##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

|      |  |                                                                                   
|----- |  | ----------------------------------------------------------------------------------
|[   ] |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 
|      |  |                                                                                   
|      |  | For the quarterly period ended _____________________                              
|      |  |                                                                                   
|      |  | OR                                                                                
|      |  |                                                                                   
|[X]   |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|      |  |                                                                                   
|      |  | For the transition period from July 1, 2002 to August 31, 2002.                   
|      |  |                                                                                   
|      |  | Commission file number 0-9385                                                     

Bull Run Corporation
(Exact name of registrant as specified in its charter)

|                                                 |  |                                                
|------------------------------------------------ |  | -----------------------------------------------
|Georgia
(State of incorporation
or organization) |  | 58-2458679
(I.R.S. Employer
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. Yes [X] No [    ]

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: 38,587,050 shares of Common
Stock, par value $.01 per share, were outstanding as of October 31, 2002.

1



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##### 



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BULL RUN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands)

|                                                                                                                                                                |                                                                                                                                                     |                            |         |            |         |          |         |         |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ---------- | ------- | -------- | ------- | ------- | ------- | 
|                                                                                                                                                                |                                                                                                                                                     |                            |         | August 31, |         | June 30,
|                                                                                                                                                                |                                                                                                                                                     |                            |         | 2002       |         | 2002    
|                                                                                                                                                                |                                                                                                                                                     |                            |         |            |         |         
|ASSETS                                                                                                                                                          |                                                                                                                                                     |                            |         |            |         |          |         |        
|Current assets:                                                                                                                                                 |                                                                                                                                                     |                            |         |            |         |          |         |        
|                                                                                                                                                                | Cash and cash equivalents                                                                                                                           |                            | $       | 397        |         |          | $       | 653     |        
|                                                                                                                                                                | Accounts receivable, net of allowance of $514 and $444 as of
August 31, 2002 and June 30, 2002, respectively                                        |                            |         | 13,502     |         |          |         | 16,296  |        
|                                                                                                                                                                | Inventories                                                                                                                                         |                            |         | 1,005      |         |          |         | 644     |        
|                                                                                                                                                                | Prepaid costs and expenses                                                                                                                          |                            |         | 1,559      |         |          |         | 2,674   |        
|                                                                                                                                                                | Income taxes receivable                                                                                                                             |                            |         | 561        |         |          |         | 4,187   |        
|                                                                                                                                                                | Net current assets of discontinued segment                                                                                                          |                            |         | 106        |         |          |         | 104     |        
|                                                                                                                                                                |                                                                                                                                                     |                            |         |            |         |          |         |        
|                                                                                                                                                                |                                                                                                                                                     | Total current assets       |         |            | 17,130  |          |         |         | 24,558  | 
|Property and equipment, net                                                                                                                                     |                                                                                                                                                     |                            | 5,171   |            |         |          | 5,398   |        
|Investment in affiliated companies                                                                                                                              |                                                                                                                                                     |                            | 25,013  |            |         |          | 25,115  |        
|Goodwill                                                                                                                                                        |                                                                                                                                                     |                            | 57,862  |            |         |          | 57,862  |        
|Customer base and trademarks                                                                                                                                    |                                                                                                                                                     |                            | 16,999  |            |         |          | 17,202  |        
|Deferred income taxes                                                                                                                                           |                                                                                                                                                     |                            | 21,381  |            |         |          | 21,400  |        
|Other assets                                                                                                                                                    |                                                                                                                                                     |                            | 8,818   |            |         |          | 9,464   |        
|                                                                                                                                                                |                                                                                                                                                     |                            |         |            |         |          |         |        
|                                                                                                                                                                |                                                                                                                                                     | $                          | 152,374 |            |         | $        | 160,999 |        
|                                                                                                                                                                |                                                                                                                                                     |                            |         |            |         |          |         |        
|LIABILITIES
AND STOCKHOLDERS EQUITY                                                                                                                            |                                                                                                                                                     |                            |         |            |         |          |         |        
|Current liabilities:                                                                                                                                            |                                                                                                                                                     |                            |         |            |         |          |         |        
|                                                                                                                                                                | Current portion of long-term debt                                                                                                                   |                            | $       | 19,850     |         |          | $       | 15,000  |        
|                                                                                                                                                                | Accounts payable                                                                                                                                    |                            |         | 6,558      |         |          |         | 7,212   |        
|                                                                                                                                                                | Deferred revenue                                                                                                                                    |                            |         | 13,616     |         |          |         | 9,624   |        
|                                                                                                                                                                | Accrued and other liabilities                                                                                                                       |                            |         | 9,358      |         |          |         | 19,549  |        
|                                                                                                                                                                |                                                                                                                                                     |                            |         |            |         |          |         |        
|                                                                                                                                                                |                                                                                                                                                     | Total current liabilities  |         |            | 49,382  |          |         |         | 51,385  | 
|Long-term debt                                                                                                                                                  |                                                                                                                                                     |                            | 93,091  |            |         |          | 98,091  |        
|Other liabilities                                                                                                                                               |                                                                                                                                                     |                            | 1,284   |            |         |          | 1,992   |        
|                                                                                                                                                                |                                                                                                                                                     |                            |         |            |         |          |         |        
|                                                                                                                                                                |                                                                                                                                                     | Total liabilities          |         |            | 143,757 |          |         |         | 151,468 | 
|                                                                                                                                                                |                                                                                                                                                     |                            |         |            |         |          |         |        
|Commitments and contingencies                                                                                                                                  
|Redeemable Series B convertible preferred stock, $.01 par value,
(authorized 100 shares; issued and outstanding 5.4 shares; $5,400
aggregate liquidation value) |                                                                                                                                                     |                            | 5,400   |            |         |          | 5,400   |        
|                                                                                                                                                                |                                                                                                                                                     |                            |         |            |         |          |         |        
|Stockholders equity:                                                                                                                                           |                                                                                                                                                     |                            |         |            |         |          |         |        
|                                                                                                                                                                | Series C
convertible preferred stock, $.01 par value (authorized 100 shares; issued
and outstanding 4.1 shares; $4,097 aggregate liquidation value) |                            |         | 4,097      |         |          |         |         |        
|                                                                                                                                                                | Common stock, $.01 par value (authorized 100,000 shares; issued
38,548 and 38,108 shares as of August 31, 2002 and June 30, 2002,
respectively)     |                            |         | 385        |         |          |         | 381     |        
|                                                                                                                                                                | Additional paid-in capital                                                                                                                          |                            |         | 79,101     |         |          |         | 78,698  |        
|                                                                                                                                                                | Treasury stock, at cost (542 shares)                                                                                                                |                            |         | (1,393     | )       |          |         | (1,393  | )      
|                                                                                                                                                                | Other comprehensive accumulated loss                                                                                                                |                            |         | (2,050     | )       |          |         | (2,080  | )      
|                                                                                                                                                                | Retained earnings (accumulated deficit)                                                                                                             |                            |         | (76,923    | )       |          |         | (71,475 | )      
|                                                                                                                                                                |                                                                                                                                                     |                            |         |            |         |          |         |        
|                                                                                                                                                                |                                                                                                                                                     | Total stockholders equity |         |            | 3,217   |          |         |         | 4,131   | 
|                                                                                                                                                                |                                                                                                                                                     |                            |         |            |         |          |         |        
|                                                                                                                                                                |                                                                                                                                                     | $                          | 152,374 |            |         | $        | 160,999 |        
|                                                                                                                                                                |                                                                                                                                                     |                            |         |            |         |          |         |        

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

2



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##### 



BULL RUN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in thousands, except per share data)

|                                                      |                                                       |                   |                                           |        |                  |        |        |        |        |        |  
|----------------------------------------------------- | ----------------------------------------------------- | ----------------- | ----------------------------------------- | ------ | ---------------- | ------ | ------ | ------ | ------ | ------ | -
|                                                      |                                                       |                   |                                           |        | Two Months Ended
|                                                      |                                                       |                   |                                           |        | August 31,      
|                                                      |                                                       |                   |                                           |        |                 
|                                                      |                                                       |                   |                                           |        | 2002             |        | 2001  
|                                                      |                                                       |                   |                                           |        |                  |        |       
|Revenue from services rendered                        |                                                       | $                 | 9,490                                     |        |                  | $      | 12,777 |       
|                                                      |                                                       |                   |                                           |        |                  |        |        |       
|Operating costs and expenses:                         |                                                       |                   |                                           |        |                  |        |        |       
|                                                      | Direct operating costs for services rendered          |                   |                                           | 7,265  |                  |        |        | 8,082  |       
|                                                      | Selling, general and administrative                   |                   |                                           | 5,643  |                  |        |        | 6,154  |       
|                                                      | Amortization of acquisition intangibles               |                   |                                           | 203    |                  |        |        | 171    |       
|                                                      |                                                       |                   |                                           |        |                  |        |        |       
|                                                      |                                                       |                   | Total operating costs and expenses        |        |                  | 13,111 |        |        |        | 14,407 |  
|                                                      |                                                       |                   |                                           |        |                  |        |        |       
|                                                      |                                                       |                   | Loss from operations                      |        |                  | (3,621 | )      |        |        | (1,630 | )
|Other income (expense):                               |                                                       |                   |                                           |        |                  |        |        |       
|                                                      | Equity in earnings (losses) of affiliated companies   |                   |                                           | (110   | )                |        |        | (554   | )     
|                                                      | Net change in value of certain derivative instruments |                   |                                           | (423   | )                |        |        | (632   | )     
|                                                      | Reduction in valuation of investment in affiliate     |                   |                                           |        |                  |        |        | (250   | )     
|                                                      | Interest and dividend income                          |                   |                                           | 652    |                  |        |        | 99     |       
|                                                      | Interest expense                                      |                   |                                           | (1,505 | )                |        |        | (1,729 | )     
|                                                      | Debt issue cost amortization                          |                   |                                           | (269   | )                |        |        | (434   | )     
|                                                      | Other income (expense), net                           |                   |                                           | (79    | )                |        |        | 116    |       
|                                                      |                                                       |                   |                                           |        |                  |        |        |       
|                                                      |                                                       |                   | Loss before income taxes                  |        |                  | (5,355 | )      |        |        | (5,014 | )
|Income tax benefit                                    |                                                       |                   |                                           |        |                  |        | 1,509  |       
|                                                      |                                                       |                   |                                           |        |                  |        |        |       
|                                                      |                                                       |                   | Net loss                                  |        |                  | (5,355 | )      |        |        | (3,505 | )
|Preferred dividends                                   |                                                       |                   | (93                                       | )      |                  |        | (45    | )     
|                                                      |                                                       |                   |                                           |        |                  |        |        |       
|                                                      |                                                       |                   | Net loss available to common stockholders |        | $                | (5,448 | )      |        | $      | (3,550 | )
|                                                      |                                                       |                   |                                           |        |                  |        |        |       
|Loss per share available to common stockholders:      |                                                       |                   |                                           |        |                  |        |        |       
|                                                      |                                                       | Basic and diluted |                                           | $      | (0.14            | )      |        | $      | (0.10  | )     
|                                                      |                                                       |                   |                                           |        |                  |        |        |       
|Weighted average number of common shares outstanding: |                                                       |                   |                                           |        |                  |        |        |       
|                                                      |                                                       | Basic and diluted |                                           |        | 37,928           |        |        |        | 35,993 |       
|                                                      |                                                       |                   |                                           |        |                  |        |        |       

