##### 



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 1934 For the quarterly period endedMay 31, 2005 OR o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
the transition period from ____________
to ____________. Commission file number0-9385 Bull Run Corporation  Georgia
    
    58-2458679(State of incorporation
    
    (I.R.S. Employeror organization)
    
    Identification No.)
 4370 Peachtree Road, N.E., Atlanta, GA 30319
(Address of principal executive offices) (Zip Code) (404) 266-8333
(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.x Yes      o No Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: 6,889,767 shares of Common Stock, par value $.01 per share, were
outstanding as of June 30, 2005. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act).o Yes      x No




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##### 



PART I. FINANCIAL INFORMATION Item 1. Financial Statements BULL RUN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands) May 31,
    
    
    August 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    897
    
    
    $
    450Accounts receivable, net of allowance of $358 and $309 as of May 31,
2005 and August 31, 2004, respectively
    
    
    7,465
    
    
    
    5,219Inventories
    
    
    753
    
    
    
    663Prepaid costs and expenses
    
    
    1,134
    
    
    
    1,757Total current assets
    
    
    10,249
    
    
    
    8,089Property and equipment, net
    
    
    2,794
    
    
    
    3,184Goodwill
    
    
    40,364
    
    
    
    40,364Customer relationships and trademarks
    
    
    7,770
    
    
    
    8,308Other assets
    
    
    998
    
    
    
    997$
    62,175
    
    
    $
    60,942LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Current portion of long-term debt (including $4,519 payable to related
parties as of May 31, 2005 and none as of August 31, 2004)
    
    $
    69,125
    
    
    $
    590Accounts payable
    
    
    4,132
    
    
    
    5,866Deferred revenue
    
    
    1,691
    
    
    
    4,819Accrued fees payable to related party
    
    
    1,318
    
    
    
    1,721Advances from stockholder
    
    
    6,050
    
    
    
    4,550Accrued and other liabilities
    
    
    11,654
    
    
    
    9,215Net current liabilities of discontinued segment
    
    
    804
    
    
    
    474Total current liabilities
    
    
    94,774
    
    
    
    27,235Long-term debt (including $3,019 payable to related parties)
    
    
    
    
    
    
    64,625Other liabilities, excluding redeemable preferred stock
    
    
    257
    
    
    
    497Net noncurrent liabilities of discontinued segments
    
    
    448
    
    
    
    840Redeemable preferred stock:Series D preferred stock, $.01 par value (authorized 100 shares; issued
and outstanding 12.5 shares; $12,497 liquidation value)
    
    
    12,497
    
    
    
    12,497Series E preferred stock, $.01 par value (authorized 25 shares; issued
and outstanding 7.6 shares as of May 31, 2005 and 9.8 shares as of
August 31, 2004; $7,585 and $9,799 liquidation value, respectively)
    
    
    7,585
    
    
    
    9,799Series F preferred stock, $.01 par value (authorized 25 shares; issued
and outstanding 2.0 shares; $2,000 liquidation value)
    
    
    2,000
    
    
    
    2,000Total liabilities
    
    
    117,561
    
    
    
    117,493Commitments and contingenciesStockholders deficit:Common stock, $.01 par value (authorized 100,000 shares; issued 6,890
and 5,386 shares as of May 31, 2005 and August 31, 2004, respectively)
    
    
    69
    
    
    
    54Additional paid-in capital
    
    
    84,471
    
    
    
    81,706Accumulated deficit
    
    
    (139,926
    )
    
    
    (138,311
    )Total stockholders deficit
    
    
    (55,386
    )
    
    
    (56,551
    )$
    62,175
    
    
    $
    60,942
 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) Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue from services rendered
    
    $
    12,949
    
    
    $
    12,773
    
    
    $
    54,058
    
    
    $
    48,611Operating costs and expenses:Direct operating costs of services rendered
    
    
    7,664
    
    
    
    8,426
    
    
    
    36,460
    
    
    
    32,029Selling, general and administrative
    
    
    4,693
    
    
    
    4,577
    
    
    
    13,319
    
    
    
    13,436Amortization and impairment of acquisition intangibles
    
    
    179
    
    
    
    3,613
    
    
    
    538
    
    
    
    4,240Total operating costs and expenses
    
    
    12,536
    
    
    
    16,616
    
    
    
    50,317
    
    
    
    49,705Operating income (loss)
    
    
    413
    
    
    
    (3,843
    )
    
    
    3,741
    
    
    
    (1,094
    )Other income (expense):Net change in value of derivative instrument
    
    
    
    
    
    
    400
    
    
    
    412
    
    
    
    947Interest expense, related parties
    
    
    (83
    )
    
    
    (69
    )
    
    
    (245
    )
    
    
    (79
    )Interest expense, other
    
    
    (971
    )
    
    
    (1,067
    )
    
    
    (3,068
    )
    
    
    (3,251
    )Debt issue cost amortization, related parties
    
    
    (239
    )
    
    
    (217
    )
    
    
    (675
    )
    
    
    (652
    )Debt issue cost amortization, other
    
    
    (111
    )
    
    
    (77
    )
    
    
    (275
    )
    
    
    (226
    )Other income (expense)
    
    
    (2
    )
    
    
    (63
    )
    
    
    7
    
    
    
    (74
    )Loss from continuing operations
    
    
    (993
    )
    
    
    (4,936
    )
    
    
    (103
    )
    
    
    (4,429
    )Income (loss) from discontinued operations
    
    
    (15
    )
    
    
    (1,400
    )
    
    
    8
    
    
    
    (4,719
    )Net loss
    
    
    (1,008
    )
    
    
    (6,336
    )
    
    
    (95
    )
    
    
    (9,148
    )Preferred dividends
    
    
    (488
    )
    
    
    (568
    )
    
    
    (1,520
    )
    
    
    (1,658
    )Net loss available to common stockholders
    
    $
    (1,496
    )
    
    $
    (6,904
    )
    
    $
    (1,615
    )
    
    $
    (10,806
    )Earnings (loss) per share available to common stockholders,
basic and diluted:Continuing operations
    
    $
    (0.22
    )
    
    $
    (1.15
    )
    
    $
    (0.25
    )
    
    $
    (1.34
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.29
    )
    
    
    0.00
    
    
    
    (1.04
    )$
    (0.22
    )
    
    $
    (1.44
    )
    
    $
    (0.25
    )
    
    $
    (2.38
    )Weighted average number of common shares outstanding:Basic and diluted
    
    
    6,887
    
    
    
    4,798
    
    
    
    6,376
    
    
    
    4,546
 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 DEFICIT (Unaudited)
(Amounts in thousands) Redeemable
    
    
    Common StockPreferredStock
    
    
    Shares
    
    
    AmountAs of September 1, 2004
    
    $
    24,296
    
    
    
    5,386
    
    
    $
    54Conversion of redeemable
preferred stock
to shares of common stock
    
    
    (2,214
    )
    
    
    316
    
    
    
    3Issuance of common stock
    
    
    
    
    
    
    1,188
    
    
    
    12As of May 31, 2005
    
    $
    22,082
    
    
    
    6,890
    
    
    $
    69Additional
    
    
    
    
    
    TotalPaid-In
    
    Accumulated
    
    StockholdersCapital
    
    Deficit
    
    DeficitAs of September 1, 2004
    
    $
    81,706
    
    
    $
    (138,311
    )
    
    $
    (56,551
    )Conversion of redeemable
preferred stock
to shares of common stock
    
    
    2,211
    
    
    
    
    
    
    
    2,214Issuance of common stock
    
    
    554
    
    
    
    
    
    
    
    566Preferred dividends
    
    
    
    
    
    
    (1,520
    )
    
    
    (1,520
    )Net loss
    
    
    
    
    
    
    (95
    )
    
    
    (95
    )As of May 31, 2005
    
    $
    84,471
    
    
    $
    (139,926
    )
    
    $
    (55,386
    )
 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) Nine Months EndedMay 31,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (95
    )
    
    $
    (9,148
    )Loss (income) from discontinued operations
    
    
    (8
    )
    
    
    4,719Adjustments to reconcile net loss to net cash used in
continuing operations:Provision for bad debts
    
    
    107
    
    
    
    (23
    )Depreciation, amortization and intangibles impairment
    
    
    1,947
    
    
    
    5,951Net change in value of derivative instrument
    
    
    (412
    )
    
    
    (947
    )Change in operating assets and liabilities:Accounts receivable
    
    
    (2,352
    )
    
    
    1,401Inventories
    
    
    (90
    )
    
    
    (129
    )Prepaid costs and expenses
    
    
    697
    
    
    
    655Accounts payable and other current liabilities
    
    
    (4,090
    )
    
    
    (6,648
    )Other long-term liabilities
    
    
    169
    
    
    
    (20
    )Net cash used in continuing operations
    
    
    (4,127
    )
    
    
    (4,189
    )Net cash used in discontinued operations
    
    
    (1,197
    )
    
    
    (4,813
    )Net cash used in operating activities
    
    
    (5,324
    )
    
    
    (9,002
    )Cash flows from investing activities:Capital expenditures
    
    
    (58
    )
    
    
    (285
    )Other investing activities
    
    
    (12
    )
    
    
    (62
    )Net cash used in continuing operation investing activities
    
    
    (70
    )
    
    
    (347
    )Net cash provided by discontinued operation investing
activities
    
    
    1,133
    
    
    
    182Net cash provided by (used in) investing activities
    
    
    1,063
    
    
    
    (165
    )Cash flows from financing activities:Borrowings from revolving line of credit
    
    
    3,000Borrowings on note issued by related party
    
    
    1,500Cash advances made by stockholder
    
    
    1,500
    
    
    
