assigned to acquisition intangibles other than goodwill will continue to be
amortized over a 16-year average life, at a rate of approximately $0.7 million per year. The use
of a 16-year average life of customer relationships amortized on a straight-line method is not
materially different than using the estimated life of each individual relationship using a
systematic allocation method. Goodwill and intangible assets, net of accumulated amortization, were approximately $48.3 million
as of February 28, 2005 and $48.7 million as of August 31, 2004, of which, goodwill was
approximately $40.4 million as of each date. The carrying value of goodwill and acquired
intangibles, net of accumulated amortization, represented approximately 70% of the Companys total
assets as of February 28, 2005. Deferred Income Taxes  Deferred income tax liabilities or assets at the end of each period are determined using the tax
rate expected to be in effect when the taxes are actually paid or recovered. A valuation allowance
is recognized on certain deferred tax assets if it is more likely than not that some or all of
these deferred tax assets will not be realized. As of February 28, 2005 the Company has recognized
a full valuation allowance for net deferred tax assets thereby resulting in a carrying amount for
deferred taxes in the balance sheet of zero. If and when the Company generates taxable income in
the future and benefits primarily from net operating loss carryforwards for federal tax purposes
that expire beginning in 2018, some or all of the deferred tax assets may be reinstated on the
balance sheet, and the Company would report income tax benefits in the period that such
reinstatement occurs. Valuation of Certain Non-Trade Receivable  As of February 28, 2005, the Company has a non-trade subordinated note receivable from the
purchaser of Datasouth Computer Corporation (Datasouth), the Companys former computer printer
manufacturing company. The Company performs ongoing credit evaluations of parties from which such
non-trade receivables are due, and if and when management determines that the carrying value of
such receivables may not ultimately be realized, the estimated impairment amount is charged to the
earnings (losses) reported for the period in which the determination is made. In prior years,
impairment charges reduced the carrying amount of the Companys note receivable from the purchaser
of Datasouth to estimated net realizable value. As a result of payments received on the note
subsequent to the adjustment to net realizable value, the carrying amount of the subordinated note
receivable has been reduced to approximately $1.1 million as of February 28, 2005. The estimated reserve on the note issued by the purchaser of Datasouth is based on managements
estimate of amounts ultimately collectible on the note upon consideration of modifications made to
the agreement, payment history and an understanding of the financial condition of the note issuer,
among other factors. If there would be evidence of unfavorable conditions affecting the ultimate
collection of the carrying value, such as an unfavorable trend in payment history or unfavorable
changes in the note issuers financial condition, additional impairment charges may become
necessary in future periods. Transactions with Related Parties  The terms of all material transactions involving related persons or entities have been at terms
similar to those of Company transactions with independent parties, or in cases where the Company
has not entered into similar transactions with unrelated parties, at terms that were then believed
to be representative of those that would likely be 17




