UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

             For the quarterly period ended February 29, 2004

OR

             For the transition period from                   to                   .

             Commission file number 0-9385

Bull Run Corporation

4370 Peachtree Road, N.E., Atlanta, GA 30319
(Address of principal executive offices)        (Zip Code)

(404) 266-8333
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [   ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 4,731,087 shares of Common Stock, par value $.01 per share, were outstanding as of March 31, 2004.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

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

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

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

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

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

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

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

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

1. BASIS OF PRESENTATION

In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting solely of normal, recurring adjustments) necessary to present fairly the financial position and results of operations for the transition and comparative period reported. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Annual Report on Form 10-K of Bull Run Corporation for the fiscal year ended August 31, 2003.

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

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

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

In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”), effective for fiscal years beginning after May 15, 2002. For most companies, SFAS 145 requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under FASB Statement No. 4. Previously, in the six months ended February 28, 2003, Gray recorded an extraordinary charge in connection with an early extinguishment of debt. Since the Company accounted for its investment in Gray using the equity method, the Company reported its proportionate share of Gray’s extraordinary losses as an extraordinary charge in its financial statements. Gray adopted SFAS 145 in its first quarter ended March 31, 2003, and accordingly, reclassified each of its losses on its early extinguishment of debt, from an extraordinary charge to income from continuing operations. Therefore, Bull Run has reclassified its proportionate share of such losses, amounting to $(406) in the six months ended February 28, 2003, to continuing operations as a component of “Equity in losses of affiliates.”

2. LIQUIDITY

As of February 29, 2004, the Company’s negative working capital was $67,823, including $55,932 of bank debt maturing on November 30, 2004. In recent fiscal years, the Company has reported substantial losses and has consumed substantial cash in its operations. The Company has funded its liquidity needs through the issuance of preferred stock and through the sale of investments. Although

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management anticipates that the Company will continue to experience negative working capital ranging from approximately $60,000 to $70,000, management believes the Company has sufficient liquidity to meet its cash obligations until the maturity date of the bank credit agreement. The Company intends to commence discussions with its bank lenders regarding an extension of the agreement or other refinancing plan by August 2004, and currently believes that it will be able to extend or refinance the agreement under terms similar to those of the present bank credit agreement. The Company’s Chairman previously committed to contribute an additional $1,000 in capital to the Company through November 2004, if necessary, for additional shares of the Company’s common or preferred stocks or for subordinated debt. In January 2004, the Chairman provided $1,800 in cash used for working capital purposes, of which, at least $800 (classified as a component of “Other liabilities,” a noncurrent liability, in the Condensed Consolidated Balance Sheet as of February 29, 2004) is expected to ultimately be applied as proceeds for newly-issued subordinated debt or equity. The remaining $1,000 is currently classified as a component of “Accrued and other liabilities,” a current liability, until such time as a more definitive application of the cash advance is determined by the parties.

As noted above and as further discussed in Note 5, the Company has $55,932 of debt outstanding as of February 29, 2004 under its bank credit agreement, which matures on November 30, 2004. As further discussed in Note 5, the Company’s Chairman has guaranteed repayment of $53,000 of the outstanding bank debt. The Company’s ability to continue this or similar financing beyond the November 30, 2004 maturity date is significantly dependent on the continued support of the Company’s Chairman and, in part, on the Company’s future operating results. There can be no assurances with respect to either the Company’s future operating results or the continued support of its Chairman.

3. SUPPLEMENTAL CASH FLOW DISCLOSURES

Supplemental cash flow information follows:

4. INVESTMENT IN AFFILIATED COMPANIES

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

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In October 2002, Gray completed a public offering of 30,000 shares of its common stock for net proceeds of approximately $231,200, and in November 2002, Gray issued an additional 4,500 shares for additional proceeds of approximately $34,900. As a result of these transactions by Gray, the Company’s ownership of Gray’s outstanding common stock was reduced from 12.9% to 4.0%. Since Gray’s net proceeds per share of issued common stock was an amount which was less than the Company’s carrying value per share of Gray common stock owned prior to such transactions, a loss of $2,339 on the issuance of shares by Gray was reported by the Company in the six months ended February 28, 2003. Certain executive officers of Gray and certain directors of Gray are also executive officers and directors of the Company; therefore until such time as the Company sold its investments in Gray common stocks, the Company continued to account for its investment in Gray under the equity method subsequent to the issuance of shares by Gray, despite the dilution of the Company’s voting power to less than 20%, since the Company continued to have significant influence in Gray.