    3,300Repayments on long-term debt
    
    
    (590
    )Debt issue costs
    
    
    (445
    )
    
    
    (41
    )Preferred stock dividends paid
    
    
    (257
    )Issuance of preferred stock
    
    
    
    
    
    
    2,000Net cash provided by continuing operation financing activities
    
    
    4,708
    
    
    
    5,259Net increase (decrease) in cash and cash equivalents
    
    
    447
    
    
    
    (3,908
    )Cash and cash equivalents, beginning of period
    
    
    450
    
    
    
    4,520Cash and cash equivalents, end of period
    
    $
    897
    
    
    $
    612
 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 The accompanying unaudited condensed consolidated financial statements of Bull Run Corporation
(Bull Run or the Company) have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting solely of normal, recurring adjustments) considered
necessary for a fair presentation of the Companys financial position and results of operations
have been included. Operating results for the three-month and nine-month period ended May 31, 2005
are not necessarily indicative of the results that may be expected for the fiscal year ending
August 31, 2005. For further information, refer to the consolidated financial statements and
footnotes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended
August 31, 2004. The accompanying condensed consolidated financial statements include the accounts of Bull Run and
its wholly owned subsidiaries, including Host Communications, Inc. (Host), after elimination of
intercompany accounts and transactions. Bull Run, through Host, provides comprehensive sales,
marketing, multimedia, special event and convention/hospitality services, primarily for National
Collegiate Athletic Association (NCAA) Division I universities and conferences, and
national/global associations. Discontinued OperationsIn August 2004, the Company announced its intent to suspend and sell its
Affinity Events business segment due to the segments historical operating losses and the
Companys intention to focus on its Collegiate Marketing and Production Services segment and its
Association Management Services segment. As a result, the Affinity Events segment has been
reflected in the Companys financial statements as a discontinued operation for all periods
presented. In December 2004, the principal assets of the Affinity Events segment were sold.
Proceeds on the sale received at closing of $870 were used to reduce current liabilities, $295 of
which pertained to the cancellation of the remaining principal amount on subordinated debt
previously issued by the Company to an officer of the company purchasing the assets. In addition,
the Company received a $675 subordinated installment note issued by the purchaser and other future
consideration estimated to be valued at approximately $150. The Company has judged that the
collection of the note is in doubt, due to its subordinate nature and the amount of time before
which scheduled payments are to be made. As a result, the Companys loss on its discontinued
operations reported in the fiscal year ended August 31, 2004 was presented net of the $870 proceeds
then anticipated on, and ultimately received at the closing of, the sale of the Affinity Events
assets. If the Company ultimately receives more than $870 on the sale, such income is expected to
be reported in the future as income from discontinued operations. Unless otherwise indicated, amounts provided in these notes to the condensed consolidated financial
statements pertain to continuing operations. Stock-Based Compensation The Company follows the provisions of Statement of Financial Accounting
Standards No. 123 Accounting for Stock-Based Compensation (SFAS 123). SFAS 123 allows
companies to either expense the estimated fair value of stock options or continue to follow the
intrinsic value method set forth in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25), but disclose the pro forma effects on net income (loss) had
the fair value of the options been expensed. The Company has elected to continue to apply APB 25
in accounting for its stock option incentive plans. In December 2004, the Financial Accounting
Standards Board issued a revision to SFAS 123 entitled Share-Based Payment (SFAS 123(R)). SFAS
123(R) will require the Company to measure the cost of employee services received in exchange for
certain awards of equity instruments, including stock options, based on the grant-date fair value
of the award over the requisite service period (usually the vesting period). SFAS 123(R) is
effective for the interim period beginning September 1, 2005. The Company intends to adopt SFAS
123(R) prospectively as of its effective date, and therefore the Company does not anticipate that
the adoption of SFAS 123(R) will have any affect on the Companys financial statements in
connection with any currently outstanding stock options, since all such stock options are currently
vested in full. However, stock options or other awards of equity instruments issued on or after
September 1, 2005 in exchange for employee services will likely result in additional operating
expense over the vesting period. 6




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##### 



For purposes of the following pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options vesting period: Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss available to common stockholders, as reported
    
    $
    (1,496
    )
    
    $
    (6,904
    )
    
    $
    (1,615
    )
    
    $
    (10,806
    )Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related effects
    
    
    (1
    )
    
    
    (93
    )
    
    
    (3
    )
    
    
    (278
    )Net loss available to common stockholders, pro forma,
for computation of basic and diluted earnings (loss)
per share
    
    $
    (1,497
    )
    
    $
    (6,997
    )
    
    $
    (1,618
    )
    
    $
    (11,084
    )Earnings (loss) per common share, basic and diluted:As reported
    
    $
    (0.22
    )
    
    $
    (1.44
    )
    
    $
    (0.25
    )
    
    $
    (2.38
    )Pro forma
    
    $
    (0.22
    )
    
    $
    (1.46
    )
    
    $
    (0.25
    )
    
    $
    (2.44
    )
 2. LIQUIDITY As of May 31, 2005, the Companys negative working capital was $84,525, including $58,932 of bank
debt maturing on November 30, 2005, $8,693 of subordinated debt maturing on January 17, 2006 (of
which, $3,019 is payable to the Companys Chairman) and $1,500 of subordinated debt (payable to a
company affiliated with the Companys Chairman) maturing on February 28, 2006. Certain current
liabilities, including deferred revenue of $1,691, advances from stockholder of $6,050 and certain
accrued preferred stock dividends of $3,281, do not represent cash obligations or do not represent
liabilities expected to be paid in cash prior to the November 30, 2005 maturity date of the bank
credit facility. In prior fiscal years, the Company reported substantial losses and consumed substantial
cash in its operations. The Company has previously funded its liquidity needs through the sale of
investments, the issuance of preferred stock and other cash advances made by the Companys majority
stockholder and Chairman of the board, and the issuance of subordinated debt to the Chairman and
companies affiliated with the Chairman. During the nine months ended May 31, 2005, a company
affiliated with the Companys Chairman provided cash of $1,500 used for working capital purposes in
connection with the Companys issuance of the previously-discussed $1,500 subordinated note. The
Companys Chairman has committed to fund the necessary cash to ultimately repay this note, and in
addition, the Chairman provided an additional $1,500 cash advance to the Company during the current
fiscal year, the proceeds from which were used for working capital purposes. Based upon the
Companys forecasted operating cash flows and capital expenditures for the remainder of its fiscal
year ending August 31, 2005, management believes the Company has sufficient liquidity until the
November 30, 2005 maturity date of its bank credit agreement. As further discussed in Note 6, the Company currently has $58,932 of debt outstanding under its
bank credit agreement. As further discussed in Note 6, the Companys Chairman has guaranteed
repayment of up to $55,932 of the outstanding bank debt. Amounts outstanding under the credit
agreement are due on November 30, 2005. The Companys ability to continue this or similar
financing beyond the November 30, 2005 maturity date is significantly dependent on the continued
support of the Companys Chairman and, in part, on the Companys future operating results. There
can be no assurances with respect to either the Companys future operating results or the continued
support of its Chairman. 3. DISCONTINUED OPERATIONS The Company discontinued its Affinity Events business segment during the fiscal year ended August
31, 2004. In August 2004, the Company announced its decision to suspend the Affinity Events
business, and declared its intent to offer the business unit for sale, and ultimately sold the
principal assets of the segment in December 2004. Accordingly, the operating results and net
assets associated with the Consulting and the Affinity Events business segments as of and for all
fiscal periods presented herein have been reflected as discontinued operations in the accompanying
consolidated financial statements. As a result of the suspension of its Affinity Events business, the Company incurred certain costs
charged to discontinued operations in the fiscal year ended August 31, 2004, including (a) employee
severance costs; (b) the present value of future lease obligations, net of estimated sublease
income, to be incurred through 2010; and (c) the present value of consulting agreement commitments
through 2010 for arrangements under which no future benefits are expected to be derived; less (d)
the estimated proceeds to be derived from the sale of Affinity Events assets. 7




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##### 



A reconciliation of the accrued liability associated with the suspension and sale of the Affinity
Events segment is as follows: Accrued liability as of August 31, 2004
    
    $
    2,625Proceeds on sale of Events assets
    
    
    870Costs incurred during the period
    
    
    (1,283
    )Accrued liability as of May 31, 2005
    
    $
    2,212
 Income subsequent to May 31, 2005 to be derived from subleasing vacated office space under executed
sublease agreements is approximately $1,450 over the remaining lives of the leases. There is no
vacated office space that has not yet been subleased. The estimated proceeds to be derived from
the sale of Affinity Events assets do not include amounts payable to the Company in the future
which are anticipated to be subordinated to the purchasers bank financing. Actual amounts
received in connection with deferred proceeds on the sale and any other unanticipated income or
expenses, including income from the future subleases of vacated office space, could differ
materially from amounts assumed in arriving at the loss on termination of the business. To the
extent actual proceeds or other amounts differ from the estimates that are reflected as of May 31,
2005, or as managements estimates are revised, the variance will be reported in discontinued
operations in future periods. Events operations were substantially complete by May 31, 2005, and
any adjustments to the results of those operations will be reported in the income (loss) from
discontinued operations in future periods. Proceeds of $870 derived from the sale of the Affinity
Events assets at closing in December 2004 were used to repay a subordinated note totaling $295 and
certain liabilities associated with the prior operations of the business. The Company consummated the sale of Datasouths computer printer manufacturing operation on
September 29, 2000. Certain of the proceeds to be realized on the sale of Datasouths assets are
deferred under a subordinated note agreement with the purchaser that was amended during the fiscal
year ended August 31, 2004. The amended note agreement provides for gradually reducing discounts on the amount due to the Company which are
earned by the purchaser as payments are made through the notes maturity in December 2006. As of
May 31, 2005, the amount due to the Company was $2,084; however the Company has recorded a $1,089
reserve on the note receivable as of May 31, 2005 as an estimate of the amounts that might
ultimately become uncollectible and/or discounted. To the extent actual proceeds on the note
differ from managements current estimate of the proceeds to be ultimately received, such
differences will be reported as discontinued operations in future periods. There are no material contingent liabilities related to discontinued operations, such as product or
environmental liabilities or litigation, which remain with the Company after the termination and/or
disposal of its discontinued operations. Assets and liabilities of the discontinued operations have been reflected in the consolidated
balance sheets as current or noncurrent based on the original classification of the accounts,
except that current liabilities are presented net of current assets and noncurrent liabilities are
presented net of noncurrent assets. The following is a summary of assets and liabilities of discontinued operations: May 31,
    
