**UNITEDSTATES****SECURITIESAND EXCHANGE COMMISSION****Washington, D.C. 20549**

**FORM 10-Q**

**(Mark One)**

**x****             ****Quarterly Report Pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934.**

**For the quarterly period ended: September 30, 2006**

**OR**

                **Transition Report Pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934**

**Commission File Number: 333-57201**

**Advanstar Communications Inc.(Exact name of registrant as specified in its charter)**

##### **New York**(State or other jurisdiction ofincorporation or organization)

59-2757389**(I.R.S. EmployerIdentification No.)**

**641 Lexington Avenue, New York, NY**(Address of principal executive offices)

**10022**(Zip Code)

##### **Registrant’s Telephone Number, Including AreaCode: (212) 951-6600**

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes  x   No  o

Indicate by check mark ifthe registrant is a large accelerated filer, an accelerated filer or a nonaccelerated filer.   Large AcceleratedFiler  o     Accelerated Filer  o     Non-Accelerated Filer  x

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o     No  x

As of November 14,2006, 1,000,000 shares of the registrant’s common stock were outstanding.

 

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| **PART I**        |         | **Financial  Information**                                                                                          |
|-------------------|--------------|---------------------------------------------------------------------------------------------------------------------|
|              |         |                                                                                                                |
| ***Item  1.***    |         | ***Financial Statements:***                                                                                         |
|              |         |                                                                                                                |
|              |         |                                                                                                                |
|              |         | Condensed Consolidated Balance Sheets (unaudited) at  September 30, 2006 and December 31, 2005                      |
|              |         | Condensed Consolidated Statements of Operations  (unaudited) for the three months ended September 30, 2006 and 2005 |
|              |         | Condensed Consolidated Statements of Operations  (unaudited) for the nine months ended September 30, 2006 and 2005  |
|              |         | Condensed Consolidated Statements of Cash Flows  (unaudited) for the nine months ended September 30, 2006 and 2005  |
|              |         | Notes to Condensed Consolidated Financial Statements  (unaudited)                                                   |
| ** Item 2.** | *** *** | ***Management’s Discussion and Analysis of Financial  Condition and Results of Operations***                   |
| ** Item 3.** | *** *** | ***Quantitative and Qualitative Disclosures About Market  Risk***                                                   |
|  Item 4.     | *** *** | ***Controls and Procedures***                                                                                       |
|              |         |                                                                                                                |
| **PART  II**      |         | **Other  Information**                                                                                              |
|              |         |                                                                                                                |
| ** Item 6.** | *** *** | ***Exhibits***                                                                                                      |
|              |         |                                                                                                                |
| **SIGNATURES**    |

 

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**PART I FINANCIALINFORMATION**

