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

x
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period endedNovember 30, 2003ORo
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  toCommission 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 o

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: 4,388,736 shares of Common
Stock, par value $.01 per share, were outstanding as of December 31, 2003.





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PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

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

November 30,
    
    August 31,2003
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    76
    
    
    $
    4,520Accounts receivable, net of allowance of $507 as of November 30,
2003 and $465 as of August 31, 2003
    
    
    14,229
    
    
    
    10,071Inventories
    
    
    432
    
    
    
    409Prepaid costs and expenses
    
    
    1,087
    
    
    
    1,576Total current assets
    
    
    15,824
    
    
    
    16,576Property and equipment, net
    
    
    4,101
    
    
    
    4,310Goodwill
    
    
    43,664
    
    
    
    43,664Customer relationships and trademarks
    
    
    9,248
    
    
    
    9,562Other assets
    
    
    539
    
    
    
    803Net noncurrent assets of discontinued segment
    
    
    1,695
    
    
    
    1,695$
    75,071
    
    
    $
    76,610LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Current portion of long-term debt
    
    $
    55,932
    
    
    $
    590Accounts payable
    
    
    6,616
    
    
    
    11,878Deferred revenue
    
    
    5,045
    
    
    
    6,542Accrued and other liabilities
    
    
    14,681
    
    
    
    9,600Total current liabilities
    
    
    82,274
    
    
    
    28,610Long-term debt
    
    
    9,283
    
    
    
    72,641Other liabilities
    
    
    2,054
    
    
    
    2,361Total liabilities
    
    
    93,611
    
    
    
    103,612Commitments and contingenciesStockholders deficit:Series D preferred stock, $.01 par value (authorized 100 shares; issued and
outstanding 12.497 shares having a $12,497 liquidation value and 14.28
shares having a $14,280 liquidation value as of
November 30, 2003 and August 31, 2003, respectively)
    
    
    12,497
    
    
    
    14,280Series E preferred stock, $.01 par value (authorized 25 shares;
issued and outstanding 9.799 shares; $9,799 liquidation value)
    
    
    9,799Series F preferred stock, $.01 par value (authorized 25 shares;
issued and outstanding 2.0 shares; $2,000 liquidation value)
    
    
    2,000Common stock, $.01 par value (authorized 100 shares; issued
4.370 and 4.324 shares as of November 30, 2003 and August 31,
2003, respectively)
    
    
    44
    
    
    
    43Additional paid-in capital
    
    
    80,237
    
    
    
    80,138Accumulated deficit
    
    
    (123,117
    )
    
    
    (121,463
    )Total stockholders deficit
    
    
    (18,540
    )
    
    
    (27,002
    )$
    75,071
    
    
    $
    76,610


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

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

Three Months EndedNovember 30,2003
    
    2002Revenue from services rendered, including consulting fee
income derived from affiliated company of $5,267 in 2002
    
    $
    21,634
    
    
    $
    31,109Operating costs and expenses:Direct operating costs for services rendered
    
    
    15,391
    
    
    
    18,066Selling, general and administrative
    
    
    5,987
    
    
    
    6,431Amortization of acquisition intangibles
    
    
    313
    
    
    
    304Total operating costs and expenses
    
    
    21,691
    
    
    
    24,801Income (loss) from operations
    
    
    (57
    )
    
    
    6,308Other income (expense):Equity in earnings of affiliated companies
    
    
    
    
    
    
    173Net change in value of certain derivative instruments
    
    
    306
    
    
    
    (1,674
    )Loss on issuance of shares by affiliate
    
    
    
    
    
    
    (2,339
    )Loss on investment valuation adjustments
    
    
    
    
    
    
    (977
    )Interest expense
    
    
    (1,086
    )
    
    
    (2,193
    )Debt issue cost amortization
    
    
    (291
    )
    
    
    (544
    )Other income (expense), net
    
    
    6
    
    
    
    2Net loss
    
    
    (1,122
    )
    
    
    (1,244
    )Preferred dividends
    
    
    (532
    )
    
    
    (259
    )Net loss available to common stockholders
    
    $
    (1,654
    )
    
    $
    (1,503
    )Loss per share available to common stockholders,
basic and diluted
    
    $
    (0.38
    )
    
    $
    (0.39
    )Weighted average number of common shares outstanding:Basic and diluted
    
    
    4,340
    
    
    
    3,831


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

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BULL RUN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT (Unaudited)
(Amounts in thousands)

Series D
    
    Series E
    
    Series FPreferred
    
    Preferred
    
    Preferred
    
    Common StockStock
    
    Stock
    
    Stock
    
    Shares
    
    AmountAs of September 1, 2003
    
    $
    14,280
    
    
    $
    
    
    
    $
    
    
    
    
    4,324
    
    
    $
    43Exchange of subordinated notes for shares of
Series E preferred stock
    
    
    
    
    
    
    8,016Issuance of Series F preferred stock
    
    
    
    
    
    
    
    
    
    
    2,000Exchange of Series D preferred stock for shares
of Series E preferred stock
    
    
    (1,783
    )
    
    
    1,783Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    1As of November 30, 2003
    
    $
    12,497
    
    
    $
    9,799
    
    
    $
    2,000
    
    
    
    4,370
    
    
    $
    44


Additional
    
    
    
    
    
    TotalPaid-In
    
    Accumulated
    
    Stockholders'Capital
    
    Deficit
    
    DeficitAs of September 1, 2003
    
    $
    80,138
    
    
    $
    (121,463
    )
    
    $
    (27,002
    )Exchange of subordinated notes for shares of
Series E preferred stock
    
    
    
    
    
    
    
    
    
    
    8,016Issuance of Series F preferred stock
    
    
    
    
    
    
    
    
    
    
    2,000Exchange of Series D preferred stock for shares
of Series E preferred stock
    
    
    
    
    
    
    
    
    
    
    0Issuance of common stock
    
    
    99
    
    
    
    
    
    
    
    100Preferred dividends
    
    
    
    
    
    
    (532
    )
    
    
    (532
    )Net loss
    
    
    
    
    
    
    (1,122
    )
    
    
    (1,122
    )As of November 30, 2003
    
    $
    80,237
    
    
    $
    (123,117
    )
    
    $
    (18,540
    )


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

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

Three Months EndedNovember 30,2003
    
    2002Cash flows from operating activities:Net loss
    
    $
    (1,122
    )
    
    $
    (1,244
    )Adjustments to reconcile net loss to net cash used in operations:Provision for bad debts
    
    
    50
    
    
    
    54Depreciation and amortization
    
    
    871
    
    
    
    1,166Equity in earnings of affiliated companies
    
    
    
    
    
    
    (173
    )Dividends received from affiliated company
    
    
    
    
    
    
    41Net change in value of certain derivative instruments
    
    
    (306
    )
    
    
    1,674Loss on issuance of shares by affiliate
    
    
    
    
    