    
    August 31,2005
    
    
    2004Current liabilities:Accounts payable and accrued expenses
    
    $
    83
    
    
    $
    1,429Restructuring obligations
    
    
    766
    
    
    
    513Deferred revenue
    
    
    
    
    
    
    831Current assets:Accounts receivable, net
    
    
    (43
    )
    
    
    (2,163
    )Prepaid costs and expenses
    
    
    (2
    )
    
    
    (136
    )Net current liabilities of discontinued segment
    
    $
    804
    
    
    $
    474Noncurrent liabilities:Restructuring obligations
    
    $
    1,446
    
    
    $
    2,112Noncurrent assets:Note receivable, net
    
    
    (995
    )
    
    
    (1,245
    )Other
    
    
    (3
    )
    
    
    (27
    )Net noncurrent liabilities of discontinued segments
    
    $
    448
    
    
    $
    840
 8




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##### 



The following summarizes revenues and operating results from discontinued operations: Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues, Affinity Events
    
    $
    
    
    
    $
    1,525
    
    
    $
    655
    
    
    $
    4,242Costs and expenses, Affinity Events:Direct operating costs of services rendered
    
    $
    9
    
    
    $
    1,313
    
    
    $
    418
    
    
    $
    4,168Selling, general and administrative
    
    
    6
    
    
    
    1,612
    
    
    
    229
    
    
    
    4,793$
    15
    
    
    $
    2,925
    
    
    $
    647
    
    
    $
    8,961Income (loss) from discontinued operations,
Affinity Events
    
    $
    (15
    )
    
    $
    (1,400
    )
    
    $
    8
    
    
    $
    (4,719
    )
 4. SUPPLEMENTAL CASH FLOW DISCLOSURES Supplemental cash flow information follows: Nine Months EndedMay 31,2005
    
    
    2004Interest paid
    
    $
    3,489
    
    
    $
    3,383Income taxes paid
    
    
    
    
    
    
    21Noncash investing and financing activities:Exchange of subordinated debt for shares
of preferred stock
    
    
    
    
    
    
    8,016Issuance of common stock in payment of
preferred stock dividends
    
    
    
    
    
    
    503Issuance of common stock in connection
with debt issuance costs
    
    
    499
    
    
    
    694Issuance of common stock to a retirement
plan and as a component of directors fees
    
    
    67
    
    
    
    150Conversion of Series E preferred stock to
shares of common stock
    
    
    2,214
 5. GOODWILL AND OTHER ACQUISITION INTANGIBLE ASSETS As of May 31, 2005 and August 31, 2004, the carrying amount of goodwill associated with the
Collegiate Marketing and Production Services business segment was $33,889. A goodwill impairment
charge of $3,300 was recognized during the nine months ended May 31, 2004 based on managements
consideration of the historical and forecasted operating results for one of the Companys business
units within the Collegiate Marketing and Production Services segment. This consideration was
prompted by a significant change in a contractual relationship within that business unit. As of each of May 31, 2005 and August 31, 2004, the carrying amount of goodwill associated with the
Association Management Services business segment was $6,475. 9




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The net change in the carrying amount of customer relationships and trademarks by reportable
business segment is as follows: CollegiateMarketing and
    
    
    AssociationProduction
    
    
    ManagementServices
    
    
    Services
    
    
    TotalAs of September 1, 2003
    
    $
    7,306
    
    
    $
    2,256
    
    
    $
    9,562Amortization
    
    
    (805
    )
    
    
    (135
    )
    
    
    (940
    )As of May 31, 2004
    
    $
    6,501
    
    
    $
    2,121
    
    
    $
    8,622As of September 1, 2004
    
    $
    6,193
    
    
    $
    2,115
    
    
    $
    8,308Amortization
    
    
    (430
    )
    
    
    (108
    )
    
    
    (538
    )As of May 31, 2005
    
    $
    5,763
    
    
    $
    2,007
    
    
    $
    7,770
 As of May 31, 2005, customer relationships constitute $6,103 and trademarks represent $1,667 of the
$7,770 carrying amount presented above, and as of August 31, 2004, customer relationships
constitute $6,525 and trademarks represent $1,783 of the $8,308 carrying amount. The Company
currently estimates that annual amortization expense of customer relationships and trademarks for
the fiscal year ending August 31, 2005 will total approximately $718 per year until fully amortized
in December 2015. Accumulated amortization of acquisition intangibles and impairment charges was $39,919 as of May
31, 2005 and $39,381 as of August 31, 2004, including $29,689 associated with goodwill as of each
of the respective dates. 6. LONG-TERM DEBT Long-term debt and notes payable consist of the following: May 31,
    
    
    August 31,2005
    
    
    2004Term Loans
    
    $
    35,932
    
    
    $
    35,932Revolving Loans
    
    
    23,000
    
    
    
    20,000Subordinated Notes
    
    
    10,193
    
    
    
    9,28369,125
    
    
    
    65,215Less current portion
    
    
    69,125
    
    
    
    590$
    0
    
    
    $
    64,625
 As amended in October 2004, the Companys bank credit agreement provides for (a) two term loans
(the Term Loans) for borrowings totaling $35,932 and (b) two revolving loan commitments (the
Revolving Loans) for aggregate maximum borrowings of $23,000. All amounts outstanding bear
interest at either (a) the banks prime rate or (b) the London Interbank Offered Rate (LIBOR)
plus 2.75%, payable monthly. Under the October 2004 amendment, the Company was provided a new
$3,000 revolving loan commitment (the Revolver B included as a component of the Revolving Loans),
which was funded in full in October 2004, thereby increasing the bank indebtedness to $58,932. As
amended, the agreement has a maturity date of November 30, 2005, at which time all amounts
outstanding become due and payable. The amended agreement does not require any payments of
principal prior to maturity, nor does it provide for any additional borrowing capacity beyond the
Revolver B. The Company anticipates that it will continue to utilize fully the availability under
the Revolving Loans throughout the remaining term of the credit agreement. In September 2004, a company under the Chairmans control provided the Company $1,500 of cash,
which was used for working capital purposes, in exchange for a subordinated note bearing interest
at 6% per annum, having a maturity date of December 31, 2004. This note was refinanced by another
company under the Chairmans control, by substituting a subordinated note bearing interest at 6%
per annum, having a maturity date of February 28, 2006. Under the terms of the amended credit
agreement, up to an aggregate of $10,000 in funding for working capital purposes, if necessary, may
be sourced from the issuance of equity securities, including shares of the Companys preferred
stock, or by the issuance of subordinated debt. Of this amount, $1,500 was received from the
Companys Chairman in January 2005 and used for working capital purposes. During the fiscal year
ended August 31, 2004, the Company received $6,550 from the Companys Chairman, of which $2,000 was
invested in newly-issued shares of the 10