---



##### Table of Contents



negotiated with independent parties. All material transactions with related parties are reviewed
and approved by the independent directors of the Company. Although the Company might not have been
otherwise able to enter into an agreement with an independent party to personally guarantee the
Companys bank debt, the terms by which the Companys Chairman has been compensated for such
personal guarantee were approved by the Companys stockholders at the Companys annual meeting of
stockholders on January 7, 2004. LIQUIDITY AND CAPITAL RESOURCES Credit Arrangements  As of February 28, 2005, the Companys indebtedness to its bank lenders was approximately $58.9
million. In October 2004, the bank credit agreement was amended and restated to provide an
additional $3 million in financing, which was borrowed in October 2004. The agreement, having a
maturity date of November 30, 2005 at which time all amounts outstanding become due and payable,
does not require any payments of principal prior to maturity, nor does it provide for any
additional borrowing capacity. The agreement requires the maintenance of interest coverage ratios,
determined quarterly. The Companys debt to the banks is collateralized by a lien on all of the Companys assets. In
addition, the Companys Chairman personally guarantees substantially all of the debt outstanding
under the bank credit agreement, and if the Company is unable to meet payment obligations under the
agreement, it is likely that the bank lenders would call the guarantee, thereby requiring the
Chairman to repay the amount of the loan to the banks. The Chairmans guarantee is collateralized
by certain personal holdings of marketable securities pledged to the Companys bank lenders. Under
the terms of his guarantee, the Chairman has the option to purchase the entire loan from the banks,
and thereby becoming the holder of the debt currently payable to the banks and the related lien on
the Companys assets. The Chairman is compensated by the Company for his guarantee in the form of
newly issued shares of the Companys common stock, valued at an annual rate of 1.625% of the
guarantee amount. The guarantee amount will reduce in the future if principal payments are made to
the bank lenders on the outstanding term loans, and may increase if additional bank financing is
made available to the Company. In September 2004, a company under the Chairmans control provided the Company $1.5 million of cash
which was used for working capital purposes, in exchange for a subordinated note bearing interest
at 6% per annum. This note was refinanced by another company under the Chairmans control, by
substituting a subordinated note bearing interest at 6% per annum, having a maturity date of
February 28, 2006. Under the terms of the credit agreement, as amended in October 2004, up to an
aggregate of $10 million in additional funding for working capital purposes, if necessary, could be
sourced from the issuance of equity securities, including shares of the Companys preferred stock,
or by the issuance of subordinated debt. Of this amount, $1,500 was received from the Companys
Chairman in January 2005 and used for working capital purposes. During the fiscal year ended
August 31, 2004, the Company received approximately $6.6 million from the Companys Chairman, of
which $2 million was invested in newly-issued shares of the Companys preferred stock. The
remaining investment of $4.55 million, plus the $1.5 million received in January 2005, is presented
in the consolidated balance sheet as Advances from stockholder. Management believes that it is
the Chairmans intention to ultimately convert these advances to subordinated debt or equity
securities. In connection with the credit agreement amendment, the Chairman committed to the
Company an additional aggregate cash investment of up to $3.0 million as and when needed at any
time and from time to time on or prior to the maturity date, provided that up to $1.5 million of
such cash investments would be used to repay the $1.5 million subordinated note issued by his
affiliated company. The cash investment made on January 2005 was made to fulfill the remaining
$1.5 million commitment. As amended in October 2004, the Companys bank credit agreement provides for (a) two term loans
(the Term Loans) for borrowings totaling approximately $35.9 million and (b) two revolving loan
commitments (the Revolvers) for aggregate maximum borrowings of $23 million. All amounts
outstanding bear interest at either (a) the banks prime rate or (b) the London Interbank Offered
Rate (LIBOR) plus 2.75%, payable monthly. The Company anticipates that it will continue to
utilize fully the availability under the Revolvers throughout the remaining term of the credit
agreement. In connection with the Host-USA Acquisition, the Company issued 8% subordinated notes, representing
long-term debt of approximately $8.7 million as of February 28, 2005. During the fiscal year ended
August 31, 2004, holders of 8% subordinated notes representing an aggregate face value of
approximately $8.0 million exchanged their notes for shares of Series E Preferred Stock. Interest
is payable quarterly in cash on all but a $3.0 million subordinated note payable to the Companys
Chairman, on which interest is payable at maturity in the form of cash or shares of the Companys
common stock, at the Companys option. The notes all have a maturity date of January 17, 2006.
Payment of interest and principal on all subordinated notes is subordinate to the Companys bank
credit agreement. Due to negative operating cash flow generated in the past, the Company currently has trade payables
and other cash obligations that exceed its current assets. In the fiscal year ended August 31,
2004, the Companys Chairman provided an aggregate total of $6.6 million in cash used for operating
purposes. Management believes the Company has 18




---



##### Table of Contents



sufficient liquidity sources, which include the Companys Chairman and his affiliates, to meet its
cash obligations until the November 30, 2005 maturity date of its bank credit agreement. Prior to
the November 30, 2005 maturity date, the Company anticipates that will be required to refinance the
total amount due and payable to the banks at that time. The Companys ability to continue this or
similar financing beyond the November 30, 2005 maturity date is significantly dependent on the
continued support of the Companys Chairman and, in part, on the Companys future operating
results. There can be no assurances with respect to either the Companys future operating results
or the continued support of its Chairman. In exchange for cash advances made in the past or in the
future by the Companys Chairman, his affiliates and/or other parties, the Company may (a) issue
and sell equity securities of the Company, which may include the Companys preferred stock; (b)
issue additional subordinated debt; or (c) a combination thereof. The use of future cash
investments or advances in excess of an aggregate $8.5 million for purposes other than the
reduction of the bank debt would require approval of the Companys bank lenders. The Companys
capital expenditures are not expected to exceed $600,000 for the fiscal year ending August 31,
2005. Historical Cash Flow Information  Summary  The following summarizes the Companys historical cash flow activities (amounts in 000s): Six Months EndedFebruary 28,
    
    
    February 29,2005
    
    
    2004Cash flows from operating activities:Continuing operations
    
    $
    (4,708
    )
    
    $
    (3,130
    )Discontinued operations
    
    
    (976
    )
    
    
    (4,753
    )Cash flows from investing activities:Continuing operation investing activities
    
    
    (36
    )
    