    
    2,339Loss on investment valuation adjustments
    
    
    
    
    
    
    1,032Change in operating assets and liabilities:Accounts receivable
    
    
    (4,208
    )
    
    
    (7,078
    )Inventories
    
    
    (23
    )
    
    
    312Prepaid costs and expenses
    
    
    588
    
    
    
    48Accounts payable and accrued expenses
    
    
    (2,209
    )
    
    
    (480
    )Other long-term liabilities
    
    
    
    
    
    
    (534
    )Net cash used in continuing operations
    
    
    (6,359
    )
    
    
    (2,843
    )Net cash provided by discontinued operations
    
    
    
    
    
    
    106Net cash used in operating activities
    
    
    (6,359
    )
    
    
    (2,737
    )Cash flows from investing activities:Capital expenditures
    
    
    (60
    )
    
    
    (67
    )Decrease in other assets
    
    
    13
    
    
    
    487Net cash provided by (used in) investing activities
    
    
    (47
    )
    
    
    420Cash flows from financing activities:Borrowings from revolving line of credit
    
    
    
    
    
    
    175Debt issue costs
    
    
    (38
    )
    
    
    (953
    )Issuance of preferred stock
    
    
    2,000
    
    
    
    3,000Net cash provided by financing activities
    
    
    1,962
    
    
    
    2,222Net decrease in cash and cash equivalents
    
    
    (4,444
    )
    
    
    (95
    )Cash and cash equivalents, beginning of period
    
    
    4,520
    
    
    
    397Cash and cash equivalents, end of period
    
    $
    76
    
    
    $
    302


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

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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 August 31, 2003.

On December 17, 1999, Bull Run Corporation (Bull Run) acquired the stock of
Host Communications, Inc. (Host or Host Communications), Universal Sports
America, Inc. (USA) 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.

Prior to the current fiscal year, the Company provided consulting services to
Gray Television, Inc. (Gray), a company in which Bull Run had a significant
investment until August 2003 (refer to Note 4), in connection with Grays
acquisition and divestiture activities. In January 2004, the Company
determined that it will not be engaged in such services in the future, with
Gray or any other party, and as a result, the Company will present consulting
income for all prior fiscal periods as income from discontinued operations
beginning with the comparative financial statements to be filed on Form 10-Q
for the period ending February 29, 2004. There are no expenses associated with
the consulting segment, nor are there any assets or liabilities as of November
30, 2003 or August 31, 2003. Unless otherwise indicated, amounts provided in
these notes to the consolidated financial statements pertain to continuing
operations.

In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB
Statement No. 13, and Technical Corrections(SFAS 145), effective for fiscal
years beginning after May 15, 2002. For most companies, SFAS 145 requires gains
and losses on extinguishments of debt to be classified as income or loss from
continuing operations rather than as extraordinary items as previously required
under FASB Statement No. 4. Previously, in the three months ended November 30,
2002, Gray recorded an extraordinary charge in connection with an early
extinguishment of debt. Since the Company accounted for its investment in Gray
using the equity method, the Company reported its proportionate share of Grays
extraordinary losses as an extraordinary charge in its financial statements.
Gray adopted SFAS 145 in its first quarter ended March 31, 2003, and
accordingly, reclassified each of its losses on its early extinguishment of
debt, from an extraordinary charge to income from continuing operations.
Therefore, Bull Run has reclassified its proportionate share of such losses,
amounting to $(406) in the three months ended November 30, 2002, to continuing
operations as a component of Equity in earnings of affiliates.

2.  LIQUIDITY

As of November 30, 2003, the Companys negative working capital was
approximately $66,500, including approximately $56,000 of bank debt maturing on
November 30, 2004. In recent fiscal years, the Company has reported
substantial losses and has consumed substantial cash in its

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operations. The Company has funded its liquidity needs through the issuance of preferred stock
and through the sale of investments. Based upon the Companys forecasted
operating cash flows and capital expenditures for the remainder of its fiscal
year ending August 31, 2004, management believes the Company has sufficient
liquidity through at least August 31, 2004. Additionally, the Companys
Chairman has committed to contribute an additional $1,000 in capital to the
Company through November 2004, if necessary, for additional shares of the
Companys common or preferred stocks or for subordinated debt.

As noted above and as further discussed in Note 5, the Company has
approximately $56,000 of debt outstanding as of November 30, 2003 under its
bank credit agreement, which matures on November 30, 2004. As further
discussed in Note 5, the Companys Chairman has guaranteed repayment of $53,000
of the outstanding bank debt. The Companys ability to continue this or
similar financing beyond the November 30, 2004 maturity date is significantly
dependent on the continued support of the Companys Chairman and, in part, on
the Companys future operating results. There can be no assurances with
respect to either the Companys future operating results or the continued
support of its Chairman.

3.  SUPPLEMENTAL CASH FLOW DISCLOSURES

Supplemental cash flow information follows:

Three Months EndedNovember 30,2003
    
    2002Interest paid
    
    $
    1,211
    
    
    $
    2,433Income taxes paid
    
    
    27
    
    
    
    9Noncash investing and financing activity:Exchange of subordinated debt for shares of
preferred stock
    
    
    8,016Issuance of common stock primarily in
connection with debt issuance costs
    
    
    
    
    
    
    487


4.  INVESTMENT IN AFFILIATED COMPANIES

Prior to August 31, 2003, the Company held investments in Gray common stocks
and warrants to purchase additional shares of Gray common stocks. The Company
accounted for its investments in Grays two publicly traded classes of common
stock using the equity method. In April 2003, the Company sold the warrants
back to Gray. In August 2003, the Company sold its investments in Gray common
stocks to Gray and other parties affiliated with the Company, including the
Companys Chairman of its board of directors.

In October 2002, Gray completed a public offering of 30,000 shares of its
common stock for net proceeds of approximately $231,200, and in November 2002,
Gray issued an additional 4,500 shares for additional proceeds of approximately
$34,900. As a result of these transactions by Gray, the Companys ownership of
Grays outstanding common stock was reduced from 12.9% to 4.0%. Since Grays
net proceeds per share of issued common stock was an amount which was less than
the Companys carrying value per share of Gray common stock owned prior to such
transactions, a loss of $2,339 on the issuance of shares by Gray was reported
by the Company for the three months ended November 30, 2002. Certain executive
officers of Gray and certain directors of Gray are also executive officers and
directors of the Company; therefore until such time as the Company sold its
investments in Gray common stocks, the Company continued to account for its
investment in Gray under the equity

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method subsequent to the issuance of shares
by Gray, despite the dilution of the Companys voting power to less than 20%,
since the Company continued to have significant influence in Gray.