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

3



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##### 



BULL RUN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS EQUITY (Unaudited)
(Amounts in thousands)

|                                     |  |            |       |           |  |              |       |         |  |         |        |  |  |            |     |  |  |   |        | 
|------------------------------------ |  | ---------- | ----- | --------- |  | ------------ | ----- | ------- |  | ------- | ------ |  |  | ---------- | --- |  |  | - | ------ | 
|                                     |  | Redeemable |       |           |  |              |       |         |  |         |        |  |  |            |     |  |  |  
|                                     |  | Series B   |       | Series C  |  |              |       |         |  |         |        |  |  | Additional
|                                     |  | Preferred  |       | Preferred |  | Common Stock |       | Paid-In
|                                     |  | Stock      |       | Stock     |  | Shares       |       | Amount  |  | Capital
|                                     |  |            |       |           |  |              |       |         |  |        
|As of July 1, 2002                   |  | $          | 5,400 |           |  | $            |       |         |  |         | 38,108 |  |  | $          | 381 |  |  | $ | 78,698 | 
|Issuance of Series C preferred stock |  |            |       |           |  |              | 4,097 |         |  |         |        |  |  |            |     |  |  |   |        | 
|Issuance of common stock             |  |            |       |           |  |              |       |         |  |         | 440    |  |  |            | 4   |  |  |   | 403    | 
|                                     |  |            |       |           |  |              |       |         |  |         |        |  |  |            |     |  |  |   |        | 
|As of August 31, 2002                |  | $          | 5,400 |           |  | $            | 4,097 |         |  |         | 38,548 |  |  | $          | 385 |  |  | $ | 79,101 | 
|                                     |  |            |       |           |  |              |       |         |  |         |        |  |  |            |     |  |  |   |        | 

|                                     |  |          |        |             |  |               |        |               |  |       |         |   |  |   |        |  
|------------------------------------ |  | -------- | ------ | ----------- |  | ------------- | ------ | ------------- |  | ----- | ------- | - |  | - | ------ | -
|                                     |  |          |        |             |  | Other         |        | Retained      |  |       |         |  
|                                     |  |          |        |             |  | Comprehensive |        | Earnings      |  | Total
|                                     |  | Treasury |        | Accumulated |  | (Accumulated  |        | Stockholders'
|                                     |  | Stock    |        | Loss        |  | Deficit)      |        | Equity       
|                                     |  |          |        |             |  |               |        |              
|As of July 1, 2002                   |  | $        | (1,393 | )           |  | $             | (2,080 | )             |  | $     | (71,475 | ) |  | $ | 4,131  |  
|Issuance of Series C preferred stock |  |          |        |             |  |               |        |               |  |       |         |   |  |   | 4,097  |  
|Issuance of common stock             |  |          |        |             |  |               |        |               |  |       |         |   |  |   | 407    |  
|Other comprehensive loss             |  |          |        |             |  |               | 30     |               |  |       |         |   |  |   | 30     |  
|Preferred dividends                  |  |          |        |             |  |               |        |               |  |       | (93     | ) |  |   | (93    | )
|Net loss                             |  |          |        |             |  |               |        |               |  |       | (5,355  | ) |  |   | (5,355 | )
|                                     |  |          |        |             |  |               |        |               |  |       |         |   |  |   |        |  
|As of August 31, 2002                |  | $        | (1,393 | )           |  | $             | (2,050 | )             |  | $     | (76,923 | ) |  | $ | 3,217  |  
|                                     |  |          |        |             |  |               |        |               |  |       |         |   |  |   |        |  

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

4



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##### 



BULL RUN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)

|                                                                           |                                                       |                                       |        |                  |        |      |        |        |        |  
|-------------------------------------------------------------------------- | ----------------------------------------------------- | ------------------------------------- | ------ | ---------------- | ------ | ---- | ------ | ------ | ------ | -
|                                                                           |                                                       |                                       |        | Two Months Ended
|                                                                           |                                                       |                                       |        | August 31,      
|                                                                           |                                                       |                                       |        |                 
|                                                                           |                                                       |                                       |        | 2002             |        | 2001
|                                                                           |                                                       |                                       |        |                  |        |     
|Cash flows from operating activities:                                      |                                                       |                                       |        |                  |        |      |        |       
|Net loss                                                                   |                                                       | $                                     | (5,355 | )                |        | $    | (3,505 | )     
|Adjustments to reconcile net loss to net cash used in operations:          |                                                       |                                       |        |                  |        |      |        |       
|                                                                           | Provision for bad debts                               |                                       |        | 85               |        |      |        | 61     |       
|                                                                           | Depreciation and amortization                         |                                       |        | 764              |        |      |        | 873    |       
|                                                                           | Equity in (earnings) losses of affiliated companies   |                                       |        | 110              |        |      |        | 554    |       
|                                                                           | Dividends received from affiliated company            |                                       |        | 41               |        |      |        |        |       
|                                                                           | Reduction in valuation of investment in affiliate     |                                       |        |                  |        |      |        | 250    |       
|                                                                           | Net change in value of certain derivative instruments |                                       |        | 423              |        |      |        | 632    |       
|                                                                           | Deferred income taxes                                 |                                       |        |                  |        |      |        | (1,509 | )     
|                                                                           | Change in operating assets and liabilities:           |                                       |        |                  |        |      |        |        |       
|                                                                           |                                                       | Accounts receivable                   |        |                  | 2,709  |      |        |        | (4,205 | )
|                                                                           |                                                       | Inventories                           |        |                  | (361   | )    |        |        | (118   | )
|                                                                           |                                                       | Prepaid costs and expenses            |        |                  | 1,114  |      |        |        | (972   | )
|                                                                           |                                                       | Accounts payable and accrued expenses |        |                  | (2,871 | )    |        |        | 5,555  |  
|                                                                           |                                                       | Other long-term liabilities           |        |                  | (651   | )    |        |        | (139   | )
|                                                                           |                                                       |                                       |        |                  |        |      |        |       
|Net cash used in continuing operations                                     |                                                       |                                       | (3,992 | )                |        |      | (2,523 | )     
|Net cash provided by (used in) discontinued operations                     |                                                       |                                       | (3     | )                |        |      | 53     |       
|                                                                           |                                                       |                                       |        |                  |        |      |        |       
|Net cash used in operating activities                                      |                                                       |                                       | (3,995 | )                |        |      | (2,470 | )     
|                                                                           |                                                       |                                       |        |                  |        |      |        |       
|Cash flows from investing activities:                                      |                                                       |                                       |        |                  |        |      |        |       
|Capital expenditures                                                       |                                                       |                                       | (66    | )                |        |      | (78    | )     
|Increase in other assets                                                   |                                                       |                                       | (19    | )                |        |      | (22    | )     
|                                                                           |                                                       |                                       |        |                  |        |      |        |       
|Net cash used in continuing operation investing activities                 |                                                       |                                       | (85    | )                |        |      | (100   | )     
|Net cash provided by (used in) discontinued operation investing activities |                                                       |                                       | (18    | )                |        |      | 1,007  |       
|                                                                           |                                                       |                                       |        |                  |        |      |        |       
|Net cash provided by (used in) investing activities                        |                                                       |                                       | (103   | )                |        |      | 907    |       
|                                                                           |                                                       |                                       |        |                  |        |      |        |       
|Cash flows from financing activities:                                      |                                                       |                                       |        |                  |        |      |        |       
|Borrowings from revolving lines of credit                                  |                                                       |                                       |        |                  |        |      | 1,350  |       
|Borrowings from subordinated notes                                         |                                                       |                                       | 4,000  |                  |        |      |        |       
|Repayments on revolving lines of credit                                    |                                                       |                                       | (150   | )                |        |      | (2,000 | )     
|Repayments on long-term debt                                               |                                                       |                                       |        |                  |        |      | (1,050 | )     
|Debt issue costs                                                           |                                                       |                                       | (8     | )                |        |      | (460   | )     
|Exercise of stock options                                                  |                                                       |                                       |        |                  |        |      | 35     |       
|                                                                           |                                                       |                                       |        |                  |        |      |        |       
|Net cash provided by (used in) financing activities                        |                                                       |                                       | 3,842  |                  |        |      | (2,125 | )     
|                                                                           |                                                       |                                       |        |                  |        |      |        |       
|Net decrease in cash and cash equivalents                                  |                                                       |                                       | (256   | )                |        |      | (3,688 | )     
|Cash and cash equivalents, beginning of period                             |                                                       |                                       | 653    |                  |        |      | 2,637  |       
|                                                                           |                                                       |                                       |        |                  |        |      |        |       
|Cash and cash equivalents, end of period                                   |                                                       | $                                     | 397    |                  |        | $    | (1,051 | )     
|                                                                           |                                                       |                                       |        |                  |        |      |        |       

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

5



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BULL RUN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts)

1. BASIS OF PRESENTATION

In managements opinion, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (consisting solely of normal,
recurring adjustments) necessary to present fairly the financial position and
results of operations for the transition and comparative period reported.
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements contained in the Annual Report on
Form 10-K of Bull Run Corporation for the fiscal year ended June 30, 2002.