The Company sold its investment in Rawlings Sporting Goods Company, Inc. (“Rawlings”) common stock in December 2002 for cash proceeds of $6,764. Prior to the sale, a loss of $1,032 on the Rawlings investment that had been previously reported as “other comprehensive accumulated loss” (a component of the Company’s stockholders’ equity) was expensed, and reported as an investment valuation adjustment in the Company’s results of operations for the six months ended February 28, 2003.

5. LONG-TERM DEBT

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

As amended in August 2003, the Company’s bank credit agreement provides for (a) two term loans (the “Term Loans”) for borrowings totaling $35,932 and (b) a revolving loan commitment (the “Revolver”) for maximum borrowings of $20,000. All amounts outstanding under the Term Loans and the Revolver are due on November 30, 2004, and bear interest at either the banks’ prime rate or the London Interbank Offered Rate (“LIBOR”) plus 2.75%, payable monthly. The amendment in August 2003 reduced the interest rate charged by the banks and revised the maturity date of the agreement to November 30, 2004 from September 30, 2003. As of February 29, 2004, all amounts available under the Revolver were borrowed, and no additional borrowing capacity was available. As of February 29, 2004, substantially all borrowings under the Term Loans and Revolver were subject to the LIBOR-based rate of 3.85%.

Under the terms of the credit agreement, up to an aggregate of $12,500 in funding for working capital purposes, if necessary, may be sourced from the issuance of equity securities, including shares of the Company’s preferred stock, or by the issuance of subordinated debt. Through February 29, 2004, the Company has received an aggregate total of approximately $10,900 of such funding for working capital purposes, including $2,000 received from the Company’s Chairman in November 2003 for shares of the Company’s series F preferred stock, and the $1,800 received from the Chairman in January 2004 discussed in Note 2. As a result of the these transactions, the Company would currently be permitted under its bank credit agreement to source up to an additional $1,600 of cash from the issuance of equity or debt securities during the remaining term of the credit facility.

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

In connection with the Company’s bank credit facilities, the Company’s Chairman of the board entered into a guarantee agreement in favor of the banks, for which he receives compensation from the Company in the form of shares of the Company’s common stock. During the six months ended February 29, 2004, the Company issued approximately 151 restricted shares of the Company’s common stock then valued at approximately $479. During the six months ended February 28, 2003, the Company issued approximately 119 restricted shares of the Company’s common stock then valued at approximately $919. The value of the shares issued to the Chairman is based on an annual compensation rate of 1.625% of the guarantee amount. The guarantee agreement currently requires the Chairman to personally guarantee up to $53,000 of the Company’s outstanding bank debt. The guaranteed amount has historically reduced, and will continue to reduce, dollar for dollar, as the aggregate outstanding amount under the Term Loans is reduced, subject to certain limitations. The guarantee agreement provides that if the Company defaults on its bank loan, the banks have the right to require the Chairman to repay the amount of such loan to the banks up to the maximum amount of his personal guarantee. Under the terms of his guarantee, if the banks exercise their rights to demand repayment from the guarantor, the Chairman has the option to purchase the entire loan from the banks, and thereby becoming the holder of the Company’s debt currently payable to the banks as a secured creditor.

In connection with the Host-USA Acquisition, the Company issued 8% subordinated notes to former stockholders of Host and USA, representing long-term debt of $8,693 as of February 29, 2004 and $16,709 as of August 31, 2003. Interest is payable quarterly and the notes, as amended, have a maturity date of January 17, 2006. During the six months ended February 29, 2004, holders of 8% subordinated notes representing an aggregate face value of $8,016 exchanged their notes for shares of Series E Preferred Stock (refer to Note 7). In February 2004, a note having a face value of $3,019 was acquired by the Company’s Chairman from the note holder, and the Chairman has agreed to modify the terms of the note to amend the maturity date from January 2005 to January 2006, as well as to defer the payment of interest to the maturity date of the note. The Company also has outstanding 9% subordinated notes representing an aggregate amount of $590 having a maturity date of December 31, 2004. Payment of interest and principal on all subordinated notes is subordinate to the Company’s bank credit agreement.