The Company also previously held an investment in Rawlings Sporting Goods
Company, Inc. (Rawlings) common stock until the sale of such stock on the
open market in December 2002. The Company accounted for its investment in
Rawlings publicly-traded common stock as an available-for-sale marketable
security. As a result, the Companys carrying value of its investment in
Rawlings was based on the closing price of Rawlings common stock as quoted on
the Nasdaq Stock Market. In the three months ended November 30, 2002, an
unrealized loss of $1,032 on the Rawlings investment that had been previously
reported as other comprehensive accumulated loss (a component of the
Companys stockholders equity) was expensed, and reported as an investment
valuation adjustment in the Companys results of operations. The impairment
charge was realized in consideration of the terms of the Companys subsequent
sale of its investment in Rawlings.

5.  LONG-TERM DEBT

Long-term debt and notes payable consist of the following:

November 30,
    
    August 31,2003
    
    2003Term Loans
    
    $
    35,932
    
    
    $
    35,932Revolver
    
    
    20,000
    
    
    
    20,000Subordinated Notes
    
    
    9,283
    
    
    
    17,29965,215
    
    
    
    73,231Less current portion
    
    
    55,932
    
    
    
    590$
    9,283
    
    
    $
    72,641


As amended in August 2003, the Companys bank credit agreement provides for (a)
two term loans (the Term Loans) for borrowings totaling $35,932 and (b) a
revolving loan commitment (the Revolver) for maximum borrowings of $20,000.
All amounts outstanding under the Term Loans and the Revolver are due on
November 30, 2004, and bear interest at either the banks prime rate or the
London Interbank Offered Rate (LIBOR) plus 2.75%, payable monthly. The
amendment in August 2003 reduced the interest rate charged by the banks and
revised the maturity date of the agreement to November 30, 2004 from September
30, 2003. As of November 30, 2003, all amounts available under the Revolver
were borrowed, and no additional borrowing capacity was available. As of
November 30, 2003, all borrowings under the Term Loans and Revolver were
subject to the prime rate of 4.0%.

Under the terms of the credit agreement, up to an aggregate of $12,500 in
funding for working capital purposes, if necessary, may be sourced from the
issuance of equity securities, including shares of the Companys preferred
stock, or by the issuance of subordinated debt. Through November 30, 2003, the
Company has received approximately $9,100 of cash for working capital purposes,
including $2,000 received from the Companys Chairman in November 2003 for
shares of the Companys series F preferred stock, and as a result, the Company
has the capacity under its bank credit agreement to source approximately an
additional $3,400 of cash from the issuance of equity or debt securities during
the remaining term of the credit facility. The Companys Chairman has
committed up to an additional $1,000 in cash until November 2004 to be used for
working capital purposes at the Companys option, in return for equity or debt
securities of the Company.

The bank credit agreement, as amended, contains certain financial covenants,
including the maintenance of minimum interest coverage ratios determined
quarterly. Long-term debt is collateralized by all of the Companys assets.
The Company is presently in compliance with all provisions of the credit
agreement as last amended.

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In connection with the Companys bank credit facilities, the Companys Chairman
of the board entered into a guarantee agreement in favor of the banks, for
which he receives compensation from the Company in the form of shares of the
Companys common stock. During the three months ended November 30, 2002, the
Company issued approximately 49 restricted shares of the Companys common stock
then valued at approximately $442. No shares were issued for such purpose in
the three months ended November 30, 2003. The value of the shares issued to
the Chairman is based on an annual compensation rate of 1.625% of the guarantee
amount. The guarantee agreement currently requires the Chairman to personally
guarantee up to $53,000 of the Companys outstanding bank debt. The guaranteed
amount has historically reduced, and will continue to reduce, dollar for
dollar, as the aggregate outstanding amount under the Term Loans is reduced,
subject to certain limitations. 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 to former stockholders of Host and USA, representing long-term debt of
$8,693 as of November 30, 2003 and $16,709 as of August 31, 2003. Interest is
payable quarterly and the notes, as amended, generally have a maturity date of
January 17, 2006. In May 2003, a director of the Company and his spouse each
agreed to exchange 8% subordinated notes held by them, having an aggregate face
value of $1,783, to shares of the Companys convertible series D preferred
stock (which were later exchanged for shares of the Companys series E
preferred stock having the same aggregate face value and substantially the same
terms). During the three months ended November 30, 2003, holders of 8%
subordinated notes representing an aggregate face value of $8,016 exchanged
their notes for shares of the Companys series E preferred stock. The Company
also has outstanding subordinated notes representing an aggregate amount of
$590 having a maturity date of December 31, 2004. Payment of interest and
principal on all subordinated notes is subordinate to the Companys bank credit
agreement.

Aggregate maturities of the Companys long-term debt and notes payable as of
November 30, 2003 are $0, $59,541 ($55,932 of which maturing on November 30,
2004) and $5,674 in the fiscal years ending August 31, 2004, 2005 and 2006,
respectively, and none thereafter.

The Company is a party to an interest rate swap agreement terminating on
December 31, 2004, which 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.

6. INCOME TAXES

The principal differences between the federal statutory tax rate of 34% and the
effective tax rate of zero are increases in the valuation allowance for
potentially non-realizable deferred tax assets of $352 and $325 for the three
months ended November 30, 2003 and 2002, respectively.

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7. PREFERRED STOCK ISSUANCE AND EXCHANGE

In the three months ended November 30, 2002, the Companys Chairman and
companies of which the Chairman is an executive officer and/or principal
stockholder invested an aggregate total of $3,000 in cash for 3 shares of the
Companys series C convertible preferred stock (Series C Preferred Stock),
which was used by the Company for working capital purposes. In May 2003, each
of the holders of Series C Preferred Stock elected to exchange the aggregate
total of 7.1 shares of Series C Preferred Stock for the same number of shares
of the Companys series D convertible preferred stock (Series D Preferred
Stock).

In May 2003, a director of the Company and his spouse each agreed to convert 8%
subordinated notes held by them, having an aggregate face value of $1,783, to
1.783 shares of Series D Preferred Stock.

Of the 12.497 shares of the Series D Preferred Stock currently outstanding, 5.4
shares are currently convertible at the holders option into 540 shares of the
Companys common stock. An additional 4.097 shares of Series D Preferred Stock
is convertible at the holders option into approximately 410 shares of the
Companys common stock beginning in July 2004 and the remaining 3 shares of
Series D Preferred Stock are convertible into 300 shares of the Companys
common stock beginning in September 2004. Each holder of the Series D
Preferred Stock is entitled to receive dividends at an annual rate of $90.00
per share in cash or in shares of the Companys common stock at the holders
option, except that, until the second anniversary of the date of issuance, the
Company has the option to pay such dividends in cash or in shares of the
Companys common stock. The liquidation and redemption price of the Series D
Preferred Stock is $1,000 per share, and dividends are cumulative. The Company
has the option to redeem the Series D Preferred Stock at any time. All shares
of preferred stock rank, as to payment of dividends and as to distribution of
assets upon liquidation or dissolution of the Company, on a parity with all
other currently issued preferred stock and any preferred stock issued by the
Company in the future, and senior to the Companys currently issued common
stock and common stock issued in the future.