On December 17, 1999, Bull Run Corporation (Bull Run) acquired the stock of
Host Communications, Inc. (Host), Universal Sports America, Inc. and Capital
Sports Properties, Inc. not previously owned, directly or indirectly, by Bull
Run (the Host-USA Acquisition). All operations of the acquired entities are
now combined under Host.

The accompanying condensed consolidated financial statements include the
accounts of Bull Run and its wholly owned subsidiaries (collectively, unless
the context otherwise requires, the Company), after elimination of
intercompany accounts and transactions.

The Company changed its fiscal year end from June 30 to August 31. Future
filings with the U.S. Securities and Exchange Commission will be submitted on
Form 10-Q for the quarterly periods ending November 30, February 28 (or 29) and
May 31, and on Form 10-K for the fiscal year ending August 31, 2003.

Unless otherwise indicated, amounts provided in these notes to the consolidated
financial statements pertain to continuing operations.

2. DISCONTINUED OPERATION

On September 29, 2000, the Company consummated the sale of the inventories,
property and equipment and intangible assets of Datasouth Computer Corporation
(Datasouth), a wholly owned subsidiary, for cash and an installment note
payable. Accordingly, the operating results and net assets associated with
Datasouths computer printer manufacturing business have been reported as
discontinued operations in the accompanying financial statements. To the
extent actual proceeds ultimately received on the sale differ from estimates
that are reported as of August 31, 2002, such differences will be reported as
discontinued operations in future periods.

Assets and liabilities of the discontinued operations have been reflected in
the condensed consolidated balance sheets based on the original classification
of the accounts, except that current assets are presented net of current
liabilities.

No interest expense has been allocated to discontinued operations. There are
no material contingent liabilities related to discontinued operations, such as
product or environmental liabilities or litigation, that remained with the
Company after the disposal of Datasouths assets.

6



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##### 



The following is a summary of assets and liabilities of discontinued
operations:

|                     |                                       |   |            |    |          |   |     |    |  
|-------------------- | ------------------------------------- | - | ---------- | -- | -------- | - | --- | -- | -
|                     |                                       |   | August 31, |    | June 30,
|                     |                                       |   | 2002       |    | 2002    
|                     |                                       |   |            |    |         
|Current assets:      |                                       |   |            |    |          |   |     |   
|                     | Accounts receivable, net              |   | $          | 10 |          |   | $   | 25 |  
|                     | Other current assets                  |   |            | 96 |          |   |     | 87 |  
|Current liabilities: |                                       |   |            |    |          |   |     |   
|                     | Accounts payable and accrued expenses |   |            |    |          |   |     | (8 | )
|                     |                                       |   |            |    |          |   |     |   
|                     |                                       | $ | 106        |    |          | $ | 104 |   
|                     |                                       |   |            |    |          |   |     |   

3. SUPPLEMENTAL CASH FLOW DISCLOSURES

Supplemental cash flow information follows:

|                                            |                                                                                                             |   |                  |       |      |   |       |   | 
|------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | - | ---------------- | ----- | ---- | - | ----- | - | 
|                                            |                                                                                                             |   | Two Months Ended
|                                            |                                                                                                             |   | August 31,      
|                                            |                                                                                                             |   |                 
|                                            |                                                                                                             |   | 2002             |       | 2001
|                                            |                                                                                                             |   |                  |       |     
|Interest paid                               |                                                                                                             | $ | 1,151            |       |      | $ | 1,693 |  
|Income taxes paid (recovered)               |                                                                                                             |   | (3,627           | )     |      |   | (99   | )
|Noncash investing and financing activities: |                                                                                                             |   |                  |       |      |   |       |  
|                                            | Issuance of common stock in payment of
Series B preferred stock dividends                                   |   | $                | 407   |      |   |       |   | 
|                                            | Series C preferred stock issued in exchange for
9% subordinated notes and accrued interest
and fees thereon |   | $                | 4,097 |      |   |       |   | 

4. INVESTMENT IN AFFILIATED COMPANIES

The Companys investment in affiliated companies is comprised of the following:

|                                      |  |                 |        |               |  |        |      |          |  |   |        |  |  |  |      |  
|------------------------------------- |  | --------------- | ------ | ------------- |  | ------ | ---- | -------- |  | - | ------ |  |  |  | ---- | -
|                                      |  | August 31, 2002 |        | June 30, 2002
|                                      |  |                 |        |              
|                                      |  | Amount          |        | Voting %      |  | Amount |      | Voting %
|                                      |  |                 |        |               |  |        |      |         
|Gray Television, Inc.                 |  | $               | 19,102 |               |  |        | 26.1 | %        |  | $ | 19,060 |  |  |  | 26.1 | %
|Rawlings Sporting Goods
Company, Inc. |  |                 | 4,377  |               |  |        | 10.1 | %        |  |   | 4,328  |  |  |  | 10.1 | %
|iHigh, Inc.                           |  |                 | 1,534  |               |  |        | 35.1 | %        |  |   | 1,727  |  |  |  | 35.1 | %
|                                      |  |                 |        |               |  |        |      |          |  |   |        |  |  |  |      |  
|                                      |  | $               | 25,013 |               |  |        |      |          |  | $ | 25,115 |  |  |  |      |  
|                                      |  |                 |        |               |  |        |      |          |  |   |        |  |  |  |      |  

The Company accounts for its investments in Gray Television, Inc. (Gray), and
iHigh, Inc. (iHigh) using the equity method. The Company accounts for its
investment in Rawlings Sporting Goods Company, Inc. (Rawlings) as an
available-for-sale marketable security. As a result, the Companys carrying
value of its investment in Rawlings is based on the closing price of Rawlings
common stock as quoted on the Nasdaq Stock Market, and is included as a
component of Investment in affiliated companies. Rawlings common stock is
publicly traded on the Nasdaq Stock Market under the symbol RAWL. Grays two
classes of common stock are publicly traded on the New York Stock Exchange
under the symbols GTN.A and GTN.

7



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In October 2002, Gray completed a public offering of 30,000 shares of its
common stock for net proceeds of approximately $231,200. Such proceeds were
used in part by Gray to finance an October 2002 acquisition of a company that
owns television stations, and certain of the proceeds may also by used to
finance an acquisition of an additional television station currently expected
to close by December 2002. As a result of this offering, the Companys
ownership of Grays outstanding common stock was reduced from 12.9% to
approximately 4.4%, representing a decline in the Companys voting power in

Gray from 26.1% to approximately 18.8%. Since certain executive officers of
Gray and certain directors of Gray are also executive officers and directors of
the Company, the Company will continue to account for its investment in Gray
under the equity method subsequent to the issuance of 30,000 shares by Gray in
October 2002.

The aggregate operating results of Gray and iHigh, affiliated companies in
which the Companys investments are accounted for using the equity method, were
as follows:

|                       |  |                  |        |      |  |   |        |  
|---------------------- |  | ---------------- | ------ | ---- |  | - | ------ | -
|                       |  | Two Months Ended
|                       |  | August 31,      
|                       |  |                 
|                       |  | 2002             |        | 2001
|                       |  |                  |        |     
|Net revenue            |  | $                | 27,518 |      |  | $ | 24,496 |  
|Income from operations |  |                  | 6,667  |      |  |   | 1,069  |  
|Net income (loss)      |  |                  | 658    |      |  |   | (3,112 | )

5. LONG-TERM DEBT

As amended in October 2002, the Companys bank credit agreement provides for
(a) two term loans (the Term Loans) for borrowings totaling $73,932, bearing
interest at either the banks prime rate plus .75% or the London Interbank
Offered Rate (LIBOR) plus 3.75%, requiring minimum aggregate principal
payments of $5,000 by each of January 15, 2003, April 15, 2003 and July 15,
2003, with all amounts outstanding under the Term Loans due on September 30,
2003; and (b) a revolving loan commitment (the Revolver) for maximum
borrowings of $20,000 until maturity on September 30, 2003, bearing interest at
either the banks prime rate plus .75% or LIBOR plus 3.75%. Interest is
payable monthly. Borrowings under the Revolver are allowed to exceed 100% of
eligible accounts receivable, however amounts borrowed exceeding such threshold
will bear an additional amount of interest at a rate of 2% per annum. As of
August 31, 2002, borrowings of $73,932 were outstanding under the Term Loans,
borrowings of $19,825 were outstanding under the Revolver, and additional
available borrowing capacity under the Revolver was $175 at that date. The
Company currently anticipates repayment of up to $19,850 of the total bank debt
during the year ending August 31, 2003, and as a result, $19,850 has been
presented in the balance sheet as the current portion of long-term debt, and
the remainder has been classified as a long-term liability. As of August 31,
2002 (and prior to the October amendment), all borrowings under the Term Loans
were subject to the banks prime rate-based rate of 6.25% and all borrowings
under the Revolver were subject to the banks prime rate-based rate of 5.75%.
Beginning October 14, 2002, all of the bank debt was subject to the banks
prime rate-based rate of 5.50%.