Aggregate maturities of the Company’s long-term debt and notes payable as of February 29, 2004 (including the effects of the note modifications discussed above) in the fiscal years ending August 31, 2004, 2005 and 2006 are, respectively, $0, $55,932 (all of which maturing on November 30, 2004) and $8,693, and none thereafter.

The Company is a party to an interest rate swap agreement terminating on December 31, 2004, which involves the exchange of interest at a fixed rate of 6.71% for interest at a variable rate, determined quarterly, equal to the 90-day LIBOR rate, without an exchange of the $25,000 notional amount upon which the payments are based. The differential paid or received as interest rates change is settled quarterly and is accrued and recognized as an adjustment of interest expense related to the debt.

6. INCOME TAXES

The principal differences between the federal statutory tax rate of 34% and the effective tax rate of zero are increases in the valuation allowance for potentially non-realizable deferred tax assets of $577

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and $1,700 for the three months ended February 29, 2004 and February 28, 2003, respectively, and $929 and $2,025 for the six months ended February 29, 2004 and February 28, 2003, respectively.

7. PREFERRED STOCK ISSUANCE AND EXCHANGE

As of February 29, 2004, 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, 5.4 shares of which are currently convertible at the holder’s option into 540 shares of the Company’s common stock. An additional 4.097 shares of Series D Preferred Stock is convertible at the holder’s option into approximately 410 shares of the Company’s common stock beginning in July 2004 and the remaining 3 shares of Series D Preferred Stock are convertible into 300 shares of the Company’s common stock beginning in September 2004. Each holder of the Series D Preferred Stock is entitled to receive dividends at an annual rate of $90.00 per share in cash or in shares of the Company’s common stock at the holder’s option, except that, until the second anniversary of the date of issuance, the Company has the option to pay such dividends in cash or in shares of the Company’s common stock. The liquidation and redemption price of the Series D Preferred Stock is $1,000 per share, and dividends are cumulative. The Company has the option to redeem the Series D Preferred Stock at any time. All shares of preferred stock rank, as to payment of dividends and as to distribution of assets upon liquidation or dissolution of the Company, on a parity with all other currently issued preferred stock and any preferred stock issued by the Company in the future, and senior to the Company’s currently issued common stock and common stock issued in the future.

As of February 29, 2004, 9.799 shares of the Company’s series E convertible preferred stock (“Series E Preferred Stock”) were outstanding, having an aggregate face value of $9,799. Each share of the Series E Preferred Stock is convertible at the holder’s option into 0.14286 shares of the Company’s common stock beginning one year following the date of issuance of the Series E Preferred Stock (initially, October 2004). Each holder of the Series E Preferred Stock is entitled to receive dividends at an annual rate of $90.00 per share in cash or in shares of the Company’s common stock at the holder’s option, except that, no dividend is payable prior to June 30, 2005, or upon conversion to common stock, if earlier. The liquidation and redemption price of the Series E Preferred Stock is $1,000 per share. The Company has the option to redeem the Series E Preferred Stock at any time. During the six months ended February 29, 2004, subordinated note holders elected to exchange an aggregate $8,016 of subordinated debt for an aggregate 8.016 shares of Series E Preferred Stock, including subordinated notes having an aggregate face amount of $5,257 acquired by the Company’s Chairman immediately prior to the exchange. Also during the six months ended February 29, 2004, 1.783 shares of Series D Preferred Stock issued to a former director of the Company and his spouse (both of whom were formerly holders of subordinated notes) were exchanged for the same number of shares of Series E Preferred Stock.

As of February 29, 2004, 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 these shares were issued to the Company’s Chairman in the six months ended February 29, 2004. Each share of the Series F Preferred Stock is convertible at the holder’s option into 0.78125 shares of the Company’s common stock beginning in November 2006. The holder of Series F Preferred Stock is entitled to receive dividends at an annual rate of $90.00 per share in cash or in shares of the Company’s common stock at the holder’s option, except that, until the second anniversary of the date of issuance, the Company has the option to pay such dividends in cash or in shares of the Company’s common stock. The liquidation and redemption price of the Series F Preferred Stock is $1,000 per share. The Company has the option to redeem the Series F Preferred Stock at any time.