    
    (246
    )Discontinued operation investing activities
    
    
    1,039
    
    
    
    (15
    )Cash flows from financing activities
    
    
    4,711
    
    
    
    3,759Net increase (decrease) in cash and cash equivalents
    
    $
    30
    
    
    $
    (4,385
    )
 Historical Cash Flow Information  Cash Flows from Operating Activities  The following summarizes the Companys historical cash flows from operating activities (amounts in
000s): Six Months EndedFebruary 28,
    
    
    February 29,2005
    
    
    2004Income from operations
    
    $
    3,328
    
    
    $
    2,749Depreciation and amortization included in operations
    
    
    691
    
    
    
    1,057Interest expense
    
    
    (2,259
    )
    
    
    (2,194
    )Net change in operating assets and liabilities
    
    
    (6,446
    )
    
    
    (4,826
    )Other operating cash flows
    
    
    (22
    )
    
    
    84Net cash flows from continuing operations
    
    
    (4,708
    )
    
    
    (3,130
    )Net cash flows from discontinued operations
    
    
    (976
    )
    
    
    (4,753
    )Net cash flows from operating activities
    
    $
    (5,684
    )
    
    $
    (7,883
    )
 The net change in operating assets and liabilities had an unfavorable impact on total cash flows
from continuing operations during the six months ended February 28, 2005 and February 29, 2004.
The Companys most significant business segment, the Collegiate Marketing and Production Services
segment, produces a high proportion of its annual revenues during the six months ended February 28
(or 29), since the college football season generally begins in September and ends in January and
the college basketball season generally begins in November and ends in late March or early April.
For this reason, accounts receivable increase substantially during the first six months of the
fiscal year. Accounts receivable associated with continuing operations increased approximately
$8.5 million and $4.1 million during the six months ended February 28, 2005 and February 29, 2004,
respectively. The increase in the current fiscal year was substantially higher than in the prior
fiscal year because, in addition to generating more revenue in the current year compared to the
prior year, most of the Companys collegiate properties began their college football seasons in
September 2004 as compared to August in 2003. The accounts payable and other accrued liabilities
decrease of approximately $2.1 million during the six months ended February 28, 2005 was due to the
Companys use of $3 million in proceeds on additional bank debt and $3 million in aggregate cash
proceeds received from the Companys Chairman and a company affiliated with the Chairman during the
period to pay outstanding current liabilities, net of the effect of the increase in accounts
receivable during the period. The accounts payable and other accrued liabilities decrease of 19




---



##### Table of Contents



approximately $0.7 million during the six months ended February 29, 2004 was likewise not
consistent with the increase in accounts receivable during that period due to the Companys use of
cash available at the beginning of the period to reduce accounts payable and accrued expenses to
the extent possible, in addition to funding losses of the Affinity Events discontinued segment
operations. The Companys total cash flows from continuing operations were also used to fund interest expense.
Interest paid, net of interest income received, was approximately $2.5 million and $2.3 million for
six months ended February 28, 2005 and February 29, 2004, respectively, with the increase caused by
a combination of an increase in variable interest rates to which a significant amount of the debt
is subject, and an increase in the average amount of outstanding debt during the current year
period. Historical Cash Flow Information  Cash Flows from Investing Activities The following summarizes the Companys historical cash flows from investing activities (amounts in
000s): Six Months EndedFebruary 28,
    
    
    February 29,2005
    
    
    2004Capital expenditures
    
    $
    (45
    )
    
    $
    (188
    )Decrease (increase) in other assets
    
    
    9
    
    
    
    (58
    )Net cash flows from continuing operation investing activities
    
    
    (36
    )
    
    
    (246
    )Net cash flows from discontinued operation investing activities
    
    
    1,039
    
    
    
    (15
    )Net cash flows from investing activities
    
    $
    1,003
    
    
    $
    (261
    )
 In the six months ended February 28, 2005, the Company received $150 as payment on its note
receivable from the purchaser of Datasouth and $870 in proceeds derived from the sale of the
Affinity Events segment assets. Historical Cash Flow Information  Cash Flows from Financing Activities The following summarizes the Companys historical cash flows from financing activities (amounts in
000s): Six Months EndedFebruary 28,
    
    
    February 29,2005
    
    
    2004Borrowings from revolving line of credit
    
    $
    3,000
    
    
    $Borrowings on note issued by related party
    
    
    1,500Cash advances made by stockholder
    
    
    1,500
    
    
    
    1,800Repayments on long-term debt
    
    
    (590
    )Debt issue costs
    
    
    (445
    )
    
    
    (41
    )Preferred stock dividends paid
    
    
    (254
    )Issuance of preferred stock
    
    
    