The bank credit agreement, as amended, contains certain financial covenants,
including the maintenance of a minimum amount of net worth at all times, and
maintenance of minimum profitability thresholds determined quarterly beginning
November 30, 2002. All debt outstanding under the bank credit agreement is
collateralized by all of the Companys assets, including all of its investments
in affiliated companies.

In connection with the Companys bank credit facilities, the Companys Chairman
entered into a guarantee agreement in favor of the banks, for which he receives
compensation from the Company from time to time in the form of restricted
shares of the Companys common stock. The agreement provides for the
Chairmans personal guarantee of up to approximately $91,500 of the

8



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Companys outstanding bank debt. The guaranteed amount reduces dollar for
dollar, subject to certain limitations, as the aggregate outstanding amount
under the Term Loans is reduced. The guarantee agreement provides that if the
Company defaults on its bank loan, the banks have the right to require the
Chairman to repay the amount of such loan to the banks up to the maximum amount
of his personal guarantee. Under the terms of his guarantee, if the banks
exercise their rights to demand repayment from the guarantor, the Chairman has
the option to purchase the entire loan from the banks, and thereby becoming the
holder of the Companys debt currently payable to the banks as a secured
creditor.

In connection with the Host-USA Acquisition, the Company issued 8% subordinated
notes having an aggregate face value of $18,594. Interest is payable quarterly
and the notes had an original maturity date of January 17, 2003; however,
subsequent to August 31, 2002, substantially all holders of these subordinated
notes agreed to amend the maturity date of their note, in substantially all
cases, to January 17, 2006. The Company also has 9% subordinated notes having
an aggregate outstanding balance of $590 due in March 2004. Payment of
interest and principal on all subordinated notes is subordinate to the
Companys bank credit agreement.

The Company is a party to two interest rate swap agreements. The first
agreement, terminating on December 31, 2002, involves the exchange of interest
at a fixed rate of 6.08% for interest at a variable rate, determined quarterly,
equal to the 90-day LIBOR rate, without an exchange of the $20,000 notional
amount upon which the payments are based. The second agreement, terminating on
December 31, 2002 (or December 31, 2004, at the banks option), involves 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 are based. The
differential paid or received as interest rates change is settled quarterly and
is accrued and recognized as an adjustment of interest expense related to the
debt.

In July 2002, the Company issued the Companys Chairman 9% subordinated notes
totaling $4,000, the proceeds from which were used by the Company for working
capital purposes. Effective August 31, 2002, the Company exchanged these notes
for shares of the Companys convertible preferred stock having an aggregate
face amount of $4,097.

6. INCOME TAXES

The principal differences between the federal statutory tax rate of 34% and the
effective tax rates are nondeductible amortization of acquisition intangible
assets and state income taxes, and for the two months ended August 31, 2002, an
increase in the valuation allowance for potentially non-realizable deferred tax
assets by $1,850.

7. PREFERRED STOCK ISSUANCE

Effective August 31, 2002, 9% subordinated notes issued to the Companys
Chairman, along with accrued interest and fees thereon, were exchanged for
4.097 newly-issued shares of the Companys Series C convertible preferred stock
(Series C Preferred Stock) having an aggregate face amount of $4,097. In
September 2002, the Companys Chairman invested an additional $3,000 for 3
shares of Series C Preferred Stock, which was used by the Company for working
capital purposes. Each share of the Series C Preferred Stock is convertible at
the holders option into 1,000 shares of the Companys common stock beginning
in November 2003. The holder of Series C 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 of the preferred stock, the Company may, at
its option, pay such dividends in cash or in shares of the Companys common
stock. The Company has an option to redeem shares of Series C Preferred Stock
at any time, but does not

9



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currently have the intent or ability to do so. The liquidation and redemption
price of the preferred stock is $1,000 per share.

8. OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is as follows:

|                          |                                                                                |   |                  |    |      |   |        |   | 
|------------------------- | ------------------------------------------------------------------------------ | - | ---------------- | -- | ---- | - | ------ | - | 
|                          |                                                                                |   | Two Months Ended
|                          |                                                                                |   | August 31,      
|                          |                                                                                |   |                 
|                          |                                                                                |   | 2002             |    | 2001
|                          |                                                                                |   |                  |    |     
|Net loss                  |                                                                                | $ | (5,355           | )  |      | $ | (3,505 | )
|Other comprehensive loss: |                                                                                |   |                  |    |      |   |        |  
|                          | Change in the valuation of available-for-sale
investments, net of deferred tax |   |                  | 30 |      |   |        |   | 
|                          |                                                                                |   |                  |    |      |   |        |  
|Comprehensive loss        |                                                                                | $ | (5,325           | )  |      | $ | (3,505 | )
|                          |                                                                                |   |                  |    |      |   |        |  

The change in the valuation of available-for-sale investments results from the
accounting for the Companys investment in Rawlings as an available-for-sale
marketable security. Changes in the market value of the Companys investment
in Rawlings common stock, as determined by the closing price per share of
Rawlings common stock quoted on the Nasdaq Stock Market as of the beginning and
end of each fiscal period, will result in future comprehensive income or loss.

9. EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted earnings
(loss) per share:

|                                                                                                                |                                           |   |                  |        |      |   |        |        |  
|--------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | - | ---------------- | ------ | ---- | - | ------ | ------ | -
|                                                                                                                |                                           |   | Two Months Ended
|                                                                                                                |                                           |   | August 31,      
|                                                                                                                |                                           |   |                 
|                                                                                                                |                                           |   | 2002             |        | 2001
|                                                                                                                |                                           |   |                  |        |     
|Net loss                                                                                                        |                                           | $ | (5,355           | )      |      | $ | (3,505 | )     
|Preferred dividends                                                                                             |                                           |   | (93              | )      |      |   | (45    | )     
|                                                                                                                |                                           |   |                  |        |      |   |        |       
|                                                                                                                | Net loss available to common stockholders |   | $                | (5,448 | )    |   | $      | (3,550 | )
|                                                                                                                |                                           |   |                  |        |      |   |        |       
|Weighted average number of common shares outstanding for
basic earnings (loss) per share                        |                                           |   | 37,928           |        |      |   | 35,993 |       
|Effect of dilutive employee stock options                                                                       |                                           |   |                  |        |      |   |        |       
|                                                                                                                |                                           |   |                  |        |      |   |        |       
|Adjusted weighted average number of common shares and
assumed conversions for diluted earnings (loss) per share |                                           |   | 37,928           |        |      |   | 35,993 |       
|                                                                                                                |                                           |   |                  |        |      |   |        |       
|Loss per share (basic and diluted):                                                                             |                                           |   |                  |        |      |   |        |       
|                                                                                                                | Net loss available to common stockholders |   | $                | (0.14  | )    |   | $      | (0.10  | )
|                                                                                                                |                                           |   |                  |        |      |   |        |       

10. SEGMENT INFORMATION

The Company has four 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); (b)
event management and marketing services (Affinity Events); (c) association

10



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management services (Affinity Management Services) and (d) consulting
services (Consulting).

Information for each of the Companys segments is presented below.

|                         |                                              |   |                  |        |      |   |        |        |  
|------------------------ | -------------------------------------------- | - | ---------------- | ------ | ---- | - | ------ | ------ | -
|                         |                                              |   | Two Months Ended
|                         |                                              |   | August 31,      
|                         |                                              |   |                 
|                         |                                              |   | 2002             |        | 2001
|                         |                                              |   |                  |        |     
|Net revenues:            |                                              |   |                  |        |      |   |        |       
|                         | Collegiate Marketing and Production Services |   | $                | 3,307  |      |   | $      | 5,838  |  
|                         | Affinity Events                              |   |                  | 4,899  |      |   |        | 4,921  |  
|                         | Affinity Management Services                 |   |                  | 1,284  |      |   |        | 2,015  |  
|                         | Consulting                                   |   |                  |        |      |   |        | 3      |  
|                         |                                              |   |                  |        |      |   |        |       
|                         |                                              | $ | 9,490            |        |      | $ | 12,777 |       
|                         |                                              |   |                  |        |      |   |        |       
|Operating income (loss): |                                              |   |                  |        |      |   |        |       
|                         | Collegiate Marketing and Production Services |   | $                | (1,941 | )    |   | $      | (1,182 | )
|                         | Affinity Events                              |   |                  | (1,389 | )    |   |        | 117    |  
|                         | Affinity Management Services                 |   |                  | 152    |      |   |        | 47     |  
|                         | Consulting                                   |   |                  |        |      |   |        | 3      |  
|                         | Amortization of acquisition intangibles      |   |                  | (203   | )    |   |        | (171   | )
|                         | Unallocated general and administrative costs |   |                  | (240   | )    |   |        | (444   | )
|                         |                                              |   |                  |        |      |   |        |       
|                         |                                              | $ | (3,621           | )      |      | $ | (1,630 | )     
|                         |                                              |   |                  |        |      |   |        |       

In the two months ended August 31, 2002, the Company closed offices in Denver,
Colorado and Paris, France associated with its Affinity Events business
segment, resulting in non-recurring operating expenses of approximately $725.
These expenses consisted primarily of employee severance costs.