In November 2003, the Company’s Articles of Incorporation were amended to effectively cancel all authorized but unissued shares of the Company’s series A, series B and series C preferred stocks. There were no shares of such preferred stocks issued at that time.

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8. OTHER COMPREHENSIVE INCOME (LOSS)

A reconciliation of the net loss as reported in the Condensed Consolidated Statement of Operations to the comprehensive loss is as follows:

9. SEGMENT INFORMATION

The Company has three business segments associated with its continuing operations that provide different products or services: (a) marketing and production services, which primarily include services rendered in connection with college athletics (“Collegiate Marketing and Production Services”); (b) event management and marketing services (“Affinity Events”); and (c) association management services (“Affinity Management Services”). A fourth business segment, associated with consulting services rendered to a related party, has been classified as a discontinued segment beginning in the fiscal period ended February 29, 2004 (see Note 1). Information for each of the Company’s segments is presented below:

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

OVERVIEW

Bull Run Corporation (“Bull Run” or the “Company”), based in Atlanta, Georgia, is a sports and affinity marketing and management company through its sole operating business, Host Communications, Inc. (“Host”), acquired in December 1999 (the “Host-USA Acquisition”). Host’s “Collegiate Marketing and Production Services” business segment provides sports marketing and production services to a number of collegiate conferences and universities, and on behalf of the National Collegiate Athletic Association (“NCAA”). Host’s “Affinity Events” business segment produces and manages individual events and several events series, including the “Hoop-It-Up® Basketball Tour” (a 3-on-3 basketball tour) and the “got milk? 3v3 Soccer Shootout National Tour” (a 3-on-3 soccer tour). Host’s “Affinity Management Services” business segment provides associations such as the National Tour Association and Quest (the J.D. Edwards users group), with services ranging from member communication, recruitment and retention, to conference planning, Internet web site management, marketing and administration.

The Company formerly held significant investments in other sports, media and marketing companies, including Gray Television, Inc. (“Gray”), the owner and operator of 29 television stations, four newspapers and other communications businesses, and Rawlings Sporting Goods Company, Inc. (“Rawlings”), a supplier of team sports equipment. The Company currently owns 35.1% of the outstanding common stock of iHigh, Inc. (“iHigh”), an Internet and marketing company focused on high school students. The Company sold its investments in Gray (representing approximately 4.0% of Gray’s outstanding common stock and warrants to purchase additional shares of Gray common stocks) and Rawlings (representing approximately 10.1% of Rawlings’ outstanding common stock) during the fiscal year ended August 31, 2003. The Gray common stocks and warrants were sold by the Company to Gray and other parties affiliated with the Company, including the Company’s Chairman of its board of directors. The Company formerly provided consulting services to Gray in connection with certain of Gray’s acquisitions and dispositions. The “Consulting” segment is reported as a discontinued operation.

CERTAIN RELATIONSHIPS

J. Mack Robinson, Chairman of the board of the Company, is Chief Executive Officer, Chairman and a director of Gray, and the beneficial owner of Gray common stocks representing approximately 31.0% of the combined voting power of Gray’s two classes of common stock as of the date of the Company’s disposition of its investment in Gray common stocks (the “Gray Disposition Date”). Additionally, Mr. Robinson is the beneficial owner of approximately 48.2% of the Company’s common stock as of February 29, 2004, 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 February 29, 2004, representing approximately 81.5% of the aggregate face amount of all outstanding preferred stock on that date. Robert S. Prather, Jr., President, Chief Executive Officer and a director of the Company, is President, Chief Operating Officer and a director of Gray, and the beneficial owner of Gray common stocks representing approximately 20.2% of the combined voting power of Gray’s two classes of common stock as of the Gray Disposition Date. Hilton H. Howell, the Company’s Vice President and Secretary, is Vice Chairman and a director of Gray, and the beneficial owner of Gray common stocks representing approximately 23.3% of the combined voting power of Gray’s two classes of common stock as of the Gray Disposition Date. Each of Messrs. Robinson, Prather and Howell’s beneficial ownership percentages noted above includes the Company’s beneficial ownership of approximately 17.2% of the combined voting power of Gray’s two classes of common stock as of the Gray Disposition Date. Beneficial ownership percentages include warrants and options to acquire shares of Gray common stocks that were exercisable on, or within 60 days after, such date.

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

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

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

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