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##### 



Companys preferred stock. The remaining investment of
$4,550, plus the $1,500 received in January 2005, is presented in the consolidated balance sheet as
Advances from stockholder. Management believes that it is the Chairmans intention to ultimately
convert these advances to subordinated debt or equity securities. In connection with the credit
agreement amendment, the Chairman committed to the Company an additional aggregate cash investment
of up to $3,000 as and when needed at any time and from time to time on or prior to the maturity
date, provided that up to $1,500 of such cash investments would be used to repay the $1,500
subordinated note issued by his affiliated company. The cash investment made in January 2005 was
made to fulfill the remaining $1,500 commitment. The bank credit agreement, as amended, contains certain financial covenants, including the
maintenance of minimum interest coverage ratios determined quarterly. The Company is presently in
compliance with all provisions of the credit agreement as last amended. Long-term debt is
collateralized by all of the Companys assets. In addition, the Companys Chairman personally
guarantees up to $55,932 of the debt outstanding under the bank credit agreement, and if the
Company is unable to meet payment obligations under the agreement, it is likely that the bank
lenders would call the guarantee, thereby requiring the Chairman to repay the amount of the loan to
the banks. The Chairmans guarantee is collateralized by certain personal holdings of marketable
securities pledged to the Companys bank lenders. Under the terms of his guarantee, the Chairman
has the option to purchase the entire loan from the banks, and thereby becoming the holder of the
debt currently payable to the banks and the related lien on the Companys assets. The Chairman is
compensated by the Company for his guarantee in the form of newly issued shares of the Companys
common stock, valued at an annual rate of 1.625% of the guarantee amount. The guarantee amount
will reduce in the future if principal payments are made to the bank lenders on the outstanding
term loans, and may increase if additional bank financing is made available to the Company. During
the nine months ended May 31, 2005, the Chairman was compensated by the Company for his personal
guarantee in the form of 1,018 restricted shares of the Companys common stock then valued at $473.
During the nine months ended May 31, 2004, the Chairman was provided such compensation in the form
of 342 restricted shares of the Companys common stock then valued at $694. In December 1999, the Company issued 8% subordinated notes in connection with the acquisition of
Host, representing long-term debt of $8,693 as of May 31, 2005 and August 31, 2004. During the nine
months ended May 31, 2004, holders of 8% subordinated notes representing an aggregate face value of
approximately $8,016 exchanged their notes for shares of Series E Preferred Stock. Interest is
payable quarterly in cash on all but a $3,019 subordinated note payable to the Companys Chairman,
on which interest is payable at maturity in the form of cash or shares of the Companys common
stock, at the Companys option. The notes all have a maturity date of January 17, 2006. In
connection with the acquisition of certain business operations, the Company also issued two 9%
subordinated notes in September 2000, representing long-term debt of $590 as of August 31, 2004.
One note for $295 was cancelled in connection with the Companys sale of its Affinity Events
segment assets (discussed in Notes 1 and 3) and the outstanding balance of $295 on the other note
was repaid during the nine months ended May 31, 2005.Payment of interest and principal on all
subordinated notes is subordinate to the Companys bank credit agreement. As of May 31, 2005, principally all borrowings under the bank credit agreement were subject to the
banks LIBOR rate-based rate of 5.84%. All of the Companys long-term debt currently matures in
the fiscal year ending August 31, 2006. The Company was a party to an interest rate swap agreement that terminated on December 31, 2004,
which involved the exchange of interest at a fixed rate of 6.71% for interest at a variable rate,
determined quarterly, equal to the 90-day LIBOR rate, without an exchange of the $25,000 notional
amount upon which the payments were based. The differential paid or received as interest rates
changed was settled quarterly and was accrued and recognized as an adjustment of interest expense
related to the debt. 7. INCOME TAXES The Company has recognized a full valuation allowance for net deferred tax assets. The differences
between the federal statutory tax rate of 34% and the effective tax rate of zero are principally
due to increases (decreases) in the valuation allowance for potentially non-realizable deferred tax
assets of $322 and $1,076 for the three months ended May 31, 2005 and 2004, respectively, and
$(133) and $2,005 for the nine months ended May 31, 2005 and 2004, respectively. 8. PREFERRED STOCK As of May 31, 2005, 12.497 shares of the Companys series D convertible preferred stock (Series D
Preferred Stock) were outstanding, having an aggregate face value of $12,497, all of which are
currently convertible at the holders option into an aggregate 1,250 shares of the Companys common
stock. Each holder of the Series D Preferred Stock is entitled to receive dividends at an annual
rate of $90.00 per share in cash or in shares of the Companys common stock at the holders option,
except that, until the second anniversary of the date of issuance, the Company has the option to
pay such dividends in cash or in shares of the Companys common stock. The liquidation and
redemption price of the 11




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##### 



Series D Preferred Stock is $1,000 per share, and dividends are cumulative.
The Company has the option to redeem the Series D Preferred Stock at any time. As of May 31,
2005, all shares of Series D Preferred Stock were held by either the Companys Chairman or
companies affiliated with the Companys Chairman. As of May 31, 2005, 7.585 shares of the Companys series E convertible preferred stock (Series E
Preferred Stock) were outstanding, having an aggregate face value of $7,585. Each share of the
Series E Preferred Stock is convertible at the holders option into 0.14286 shares of the Companys
common stock beginning one year following the date of issuance of the Series E Preferred Stock
(initially, October 2004). Each holder of the Series E Preferred Stock is entitled to receive
dividends at an annual rate of $90.00 per share in cash or in shares of the Companys common stock
at the holders option, except that, no dividend is payable prior to June 30, 2005, or upon
conversion to common stock, if earlier. The liquidation and redemption price of the Series E
Preferred Stock is $1,000 per share. The Company has the option to redeem the Series E Preferred
Stock at any time. During the nine months ended May 31, 2005, certain holders of Series E Preferred
Stock, including a former director of the Company and his spouse, elected to convert an aggregate
2.214 shares of Series E Preferred Stock to an aggregate 316 shares of the Companys common stock,
in accordance with terms of the Series E Preferred Stock. During the nine months ended May 31,
2004, subordinated note holders elected to exchange an aggregate $8,016 of subordinated debt for an
aggregate 8.016 shares of Series E Preferred Stock, including subordinated notes having an
aggregate face amount of $5,257 acquired by the Companys Chairman immediately prior to the
exchange. Also during the nine months ended May 31, 2004, 1.783 shares of Series D Preferred Stock
issued to the former director and his spouse were exchanged for the same number of shares of Series
E Preferred Stock. As of May 31, 2005, an aggregate total of 5,411.163 shares of Series E
Preferred Stock (representing an aggregate face value of $5,411), were held by the Companys
Chairman, companies affiliated with the Companys Chairman, or other members of the Companys board
or directors. As of May 31, 2005, 2.0 shares of the Companys series F convertible preferred stock (Series F
Preferred Stock) were outstanding, having an aggregate face value of $2,000, all of which were
issued to the Companys Chairman in the nine months ended May 31, 2004. Each share of the Series F
Preferred Stock is convertible at the holders option into 0.78125 shares of the Companys common
stock beginning in November 2006. The holder of Series F Preferred Stock is entitled to receive
dividends at an annual rate of $90.00 per share in cash or in shares of the Companys common stock
at the holders option, except that, until the second anniversary of the date of issuance, the
Company has the option to pay such dividends in cash or in shares of the Companys common stock.
The liquidation and redemption price of the Series F Preferred Stock is $1,000 per share. The
Company has the option to redeem the Series F Preferred Stock at any time. All shares of preferred stock issued by the Company are redeemable by the Company at solely the
Companys option. Since the Chairmans beneficial ownership of the Companys common stock is more
than 50%, all issued and outstanding preferred stock is required to be classified as liabilities in
the consolidated balance sheet in accordance with Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards No. 150 Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity issued in May 2003. As of May 31, 2005,
89.5% of the aggregate carrying amount of all preferred stock was held by the Chairman or one of
his affiliates. Management does not believe that any of the preferred stock issued to the Chairman
or his affiliates or any other party will be redeemed in the foreseeable future. All shares of preferred stock rank, as to payment of dividends and as to distribution of assets
upon liquidation or dissolution of the Company, on a parity with all other currently issued
preferred stock and any preferred stock issued by the Company in the future, and senior to the
Companys currently issued common stock and common stock issued in the future. 12




---



##### 



9. EARNINGS (LOSS) PER SHARE The following table sets forth the computation of basic and diluted earnings (loss) per share: Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Income (loss) for computation of basic and diluted earnings (loss)
per share:Loss from continuing operations
    
    $
    (993
    )
    
    $
    (4,936
    )
    
    $
    (103
    )
    
    $
    (4,429
    )Preferred dividends
    
    
    (488
    )
    
    
    (568
    )
    
    
    (1,520
    )
    
    
    (1,658
    )Loss from continuing operations available to common stockholders
    
    
    (1,481
    )
    
    
    (5,504
    )
    
    
    (1,623
    )
    
    
    (6,087
    )Income (loss) from discontinued operations
    
    
    (15
    )
    
    
    (1,400
    )
    
    
    8
    
    
    
    (4,719
    )Net loss available to common stockholders
    
    $
    (1,496
    )
    
    $
    (6,904
    )
    
    $
    (1,615
    )
    
    $
    (10,806
    )Weighted average number of common shares outstanding for the
computation of basic and diluted earnings (loss) per share
    
    
    6,887
    
    
    
    4,798
    
    
    
    6,376
    
    
    
    4,546Basic and diluted earnings (loss) per share:Continuing operations
    
    $
    (0.22
    )
    
    $
    (1.15
    )
    
    $
    (0.25
    )
    
    $
    (1.34
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.29
    )
    
    
    0.00
    
    
    
    (1.04
    )Net loss available to common stockholders
    
    $
    (0.22
    )
    
    $
    (1.44
    )
    
    $
    (0.25
    )
    
    $
    (2.38
    )
 10. SEGMENT INFORMATION The Company has two business segments associated with its continuing operations that provide
different products or services: (a) marketing and production services, which primarily include
services rendered in connection with college athletics (Collegiate Marketing and Production
Services); and (b) association management services (Association Management Services).
Discontinued operations include event management and marketing services (Affinity Events) and
computer printer manufacturing and related sales and services formerly operated by wholly-owned
Datasouth Computer Corporation (Datasouth). Information for each of the Companys segments associated with continuing operations follows: Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net revenues, continuing operations:Collegiate Marketing and Production Services
    
    $
    10,845
    
    
    $
    10,896
    
    
    $
    48,047
    
    
    $
    42,219Association Management Services
    
    
    2,104
    
    
    
    1,877
    
    
    
    6,011
    
    
    
    6,392$
    12,949
    
    
    $
    12,773
    
    
    $
    54,058
    
    
    $
    48,611Operating income, continuing operations:Collegiate Marketing and Production Services
    
    $
    444
    
    
    $
    (341
    )
    
    $
    3,826
    
    
    $
    2,345Association Management Services
    
    
    460
    
    
    
    328
    
    
    
    1,278
    
    
    
    1,700Amortization and impairment of acquisition intangibles
    
    
    (179
    )
    
    
    (3,613
    )
    
    
    (538
    )
    
    
    (4,240
    )Unallocated general and administrative costs
    
    
    (312
    )
    
    
    (217
    )
    
    
    (825
    )
    
    
    (899
    )$
    413
    
    
    $
    (3,843
    )
    