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 primary
operating business, Host Communications, Inc. (Host). Hosts Collegiate
Marketing and Production Services business segment provides sports marketing
and production services to a number of collegiate conferences and universities,
and for and on behalf of the National Collegiate Athletic Association (NCAA).
Hosts Affinity Events business segment produces and manages individual
events and several events series, including NBA Hoop-It-Up® (the National
Basketball Associations official 3-on-3 basketball tour) and the Got Milk?
3v3 Soccer Shootout (Major League Soccers official 3-on-3 soccer tour).
Hosts Affinity Management Services business segment provides associations
such as the National Tour Association and Quest (the J.D. Edwards users group
association), with services ranging from member communication, recruitment and
retention, to conference planning, Internet web site management, marketing and
administration.

The Company also has significant investments in other sports, media and
marketing companies, including Gray Television, Inc. (Gray), the owner and
operator of 28 television stations, four newspapers and other media and
communications businesses; Rawlings Sporting Goods Company, Inc. (Rawlings),
a supplier of team sports equipment; and iHigh, Inc. (iHigh), an Internet and
marketing company focused on high school students. The Company has provided
consulting services to Gray in connection with certain of Grays acquisitions
and dispositions.

11



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The Company sold the inventories, property and equipment and intangible assets
of Datasouth Computer Corporation (Datasouth), a wholly owned subsidiary, in
September 2000. Accordingly, the operating results and net assets associated
with Datasouths computer printer manufacturing business have been reported as
discontinued operations in the accompanying condensed consolidated financial
statements.

In September 2002, the Company changed its fiscal year end from June 30 to a
new fiscal year end of August 31. As a result of this change, the Companys
quarterly reporting periods will be, subsequent to this transition period from
July 1, 2002 to August 31, 2002, comprised of three calendar months ending
November 30, February 28 (or 29), May 31 and August 31.

CERTAIN RELATIONSHIPS

J. Mack Robinson, Chairman of the Board of the Company, is Chief Executive
Officer, Chairman and a director of Gray, and the beneficial owner of Gray
common stock representing approximately 54.6% of the combined voting power of
Grays two classes of common stock as of August 31, 2002. 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 stock representing approximately 38.2% of the combined
voting power of Grays two classes of common stock as of August 31, 2002.
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 stock
representing approximately 42.8% of the combined voting power of Grays two
classes of common stock as of August 31, 2002. Each of Messrs. Robinson,
Prather and Howells beneficial ownership percentages includes the Companys
beneficial ownership of approximately 35.4% of the combined voting power of
Grays two classes of common stock as of August 31, 2002. Beneficial ownership
percentages noted above include warrants and options to acquire shares of Gray
common stock that were exercisable on, or within 60 days after, August 31,
2002.

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.

Goodwill and Other Intangible Assets 

Effective July 1, 2001, the Company adopted Financial Accounting Standards
Board Statement No. 142, Accounting for Goodwill and Other Intangible Assets,
(FAS 142) which prescribes the Companys accounting for goodwill and certain
other intangible assets acquired in the Host-USA Acquisition. In accordance
with FAS 142, the Company is required to periodically assess the carrying value
of goodwill and trademarks associated with each of five distinct business units
that comprise three business segments of the Company to determine if impairment
in value has occurred. As of June 30, 2002, the Company accelerated
amortization of $6,582,000 of its customer base intangible asset, due to a
significant change in a certain underlying customer relationship. The
remaining carrying value assigned to this specific customer relationship is
being amortized on a straight-line basis through August 31, 2004, resulting in
amortization expense during that period of approximately $536,000 per year.
Other customer relationships are being amortized over a 16-year average life,
at a rate of approximately $680,000 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 $74,861,000 at August 31, 2002
and $75,064,000 at June 30, 2002, of which, goodwill was $57,862,000 as of both
dates.


12



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The carrying value of the Companys investment
in Gray of $19,102,000 as of
August 31, 2002 is largely dependent on Grays continuing assessment of the
value of Grays goodwill, broadcast licenses, network affiliation agreements
and other intangible assets. Impairment in Grays carrying value of its
intangible assets could have a significant impact on the Companys carrying
value of its investment in Gray.

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 August 31, 2002 the Company
has a net deferred tax asset of $21,381,000, primarily due to a net operating
loss carryforward for federal tax purposes that expires beginning in 2017, net
of a valuation allowance of $3,125,000. The Company believes it will generate
adequate taxable income from operations and/or the sale or other disposition of
appreciated investment assets in an amount sufficient to realize the deferred
tax asset.


Derivative Instruments and Hedging Activities 

The Company reports the value of certain derivative instruments (i.e., warrants
to purchase additional shares of Gray common stock and interest rate swap
agreements) on the balance sheet at fair value pursuant to Financial Accounting
Standards Boards Statement No. 133, Accounting for Derivative Investments and
Hedging Activities(FAS 133). The fair value of derivative instruments of
$4,451,000 and $4,874,000 as of August 31, 2002 and June 30, 2002,
respectively, is included in the Companys balance sheet as a component of
Other assets. Changes in the estimated fair value of derivatives that do not
meet the specific criteria in FAS 133 for hedge accounting (and none of the
Companys derivative instruments have been determined to qualify for hedge
accounting treatment) are included in the earnings (losses) reported for the
period of the change. Management estimates the fair value of the warrants
based on independent appraisals received on a quarterly basis, and estimates
the fair value of interest rate swap agreements based on estimated market
values provided by the counterparties to the swap agreements.


Valuation of Investments in Affiliated Companies 

The Company accounts for its investments in Gray and iHigh, and until December
31, 2001, Rawlings, by the equity method. Effective December 31, 2001, the
Company began accounting for its investment in Rawlings as an
available-for-sale marketable security. As a result, the Companys carrying
value of its investment in Rawlings is based on the closing price of Rawlings
common stock as quoted on the Nasdaq Stock Market, and is reported on the
balance sheet as a component of Investment in affiliated companies. As of
August 31, 2002, the Companys unrealized loss in its investment in Rawlings
was $3,333,000, as reported net of deferred tax of $1,283,000, as Other
comprehensive accumulated loss. If and when management believes that any or
all of the remaining unrealized loss represents a permanent impairment in the
estimated value of the investment in Rawlings, the estimated impairment amount
would be charged to the earnings (losses) reported for the period in which that
determination was made. Likewise, if management determines that the carrying
value of those investments accounted for by the equity method become
permanently impaired in whole or in part, the estimated amount of the permanent
impairment would be charged to the earnings (losses) reported for the period in
which that determination was made. In the two months ended August 31, 2002,
the Company did not recognize any charges related to managements estimate of
impairment in the carrying value of certain investments. Management has made
such permanent impairment determinations in prior years, and accordingly in the
period of such determination, the Company reduced the carrying value of the
investment and reported an associated charge in its Statement of Operations.


LIQUIDITY AND CAPITAL RESOURCES

Credit Arrangements 

As of August 31, 2002, the Companys indebtedness to its bank lenders was
$93,757,000. Under an amended and restated credit agreement dated October 11,
2002, the Company and its bank


13



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lenders amended the Companys bank credit agreement to modify borrowing
capacity restrictions, revise certain financial covenants, provide for certain
scheduled principal payments, revise the maturity date of the obligations under
the bank credit facility to September 30, 2003, and reduce the interest rate
charged on outstanding borrowings, among other changes. Under the amended
agreement, the Company must make scheduled payments on its term loans of at
least $5,000,000 by each of January 15, 2003, April 15, 2003 and July 15, 2003.
The amended agreement also requires the Company to maintain a minimum net
worth amount at all times and requires the maintenance of minimum profitability
thresholds determined quarterly, beginning November 30, 2002. In order to
facilitate funding the required principal payments, the Company will likely be
required to (a) sell certain investment assets held by the Company; or (b)
issue and sell equity securities of the Company, which may include the
Companys preferred stock; or (c) a combination thereof. Although there is no
assurance that the Company will be able to effect the foregoing potential
transactions or generate sufficient cash from these potential transactions
within a time frame required to make such scheduled payments, on the basis of
preliminary discussions with third parties, including affiliates, with whom
such transactions may be consummated, the Company believes that it will be able
to fund the scheduled principal payments in accordance with the terms of the
amended bank credit facility. Prior to the maturity date, the Company will
likely be required to refinance the total amount due and payable to the banks
at that time. The Companys debt to the banks is collateralized by a lien on
all of the Companys assets.

As amended in October 2002, the Companys credit agreement provides for (a) two
term loans for borrowings totaling $73,932,000, bearing interest at either the
banks prime rate plus .75% or the London Interbank Offered Rate (LIBOR) plus
3.75%, requiring minimum aggregate principal payments of $5,000,000 by each of
January 15, 2003, April 15, 2003 and July 15, 2003, with all amounts
outstanding under the term loans due on September 30, 2003; and (b) a revolving
loan commitment (the Revolver) for maximum borrowings of $20,000,000 until
maturity on September 30, 2003, bearing interest at either the banks prime
rate plus .75% or LIBOR plus 3.75%. Borrowings under the Revolver are allowed
to exceed 100% of eligible accounts receivable, however amounts borrowed
exceeding such threshold will bear an additional amount of interest at a rate
of 2% per annum. As of October 11, 2002, borrowings of $20,000,000 were
outstanding under the Revolver, and there was no additional available borrowing
capacity under the Revolver at that date. The Company anticipates that it will
continue to utilize fully the availability under the Revolver and invest any
excess cash on hand in highly liquid investments.

In August 2002, the Company received federal income tax refunds and interest
income thereon totaling approximately $4,250,000 that was used by the Company
to fund working capital requirements. In July 2002, the Company issued its
Chairman two 9% subordinated notes totaling $4,000,000, the proceeds from which
were used by the Company to fund working capital requirements. Effective
August 31, 2002, the notes issued to the Chairman, along with accrued interest
and fees thereon, were exchanged for 4,097 newly-issued shares of the Companys
Series C convertible preferred stock having an aggregate face amount of
$4,097,000. In September 2002, the Companys Chairman invested an additional
$3,000,000 for 3,000 shares of Series C convertible preferred stock, which was
used by the Company for working capital purposes. Under the terms of the
amended credit agreement, up to $12,500,000 in funding for working capital
purposes, if necessary, may be provided by the issuance of equity securities,
including shares of the Companys redeemable preferred stock, or by the
issuance of subordinated debt. Through October 31, 2002, the Company had
received a total of $7,097,000 in cash for working capital purposes from the
previously discussed issues of preferred stock to the Companys Chairman and
his affiliates. Therefore, the Company has the capacity to source an
additional $5,403,000 of cash to use for working capital purposes from the
issuance of equity or debt securities during the remaining term of the credit
facility.