    
    
    
    2,000Net cash flows from financing activities
    
    $
    4,711
    
    
    $
    3,759
 20




---



##### Table of Contents



CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS The following summarizes the Companys contractual obligations as of February 28, 2005 (amounts in
000s): Payments Due by Period as of February 28, 2005Less than
    
    
    More than 1
    
    
    More than 3
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    to 3 Years
    
    
    to 5 Years
    
    
    5 YearsLong-term debt obligations
    
    $
    69,125
    
    
    $
    69,125
    
    
    $
    
    
    
    $
    
    
    
    $Interest obligations
    
    
    2,598
    
    
    
    2,598Capital lease obligations
    
    
    211
    
    
    
    59
    
    
    
    152Operating lease obligations
    
    
    5,487
    
    
    
    1,735
    
    
    
    1,578
    
    
    
    1,296
    
    
    
    878Purchase obligations
    
    
    75,670
    
    
    
    15,277
    
    
    
    24,897
    
    
    
    12,783
    
    
    
    22,713Total
    
    $
    153,091
    
    
    $
    88,794
    
    
    $
    26,627
    
    
    $
    14,079
    
    
    $
    23,591
 Operating lease obligations are presented net of future receipts on contracted sublease
arrangements totaling approximately $0.7 million as of February 28, 2005. Interest rate
obligations assume that interest is paid through the maturity date of the debt obligations at
interest rates in effect as of February 28, 2005. Purchase obligations primarily consist of future guaranteed rights fee commitments to associations
or institutions under contractual arrangements of typically one to four years, which expire at
varying times through 2015. Dividends on Series D Preferred Stock and Series F Preferred Stock are payable annually at an
annual rate of $90 per share in cash or in shares of the Companys common stock, at the holders
option, except that, until the second anniversary of the date of issuance, the Company has the
option to pay such dividends in cash or in shares of the Companys common stock. For purposes of
determining the number of shares of common stock to be issued as payment of a dividend, the common
stock is valued at the average market closing price for the twenty trading days immediately
preceding each dividend payment date. All dividends accruing through June 30, 2003 on issued
shares of the Companys preferred stock have been paid. Dividends on Series D Preferred Stock
payable through June 30, 2004 in shares of the Companys common stock under the terms of such
issuance, have not been declared by the board of directors. Under the Companys Articles of
Incorporation, if dividends on any class of its preferred stock are in arrears in an amount equal
to 150% of an annual dividend, the holders of such preferred stock shall be entitled to vote for
and elect two additional directors of the Company. Such rights would thereby be afforded the
holders of Series D Preferred Stock if dividends accrued through June 30, 2004 are not paid by
December 31, 2006. Dividends on Series E Preferred Stock are payable annually at an annual rate of $90 per share in
cash or in shares of the Companys common stock at the holders option, except that the initial
dividend on Series E Preferred Stock is not payable until July 2005 on dividends accruing through
June 30, 2005, or upon a conversion of shares of Series E Preferred Stock to shares of the
Companys common stock, whichever is sooner. The amount of dividends accruing through February 28,
2005 on the outstanding shares of Series E Preferred Stock potentially payable in cash in the
fiscal year ending August 31, 2005 is approximately $1.1 million, including $0.7 million in
connection with shares of Series E Preferred Stock issued to the Companys Chairman. 21




---



##### Table of Contents



RESULTS OF CONTINUING OPERATIONS  THREE MONTHS ENDED FEBRUARY 28, 2005 COMPARED TO SIX MONTHS
ENDED FEBRUARY 29, 2004 Results Derived from Operating Businesses  Operating results for the three months ended February 28, 2005 and February 29, 2004 are summarized
as follows (amounts in $000s): Three Months EndedFebruary 28,
    
    
    February 29,2005
    
    
    2004RevenuesCollegiate Marketing and Production Services
    
    $
    16,266
    
    
    $
    13,990Association Management Services
    
    
    1,768
    
    
    
    2,353$
    18,034
    
    
    $
    16,343Operating Costs and ExpensesDirect operating costs of services rendered
    
    $
    13,020
    
    
    $
    10,645Selling, general and administrative
    
    
    4,283
    
    
    
    4,451Amortization of acquisition intangibles
    
    
    180
    
    
    
    314$
    17,483
    
    
    $
    15,410Income (Loss) from OperationsCollegiate Marketing and Production Services
    
    $
    679
    
    
    $
    744Association Management Services
    
    
    310
    
    
    
    862Amortization of acquisition intangibles
    
    
    (180
    )
    
    
    (314
    )Unallocated general and administrative costs
    
    
    (258
    )
    