In September 2003, the Company offered to its 8% subordinated note holders an
ability to exchange their notes for shares of a newly authorized series E
convertible preferred stock (Series E Preferred Stock). Each share of the
Series E Preferred Stock is convertible at the holders option into 0.14286
shares of the Companys common stock beginning one year following the date of
issuance of the Series E Preferred Stock. Each holder of the Series E
Preferred Stock is entitled to receive dividends at an annual rate of $90.00
per share in cash or in shares of the Companys common stock at the holders
option, except that, no dividend is payable prior to June 30, 2005, or upon
conversion to common stock, if earlier. The liquidation and redemption price
of the Series E Preferred Stock is $1,000 per share. The Company has the
option to redeem the Series E Preferred Stock at any time. During the three
months ended November 30, 2003, subordinated note holders elected to exchange
an aggregate $8,016 of subordinated debt for an aggregate 8.016 shares of
Series E Preferred Stock. Of the $8,016 exchanged, notes having an aggregate
face amount of $5,257 were acquired by the Companys Chairman immediately prior
to the exchange. In addition, the 1.783 shares of Series D Preferred Stock
previously issued to a director of the Company and his spouse (both of which
were formerly holders of subordinated notes) were exchanged for the same number
of shares of Series E Preferred Stock.

During the three months ended November 30, 2003, the Company also issued 2.0
shares of series F convertible preferred stock (Series F Preferred Stock) to
the Companys Chairman for $2,000. Each share of the Series F Preferred Stock
is convertible at the holders option into 0.78125 shares of the Companys
common stock beginning in November 2006. The holder of Series F Preferred
Stock is entitled to receive dividends at an annual rate of $90.00 per share in
cash or in shares of the Companys common stock at the holders option, except
that, until the second anniversary of the date of issuance, the Company has the
option to pay such dividends in cash or in shares of the Companys

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common stock. The liquidation and redemption price of the Series F Preferred Stock is
$1,000 per share. The Company has the option to redeem the Series F Preferred
Stock at any time.

8. OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is as follows:

Three Months EndedNovember 30,2003
    
    2002Net loss
    
    $
    (1,122
    )
    
    $
    (1,245
    )Other comprehensive income:Change in the valuation of available-for-sale investments
    
    
    
    
    
    
    1,684Comprehensive income (loss)
    
    $
    (1,122
    )
    
    $
    439


9. SEGMENT INFORMATION

The Company has three 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); and (c)
association management services (Affinity Management Services). A fourth
business segment, associated with consulting services rendered to a related
party, will be classified as a discontinued segment beginning in the fiscal
period ending February 29, 2004 (see Note 1). Information for each of the
Companys segments is presented below:

Three Months EndedNovember 30,2003
    
    2002Net revenues:Collegiate Marketing and Production Services
    
    $
    17,332
    
    
    $
    21,780Affinity Events
    
    
    2,139
    
    
    
    1,784Affinity Management Services
    
    
    2,163
    
    
    
    2,278Consulting
    
    
    
    
    

    
    5,267$
    21,634
    
    
    $
    31,109Operating income (loss):Collegiate Marketing and Production Services
    
    $
    1,942
    
    
    $
    2,546Affinity Events
    
    
    (1,872
    )
    
    
    (1,236
    )Affinity Management Services
    
    
    509
    
    
    
    396Consulting
    
    
    
    
    
    
    5,267Amortization of acquisition intangibles
    
    
    (313
    )
    
    
    (304
    )Unallocated general and administrative costs
    
    
    (323
    )
    
    
    (361
    )$
    (57
    )
    
    $
    6,308


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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

Bull Run Corporation (Bull Run or the Company), based in Atlanta, Georgia,
is a sports and affinity marketing and management company through its sole
operating business, Host Communications, Inc. (Host), acquired in December
1999 (the Host-USA Acquisition). Hosts Collegiate Marketing and Production
Services business segment provides sports marketing and production services to
a number of collegiate conferences and universities, and on behalf of the
National Collegiate Athletic Association (NCAA). Hosts 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 (a
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 formerly held significant investments in other sports, media and
marketing companies, including Gray Television, Inc. (Gray), the owner and
operator of 29 television stations, four newspapers and other communications
businesses, and Rawlings Sporting Goods Company, Inc. (Rawlings), a supplier
of team sports equipment. The Company currently owns 35.1% of the outstanding
common stock of iHigh, Inc. (iHigh), an Internet and marketing company
focused on high school students. The Company sold its investments in Gray
(representing approximately 4.0% of Grays outstanding common stock and
warrants to purchase additional shares of Gray common stocks) and Rawlings
(representing approximately 10.1% of Rawlings outstanding common stock) during
the fiscal year ended August 31, 2003. The Gray common stocks and warrants
were sold by the Company to Gray and other parties affiliated with the Company,
including the Companys Chairman of its board of directors. The Company has
provided consulting services to Gray in connection with certain of Grays
acquisitions and dispositions.

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 stocks representing approximately 31.0% of the combined voting power of
Grays two classes of common stock as of the date of the Companys disposition
of its investment in Gray common stocks (the Gray Disposition Date).
Additionally, Mr. Robinson is the beneficial owner of approximately 40.6%
of the Companys common stock as of November 30, 2003, and Mr. Robinson and his
affiliates also own shares of the Companys convertible preferred stock having
an aggregate face amount of approximately $19.8 million as of November 30,
2003. Robert S. Prather, Jr., President, Chief Executive Officer and a
director of the Company, is President, Chief Operating Officer and a director
of Gray, and the beneficial owner of Gray common stocks representing
approximately 20.2% of the combined voting power of Grays two classes of
common stock as of the Gray Disposition Date. Hilton H. Howell, the Companys
Vice President and Secretary, is Vice Chairman and a director of Gray, and the
beneficial owner of Gray common stocks representing approximately 23.3% of the
combined voting power of Grays two classes of common stock as of the Gray
Disposition Date. Each of Messrs. Robinson, Prather and Howells beneficial
ownership percentages noted above includes the Companys beneficial ownership
of approximately 17.2% of the combined voting power of Grays two classes of
common stock as of the Gray Disposition Date. Beneficial ownership percentages
include warrants and options to acquire shares of Gray common stocks that were
exercisable on, or within 60 days after, such date.

Mr. Robinson personally guarantees substantially all of the debt outstanding
under the Companys bank credit facility. Under the terms of his guarantee,
Mr. Robinson has the option to purchase the entire

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loan from the banks, and
thereby would become the holder of the debt currently payable to the banks and
the related lien on the Companys assets.

W. James Host, a director of the Company until his resignation in January 2004,
owns along with his wife, shares of the Companys convertible preferred stock
having an aggregate face amount of approximately $1.8 million.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
judgments and estimations that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. The Company considers the following accounting policies to be
critical policies that require judgments or estimations in their application
where variances in those judgments or estimations could make a significant
difference to future reported results.