The Companys Chairman personally guarantees substantially all of the debt
outstanding under the current credit facility, and if the Company is unable to
meet its principal payment obligations under the recently amended credit
facility, 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. Under the
terms of

14



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##### 



his guarantee, the Chairman has the option to purchase the entire loan from the
banks, and thereby become the holder of the debt currently payable to the banks
and the related lien on the Companys assets. The guarantee amount will reduce
in the future as principal payments are made to the bank lenders on the
outstanding term loans.

In connection with the Host-USA Acquisition, the Company issued 8% subordinated
notes, having an aggregate face value of $18,594,000. Interest is payable
quarterly, and the notes had an original maturity date of January 17, 2003.
Subsequent to August 31, 2002, principally all holders of these subordinated
notes each agreed to amend the maturity date of their note, in substantially
all cases, to January 17, 2006. Payment of interest and principal on all
subordinated notes is subordinate to the Companys bank credit agreement.

The Companys capital expenditures are not expected to exceed $600,000 for the
fiscal year ending August 31, 2003. The Companys cash flow is cyclical, in
that during the period from July 1 through August 31, the Company historically
uses more cash than is generated due to the seasonality of the Companys
predominant operating segment. During the period from January 1 through April
30, the Company has historically generated more cash than it uses, as this is
generally the period during which the most substantial amount of revenue is
derived from the Companys predominant operating segment. Although there is no
borrowing capacity currently available under its revolving credit facility, the
Company believes that the cash flow anticipated from operations beginning in
October 2002 will be sufficient to fund the Companys working capital, capital
spending and interest payment requirements up to the September 30, 2003
maturity date of the bank credit facility. As previously discussed, the
Company anticipates that the required principal payments to its bank lenders
prior to September 30, 2003 will be made with proceeds from the sale of
investment securities, issuance of equity securities or a combination thereof.
The Companys bank credit agreement, as amended, provides the Company the
ability to issue additional subordinated debt or equity securities for cash
proceeds of up to $5,403,000 without requiring an associated reduction in its
outstanding debt to the banks.

Historical Cash Flow Information  Summary 

The following summarizes the Companys historical cash flow activities (amounts
in 000s):


|                                                     |                                             |   |                  |        |      |   |        |        |  
|---------------------------------------------------- | ------------------------------------------- | - | ---------------- | ------ | ---- | - | ------ | ------ | -
|                                                     |                                             |   | Two Months Ended
|                                                     |                                             |   | August 31,      
|                                                     |                                             |   |                 
|                                                     |                                             |   | 2002             |        | 2001
|                                                     |                                             |   |                  |        |     
|Cash flows from operating activities:                |                                             |   |                  |        |      |   |        |       
|                                                     | Continuing operations                       |   | $                | (3,992 | )    |   | $      | (2,523 | )
|                                                     | Discontinued operations                     |   |                  | (3     | )    |   |        | 53     |  
|Cash flows from investing activities:                |                                             |   |                  |        |      |   |        |       
|                                                     | Continuing operation investing activities   |   |                  | (85    | )    |   |        | (100   | )
|                                                     | Discontinued operation investing activities |   |                  | (18    | )    |   |        | 1,007  |  
|Cash flows from financing activities                 |                                             |   | 3,842            |        |      |   | (2,125 | )     
|                                                     |                                             |   |                  |        |      |   |        |       
|Net increase (decrease) in cash and cash equivalents |                                             | $ | (256             | )      |      | $ | (3,688 | )     
|                                                     |                                             |   |                  |        |      |   |        |       

15



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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):


|                                                      |  |                  |        |      |  |   |        |  
|----------------------------------------------------- |  | ---------------- | ------ | ---- |  | - | ------ | -
|                                                      |  | Two Months Ended
|                                                      |  | August 31,      
|                                                      |  |                 
|                                                      |  | 2002             |        | 2001
|                                                      |  |                  |        |     
|Operating income (loss)                               |  | $                | (3,621 | )    |  | $ | (1,630 | )
|Depreciation and amortization included in operations  |  |                  | 451    |      |  |   | 428    |  
|Interest expense, net of interest and dividend income |  |                  | (812   | )    |  |   | (1,630 | )
|Net change in operating assets and liabilities        |  |                  | 25     |      |  |   | 182    |  
|Other changes in operating cash flows                 |  |                  | (35    | )    |  |   | 127    |  
|                                                      |  |                  |        |      |  |   |        |  
|Total cash flows from continuing operations           |  |                  | (3,992 | )    |  |   | (2,523 | )
|Cash flows from discontinued operating activities     |  |                  | (3     | )    |  |   | 53     |  
|                                                      |  |                  |        |      |  |   |        |  
|Total cash flows from operating activities            |  | $                | (3,995 | )    |  | $ | (2,470 | )
|                                                      |  |                  |        |      |  |   |        |  

The Companys total cash flows from continuing operations for each of the two
months ended August 31, 2002 and 2001 have been unfavorably affected as a
result of interest expense, net of interest and dividend income, and the
operating loss before non-cash depreciation and amortization expense. Due to
the seasonality of the Companys largest business segments, during the two
months ended August 31, 2002, the Company has proportionately low revenue and
historically incurs operating losses. The Collegiate Marketing and Production
Services segment primarily generates revenues during the collegiate football
and basketball seasons. Only a nominal percentage of such games take place
during the period from July 1 to August 31 each year. In the two months ended
August 31, 2002, the Company closed offices in Denver, Colorado and Paris,
France associated with its Affinity Events business segment, resulting in
non-recurring expenses of approximately $725,000. The Affinity Events segment
consists primarily of participatory sports tours that generally begin in March
and end in September each year. Although individual tour events take place
during the months of July and August, approximately 60% of the events occur in
other months of the year.

The net change in operating assets and liabilities had a nominally favorable
impact on total cash flows from continuing operations in each of the two-month
periods ended August 31, 2002 and 2001. In the two months ended August 31,
2002, accounts receivable decreased $2,794,000 due to customer payments in
excess of issued invoices during this period; prepaid costs and expenses
decreased $1,114,000 due to recognition as expense of prepaid event costs; and
accounts payable and accrued expenses decreased $2,871,000 due to (a) a
$7,934,000 decrease in guaranteed rights fees and profit splits payable; (b) a
$654,000 decrease in accounts payable; (c) a $1,524,000 decrease in incurred
unbilled costs; less (d) a $3,992,000 increase in deferred revenue; less (e) a
$3,626,000 reduction in refundable income taxes due to federal tax refunds on
amended income tax returns. Accrued guaranteed rights fees declined due to the
payment of the final fees payable to the NCAA under the Hosts contract with
the NCAA (the Host-NCAA Contract), which terminated at August 31, 2002.
Accounts payable and incurred unbilled costs decreased primarily due to the
payment of outstanding invoices at a rate greater than the rate at which new
obligations arose during the period. Deferred revenue increased during the two
months ended August 31, 2002 as the Company began receiving payments from
customers on contracts that will ultimately result in revenue recognition over
the course of the college football season.

In the two months ended August 31, 2001, accounts receivable increased
$4,144,000 primarily due to the billing of corporate partner sponsorship
payments during this period under the former Host-NCAA Contract; prepaid costs
and expenses increased $972,000 due to the prepayment of certain costs
associated with the fulfillment of corporate sponsorship contracts and the
timing of other expenditures; and accounts payable and accrued expenses
increased $5,555,000 primarily due to (a) a $10,893,000 increase in deferred
revenue resulting from the receipt of corporate sponsorship

16



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##### 



payments in advance of the periods during which such revenue was recognizable;
less (b) a $3,768,000 decrease in accounts payable resulting from the timing of
payments; less (c) a $1,884,000 decrease in guaranteed rights fees and profit
splits payable due to the timing of payment of these fees and the timing of the
accrual of new fees.

Other changes in operating cash flows include the income on Grays option to
purchase the Companys investment in Tarzian of $116,000 in the two months
ended August 31, 2001. The option was exercised in December 2001 and no
additional option income was recognized subsequent to exercise.

In connection with the sale of Datasouth assets in September 2000, accounts
receivable, accounts payable and certain accrued expenses were retained by the
Company to be liquidated and were not included in the sale. During the two
months ended August 31, 2001, cash was provided from discontinued operations as
a result of a decrease in accounts receivable in excess of a decrease in
accounts payable and accrued expenses.

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):


|                                                                |  |                  |      |      |  |   |       |  
|--------------------------------------------------------------- |  | ---------------- | ---- | ---- |  | - | ----- | -
|                                                                |  | Two Months Ended
|                                                                |  | August 31,      
|                                                                |  |                 
|                                                                |  | 2002             |      | 2001
|                                                                |  |                  |      |     
|Capital expenditures                                            |  | $                | (66  | )    |  | $ | (78   | )
|Increase in other assets                                        |  |                  | (19  | )    |  |   | (22   | )
|                                                                |  |                  |      |      |  |   |       |  
|Total cash flows from continuing operation investing activities |  |                  | (85  | )    |  |   | (100  | )
|Cash flows from discontinued operation investing activities     |  |                  | (18  | )    |  |   | 1,007 |  
|                                                                |  |                  |      |      |  |   |       |  
|Total cash flows from investing activities                      |  | $                | (103 | )    |  | $ | 907   |  
|                                                                |  |                  |      |      |  |   |       |  

In the two months ended August 31, 2001, cash of approximately $698,000 was
received on the sale of undeveloped land owned by Datasouth, and proceeds of
approximately $357,000 were received by Datasouth from payments on a note
receivable due from the purchaser of the Datasouth business.