    
    (359
    )$
    551
    
    
    $
    933
 Total revenues and operating results for the Collegiate Marketing and Production Services segment
were impacted in the three months ended February 28, 2005 by the addition of two university
contractual relationships beginning in the current fiscal year, partially offset by the effects of
a contractual relationship that terminated at the end of the previous fiscal year. The additional
contracts, net of the terminated contract, increased the segments revenues and direct costs by
approximately $1.7 million and $1.6 million, respectively, but had substantially no impact on
segment operating profit, compared to the prior year three-month period. Other increases in
segment revenues resulted primarily from an increase in advertising sales, due in some cases to
additional rights acquired from certain universities. Total revenues and operating results for the Association Management Services segment were impacted
in the three months ended February 28, 2005 by a reduction in the scope of management services
provided to an association. It is conceivable that the scope of future services may continue to
decline or cease within the next year. As a result of the decreased scope of these services since
the prior fiscal year, segment revenues and operating income were each negatively affected by
approximately $0.6 million during the three months ended February 28, 2005 compared to the same
period for the prior year. Direct operating costs of services rendered increased for the three months ended February 28, 2005
from the same three-month period in the prior year primarily as a result of (a) the $1.6 million
increase from the additional university contracts, net of the terminated contract, as discussed
above; and (b) an increase of approximately $0.4 million in production expenses in the printing,
publishing and broadcasting operations. Selling, general and administrative costs associated with continuing operations decreased slightly
for the three months ended February 28, 2005 compared to the same three-month period in the prior
fiscal year. However, in the prior year period, approximately $0.4 million of general and
administrative costs were allocable to the discontinued Affinity Events segment. These costs were
effectively eliminated as a result of the discontinuation of the segment prior to the current
fiscal year. Results Derived from Derivative Instrument  The net change in the value of the interest rate swap agreement discussed in Note 6 to the
Condensed Consolidated Financial Statements was approximately $0.1 million in the three months
ended February 28, 2005 and $0.2 million in the three months ended February 29, 2004. The interest
rate swap agreement terminated on December 31, 2004. 22




---



##### Table of Contents



Interest Expense and Debt Related Costs  Interest expense was approximately $1.1 million for each of the three-month periods ended February
28, 2005 and February 29, 2004. The effects of an increase in variable interest rates to which a
significant amount of the debt is subject and an increase in average outstanding debt during the
current year period offset the favorable effect of the interest rate swap agreement termination on
December 31, 2004. Debt issue cost amortization was approximately $0.4 million and $0.3 million for the three months
ended February 28, 2005 and February 29, 2004, respectively. Debt issue costs consist of fees paid
by the Company to bank lenders and other costs in connection with the issuance of debt and
significant amendments to the bank credit agreement, and compensation paid in the form of shares of
the Companys common stock to the Companys Chairman to compensate him for his personal guarantee
and to a former director of the Company to compensate him for his pledge of personal assets to the
Companys bank lenders. During the three months ended February 28, 2005, the Company issued
approximately 362,000 shares of restricted common stock to the Chairman and the former director,
then valued at approximately $0.2 million, for such purpose. During the three months ended
February 29, 2004, the Company issued approximately 151,000 shares of restricted common stock to
the Chairman, then valued at approximately $0.5 million. Income Taxes  The principal differences between the federal statutory tax rate of 34% and the effective tax rate
of zero are increases (or decreases) in the valuation allowance for potentially non-realizable
deferred tax assets of $0.2 million and $0.6 million for the three months ended February 28, 2005
and February 29, 2004, respectively. The valuation allowance for net deferred tax assets was
approximately $23.2 million as of February 28, 2005. RESULTS OF CONTINUING OPERATIONS  SIX MONTHS ENDED FEBRUARY 28, 2005 COMPARED TO SIX MONTHS ENDED
FEBRUARY 29, 2004 Results Derived from Operating Businesses  Operating results for the six months ended February 28, 2005 and February 29, 2004 are summarized
as follows (amounts in $000s): Six Months EndedFebruary 28,
    
    
    February 29,2005
    
    
    2004RevenuesCollegiate Marketing and Production Services
    
    $
    37,202
    
    
    $
    31,323Association Management Services
    
    
    3,907
    
    
    
    4,515$
    41,109
    
    
    $
    35,838Operating Costs and ExpensesDirect operating costs of services rendered
    
    $
    28,796
    
    
    $
    23,603Selling, general and administrative
    
    
    8,626
    
    
    
    8,859Amortization of acquisition intangibles
    
    
    359
    
    
    
    627$
    37,781
    
    
    $
    33,089Income (Loss) from OperationsCollegiate Marketing and Production Services
    