Revenue Recognition and Rights Fee Expenses 
Revenue from services is recognized as the services are rendered. Corporate
sponsor license fee revenue that is not related to specific events is
recognized ratably over the term of the sponsorship. In certain circumstances,
the Company enters into contractual arrangements with associations or
institutions it represents in various capacities which involve payment of
guaranteed rights fees. Guaranteed rights fee expense that is not related to
specific events is recognized ratably over the term specified in the contract.
The Companys contractual arrangements with associations or institutions may
also involve net profit sharing arrangements (profit splits) based on the net
profit associated with services rendered under the contract. Profit split
expense is accrued over the contract period, based on estimates, and is
adjusted at the end of the contract term in order to reflect the actual profit
split.

Goodwill and Other Intangible Assets 
Prior to July 1, 2001, goodwill and certain purchased intangible assets (i.e.,
trademarks) were amortized over 20 years. Effective July 1, 2001, the Company
adopted Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets,(SFAS 142) which eliminated the requirement to
amortize goodwill and trademarks, and also affected the Companys accounting
for its equity in earnings (losses) of affiliated companies. Under the
provisions of SFAS 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 an impairment in value has occurred. Annual impairment tests
prior to the fiscal year ended August 31, 2003 concluded that the carrying
amount of goodwill and trademarks for each acquired business unit did not
exceed its net realizable value based on the Companys estimate of expected
future cash flows to be generated by each of the five business units. However,
the Company updated its assessment as of August 31, 2003 and concluded that
based on a valuation model incorporating expected future cash flows in
consideration of historical cash flows and operating results, an impairment
charge of $28.2 million was necessary to reduce the carrying value of goodwill
and trademarks to net realizable value. If the Company concludes in the future
that the adjusted carrying value of such intangibles for any of the five
business units exceeds its respective net realizable value, the Company would
expense such excess and decrease goodwill and/or trademarks as reported in the
consolidated balance sheet.

Other purchased intangibles, including customer relationships, are amortized
primarily over a 16-year average life. The use of a 16-year average life for
customer relationships acquired in the Host-USA Acquisition, amortized on a
straight-line method, is not materially different from using the estimated life
of each individual relationship using a systematic allocation method. Prior to
the fiscal year ended August 31, 2002, the Company determined that an
impairment charge of approximately $6.6 million was necessary to reduce the
carrying amount of certain customer relationship intangible assets as a result
of a significant change in the contractual nature of the Companys underlying
relationship with the NCAA. An updated impairment analysis performed as of
August 31, 2003 indicated the need for an

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additional impairment charge of
approximately $2.3 million at that date. If the Company concludes in the
future that significant changes occur in its customer relationships, additional
impairment charges may be necessary.

The remaining value assigned to customer relationships will continue to be
amortized over a 16-year average life, at a rate of approximately $0.6 million
per year, except for a specific customer relationship having a remaining
carrying value of $0.5 million that is being amortized over the fiscal year
ending August 31, 2004. 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 $52.9
million as of November 30, 2003 and $53.2 million as of August 31, 2003, of
which, goodwill was $43.7 million as of each date. As of November 30, 2003,
the carrying value of goodwill and acquired intangibles, net of accumulated
amortization, represented approximately 71% of the Companys total assets.

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 November 30, 2003 the Company
has recognized a full valuation allowance for net deferred tax assets thereby
resulting in a carrying amount for deferred taxes in the balance sheet of zero.
If and when the Company generates taxable income in the future and benefits
primarily from net operating loss carryforwards for federal tax purposes that
expire beginning in 2018, some or all of the deferred tax assets may be
reinstated on the balance sheet, and the Company would report income tax
benefits in the period that such reinstatement occurs.

Derivative Instruments and Hedging Activities 
Effective July 1, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Investments and Hedging
Activities (SFAS 133). SFAS 133 requires the Company to recognize all
derivative instruments (i.e., interest rate swap agreements, and until sold in
April 2003, warrants to purchase additional shares of Gray common stocks) on
the balance sheet at fair value. The aggregate fair market value of
derivatives as of November 30, 2003 and August 31, 2003 of approximately $(1.4)
million and $(1.7) million, respectively, is included in the Companys balance
sheet as a component of Other liabilities. Changes in the estimated fair
value of derivatives that do not meet the specific criteria in SFAS 133 for
hedge accounting are included in the earnings (losses) reported for the period
of the change. None of the Companys derivative instruments have been
determined to qualify for hedge accounting treatment. Management estimates the
fair value of interest rate swap agreements based on estimated market values
provided by the counterparties to the swap agreements.

Valuation of Certain Non-Trade Receivables 
The Company recorded impairment charges of approximately $5.2 million and $1.7
million in the fiscal year ended August 31, 2003 (but subsequent to the three
months ended November 30, 2002), associated with its investment in and amounts
due from iHigh and a note receivable from the purchaser of Datasouth,
respectively. The Company performs ongoing credit evaluations of parties from
such non-trade receivables are due, and if and when management determines that
the carrying value of such receivables may not ultimately be realized, the
estimated impairment amount is charged to the earnings (losses) reported for
the period in which the determination is made. The impairment charges recorded
in the fiscal year ended August 31, 2003 reduced the carrying amount of the
investment in and amounts due from iHigh to zero, and the Companys note
receivable from the purchaser of Datasouth to approximately $1.7 million.

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LIQUIDITY AND CAPITAL RESOURCES

Credit Arrangements 
As of November 30, 2003, the Companys indebtedness to its bank lenders was
approximately $55.9 million. The bank credit agreement has a maturity date of
November 30, 2004 at which time all amounts outstanding become due and payable.
The agreement does not require any payments of principal prior to maturity,
nor does it provide for any additional borrowing capacity. The agreement,
which was last amended on August 18, 2003, requires the maintenance of interest
coverage ratios, determined quarterly beginning November 30, 2003. Prior to
the maturity date, the Company will 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, and is personally
guaranteed by the Companys Chairman of the Companys board of directors. The
Companys ability to continue this or similar financing beyond the November 30,
2004 maturity date is significantly dependent on the continued support of the
Companys Chairman and, in part, on the Companys future operating results.
There can be no assurances with respect to either the Companys future
operating results or the continued support of its Chairman.

As amended in August 2003, the Companys bank credit agreement provides for (a)
two term loans (the Term Loans) for borrowings totaling approximately $35.9
million and (b) a revolving loan commitment (the Revolver) for maximum
borrowings of $20 million. All amounts outstanding bear interest at either the
banks prime rate or the London Interbank Offered Rate (LIBOR) plus 2.75%,
payable monthly. The amendment in August 2003 reduced the interest rate
charged by the banks and revised the maturity date of the agreement to November
30, 2004 from September 30, 2003. The Company anticipates that it will
continue to utilize fully the availability under the Revolver throughout the
remaining term of the agreement.