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):


|                                                        |  |                  |       |      |  |   |        |  
|------------------------------------------------------- |  | ---------------- | ----- | ---- |  | - | ------ | -
|                                                        |  | Two Months Ended
|                                                        |  | August 31,      
|                                                        |  |                 
|                                                        |  | 2002             |       | 2001
|                                                        |  |                  |       |     
|Net borrowings (repayments) on revolving line of credit |  | $                | (150  | )    |  | $ | (650   | )
|Net proceeds (repayments) on long-term debt             |  |                  |       |      |  |   | (1,050 | )
|Proceeds on issuance of subordinated notes              |  |                  | 4,000 |      |  |   |        |  
|Other financing cash flows                              |  |                  | (8    | )    |  |   | (425   | )
|                                                        |  |                  |       |      |  |   |        |  
|Total cash flows from financing activities              |  | $                | 3,842 |      |  | $ | (2,125 | )
|                                                        |  |                  |       |      |  |   |        |  

In the two months ended August 31, 2002, the Company issued 9% subordinated
notes to the Companys Chairman, the proceeds of which were used to fund
working capital requirements. In the two months ended August 31, 2001, the
Company reduced its long-term debt by $1,050,000 with the proceeds from the
sale of undeveloped land owned by Datasouth, and proceeds received by
Datasouth from payments on a note receivable from the purchaser of the
Datasouth business.

17



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##### 



Commitments 

The Company commits under certain contracts, which expire at varying times
through 2006, to the payment of guaranteed rights fees. Future guaranteed
rights fee commitments as of August 31, 2002, total approximately $15.2 million
for the fiscal year ending August 31, 2003 and approximately $47.5 million over
the entire remaining term of such contracts, which range from one to five
years.


The Company is a party to two interest rate swap agreements described in Note 5
to the Condensed Consolidated Financial Statements. The estimated cost of
terminating the swap agreements, if the Company elected to do so, was
approximately $3.0 million as of August 31, 2002.

Dividends on the Companys series B and Series C 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 Nasdaq closing price for
the twenty trading days immediately preceding each dividend payment date. On
July 1, 2002, the Company declared a dividend to its series B preferred
stockholders of record as of June 15, 2002, and paid such dividend in July 2002
in the form of 440,165 shares of the Companys common stock then having an
aggregate value of $408,000.

RESULTS OF CONTINUING OPERATIONS  TWO MONTHS ENDED AUGUST 31, 2002 COMPARED TO
TWO MONTHS ENDED AUGUST 31, 2001

Results Derived from Operating Businesses 

Total revenues for the two months ended August 31, 2002 and 2001 are summarized
as follows (amounts in $000s):


|                                             |  |                  |       |      |  |   |        | 
|-------------------------------------------- |  | ---------------- | ----- | ---- |  | - | ------ | 
|                                             |  | Two Months Ended
|                                             |  | August 31,      
|                                             |  |                 
|                                             |  | 2002             |       | 2001
|                                             |  |                  |       |     
|Collegiate Marketing and Production Services |  | $                | 3,307 |      |  | $ | 5,838  | 
|Affinity Events                              |  |                  | 4,899 |      |  |   | 4,921  | 
|Affinity Management Services                 |  |                  | 1,284 |      |  |   | 2,015  | 
|Consulting                                   |  |                  |       |      |  |   | 3      | 
|                                             |  |                  |       |      |  |   |        | 
|                                             |  | $                | 9,490 |      |  | $ | 12,777 | 
|                                             |  |                  |       |      |  |   |        | 

Total revenues and operating results for the Collegiate Marketing and
Production Services segment were impacted in the two months ended August 31,
2002 by the termination of most of the Companys contracts with NCAA corporate
sponsors as of or prior to June 30, 2002. In the two months ended August 31,
2001, the Company recognized revenues of approximately $2,500 in connection
with NCAA corporate sponsorships. No such revenue was recognized in the two
months ended August 31, 2002. Total revenues for the Affinity Management
Services segment declined due to the termination of certain contracts in 2001,
which also caused a similar decline in the Companys direct operating costs.
The termination of these contracts resulted in a nominal increase in operating
profit derived from the Affinity Management Services segment for the periods
presented.

The Company believes that its revenues and operating results for the fiscal
periods prior to August 31, 2002 were significantly impacted by general
market conditions, i.e., the significant decline in corporate advertising and
sponsorship spending during Hosts peak selling period from September 2001
through February 2002, and the expiration of the Host-NCAA Contract on
August 31, 2002. The Company believes that NCAA corporate sponsors strongly
preferred multi-year renewable commitments to single-year commitments, given
the required time that it takes for a

18



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##### 



corporate sponsor to activate promotional programs related to an NCAA corporate
sponsorship. It was therefore very difficult for the Company, in the final
year of the Host-NCAA Contract, to attract and sign new NCAA corporate sponsors
or replace NCAA corporate sponsors whose contracts had expired. The Company
expects that total revenues derived by the Collegiate Marketing and Production
Services segment subsequent to June 30, 2002 will be significantly less than in
the previous year, as will direct operating costs of services rendered, due to
a significant reduction in guaranteed rights fees that were incurred in prior
years to acquire such licensing rights.

As a result of the Companys 12.9% equity investment in Gray as of August 31,
2002, approximately 12.9% of consulting fee income on fees charged to Gray in
prior years has been deferred and will be recognized as income by the Company
when Gray chooses to amortize or otherwise reduce the book value of its
goodwill, or when the Companys proportionate ownership of Gray common stock
decreases. Prior to August 31, 2002, the Company received a $5,000,000
consulting fee from Gray for services performed in connection with Grays
acquisition of Stations Holding Company, Inc. (Stations), which was
consummated in October 2002. Also in October 2002, Gray completed a public
offering of its common stock, resulting in a reduction of the Companys equity
investment in Grays outstanding common stock from 12.9% to
approximately 4.4%.
As a result, the Company anticipates recognizing previously deferred
consulting fee income of approximately $4,700,000 in the fiscal quarter ending
November 30, 2002 attributable to Grays acquisition of Stations, plus
approximately an additional $430,000 of previously deferred consulting fee
income as a result of the reduction in the Companys proportionate ownership of
Gray following Grays issuance of common stock. The Company does not
anticipate receiving any additional consulting fees from Gray in the future.

Total operating costs and expenses for the two months ended August 31, 2002 and
2001 are summarized as follows (amounts in $000s):

|                                            |  |                  |        |      |  |   |        | 
|------------------------------------------- |  | ---------------- | ------ | ---- |  | - | ------ | 
|                                            |  | Two Months Ended
|                                            |  | August 31,      
|                                            |  |                 
|                                            |  | 2002             |        | 2001
|                                            |  |                  |        |     
|Direct operating costs of services rendered |  | $                | 7,265  |      |  | $ | 8,082  | 
|Selling, general and administrative         |  |                  | 5,643  |      |  |   | 6,154  | 
|Amortization of acquisition intangibles     |  |                  | 203    |      |  |   | 171    | 
|                                            |  |                  |        |      |  |   |        | 
|                                            |  | $                | 13,111 |      |  | $ | 14,407 | 
|                                            |  |                  |        |      |  |   |        | 

Direct operating costs of services rendered decreased for the two months ended
August 31, 2002 from the same period in the prior year due to (a) the
elimination of guaranteed rights fee expense associated with the Host-NCAA
Contract, which amounted to approximately $2,000,000 for the two months ended August 31, 2001,

less (b) an increase in events management costs of approximately $700,000, less
(c) increases in other rights fees and profit split expenses of approximately
$200,000, less (d) increases in the direct costs of publishing and printing
and compensation costs charged as direct expenses. As noted above, the Company
anticipates that direct operating costs will be significantly less subsequent
to June 30, 2002 than in the previous year due to the termination of the
Host-NCAA Contract.

Selling, general and administrative costs declined for the two months ended
August 31, 2002 from the prior fiscal year due to a reduction in the Companys
workforce and a decrease in travel costs. During the fiscal year ended June
30, 2002, the Company reduced its workforce by eliminating certain positions,
reorganizing certain responsibilities and terminating certain projects that
were not currently or expected to generate an adequate operating profit. Total
employee compensation costs included in selling, general and administrative
expense were $2,929,000 for the two months ended August 31, 2002 compared to
$3,690,000 for the same period in the prior year. Travel costs were
substantially reduced through efforts to operate more efficiently and control
travel spending. As a result, total travel expense included in selling,
general and administrative expense declined to $103,000 for the two months
ended August 31, 2002 compared to $473,000 for the same period in the prior
year. In August 2002, the Company terminated its basketball tour in Europe,
closing its

19



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##### 



Paris, France office, and combined the management of all of the Companys
Affinity Events soccer and basketball tours in Dallas, Texas, thereby resulting
in the closing of the Companys Denver, Colorado office. As a result, the
Company incurred approximately $725,000 in nonrecurring costs primarily
associated with employee severance costs and future lease obligations.