    $
    3,382
    
    
    $
    2,686Association Management Services
    
    
    818
    
    
    
    1,372Amortization of acquisition intangibles
    
    
    (359
    )
    
    
    (627
    )Unallocated general and administrative costs
    
    
    (513
    )
    
    
    (682
    )$
    3,328
    
    
    $
    2,749
 Total revenues and operating results for the Collegiate Marketing and Production Services segment
were impacted in the six months ended February 28, 2005 by the two new university contractual
relationships, partially offset by the effects of the terminated contractual relationship, similar
to the previously-discussed effects on the second quarter comparative results. The additional
contracts, net of the terminated contract, increased the segments revenues, direct costs and
operating profits by approximately $3.0 million, $2.8 million and $0.1 million, respectively,
compared to the prior year six-month period. Other increases in segment revenues resulted from (a)
an increase in advertising sales, due in some cases to additional rights acquired from certain
universities; and (b) an increase in revenues generated by the segments printing, publishing and
broadcasting operations of approximately $0.4 million. Total revenues and operating results for the Association Management Services segment were impacted
in the six months ended February 28, 2005 by the reduction in the scope of management services
provided to an association, as 23




---



##### Table of Contents



previously discussed. As a result of this change, segment revenues
and operating income were negatively affected by approximately $0.8 million and $0.7 million for
the six months ended February 28, 2005, respectively, in comparison with results for the prior year
six-month period. Direct operating costs of services rendered increased for the six months ended February 28, 2005
from the same six-month period in the prior year due to (a) the $2.8 million increase from the
additional university contracts, net of the terminated contract, as discussed above; (b) an
increase of approximately $1.0 million in guaranteed rights fees and revenue and profit splits,
excluding the effects of the new and terminated contracts; and (c) an increase of approximately
$0.6 million in production expenses in the printing, publishing and broadcasting operations. Selling, general and administrative costs associated with continuing operations slightly decreased
for the six months ended February 28, 2005 compared to the same six-month period in the prior
fiscal year. However, in the prior year period, approximately $0.9 million of general and
administrative costs were allocable to the discontinued Affinity Events segment. These costs were
effectively eliminated as a result of the discontinuation of the segment prior to the current
fiscal year. Results Derived from Derivative Instrument  The net change in the value of the terminated interest rate swap agreement was approximately $0.4
million in the six months ended February 28, 2005 and $0.5 million in the six months ended February
29, 2004. Interest Expense and Debt Related Costs  Interest expense increased to approximately $2.3 million for the six months ended February 28, 2005
from approximately $2.2 million for the same six-month period in the prior year, as a result of the
previously-discussed increase in variable interest rates and the increase in average outstanding
debt during the current year period, net of the favorable effect of the interest rate swap
agreement termination on December 31, 2004. Debt issue cost amortization was approximately $0.6 million for each of the six months ended
February 28, 2005 and February 29, 2004. Debt issue costs consist of fees paid by the Company to
bank lenders and other costs in connection with the issuance of debt and significant amendments to
the bank credit agreement, and compensation paid in the form of shares of the Companys common
stock to the Companys Chairman to compensate him for his personal guarantee and to a former
director of the Company to compensate him for his pledge of personal assets to the Companys bank
lenders. During the six months ended February 28, 2005, the Company issued approximately 1,076,000
shares of restricted common stock to the Chairman and the former director, then valued at
approximately $0.5 million, for such purpose. During the six months ended February 29, 2004, the
Company issued approximately 151,000 shares of restricted common stock to the Chairman, then valued
at approximately $0.5 million. Income Taxes  The principal differences between the federal statutory tax rate of 34% and the effective tax rate
of zero are increases (or decreases) in the valuation allowance for potentially non-realizable
deferred tax assets of $(0.5) million and $0.9 million for the three months ended February 28, 2005
and February 29, 2004, respectively. RESULTS OF DISCONTINUED OPERATIONS Results derived from the Companys discontinued operations for the three months and six months
ended February 28, 2005 and February 29, 2004, all of which pertaining to the Affinity Events
business segment, are summarized as follows (amounts in 000s): Three Months Ended
    
    
    Six Months EndedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue from services rendered
    
    $
    363
    
    
    $
    578
    
    
    $
    655
    
    
    $
    2,717Operating costs and expenses:Direct operating costs of services rendered
    
    
    124
    
    
    
    422
    
    
    
    409
    
    
    
    2,855Selling, general and administrative
    
    
    107
    
    
    
    1,602
    
    
    
    223
    
    
    
    3,181231
    
    
    
    2,024
    
    
    