    $
    3,741
    
    
    $
    (1,094
    )
 13




---



##### 



Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Bull Run Corporation (Bull Run or the Company), based in Atlanta, Georgia, is a sports and
affinity marketing and management company through its sole operating business, Host Communications,
Inc. (Host), acquired in December 1999 (the Host-USA Acquisition). Hosts Collegiate
Marketing and Production Services business segment provides sports marketing and production
services to a number of collegiate conferences and universities, and on behalf of the National
Collegiate Athletic Association (NCAA). Hosts Association Management Services business
segment provides various associations with services such as member communication, recruitment and
retention, conference planning, Internet web site management, marketing and administration. The Company discontinued its Affinity Events business segments during the fiscal year ended
August 31, 2004. In August 2004, the Company announced its decision to suspend the Affinity Events
business, and declared its intent to offer the business unit for sale. Accordingly, the operating
results and net assets associated with the Affinity Events business segments presented herein are
reflected as discontinued operations in the accompanying consolidated financial statements. In
November 2004, the Company reached an agreement to sell the assets associated with the basketball
and soccer tours operated within the Affinity Events business segment, and closed the sale in
December 2004. Accrued restructuring charges associated with the discontinuation of this segment
recognized in the fiscal year ended August 31, 2004 have been reduced by the estimated amount of
proceeds to be ultimately derived from the sale. Actual amounts ultimately realized on the sale
and any other unanticipated income or expenses, could differ materially from amounts assumed in
arriving at the loss on termination of the business. To the extent actual proceeds or other
amounts differ from the estimates that are reflected as of May 31, 2005, or as managements
estimates are revised, the variance will be reported in discontinued operations in future periods. CERTAIN RELATIONSHIPS J. Mack Robinson, Chairman of the board of the Company, is the beneficial owner of approximately
58.6%of the Companys common stock as of May 31, 2005, and Mr. Robinson and his affiliates also
own shares of the Companys convertible preferred stock having an aggregate face amount of
approximately $19.8 million as of that date representing approximately 89.5%of the aggregate face
amount of all outstanding preferred stock on that date. Mr. Robinson is also Chief Executive
Officer, Chairman and a director of Gray Television, Inc. (Gray), and the beneficial owner of
Gray common stocks representing approximately 29.9% of the combined voting power of Grays two
classes of common stock as of March 29, 2005. Robert S. Prather, Jr., President, Chief Executive
Officer and a director of the Company, is President, Chief Operating Officer and a director of
Gray, and the beneficial owner of Gray common stocks representing approximately 2.8% of the
combined voting power of Grays two classes of common stock as of March 29, 2005. Hilton H.
Howell, Jr., the Companys Vice President and Secretary, is Vice Chairman and a director of Gray,
and the beneficial owner of Gray common stocks representing approximately 7.5% of the combined
voting power of Grays two classes of
common stock as of the same date. Beneficial ownership percentages include warrants and options to
acquire shares of Gray common stocks that were exercisable on, or within 60 days after, such date. Mr. Robinson personally guarantees substantially all of the debt outstanding under the Companys
bank credit facility. Under the terms of his guarantee, Mr. Robinson has the option to purchase
the entire loan from the banks, and thereby would become the holder of the debt currently payable
to the banks and the related lien on the Companys assets. W. James Host, a director of the Company until his resignation in January 2004, previously owned
along with his wife, shares of the Companys convertible preferred stock having an aggregate face
amount of approximately $1.8 million. In October 2004, Mr. Host and his wife exercised their right
to convert their shares of preferred stock to approximately 255,000 shares of the Companys common
stock. As of May 31, 2005, other officers or directors of the Company own shares of the Companys
preferred stock having an aggregate face value of approximately $0.2 million. Through a rights-sharing agreement with Gray, the Company participates jointly with Gray in the
marketing, selling and broadcasting of certain collegiate sporting events and in related
programming, production and other associated activities on behalf of a university. The current
agreement commenced in April 2005 and terminates in April 2012, immediately succeeding a prior
agreement between the parties. As a result of the predecessor rights-sharing agreement, Gray could
be called upon for payment of a share of certain guaranteed rights fees to the university. During
the fiscal year ended August 31, 2004, Gray had paid approximately $1.5 million under this
provision, and as of May 31, 2005, the Company has accrued fees payable to Gray of approximately
$1.3 million, comprised of $1.0 million of the $1.5 million paid by Gray on behalf of the Company
in the fiscal year ended August 31, 2004, plus $0.3 million payable to Gray in connection with
annual settlements of certain shared revenues and operating expenses. In October 2004, both the
Company and Gray executed a new 10-year multimedia rights-sharing agreement with the university
which 14




---



##### 



commenced in April 2005 at the end of the Companys current contract. The Company and Gray
will share equally the costs of the rights, and will jointly administer and manage the rights over
the term of the agreement. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make judgments and estimations that affect the amounts
reported in the financial statements and accompanying notes. Actual results could differ from
those estimates. The Company considers the following accounting policies to be critical policies
that require judgments or estimations in their application where variances in those judgments or
estimations could make a significant difference to future reported results. Revenue Recognition and Rights Fee Expenses 
Revenue from services is recognized as the services are rendered, and consists primarily of
advertising revenues in connection with broadcast and print media sold by the Company, the rights
to which are generally acquired by the Company under the multi-media rights agreements with
collegiate institutions or associations. Advertising revenues are recognized when the event occurs
or the publication is publicly distributed. In addition, to a lesser extent, the Company derives
revenue from corporate sponsorship and licensing arrangements, association management fees, radio
station rights fees, sales of commercial printing and other miscellaneous revenues generated from
product sales and production services. Corporate sponsorships related to specific events are
recognized when the event occurs or as the events occur. Corporate sponsor license fee revenue
that is not related to specific events is recognized evenly over the term of the licensing
arrangement. Association management fees are recognized over the term of the contract year as the
related services are performed. Radio station rights fees are recognized ratably as games are
broadcast. Sales of commercial printing and other product sales are recognized when title passes
to the customer, or in the case of vending revenues, when the game is played. The allowance for doubtful accounts represents the Companys best estimate of the accounts
receivable that will be ultimately collected, based on, among other things, historical collection
experience, a review of the current aging status of customer receivables, and a review of specific
information for those customers that are deemed to be higher risk. The Company evaluates the
adequacy of the allowance for doubtful accounts on at least a quarterly basis. Unfavorable changes
in economic conditions might impact the amounts ultimately collected from advertisers and corporate
sponsors and therefore may result in an inadequate allowance. In certain circumstances, the Company enters into contractual arrangements with associations or
institutions it represents in various capacities which involve payment of guaranteed rights fees.
Guaranteed rights fee expense that is not related to specific events is recognized evenly over each
annual term specified in the contract. The Companys contractual arrangements with associations or
institutions may also involve net profit sharing arrangements (profit splits) based on the net
profit associated with services rendered under the contract. Profit split expense is accrued over
the contract period, based on estimates, and is adjusted at the end of the contract term in order
to reflect the actual profit split. Estimates used in the determination of profit split expense
are updated monthly and adjusted to actual when the profit split settlement is determined at the
end of each contract year. Goodwill and Other Intangible Assets 
The Companys accounting for goodwill is based on Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets, (SFAS 142). Under the provisions of SFAS 142, the
Company is not required to amortize goodwill, but is required to assess on at least an annual
basis, the carrying value of goodwill associated with each of four distinct business units that
comprise two business segments of the Companys continuing operations to determine if an impairment
in value has occurred. Prior to the fiscal year ended August 31, 2004, such an assessment was also
required in connection with a discontinued business segment. Impairment charges are recorded if
and when management concludes that the carrying amount of goodwill for any acquired business unit
does not exceed its net realizable value based on the Companys estimate of expected future cash
flows to be generated by each of the business units. The Companys assessment as of August 31,
2003 concluded that based on a valuation model incorporating expected future cash flows in
consideration of historical cash flows and operating results, a goodwill impairment charge of $23.4
million was necessary to reduce the carrying value of goodwill to net realizable value, $2.4
million of which was attributable to the discontinued business segment. Management further
determined that an additional goodwill impairment charge of $3.3 million was necessary as during
the nine months ended May 31, 2004, upon managements consideration of financial operating results
and the forecasted operating results at that time and business plans for one of the Companys
business units. The impairment analysis is based on the Companys estimates of the net present value of future cash
flows derived from each of four business units, and judgment is used in assessing whether the
impairment analysis should be performed more frequently than annually. The determination of fair
value requires significant management judgment including estimating operating cash flow to be
derived in each of the four business units for the following three years, annual operating cash
flow growth rates for each business unit beyond the next three years, changes in working capital, 15