Under the terms of the credit agreement, up to an aggregate of $12.5 million in
funding for working capital purposes, if necessary, may be sourced from the
issuance of equity securities, including shares of the Companys preferred
stock, or by the issuance of subordinated debt. In July 2002, the Companys
Chairman provided the Company short-term loans totaling $4 million to provide
cash to the Company for working capital purposes. In August 2002, the loans
were refinanced with the issuance of the Companys convertible preferred stock
having a face amount of approximately $4.1 million to the Companys Chairman.
In September 2002, the Companys Chairman and certain other affiliates of the
Chairman invested an aggregate $3 million in cash used for working capital
purposes, for shares of the Companys convertible preferred stock. In November
2003, the Companys Chairman invested an additional $2 million in cash used for
working capital purposes for shares of the Companys convertible preferred
stock. The Companys Chairman also committed to invest up to an additional $1
million in cash over the next year for additional shares of the Companys
common or preferred stocks or for subordinated debt, to be used for working
capital purposes if the Company determines that such investment is necessary.
Therefore, as of November 30, 2003, the Company has sourced approximately $9.1
million of cash for working capital purposes of the $12.5 million available,
and as a result, the Company has the capacity under its bank credit agreement
to source approximately an additional $3.4 million of cash (inclusive of the
$1.0 million committed by the Companys Chairman) from the issuance of equity
or debt securities during the remaining term of the credit facility.

The Companys Chairman of the board 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 his guarantee, the Chairman has the option to purchase the
entire loan from the banks, and thereby would become the holder of the debt
currently payable to the banks and the related lien on the Companys assets.
The Chairman is compensated by the Company for his guarantee in the form of
newly issued shares of the Companys common stock, valued at an annual rate of
1.625% of the guarantee amount.

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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 to former stockholders of Host and USA, representing long-term debt of
approximately $8.7 million as of November 30, 2003 and approximately $16.7
million as of August 31, 2003. Interest is payable quarterly and the notes, as
amended, generally have a maturity date of January 17, 2006. In May 2003, a
director of the Company and his spouse each agreed to exchange 8% subordinated
notes held by them, having an aggregate face value of approximately $1.8
million, to shares of the Companys convertible series D preferred stock (which
were later exchanged for shares of the Companys series E preferred stock
having the same aggregate face value and substantially the same terms). During
the three months ended November 30, 2003, holders of 8% subordinated notes
representing an aggregate face value of approximately $8.0 million exchanged
their notes for shares of the Companys series E preferred stock. Payment of
interest and principal on all subordinated notes is subordinate to the
Companys bank credit agreement.

The Company met and exceeded all of its principal payment requirements during
the fiscal year ended August 31, 2003, reducing its bank debt by $38 million.
The Company sourced these principal payments through the sales of its
investments in Rawlings common stock, Gray common stocks and warrants to
purchase additional shares of Gray common stocks, for cash proceeds aggregating
approximately $46.2 million.

As a result of the seasonality of its business, the Company generally expects
to use more cash than it generates during the first half of its fiscal year,
and generate more cash than it uses during the second half of its fiscal year.
Due to negative operating cash flow generated in the past, the Company
currently has trade payables and other cash obligations that exceed its current
assets. In the three months ended November 30, 2003, the Companys Chairman
invested $2 million in cash to be used for operating purposes and committed an
additional $1 million of cash to be used for operations, if necessary. While
the Company believes its cash flow will be sufficient to meet its needs through
August 31, 2004, the Company may also seek to (a) issue and sell equity
securities of the Company, which may include the Companys preferred stock; (b)
issue additional subordinated debt; (c) accelerate cash flows otherwise
anticipated to be received later in the current fiscal year or future fiscal
years; or (d) a combination thereof. The Companys bank credit agreement does
provide the Company the ability to issue additional subordinated debt or equity
securities for cash proceeds of up to approximately $3.4 million without
requiring an associated reduction in its outstanding debt to the banks. The
Companys capital expenditures are not expected to exceed $600,000 for the
fiscal year ending August 31, 2004.

On December 4, 2003, the Company received a Nasdaq Staff Determination
indicating that the Company fails to comply with the minimum stockholders
equity requirement for continued listing set forth in Marketplace Rule
4310(c)(2)(B), and that the Companys common stock is therefore, subject to
delisting from the Nasdaq SmallCap Market. The Company subsequently appealed
the Determination, but such appeal was unsuccessful. As a result, the
Companys common stock will be delisted from the Nasdaq SmallCap Market
effective January 15, 2004. The Companys common stock is immediately eligible
for quotation on the OTC Bulletin Board under the same trading symbol BULL.

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Historical Cash Flow Information  Summary 
The following summarizes the Companys historical cash flow activities (amounts
in 000s):

Three Months EndedNovember 30,2003
    
    2002Cash flows from operating activities:Continuing operations
    
    $
    (6,359
    )
    
    $
    (2,843
    )Discontinued operations
    
    
    
    
    
    
    106Cash flows from investing activities
    
    
    (47
    )
    
    
    420Cash flows from financing activities
    
    
    1,962
    
    
    
    2,222Net decrease in cash and cash equivalents
    
    $
    (4,444
    )
    
    $
    (95
    )


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):

Three Months EndedNovember 30,2003
    
    2002Operating income (loss)
    
    $
    (57
    )
    
    $
    6,308Depreciation and amortization included in operations
    
    
    581
    
    
    
    622Interest expense, net of interest and dividend income
    
    
    (1,086
    )
    
    
    (2,193
    )Net change in operating assets and liabilities
    
    
    (5,802
    )
    
    
    (7,678
    )Other changes in operating cash flows
    
    
    5
    
    
    
    98Total cash flows from continuing operations
    
    
    (6,359
    )
    
    
    (2,843
    )Cash flows from discontinued operating activities
    
    
    
    
    
    
    106Total cash flows from operating activities
    
    $
    (6,359
    )
    
    $
    (2,737
    )


The Collegiate Marketing and Production Services segment primarily generates
revenues during the collegiate football and basketball seasons. In the three
months ended November 30, the segment primarily derives revenues from projects
and services associated with the college football. The Affinity Events segment
consists primarily of participatory sports tours that generally begin in March
and end in September each year. Therefore, this segment generates a
proportionately low amount of revenues during the three months ended November
30.

The net change in operating assets and liabilities had an unfavorable impact on
total cash flows from continuing operations during the three months ended
November 30, 2003 and 2002. Accounts receivable increased $4.2 million and
$7.0 million in the three months ended November 30, 2003 and 2002,
respectively, as the college football season commenced in late August.
Advertising and other revenues generated during this period result in increases
in the Companys accounts receivable. In addition, during the three months
ended November 30, 2003, cash available at the beginning of the period was used
to reduce accounts payable and accrued expenses by $2.2 million, compared to a
reduction of $(0.5) million in the three months ended November 30, 2002. The
Companys total cash flows from continuing operations were also used to fund
interest expense. Interest paid, net of interest income received, was
approximately $1.2 million and $2.4 million for the three months ended
November 30, 2003 and 2002, respectively, with the reduction caused by the
decrease in total outstanding debt and reductions in interest rates to which
the debt is subject.