    632
    
    
    
    6,036Income (loss) from discontinued operations
    
    $
    132
    
    
    $
    (1,446
    )
    
    $
    23
    
    
    $
    (3,319
    )
 24




---



##### Table of Contents



Total revenues and direct operating costs for the Affinity Events business segment were lower in
the three months and six months ended February 28, 2005 than in the same periods of the prior year
due to a reduction in the number of Hoop-It-Up 3-on-3 basketball events held during the 2004 tour
year and the shorter duration of the tour in 2004. The Company made the decision in August 2004 to
suspend the Affinity Events business and offer it for sale. However, the Company committed to
complete all previously-scheduled events, in order to fulfill contractual obligations. In December
2004, the principal assets of the Affinity Events business, consisting of the tangible and
intangible assets associated with the Hoop-It-Up tour and the 3v3 Soccer Shootout tour, were sold.
Under the terms of the asset sale agreement, the Company fulfilled its obligation to promote and
operate the soccer national finals event in January 2005, and retained the rights to the profits
derived from the event. INTEREST RATE AND MARKET RATE RISK The Company is exposed to changes in interest rates due to the Companys financing of its
acquisitions, investments and operations. Interest rate risk is present with both fixed and
floating rate debt. Until December 31, 2004, the Company used interest rate swap agreements to
manage its debt profile. Interest rate swap agreements generally involve exchanges of underlying
face (notional) amounts of designated hedges. The Company continually evaluated the credit quality
of the counterparty to its interest rate swap agreement and did not believe there was a significant
risk of nonperformance by the counterparty to the agreement. The Companys decision to forego
interest rate swap agreements as a hedge against its floating rate debt is due to the relatively
short duration of the Companys bank credit agreement and the Companys willingness to accept
additional interest rate risk for that period of time. Based on the Companys debt profile as of each fiscal year end, a 1% increase in market interest
rates would increase interest expense and decrease the income before income taxes (or
alternatively, increase interest expense and increase the loss before income taxes) by
approximately $0.1 million for each of the three-month periods ended February 28, 2005 and February
29, 2004, and by approximately $0.2 million for each the six-month periods ended February 28, 2005
and February 29, 2004. Such amount was approximately $0.3 million for the fiscal year ended August
31, 2004. These amounts were determined by calculating the effect of the hypothetical interest
rate on the Companys floating rate debt, after giving effect to the Companys interest rate swap
agreement. The Companys floating rate debt increased and fixed rate debt decreased by $25 million
after the termination of the interest rate swap agreement on December 31, 2004. These amounts do
not include the effects of certain potential results of increased interest rates, such as a reduced
level of overall economic activity or other actions management may take to mitigate the risk.
Furthermore, this sensitivity analysis does not assume changes in the Companys financial structure
that could occur if interest rates were higher. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. When used in this report, the words believes,
expects, anticipates, estimates and similar words and expressions are generally intended to
identify forward-looking statements. Statements that describe the Companys future strategic
plans, goals or objectives are also forward-looking statements. Readers of this Report are
cautioned that any forward-looking statements, including those regarding the intent, belief or
current expectations of the Company or management, are not guarantees of future performance,
results or events, and involve risks and uncertainties. The forward-looking statements included in
this report are made only as of the date hereof. The Company undertakes no obligation to update
such forward-looking statements to reflect subsequent events or circumstances. Actual results and
events may differ materially from those in the forward-looking statements as a result of various
factors including, but not limited to the following: (i) the Companys leverage and/or operating
results may adversely affect its ability to obtain new financing or extend its current bank credit
agreement beyond the November 30, 2005 maturity date under terms acceptable to the Company and its
bank lenders, thereby impairing the Companys ability to withstand economic downturns or
competitive pressures; (ii) the Company may not ultimately be successful in obtaining bank
financing beyond the November 30, 2005 maturity date, or be successful in obtaining financing at
acceptable terms; (iii) the inability of the Company to currently meet listing requirements of The
Nasdaq Stock Market or other national stock exchange may hinder the Companys ability to raise new
capital through the issuance of equity securities; (iv) significant segments of the Companys
business are seasonal; (v) the Companys business depends on short term contracts and the inability
to renew or extend these contracts could adversely affect its business; (vi) the Company may lose
money on some of its contracts, because it guarantees certain payments thereunder; and (vii) war or
acts of terrorism or a domestic economic downturn or recession could materially adversely impact
corporate discretionary spending, such as advertising and corporate sponsorships sold by the
Company. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk See Interest Rate and Market Rate Risk in Item 2 of this Form 10-Q 25