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##### 



capital expenditures and the selection of an appropriate discount rate. For each of three of the
four business units, a future reduction in the estimated net present value of future cash flows
derived from an affected business unit would likely result in an impairment charge that could
approximate the amount of the reduction in the estimated net present value calculated for that
business unit. Factors potentially leading to a reduction in the estimated present value of future
cash flows could include (i) the loss of a significant customer or contract, (ii) significantly
less favorable terms of new contracts and contract renewals, and (iii) prolonged economic downturns
affecting corporate advertising spending. If the Company concludes in the future that the adjusted carrying value of goodwill for any of the
four business units comprising the Companys continuing operations exceeds its respective net
realizable value, the Company would expense such excess and decrease goodwill as reported in the
consolidated balance sheet. Other purchased intangibles, including customer relationships, are amortized over a 16-year average
life. The use of a 16-year average life for customer relationships acquired in the acquisition of
Host, amortized on a straight-line method, is not materially different from using the estimated
life of each individual relationship using a systematic allocation method. Prior to the fiscal
year ended August 31, 2003, the Company determined that an impairment charge of approximately $6.6
million was necessary to reduce the carrying amount of certain customer relationship intangible
assets as a result of a significant change in the contractual nature of the Companys underlying
relationship with the NCAA. An impairment analysis performed as of August 31, 2003 indicated the
need for an additional charge to reduce customer relationships and other acquisition intangibles by
approximately $7.0 million at that date, all of which was attributable to changes in the
anticipated financial results of a discontinued operating segment. If the Company concludes in the
future that significant changes occur in its customer relationships, additional impairment charges
may be necessary. The remaining value assigned to acquisition intangibles other than goodwill will continue to be
amortized over a 16-year average life, at a rate of approximately $0.7 million per year. The use
of a 16-year average life of customer relationships amortized on a straight-line method is not
materially different than using the estimated life of each individual relationship using a
systematic allocation method. Goodwill and intangible assets, net of accumulated amortization, were approximately $48.1 million
as of May 31, 2005 and $48.7 million as of August 31, 2004, of which, goodwill was approximately
$40.4 million as of each date. The carrying value of goodwill and acquired intangibles, net of
accumulated amortization, represented approximately 77% of the Companys total assets as of May 31,
2005. Deferred Income Taxes 
Deferred income tax liabilities or assets at the end of each period are determined using the tax
rate expected to be in effect when the taxes are actually paid or recovered. A valuation allowance
is recognized on certain deferred tax assets if it is more likely than not that some or all of
these deferred tax assets will not be realized. As of May 31, 2005 the Company has recognized a
full valuation allowance for net deferred tax assets thereby resulting in a carrying amount for
deferred taxes in the balance sheet of zero. If and when the Company generates taxable income in
the future and benefits primarily from net operating loss carryforwards for federal tax purposes
that expire beginning in 2018, some or all of the deferred tax assets may be reinstated on the balance sheet, and the
Company would report income tax benefits in the period that such reinstatement occurs. Valuation of Certain Non-Trade Receivable 
As of May 31, 2005, the Company has a non-trade subordinated note receivable from the purchaser of
Datasouth Computer Corporation (Datasouth), the Companys former computer printer manufacturing
company. The Company performs ongoing credit evaluations of parties from which such non-trade
receivables are due, and if and when management determines that the carrying value of such
receivables may not ultimately be realized, the estimated impairment amount is charged to the
earnings (losses) reported for the period in which the determination is made. In prior years,
impairment charges reduced the carrying amount of the Companys note receivable from the purchaser
of Datasouth to estimated net realizable value. As a result of payments received on the note
subsequent to the adjustment to net realizable value, the carrying amount of the subordinated note
receivable has been reduced to approximately $1.0 million as of May 31, 2005. The estimated reserve on the note issued by the purchaser of Datasouth is based on managements
estimate of amounts ultimately collectible on the note upon consideration of modifications made to
the agreement, payment history and an understanding of the financial condition of the note issuer,
among other factors. If there would be evidence of unfavorable conditions affecting the ultimate
collection of the carrying value, such as an unfavorable trend in payment history or unfavorable
changes in the note issuers financial condition, additional impairment charges may become
necessary in future periods. 16




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##### 



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




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##### 



Due to negative operating cash flow generated in the past, the Company currently has trade payables
and other cash obligations that exceed its current assets. In the fiscal year ended August 31,
2004, the Companys Chairman provided an aggregate total of $6.6 million in cash used for operating
purposes. Management believes the Company has sufficient liquidity sources, which include the
Companys Chairman and his affiliates, to meet its cash obligations until the November 30, 2005
maturity date of its bank credit agreement. Prior to the November 30, 2005 maturity date, the
Company anticipates that will be required to refinance the total amount due and payable to the
banks at that time. The Companys ability to continue this or similar financing beyond the
November 30, 2005 maturity date is significantly dependent on the continued support of the
Companys Chairman and, in part, on the Companys future operating results. There can be no
assurances with respect to either the Companys future operating results or the continued support
of its Chairman. In exchange for cash advances made in the past or in the future by the Companys
Chairman, his affiliates and/or other parties, the Company may (a) issue and sell equity securities
of the Company, which may include the Companys preferred stock; (b) issue additional subordinated
debt; or (c) a combination thereof. The use of future cash investments or advances in excess of an
aggregate $8.5 million for purposes other than the reduction of the bank debt would require
approval of the Companys bank lenders. The Companys capital expenditures are not expected to
exceed $400,000 for the fiscal year ending August 31, 2005. Historical Cash Flow Information  Summary 
The following summarizes the Companys historical cash flow activities (amounts in 000s): Nine Months EndedMay 31,2005
    
    
    2004Cash flows from operating activities:Continuing operations
    
    $
    (4,127
    )
    
    $
    (4,189
    )Discontinued operations
    
    
    (1,197
    )
    
    
    (4,813
    )Cash flows from investing activities:Continuing operation investing activities
    
    
    (70
    )
    
    
    (347
    )Discontinued operation investing activities
    
    
    1,133
    
    
    
    182Cash flows from financing activities
    
    
    4,708
    
    
    
    5,259Net increase (decrease) in cash and cash equivalents
    
    $
    447
    
    
    $
    (3,908
    )
 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): Nine Months EndedMay 31,2005
    
    
    2004Operating income (loss) from continuing operations
    
    $
    3,741
    
    
    $
    (1,094
    )Depreciation, amortization and impairment charges
included in the operating loss
    
    
    997
    
    
    
    5,073Interest expense
    
    
    (3,313
    )
    
    
    (3,330
    )Net change in operating assets and liabilities
    
    
    (5,559
    )
    
    
    (4,764
    )Other operating cash flows
    
    
    7
    
    
    
    (74
    )Net cash flows from continuing operations
    
    
    (4,127
    )
    
    
    (4,189
    )Net cash flows from discontinued operations
    
    
    (1,197
    )
    
    
    (4,813
    )Net cash flows from operating activities
    
    $
    (5,324
    )
    
    $
    (9,002
    )
 The net change in operating assets and liabilities had an unfavorable impact on total cash flows
from continuing operations during the nine months ended May 31, 2005 and 2004. The Companys most
significant business segment, the Collegiate Marketing and Production Services segment, produces a
high proportion of its annual revenues during the college football and basketball seasons, which is
represented by the period currently beginning in early September and ending in late March or early
April. During the nine months ended May 31, 2005, accounts receivable associated
with continuing operations increased approximately $2.2 million, and accounts payable and accrued
expenses decreased approximately $4.1 million. During the nine months ended May 31, 2004, accounts
receivable decreased approximately $1.4 million and accounts payable and accrued expenses decreased
approximately $6.6 million. Accounts receivable increased in the current fiscal year, compared to
a decrease in the prior fiscal year because, in addition to generating more revenue in the current
year compared to the prior year, most of the Companys collegiate 18




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##### 



properties began their college
football seasons in September 2004 as compared to August in 2003. The decrease in accounts payable
and other accrued liabilities during the nine months ended May 31, 2005 was due to the Companys
use of $3 million in proceeds on additional bank debt and $3 million in aggregate cash proceeds
received from the Companys Chairman and a company affiliated with the Chairman during the period
to pay outstanding current liabilities, and to partially offset the effect of the increase in
accounts receivable during the period. In the nine months ended May 31, 2004, cash available at
the beginning of the fiscal year and cash generated by the decrease in accounts receivable were
used toward the reduction of accounts payable and accrued expenses. 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 $3.4 million for each of the nine
months ended May 31, 2005 and 2004. The effects of an increase in variable interest rates to
which a significant amount of the debt is subject and an increase in average outstanding debt
during the current year period offset the favorable effect of the interest rate swap agreement
termination on December 31, 2004. 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): Nine Months EndedMay 31,2005
    
    
    2004Capital expenditures
    
    $
    (58
    )
    
    $
    (285
    )Decrease (increase) in other assets
    
    
    (12
    )
    
    
    (62
    )Net cash flows from continuing operation investing activities
    
    
    (70
    )
    
    
    (347
    )Net cash flows from discontinued operation investing activities
    
    
    1,133
    
    
    
    182Net cash flows from investing activities
    
    $
    1,063
    
    
    $
    (165
    )
 In the nine months ended May 31, 2005, the Company received $250 in aggregate payments on its note
receivable from the purchaser of Datasouth and $870 in proceeds derived from the sale of the
Affinity Events segment assets. Historical Cash Flow Information  Cash Flows from Financing Activities
The following summarizes the Companys historical cash flows from financing activities (amounts in
000s): Nine Months EndedMay 31,2005
    
    
    2004Borrowings from revolving line of credit
    
    $
    3,000
    
    
    $Borrowings on note issued by related party
    
    
    1,500Cash advances made by stockholder
    
    
    1,500
    
    
    
    3,300Repayments on long-term debt
    
    
    (590
    )Debt issue costs
    
    
    (445
    )
    
    
    (41
    )Preferred stock dividends paid
    
    
    (257
    )Issuance of preferred stock
    
    
    
    
    
    
    2,000Net cash flows from financing activities
    
    $
    4,708
    
    
    $
    5,259
 19




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##### 



CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS The following summarizes the Companys contractual obligations as of February 28, 2005 (amounts in
000s): Payments Due by Period as of May 31, 2005Less than
    
    More than 1
    
    More than 3
    
    More thanContractual Obligations
    
    Total
    
    1 Year
    
    to 3 Years
    
    to 5 Years
    
    5 YearsLong-term debt obligations
    
    $
    69,125
    
    
    $
    69,125
    
    
    $
    
    
    
    $
    
    
    
    $Interest obligations
    
    
    2,546
    
    
    
    2,546Capital lease obligations
    
    
    211
    
    
    
    82
    
    
    
    129Operating lease obligations
    
    
    4,034
    
    
    
    1,440
    
    
    
    1,079
    
    
    
    950
    
    
    
    565Purchase obligations
    
    
    72,284
    
    
    
    17,006
    
    
    
    22,016
    
    
    
    12,070
    
    
    