17



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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):

Three Months EndedNovember 30,2003
    
    2002Capital expenditures
    
    $
    (60
    )
    
    $
    (67
    )Increase in other assets
    
    
    13
    
    
    
    487Total cash flows from investing activities
    
    $
    (47
    )
    
    $
    420


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):

Three Months EndedNovember 30,2003
    
    2002Borrowings on revolving line of credit
    
    $
    
    
    
    $
    175Proceeds on issuance of preferred stock
    
    
    2,000
    
    
    
    3,000Other financing cash flows
    
    
    (38
    )
    
    
    (953
    )Total cash flows from financing activities
    
    $
    1,962
    
    
    $
    2,222


CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

The following summarizes the Companys contractual obligations as of November
30, 2003 (amounts in 000s):

Payments Due by Period as of November 30, 2003Less than
    
    More than 1
    
    More than 3
    
    More thanContractual Obligations
    
    Total
    
    1 Year
    
    to 3 Years
    
    to 5 Years
    
    5 YearsLong-term debt obligations
    
    $
    65,215
    
    
    $
    55,932
    
    
    $
    9,283
    
    
    $
    
    
    
    $Operating lease obligations
    
    
    3,429
    
    
    
    1,462
    
    
    
    911
    
    
    
    650
    
    
    
    406Purchase obligations
    
    
    37,894
    
    
    
    14,367
    
    
    
    17,177
    
    
    
    5,616
    
    
    
    734Total
    
    $
    106,538
    
    
    $
    71,761
    
    
    $
    27,371
    
    
    $
    6,266
    
    
    $
    1,140


Purchase obligations primarily consist of future guaranteed rights fee
commitments to associations or institutions under contractual arrangements of
typically one to four years, which expire at varying times through 2009.

The Company is a party to an interest rate swap agreement 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 $1.6 million as of November 30, 2003, including accrued interest
through that date.

Dividends on the Companys series D and series F convertible preferred stocks
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. All dividends payable through November 30, 2003 on issued shares of the
Companys preferred stock have been paid, including series D convertible
preferred stock dividends payable to the Companys Chairman that were declared
effective June 30, 2003, having an aggregate

18



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value at that time of
approximately $0.5 million, that were paid to the Chairman in January 2004 in
the form of approximately 149 shares of the Companys common stock, following
the Companys stockholders approval of the issuance of such shares.

Dividends on the Companys series E convertible preferred stock are payable
annually at an annual rate of $90 per share in cash or in shares of the
Companys common stock at the holders option, except that the initial dividend
accruing through June 30, 2005 is not payable until July 2005. The amount of
dividends accruing through November 30, 2003 on the outstanding shares of
series E convertible preferred stock potentially payable in cash in July 2005
is approximately $257.

RESULTS OF CONTINUING OPERATIONS  THREE MONTHS ENDED NOVEMBER 30, 2003
COMPARED TO THREE MONTHS ENDED NOVEMBER 30, 2002

Results Derived from Operating Businesses 
Total revenues for the three months ended November 30, 2003 and 2002 are
summarized as follows (amounts in $000s):

Three Months EndedNovember 30,2003
    
    2002Collegiate Marketing and Production Services
    
    $
    17,332
    
    
    $
    21,780Affinity Events
    
    
    2,139
    
    
    
    1,784Affinity Management Services
    
    
    2,163
    
    
    
    2,278Consulting
    
    
    
    
    
    
    5,267$
    21,634
    
    
    $
    31,109


Total revenues and operating results for the Collegiate Marketing and
Production Services segment were impacted in the three months ended November
30, 2003 by the termination of three university contractual relationships at
the end of the previous fiscal year. Such contracts generated revenues of
approximately $3.3 million during the three months ended November 30, 2002 and
generated operating profit of approximately $600,000 during that period. For
the fiscal year ended August 31, 2003, such terminated contracts generated
revenues of approximately $5.4 million and operating profit of approximately
$500,000. The change in total revenues of this segment was also affected by
certain printing, publishing and broadcasting projects and activities which
occurred in the prior year period but not in the current fiscal year. Total
revenues derived from printing, publishing, broadcasting and other integrated
media activities, net of the elimination of intercompany revenues, were
approximately $2.1 million and $2.8 million for the three months ended November
30, 2003 and 2002, respectively.

The three months ended November 30 is typically a period of proportionately low
activity in the Affinity Events segment. The tours and events currently
operated within the Affinity Events segment generally take place during the
months of March through September; therefore, the three month period ended
November 30 is expected to reflect proportionately low revenue and a loss from
operations. The increase in revenues from the same period in the prior year
was primarily due to the timing of certain events, and the addition of the U.S.
Cowboy Tour finals, which was held in September 2003. The segments loss from
operations for the three months ended November 30, 2003 is greater than the
same period in the prior year due to higher losses derived from the end of the
2003 tour event season as compared to the 2002 tour events, and losses derived
from certain events taking place in the current fiscal period that did not take
place in the prior year. The Company has allocated a greater proportion of
selling, general and administrative costs to the Affinity Events segment in the
current fiscal year. This change was made to reflect the additional sales and
management resources devoted to this segment in the current fiscal year.
Therefore, in periods of proportionately low revenue activity within the
Affinity Events segment, operating losses may be higher than those reported in
the prior fiscal year due to the higher amount of selling, general and
administrative costs absorbed by this segment in comparison with the prior
year.

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Total revenues for the three months ended November 30, 2003 for the Affinity
Management Services segment represented a slight decline from the same period
in the prior year due to nonrecurring sponsorship revenue of $150,000 realized
in the prior year, which also resulted in nonrecurring direct costs of
approximately the same amount. Overall, operating profit for this segment for
the three months ended November 30, improved in comparison with the same period
of the prior year due to lower operating costs.

Prior to September 1, 2002, the Company received a $5.0 million 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, and in November 2002, Gray issued additional shares of its common stock.
These issuances of common stock by Gray resulted in a reduction of the
Companys equity investment in Grays outstanding common stock from 12.9% to
4.0%. As a result of these transactions by Gray, the Company recognized
deferred consulting fee income of approximately $4.8 million in the three
months ended November 30, 2002 attributable to Grays acquisition of Stations,
plus approximately an additional $450,000 of previously deferred consulting fee
income, as a result of the reduction in the Companys proportionate ownership
of Gray following Grays issuances of common stock. The Company does not
anticipate receiving any additional consulting fees from Gray or any other
party in the future. As a result of the Companys 4.0% equity investment in
Gray as of November 30, 2002, approximately 4.0% of consulting fee income on
fees charged to Gray in prior years was deferred and was ultimately recognized
as income by the Company when the Company sold its investments in Gray common
stocks in August 2003.