---



##### Table of Contents



Item 4. Controls and Procedures The Company carried out, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer and the Companys Chief Financial
Officer, an evaluation of the effectiveness of the design and operation of the Companys disclosure
controls and procedures performed pursuant to Rule 13a-15 under the Securities Exchange Act of 1934
as amended. Based on that evaluation, the Companys Chief Executive Officer and its Chief Financial
Officer concluded that, as of February 28, 2005, the Companys disclosure controls and procedures
are effective in timely alerting them to information which is required to be included in the
periodic reports that the Company must file with the Securities and Exchange Commission. There were no changes in the Companys internal control over financial reporting during the quarter
ended February 28, 2005 identified in connection with the evaluation thereof by the Companys
management, including the Chief Executive Officer and Chief Financial Officer, that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over
financial reporting. 
 PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings In January 1999, the Company acquired shares of Sarkes Tarzian, Inc. (Tarzian) common stock,
$4.00 par value, (the Tarzian Shares) from the Estate of Mary Tarzian (the Estate) for $10.0
million. In March 1999, the Company and Gray entered into an option agreement whereby Gray
purchased an option to acquire the Tarzian Shares from the Company, and in December 2001, Gray
exercised such option, purchasing the Tarzian Shares from the Company for $10.0 million. During
the option period, the Company received fees from Gray in the aggregate amount of $3.2 million. On February 12, 1999, Tarzian filed suit in the United States District Court for the Southern
District of Indiana (the Indiana Court) against U.S. Trust Company of Florida Savings Bank as
Personal Representative of the Estate, claiming that Tarzian had a binding and enforceable contract
to purchase the Tarzian Shares from the Estate. On February 3, 2003, the Court entered judgment on
a jury verdict in favor of Tarzian for breach of contract and awarded Tarzian $4.0 million in
damages. The Court denied the Estates post-trial motions, denied Tarzians post-trial motion for
specific performance and granted Tarzians post-trial motion for pre-judgment interest. The Estate
appealed the judgment and the Courts rulings on the post-trial motions and Tarzian cross-appealed.
On February 14, 2005, the Seventh Circuit Court of Appeals issued a decision concluding that no
contract was ever created between Tarzian and the Estate, reversing the judgment of the District
Court, and remanding the case to the District Court with instructions to enter judgment for the
Estate. On March 21, 2005, the Seventh Circuit denied Tarzians petition for rehearing. The
Company cannot predict when the final resolution of this litigation will occur. On March 7, 2003, Tarzian filed suit in the United States District Court for the Northern District
of Georgia against Gray and the Company for tortious interference with contract and conversion.
The lawsuit alleges that Bull Run and Gray purchased the Tarzian Shares with actual knowledge that
Tarzian had a binding agreement to purchase the stock from the Estate. The lawsuit seeks damages
in an amount equal to the liquidation value of the interest in Tarzian that the stock represents,
which Tarzian claims to be as much as $75 million, as well as attorneys fees, expenses, and
punitive damages. The lawsuit also seeks an order requiring Gray and the Company to turn over the
Tarzian Shares to Tarzian and relinquish all claims to the stock. The stock purchase agreement
with the Estate would permit the Company to make a claim against the Estate in the event that title
to the Tarzian Shares is ultimately awarded to Tarzian. There is no assurance that the Estate would
have sufficient assets to honor any or all of such claim. The Company filed its answer to the
lawsuit on May 14, 2003 denying any liability for Tarzians claims. On February 23, 2005, the
Court granted the parties consent motion staying discovery pending a ruling from the Seventh
Circuit on the petition for rehearing filed by Tarzian in the Indiana litigation referenced above.
The Company cannot predict when the final resolution of this litigation will occur. 26




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders An annual meeting of the Companys shareholders was held in Atlanta, Georgia on January 26, 2005.
All of the proposals considered by shareholders were approved, as follows: Proposal to elect J. Mack Robinson, Gerald N. Agranoff, James W. Busby, Hilton H. Howell, Jr.,
Monte C. Johnson, Robert S. Prather, Jr. and Thomas J. Stultz as directors: For:
    
    
    6,023,925Withhold:
    
    
    48,832
 Proposal to ratify the appointment of PricewaterhouseCoopers LLP as the independent auditors: For:
    
    
    6,031,204Against:
    
    
    20,809Abstain:
    
    
    20,744
 
 Item 6. Exhibits 31.1
    
    Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 SIGNATURES Pursuant to the requirements 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. BULL RUN CORPORATIONDate:  April 11, 2005
    By:
    /s/ FREDERICK J. ERICKSONFrederick J. EricksonVice President-Finance, Treasurer
and Assistant Secretary 27