    21,192Total
    
    $
    148,200
    
    
    $
    90,199
    
    
    $
    23,224
    
    
    $
    13,020
    
    
    $
    21,757
 Operating lease obligations are presented net of future receipts on contracted sublease
arrangements totaling approximately $1.3 million as of May 31, 2005. Interest rate obligations
assume that interest is paid through the maturity date of the debt obligations at interest rates in
effect as of May 31, 2005. Purchase obligations primarily consist of future guaranteed rights fee commitments to associations
or institutions under contractual arrangements of typically one to four years, which expire at
varying times through 2015. Dividends on Series D Preferred Stock and Series F Preferred Stock are payable annually at an
annual rate of $90 per share in cash or in shares of the Companys common stock, at the holders
option, except that, until the second anniversary of the date of issuance, the Company has the
option to pay such dividends in cash or in shares of the Companys common stock. For purposes of
determining the number of shares of common stock to be issued as payment of a dividend, the common
stock is valued at the average market closing price for the twenty trading days immediately
preceding each dividend payment date. All dividends accruing through June 30, 2003 on issued
shares of the Companys preferred stock have been paid. Dividends on Series D Preferred Stock
payable through June 30, 2004 and June 30, 2005 in shares of the Companys common stock under the
terms of such issuance, have not been declared by the board of directors. Under the Companys
Articles of Incorporation, if dividends on any class of its preferred stock are in arrears in an
amount equal to 150% of an annual dividend, the holders of such preferred stock shall be entitled
to vote for and elect two additional directors of the Company. Such rights would thereby be
afforded the holders of Series D Preferred Stock if dividends accrued through June 30, 2004 are not
paid by December 31, 2006. Dividends on Series E Preferred Stock are payable annually at an annual rate of $90 per share in
cash or in shares of the Companys common stock at the holders option, except that the initial
dividend on Series E Preferred Stock is not payable until July 2005 on dividends accruing through
June 30, 2005, or upon a conversion of shares of Series E Preferred Stock to shares of the
Companys common stock, whichever is sooner. The amount of dividends accrued through May 31, 2005
on the outstanding shares of Series E Preferred Stock potentially payable in cash in the fiscal
year ending August 31, 2005 is approximately $1.2 million, including $0.8 million in connection
with shares of Series E Preferred Stock issued to the Companys Chairman. 20




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##### 



RESULTS OF CONTINUING OPERATIONS  THREE MONTHS ENDED MAY 31, 2005 COMPARED TO THREE MONTHS ENDED
MAY 31, 2004 Results Derived from Operating Businesses 
Operating results for the three months ended May 31, 2005 and 2004 are summarized as follows
(amounts in $000s): Three Months EndedMay 31,2005
    
    
    2004RevenuesCollegiate Marketing and Production Services
    
    $
    10,845
    
    
    $
    10,896Association Management Services
    
    
    2,104
    
    
    
    1,877$
    12,949
    
    
    $
    12,773Operating Costs and ExpensesDirect operating costs of services rendered
    
    $
    7,664
    
    
    $
    8,426Selling, general and administrative
    
    
    4,693
    
    
    
    4,577Amortization and impairment of acquisition intangibles
    
    
    179
    
    
    
    3,613$
    12,536
    
    
    $
    16,616Income (Loss) from OperationsCollegiate Marketing and Production Services
    
    $
    444
    
    
    $
    (341
    )Association Management Services
    
    
    460
    
    
    
    328Amortization and impairment of acquisition intangibles
    
    
    (179
    )
    
    
    (3,613
    )Unallocated general and administrative costs
    
    
    (312
    )
    
    
    (217
    )$
    413
    
    
    $
    (3,843
    )
 Total revenues and operating results for the Collegiate Marketing and Production Services segment
were impacted in the three months ended May 31, 2005 by the addition of two university contractual
relationships beginning in the current fiscal year, partially offset by the effects of a
contractual relationship that terminated at the end of the previous fiscal year. The additional
contracts, net of the terminated contract, increased the segments revenues and direct costs by
approximately $0.7 million and $0.5 million, respectively, and increased segment operating profit
by approximately $0.1 million, compared to the prior year three-month period. Offsetting the
increase in segment revenues provided by the new contractual relationships was the impact of a
change in the Companys services rendered on behalf of the NCAA which took effect after such
services were rendered in the prior fiscal year. The Company is no longer eligible to receive
certain NCAA merchandise licensing revenues or generate revenue in connection with the production
of an event on behalf of the NCAA. Aggregate revenues derived from these services were
approximately $1.0 million and the production of the event resulted in approximately $1.4 million
of direct costs, resulting in a $0.4 improvement in segment operating income in the three months
ended May 31, 2005. In the three months ended May 31, 2005, the Company provided management services to an organization
under a one-year contract in connection with an event. Effective in May 2005, the Company
commenced management services on behalf of the International Coach Federation, a professional
association of personal and business coaches, having over 8,000 members. These factors resulted in
approximately a $0.3 million increase in segment revenues and a $0.2 million increase in segment
operating profit for the quarterly period in comparison with the same period of the prior year. Direct operating costs of services rendered decreased for the three months ended May 31, 2005 from
the same three-month period in the prior year primarily as a result of (a) the elimination of the
requirement to produce the event on
behalf of the NCAA, as previously discussed; net of (b) the $0.5 million increase from the
additional university contracts, net of the terminated contract, as discussed above. Selling, general and administrative costs associated with continuing operations increased slightly
for the three months ended May 31, 2005 compared to the same three-month period in the prior fiscal
year. However, in the prior year period, approximately $0.5 million of general and administrative
costs were allocable to the discontinued Affinity Events segment. These costs were effectively
eliminated as a result of the discontinuation of the segment prior to the current fiscal year. Amortization and impairment of acquisition intangibles included a goodwill impairment charge of
$3.3 million in the three months ended May 31, 2004 based upon managements consideration of
current fiscal year operating results and the forecasted operating results and business plans for
one of the Companys business units. 21




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##### 



Results Derived from Derivative Instrument 
The net change in the value of the interest rate swap agreement discussed in Note 6 to the
Condensed Consolidated Financial Statements was approximately $0.4 million in the three months
ended May 31, 2004. The interest rate swap agreement terminated on December 31, 2004, therefore
the Company had no derivative instruments which generated such valuation gains or losses during the
three months ended May 31, 2005. Interest Expense and Debt Related Costs 
Interest expense was approximately $1.1 million for each of the three-month periods ended May 31,
2005 and 2004. The effects of an increase in variable interest rates to which a significant amount
of the debt is subject and an increase in average outstanding debt during the current year period
offset the favorable effect of the interest rate swap agreement termination on December 31, 2004. Debt issue cost amortization was approximately $0.4 million and $0.3 million for the three months
ended May 31, 2005 and 2004, respectively. Debt issue costs consist of fees paid by the Company to
bank lenders and other costs in connection with the issuance of debt and significant amendments to
the bank credit agreement, and compensation paid in the form of shares of the Companys common
stock to the Companys Chairman to compensate him for his personal guarantee and to a former
director of the Company to compensate him for his pledge of personal assets to the Companys bank
lenders. During the three months ended May 31, 2004, the Company issued approximately 192,000
shares of restricted common stock to the Chairman, then valued at approximately $0.2 million. No
such shares were issued to the Chairman during the three months ended May 31, 2005. 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 $0.3 million and $1.1 million for the three months ended May 31, 2005 and 2004, respectively.
The valuation allowance for net deferred tax assets was approximately $23.6 million as of May 31,
2005. RESULTS OF CONTINUING OPERATIONS  NINE MONTHS ENDED MAY 31, 2005 COMPARED TO NINE MONTHS ENDED MAY
31, 2004 Results Derived from Operating Businesses 
Operating results for the nine months ended May 31, 2005 and 2004 are summarized as follows
(amounts in $000s): Nine Months EndedMay 31,2005
    
    
    2004RevenuesCollegiate Marketing and Production Services
    
    $
    48,047
    
    
    $
    42,219Association Management Services
    
    
    6,011
    
    
    
    6,392$
    54,058
    
    
    $
    48,611Operating Costs and ExpensesDirect operating costs of services rendered
    
    $
    36,460
    
    
    $
    32,029Selling, general and administrative
    
    
    13,319
    
    
    
    13,436Amortization and impairment of acquisition intangibles
    
    
    538
    
    
    
    4,240$
    50,317
    
    
    $
    49,705Income (Loss) from OperationsCollegiate Marketing and Production Services
    
    $
    3,826
    
    
    $
    2,345Association Management Services
    
    
    1,278
    
    
    
    1,700Amortization and impairment of acquisition intangibles
    
    
    (538
    )
    
    
    (4,240
    )Unallocated general and administrative costs
    
    
    (825
    )
    
    
    (899
    )$
    3,741
    
    
    $
    (1,094
    )
 Total revenues and operating results for the Collegiate Marketing and Production Services segment
were impacted in the nine months ended May 31, 2005 by the two new university contractual
relationships, partially offset by the effects of the terminated contractual relationship, similar
to the previously-discussed effects on the third quarter comparative results. The additional
contracts, net of the terminated contract, increased the segments revenues, direct costs and
operating profits by approximately $3.7 million, $3.3 million and $0.2 million, respectively,
compared to the prior year 22