Total operating costs and expenses for the three months ended November 30, 2003
and 2002 are summarized as follows (amounts in $000s):

Three Months EndedNovember 30,2003
    
    2002Direct operating costs of services rendered
    
    $
    15,391
    
    
    $
    18,066Selling, general and administrative
    
    
    5,987
    
    
    
    6,431Amortization of acquisition intangibles
    
    
    313
    
    
    
    304$
    21,691
    
    
    $
    24,801


Direct operating costs of services rendered decreased for the three months
ended November 30, 2003 from the same period in the prior year due to the
termination of certain contractual relationships as discussed above, which
substantially contributed to a reduction in total guaranteed rights fee and
profit split expenses of approximately $1.3 million; and (b) the reduction of
approximately $1.2 million in production expenses associated with the printing,
publishing and broadcasting operations due to lower volume during the current
year in comparison with the prior fiscal year.

Selling, general and administrative costs declined for the three months ended
November 30, 2003 compared to the same period in the prior fiscal year due to a
decline in employee compensation costs of approximately $370,000.

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Operating income (loss) for the three months ended November 30, 2003 and 2002
is summarized as follows (amounts in 000s):

Three Months EndedNovember 30,2003
    
    2002Collegiate Marketing and Production Services
    
    $
    1,942
    
    
    $
    2,546Affinity Events
    
    
    (1,872
    )
    
    
    (1,236
    )Affinity Management Services
    
    
    509
    
    
    
    396Consulting
    
    
    
    
    
    
    5,267Amortization of acquisition intangibles
    
    
    (313
    )
    
    
    (304
    )Unallocated general and administrative costs
    
    
    (323
    )
    
    
    (361
    )$
    (57
    )
    
    $
    6,308


Results Derived from Investments and Derivative Instruments 
Equity in earnings of affiliated companies of $173,000 for the three months
ended November 30, 2002 was derived from the Companys proportionate share of
the earnings or losses from its investments in Gray and iHigh. The Company
sold its investments in Gray common stocks in August 2003 and recorded an
impairment charge to reduce the carrying amount of its investment in iHigh to
zero as of August 31, 2003. Since there is no commitment for the Company to
provide additional capital to iHigh, and since the carrying amount of the
Companys investment in iHigh has been reduced to zero, the Company has no
equity in earnings or losses of affiliated companies to report for the three
months ended November 30, 2003, nor does it anticipate reporting such amounts
in the foreseeable future.

During the three months ended November 30, 2002, the Company accounted for its
prior investment in Rawlings as an available-for-sale marketable security,
and recorded an investment valuation charge of approximately $1.0 million for
the unrealized loss on its investment in Rawlings. The amount of the charge
was determined based on the actual proceeds derived from the Companys sale of
its investment in Rawlings common stock in December 2002.

As a result of Grays issuance of common stock in October and November 2002 for
average net proceeds to Gray of approximately $7.72 per share, and since the
Companys carrying amount of its investment in Gray common stock prior to
Grays issuance exceeded $7.72 per share, the Company reported a non-cash loss
on Grays issuance of shares in the three months ending November 30, 2002 of
approximately $2.3 million.

The net change in the value of certain derivative instruments, currently
consisting of an interest rate swap agreement, and previously consisting of a
second interest rate swap agreement that expired on December 31, 2002 and
warrants to purchase shares of Gray common stocks that were sold in April 2003,
was approximately $0.3 million for the three months ended November 30, 2003 due
to an increase in the value of the remaining interest rate swap agreement; and
$(1.7) million for the three months ended November 30, 2002 due to a decline in
the value of warrants, less an increase in the value of the interest rate swap
agreements.

Interest Expense and Debt Related Costs 
Interest expense decreased to approximately $1.1 million for the three months
ended November 30, 2003 from approximately $2.2 million 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 of approximately $0.3 million and $0.5 million for
the three months ended November 30, 2003 and 2002, respectively, results from
the amortization of costs paid in connection with amendments to the Companys
bank credit agreement, as well as amortization of the value of shares of the
Companys common stock issued to the Companys Chairman, who has personally

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guaranteed the Companys debt under its bank credit agreement. During the
three months ended November 30, 2002, the Company issued approximately 49,000
shares of restricted common stock to the Chairman to compensate him for his
personal guarantee, then valued at approximately $0.4 million. The value of
all shares issued to the Chairman is amortized over the period for which the
shares provide compensation, and $217,000 and $365,000 of such amortization is
included in debt issue cost amortization for the three months ended November
30, 2003 and 2002, respectively.

Income Taxes 
The principal differences between the federal statutory tax rate of 34% and the
effective tax rate of zero are increases in the valuation allowance for
potentially non-realizable deferred tax assets of $352,000 and $325,000 for the
three months ended November 30, 2003 and 2002, respectively. The valuation
allowance for net deferred tax assets was approximately $19.85 million as of
November 30, 2003.

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 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 the counterparty to its current agreement.

Based on the Companys debt profile as of November 30, 2003 and 2002, 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 $77,000 and $122,000 for the three
months ended November 30, 2003 and 2002, 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.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. When used
in this report, the words believes, expects, anticipates, estimates and
similar words and expressions are generally intended to identify
forward-looking statements. Statements that describe the Companys future
strategic plans, goals or objectives are also forward-looking statements.
Readers of this Report are cautioned that any forward-looking statements,
including those regarding the intent, belief or current expectations of the
Company or management, are not guarantees of future performance, results or
events, and involve risks and uncertainties. The forward-looking statements
included in this report are made only as of the date hereof. The Company
undertakes no obligation to update such forward-looking statements to reflect
subsequent events or circumstances. Actual results and events may differ
materially from those in the forward-looking statements as a result of various
factors including, but not limited to the following: (i) the Companys leverage
may adversely affect its ability to obtain financing, thereby impairing their
ability to withstand economic downturns or competitive pressures; (ii) the
delisting of the Companys common stock from the Nasdaq SmallCap Market may
hinder the Companys ability to raise new capital through the issuance of
equity securities; (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; and (vi) war or acts of terrorism or

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a domestic economic downturn or recession could materially adversely
impact corporate discretionary spending, such as sponsorships and advertising
sold by the Company.

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 November 30, 2003.

There were no significant changes to the Companys internal controls or in
other factors that could significantly affect these controls during the
quarterly period ended November 30, 2003.

PART II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

(a)
    
    Exhibits31.1
    
    
    Certifications of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certifications of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certifications of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certifications of Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002(b)
    
    Reports on Form 8-KNone


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.

BULL RUN CORPORATIONDate: January 14, 2004
    
    By:
    
    /s/ FREDERICK J. ERICKSONFrederick J. Erickson
Vice President-Finance, Treasurer
and Assistant Secretary


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