Operating income (loss) for the two months ended August 31, 2002 and 2001 is
summarized as follows (amounts in 000s):

|                                             |  |                  |        |      |  |   |        |  
|-------------------------------------------- |  | ---------------- | ------ | ---- |  | - | ------ | -
|                                             |  | Two Months Ended
|                                             |  | August 31,      
|                                             |  |                 
|                                             |  | 2002             |        | 2001
|                                             |  |                  |        |     
|Collegiate Marketing and Production Services |  | $                | (1,941 | )    |  | $ | (1,182 | )
|Affinity Events                              |  |                  | (1,389 | )    |  |   | 117    |  
|Affinity Management Services                 |  |                  | 152    |      |  |   | 47     |  
|Consulting                                   |  |                  |        |      |  |   | 3      |  
|Amortization of acquisition intangibles      |  |                  | (203   | )    |  |   | (171   | )
|Unallocated general and administrative costs |  |                  | (240   | )    |  |   | (444   | )
|                                             |  |                  |        |      |  |   |        |  
|                                             |  | $                | (3,621 | )    |  | $ | (1,630 | )
|                                             |  |                  |        |      |  |   |        |  

Results Derived from Investments and Derivative Instruments 

Equity in earnings (losses) of affiliated companies, totaling $(110,000) for
the two months ended August 31, 2002 and $(554,000) for the two months ended
August 31, 2001 included (a) the Companys proportionate share of the earnings
or losses of (i) Gray; (ii) iHigh; and (iii) until December 31, 2001, Rawlings.
Subsequent to December 31, 2001, the Company accounts for its investment in
Rawlings as an available-for-sale marketable security (see Note 8 to the
Condensed Consolidated Financial Statements).


As a result of Grays issuance of common stock in October 2002 for net proceeds
to Gray of approximately $7.71 per share, and since the Companys carrying
value of its investment in Gray common stock prior to Grays
issuance exceeded
$7.71 per share, the Company anticipates reporting a loss on Grays issuance of
shares in the three months ending November 30, 2002 of approximately $2,250,000.

Interest and dividend income of $652,000 for the two months ended August 31,
2002 was primarily attributable to interest earned on income tax refunds
received by the Company in August 2002 pertaining to amended federal income tax
returns. Interest and dividend income of $99,000 for the two months ended
August 31, 2001 was primarily attributable to dividends earned on the Companys
investment in shares of Gray series A and series B preferred stock, all of
which were sold in September 2001.

In the two months ended August 31, 2001, the Company recognized a charge of
$250,000 associated with the estimated impairment in the value of one of the
Companys investments. The determination to reduce the carrying amount of this
investment was made based on managements estimate of the amounts that might
ultimately be recovered on a sale or other disposition of its investments and
managements estimate of amounts which were committed to be invested in the
future for which management did not reasonably anticipate recovery.

The net change in the value of certain derivative instruments, consisting of
warrants to purchase Gray common stock and interest rate swap agreements, was
$(423,000) and $(632,000) for the two months ended August 31, 2002 and 2001,
respectively. The value of the derivative instruments declined during these
periods as a result of declines in the values of the interest rate swap
agreements.

Other income for the two months ended August 31, 2001 consisted primarily of
income from an option agreement with Gray whereby Gray had the right to acquire
the Companys investment in

20



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##### 



Tarzian. In December 2001, Gray exercised its option and acquired the
investment in Tarzian for $10,000,000.

Interest Expense and Debt Related Costs 

Interest expense decreased to $1,505,000 for the two months ended August 31,
2002 from $1,729,000 for the same period in the prior year, as a result of a
reduction in long-term debt and declines in variable interest rates to which a
significant amount of the debt is subject.


Debt issue cost amortization was $269,000 and $434,000 for the two months ended
August 31, 2002 and 2001, respectively. Debt issue costs consist of (a)
amounts paid in connection with obtaining bank financing amortized over the
remaining term of the bank credit facility; and (b) the value of shares of the
Companys common stock issued to the Companys Chairman to compensate him for
his personal guarantee of the Companys debt under its bank credit agreement.
The value of the shares issued is amortized over the period for which the
shares provide compensation, and approximately $261,000 and $271,000 of such
amortization is included in debt issue cost amortization for the two months
ended August 31, 2002 and 2001, respectively.

Income Taxes 

As of August 31, 2002, the Company had a net operating loss carryforward for
tax purposes of approximately $56.2 million to reduce Federal taxable income in
the future, and other tax credit carryforwards totaling approximately $600,000
to reduce regular Federal income tax liabilities in the future. As of August
31, 2002, the Company had a net deferred tax asset of $21,381,000, net of a
valuation allowance of $3,125,000, primarily due to a net operating loss
carryforward for federal tax purposes that expires beginning in 2017. The
Company believes it will generate adequate taxable income from operations or
the sale or other disposition of appreciated nonoperating assets in an amount
sufficient to realize the deferred tax asset prior to expiration of the net
operating loss carryforward. The principal differences between the federal
statutory tax rate of 34% and the effective tax rate are nondeductible
intangibles amortization expense, state income taxes and, for the two months
ended August 31, 2002, a change in the amount of the valuation allowance.


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. The Company uses interest
rate swap agreements (as described in Note 5 to the Condensed Consolidated
Financial Statements) to manage its debt profile.

Interest rate swap agreements generally involve exchanges of underlying face
(notional) amounts of designated hedges. The Company continually evaluates the
credit quality of counterparties to interest rate swap agreements and does not
believe there is a significant risk of nonperformance by any of the
counterparties to the agreements.

Based on the Companys debt profile as of August 31, 2002 and 2001, 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 $81,000 and $103,000 for the two
months ended August 31, 2002 and 2001, respectively. 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 agreements. 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.

The Company holds investments in certain common stocks and warrants to purchase
common stock, and previously held investments in Gray preferred stock. The
Company is exposed to changes in market values of these investments, some of
which are publicly traded common stocks.

21



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##### 



In the case of the Companys investment in Grays two classes of common stock,
where there exists a quoted market price for the publicly-traded securities in
which the Company holds investments, the investment is accounted for under the
equity method, whereby changes in the quoted market price of the security do
not impact the carrying value of the investment. However, fluctuations in
market prices of investments could ultimately affect the amounts the Company
might realize upon a disposal of some or all of its investments. Based on
managements estimates of the aggregate fair value of the Companys investments
in affiliated companies (as described in Note 4 to the Condensed Consolidated
Financial Statements), a 10% change in the aggregate market value of such
investments would increase or decrease such aggregate market value by
approximately $4,500,000 as of August 31, 2002 and $4,600,000 as of June 30,
2002.

FORWARD-LOOKING STATEMENTS

This Transition 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 and Grays leverage may adversely affect their ability to obtain
financing, thereby impairing their ability to withstand economic downturns or
competitive pressures; (ii) Grays business depends, in part, on sales of
advertising time and space and on its relationships with, and success of, its
national network affiliates; (iii) significant segments of the Companys
business are seasonal; (iv) the Companys business depends on short term
contracts and the inability to renew or extend these contracts could adversely
affect its business; (v) the Company may lose money on some of its contracts,
because it guarantees certain payments thereunder; (vi) war or acts of
terrorism or a continued domestic economic downturn or recession could
materially adversely impact corporate discretionary spending, such as
sponsorships and advertising sold by the Company and Gray.

Item 4. Controls and Procedures

Based on the 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, the Companys Chief
Executive Officer and its Chief Financial Officer have concluded that there
were no material weakness in such controls as of August 31, 2002.

There were no significant changes to the Companys internal controls or in
other factors that could significantly affect these controls during the period
from July 1, 2002 to August 31, 2002.

22



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##### 



PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

99.1 Certifications Pursuant to U.S.C. Section 1350

(b)  Reports on Form 8-K

Form 8-K dated August 13, 2002 related to an
amendment to the Companys bank credit facility

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 CORPORATION                                                           
|     
|     
|     
|Date: |  | November 8, 2002 |  | By: /s/ FREDERICK J. ERICKSON                                                  
|      |  |                  |  |                                                                                
|      |  |                  |  | Frederick J.
Erickson
Vice President-Finance, Treasurer
and Assistant Secretary

23



---



##### 



CERTIFICATION

I, Robert S. Prather, Jr., certify that:



|1. |  | I have reviewed this transition report on Form 10-Q of Bull Run
Corporation (Registrant);                                                                                                                                                                                                                                     
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this transition report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this transition report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this transition report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
transition report;                   
|  
|4. |  | The Registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:                                                                                                        



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this transition
report is being prepared;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the Registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this transition report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this transition report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The Registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrants auditors and the audit
committee of the Registrants board of directors:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrants ability to
record, process, summarize and report financial data and have
identified for the Registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrants
internal controls; and                                                                                                                                        



|6. |  | The Registrants other certifying officer and I have indicated in this
transition report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|        |  |                                                              | 
|------- |  | ------------------------------------------------------------ | 
|Date:   |  | November 8, 2002                                            
|       
|       
|Signed: |  | /s/ ROBERT S. PRATHER, JR.                                  
|        |  |                                                             
|        |  | Robert S. Prather, Jr.
President and Chief Executive Officer

24



---



##### 



CERTIFICATION

I, Frederick J. Erickson, certify that:



|1. |  | I have reviewed this transition report on Form 10-Q of Bull Run
Corporation (Registrant);                                                                                                                                                                                                                                     
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this transition report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this transition report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this transition report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
transition report;                   
|  
|4. |  | The Registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:                                                                                                        



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this transition
report is being prepared;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the Registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this transition report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this transition report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The Registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrants auditors and the audit
committee of the Registrants board of directors:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrants ability to
record, process, summarize and report financial data and have
identified for the Registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrants
internal controls; and                                                                                                                                        



|6. |  | The Registrants other certifying officer and I have indicated in this
transition report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|        |  |                                                                            | 
|------- |  | -------------------------------------------------------------------------- | 
|Date:   |  | November 8, 2002                                                          
|       
|       
|Signed: |  | /s/ FREDERICK J. ERICKSON                                                 
|        |  |                                                                           
|        |  | Frederick J. Erickson
Vice President  Finance and Chief Financial Officer

25