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##### 



nine-month period. Other increases in segment revenues resulted from
(a) an increase in advertising sales, due in some cases to additional rights acquired from certain
universities; and (b) an increase in revenues generated by the segments printing, publishing and
broadcasting operations of approximately $0.6 million, net of (c) approximately $1.4 million of
revenues generated in the prior year period in connection with services formerly rendered on behalf
of the NCAA, as previously discussed. The increase in advertising sales was the primary reason for
the increase in the operating income derived by the segment. Total revenues and operating results for the Association Management Services segment were impacted
in the nine months ended May 31, 2005 by the reduction in the scope of management services provided
to an association. As a result of this change, segment revenues and operating income were
negatively affected by approximately $0.9 million and $0.7 million for the nine months ended May
31, 2005, respectively, in comparison with results for the prior year nine-month period. The
previously-discussed new association management agreement commencing in May 2005 and the one-year
contract to manage an event during the most recently-completed quarterly period resulted in a $0.3
million increase in segment revenues and a $0.2 million increase in segment operating profit for
the nine months ended May 31, 2005, in comparison with the same period of the prior year. Direct operating costs of services rendered increased for the nine months ended May 31, 2005 from
the same nine-month period in the prior year due to (a) the $3.3 million increase from the
additional university contracts, net of the terminated contract, as discussed above; (b) an
increase of approximately $1.0 million in guaranteed rights fees and revenue and profit splits,
excluding the effects of the new and terminated contracts; and (c) an increase of approximately
$0.5 million in production expenses in the printing, publishing and broadcasting operations, less
(d) approximately $1.4 million of direct costs for services rendered in the prior year period on
behalf of the NCAA, as previously discussed. Selling, general and administrative costs associated with continuing operations slightly decreased
for the nine months ended May 31, 2005 compared to the same nine-month period in the prior fiscal
year. However, in the prior year period, approximately $1.3 million of general and administrative
costs were allocable to the discontinued Affinity Events segment. These costs were effectively
eliminated as a result of the discontinuation of the segment prior to the current fiscal year. Amortization and impairment of acquisition intangibles included the previously-discussed goodwill
impairment charge of $3.3 million in the nine months ended May 31, 2004. Results Derived from Derivative Instrument 
The net change in the value of the terminated interest rate swap agreement was approximately $0.4
million and $0.9 million in the nine months ended May 31, 2005 and 2004, respectively. Interest Expense and Debt Related Costs 
Interest expense was approximately $3.3 million for each of the nine months ended May 31, 2005 and
2004. As previously discussed, the increase in variable interest rates and the increase in average
outstanding debt during the current year period was offset by the favorable effect of the interest
rate swap agreement termination on December 31, 2004. Debt issue cost amortization was approximately $0.9 million for each of the nine months ended May
31, 2005 and 2004. Debt issue costs consist of fees paid by the Company to bank lenders and other
costs in connection with the issuance of debt and significant amendments to the bank credit
agreement, and compensation paid in the form of shares of the Companys common stock to the
Companys Chairman to compensate him for his personal guarantee and to a former director of the
Company to compensate him for his pledge of personal assets to the Companys bank lenders. During
the nine months ended May 31, 2005, the Company issued approximately 1,076,000 shares of restricted
common stock to the Chairman and the former director, then valued at approximately $0.5 million,
for such purpose. During the nine months ended May 31, 2004, the Company issued approximately
342,000 shares of restricted common stock to the Chairman, then valued at approximately $0.7
million. Income Taxes 
The principal differences between the federal statutory tax rate of 34% and the effective tax rate
of zero are increases (or decreases) in the valuation allowance for potentially non-realizable
deferred tax assets of $(0.1) million and $2.0 million for the nine months ended May 31, 2005 and
2004, respectively. 23




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RESULTS OF DISCONTINUED OPERATIONS Results derived from the Companys discontinued operations for the three months and nine months
ended May 31, 2005 and 2004, all of which pertaining to the Affinity Events business segment, are
summarized as follows (amounts in 000s): Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue from services rendered
    
    $
    
    
    
    $
    1,525
    
    
    $
    655
    
    
    $
    4,242Operating costs and expenses:Direct operating costs of services rendered
    
    
    9
    
    
    
    1,313
    
    
    
    418
    
    
    
    4,168Selling, general and administrative
    
    
    6
    
    
    
    1,612
    
    
    
    229
    
    
    
    4,79315
    
    
    
    2,925
    
    
    
    647
    
    
    
    8,961Income (loss) from discontinued operations
    
    $
    (15
    )
    
    $
    (1,400
    )
    
    $
    8
    
    
    $
    (4,719
    )
 Total revenues and direct operating costs for the Affinity Events business segment were lower in
the three months and nine months ended May 31, 2005 than in the same periods of the prior year due
to a reduction in the number of Hoop-It-Up 3-on-3 basketball events held during the 2004 tour year
and the shorter duration of the tour in 2004. The Company made the decision in August 2004 to
suspend the Affinity Events business and offer it for sale. However, the Company completed all
previously-scheduled events subsequent to August 2004, in order to fulfill contractual obligations.
All such events were completed prior to the three months ended May 31, 2005. In December 2004,
the principal assets of the Affinity Events business, consisting of the tangible and intangible
assets associated with the Hoop-It-Up tour and the 3v3 Soccer Shootout tour, were sold. INTEREST RATE AND MARKET RATE RISK The Company is exposed to changes in interest rates due to the Companys financing of its
acquisitions, investments and operations. Interest rate risk is present with both fixed and
floating rate debt. Until December 31, 2004, the Company used interest rate swap agreements to
manage its debt profile. Interest rate swap agreements generally involve exchanges of underlying
face (notional) amounts of designated hedges. The Company continually evaluated the credit quality
of the counterparty to its interest rate swap agreement and did not believe there was a significant
risk of nonperformance by the counterparty to the agreement. The Companys decision to forego
interest rate swap agreements as a hedge against its floating rate debt is due to the relatively
short duration of the Companys bank credit agreement and the Companys willingness to accept
additional interest rate risk for that period of time. Based on the Companys debt profile as of each fiscal year end, a 1% increase in market interest
rates would increase interest expense and decrease the income before income taxes (or
alternatively, increase interest expense and increase the loss before income taxes) by
approximately $0.1 million for each of the three-month periods
ended May 31, 2005 and 2004,
and by approximately $0.4 million and $0.2 million for the nine-month periods ended May 31, 2005
and 2004, respectively. Such amount was approximately $0.3 million for the fiscal year ended
August 31, 2004. These amounts were determined by calculating the effect of the hypothetical
interest rate on the Companys floating rate debt, after giving effect to the Companys interest
rate swap agreement. The Companys floating rate debt increased and fixed rate debt decreased by
$25 million after the termination of the interest rate swap agreement on December 31, 2004. These
amounts do not include the effects of certain potential results of increased interest rates, such
as a reduced level of overall economic activity or other actions management may take to mitigate
the risk. Furthermore, this sensitivity analysis does not assume changes in the Companys
financial structure that could occur if interest rates were higher. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. When used in this report, the words believes,
expects, anticipates, estimates and similar words and expressions are generally intended to
identify forward-looking statements. Statements that describe the Companys future strategic
plans, goals or objectives are also forward-looking statements. Readers of this Report
are cautioned that any forward-looking statements, including those regarding the intent, belief or
current expectations of the Company or management, are not guarantees of future performance,
results or events, and involve risks and uncertainties. The forward-looking statements included in
this report are made only as of the date hereof. The 24




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Company undertakes no obligation to update
such forward-looking statements to reflect subsequent events or circumstances. Actual results and
events may differ materially from those in the forward-looking statements as a result of various
factors including, but not limited to the following: (i) the Companys leverage and/or operating
results may adversely affect its ability to obtain new financing or extend its current bank credit
agreement beyond the November 30, 2005 maturity date under terms acceptable to the Company and its
bank lenders, thereby impairing the Companys ability to withstand economic downturns or
competitive pressures; (ii) the Company may not ultimately be successful in obtaining bank
financing beyond the November 30, 2005 maturity date, or be successful in obtaining financing at
acceptable terms; (iii) the inability of the Company to currently meet listing requirements of The
Nasdaq Stock Market or other national stock exchange may hinder the Companys ability to raise new
capital through the issuance of equity securities; (iv) significant segments of the Companys
business are seasonal; (v) the Companys business depends on short term contracts and the inability
to renew or extend these contracts could adversely affect its business; (vi) the Company may lose
money on some of its contracts, because it guarantees certain payments thereunder; and (vii) war or
acts of terrorism or a domestic economic downturn or recession could materially adversely impact
corporate discretionary spending, such as advertising and corporate sponsorships sold by the
Company. Item 3. Quantitative and Qualitative Disclosures About Market Risk See Interest Rate and Market Rate Risk in Item 2 of this Form 10-Q Item 4. Controls and Procedures The Company carried out, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer and the Companys Chief Financial
Officer, an evaluation of the effectiveness of the design and operation of the Companys disclosure
controls and procedures performed pursuant to Rule 13a-15 under the Securities Exchange Act of 1934
as amended. Based on that evaluation, the Companys Chief Executive Officer and its Chief Financial
Officer concluded that, as of May 31, 2005, the Companys disclosure controls and procedures are
effective in timely alerting them to information which is required to be included in the periodic
reports that the Company must file with the Securities and Exchange Commission. There were no changes in the Companys internal control over financial reporting during the quarter
ended May 31, 2005 identified in connection with the evaluation thereof by the Companys
management, including the Chief Executive Officer and Chief Financial Officer, that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over
financial reporting. PART II. OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities During the three months ended May 31, 2005, a holder of Series E Preferred Stock elected to convert
an aggregate 0.021 shares of Series E Preferred Stock to an aggregate 3 shares of the Companys
common stock, in accordance with terms of the Series E Preferred Stock. The issuances of shares of common stock were made under the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, because the issuances did not involve any
public offering. Item 6. Exhibits 31.1
    
    Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 25




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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: July 14, 2005
    
    By:
    
    /s/ FREDERICK J. ERICKSONFrederick J. Erickson
Vice President-Finance, Treasurer
and Assistant Secretary
 26