**AdvanstarCommunications Inc.Condensed Consolidated Balance Sheets (Unaudited)(In thousands, except per share data)**
| ** **                                                                                                                                       | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|------------------|------------|
| ** **                                                                                                                                       | ** ** | **2006**          | ** ** | **2005**         | ** ** |
| **ASSETS**                                                                                                                                       |       |              |       |             |       |
| Current assets:                                                                                                                                  |       |              |       |             |       |
| Cash and cash  equivalents                                                                                                                       |       | $                 | 40,957     |             | $          | 46,609 |   |
| Accounts receivable,  net of allowance of $914 and $1,076 at September 30, 2006 and December 31,  2005                                           |       | 24,070            |       | 24,607           |       |
| Prepaid expenses                                                                                                                                 |       | 7,682             |       | 7,871            |       |
| Other                                                                                                                                            |       | 2,337             |       | 1,965            |       |
|                                                                                                                                             |       |              |       |             |       |
| Total current assets                                                                                                                             |       | 75,046            |       | 81,052           |       |
|                                                                                                                                             |       |              |       |             |       |
| Due from parent                                                                                                                                  |       | 2,468             |       | 2,232            |       |
|                                                                                                                                             |       |              |       |             |       |
| Property, plant and equipment, net                                                                                                               |       | 25,207            |       | 21,306           |       |
|                                                                                                                                             |       |              |       |             |       |
| Intangible and other assets:                                                                                                                     |       |              |       |             |       |
| Goodwill                                                                                                                                         |       | 596,988           |       | 594,982          |       |
| Intangibles and other,  net                                                                                                                      |       | 41,814            |       | 62,644           |       |
|                                                                                                                                             |       |              |       |             |       |
| Total intangible and  other assets, net                                                                                                          |       | 638,802           |       | 657,626          |       |
|                                                                                                                                             |       |              |       |             |       |
| Non-current assets held for sale                                                                                                                 |       | 4,620             |       | 4,620            |       |
|                                                                                                                                             |       |              |       |             |       |
|                                                                                                                                             |       | $                 | 746,143    |             | $          | 766,836 |   |
|                                                                                                                                             |       |              |       |             |       |
| **LIABILITIES AND STOCKHOLDER’S EQUITY**                                                                                                    |       |              |       |             |       |
|                                                                                                                                             |       |              |       |             |       |
| Current liabilities:                                                                                                                             |       |              |       |             |       |
| Current maturities of  long-term debt                                                                                                            |       | $                 | —     |             | $          | 201 |   |
| Accounts payable                                                                                                                                 |       | 20,869            |       | 12,342           |       |
| Accrued compensation                                                                                                                             |       | 4,700             |       | 7,236            |       |
| Other accrued expenses                                                                                                                           |       | 28,764            |       | 30,758           |       |
| Deferred revenue                                                                                                                                 |       | 27,668            |       | 46,472           |       |
|                                                                                                                                             |       |              |       |             |       |
| Total current  liabilities                                                                                                                       |       | 82,001            |       | 97,009           |       |
|                                                                                                                                             |       |              |       |             |       |
| Long-term debt, net of current maturities                                                                                                        |       | 461,905           |       | 461,786          |       |
| Deferred income taxes                                                                                                                            |       | 37,307            |       | 31,500           |       |
| Other long-term liabilities                                                                                                                      |       | 8,676             |       | 4,933            |       |
|                                                                                                                                             |       |              |       |             |       |
| Commitments and contingencies                                                                                                                    |       |              |       |             |       |
|                                                                                                                                             |       |              |       |             |       |
| Stockholder’s equity:                                                                                                                       |       |              |       |             |       |
| Common stock, $.01 par  value, 3,500,000 shares authorized; 1,000,000 shares issued and outstanding  at September 30, 2006 and December 31, 2005 |       | 10                |       | 10               |       |
| Capital in excess of  par value                                                                                                                  |       | 431,138           |       | 447,367          |       |
| Accumulated deficit                                                                                                                              |       | (284,836          | )          | (284,182         | )          |
| Accumulated other  comprehensive income                                                                                                          |       | 9,942             |       | 8,413            |       |
|                                                                                                                                             |       |              |       |             |       |
| Total stockholder’s  equity                                                                                                                 |       | 156,254           |       | 171,608          |       |
|                                                                                                                                             |       |              |       |             |       |
|                                                                                                                                             |       | $                 | 746,143    |             | $          | 766,836 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

2

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**AdvanstarCommunications Inc.Condensed Consolidated Statements of Operations (Unaudited)(In thousands)**
| ** **                                                                    | ** ** | **For the**                 | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                    | ** ** | **Three Months Ended** | ** ** |
| ** **                                                                    | ** ** | **September 30,**           | ** ** |
| ** **                                                                    | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| ** **                                                                    |       |                             |       |   |   |
| ** **                                                                    |       |                             |       |   |   |
| Revenue                                                                       |       | $                                | 96,049     |   | $ | 85,691 |   |
|                                                                          |       |                             |       |   |   |
| Operating  expenses:                                                          |       |                             |       |   |   |
| Cost of production (excluding depreciation)                                   |       | 21,298                           |       | 16,404 |   |
| Selling, editorial and circulation (excluding  depreciation)                  |       | 31,506                           |       | 28,392 |   |
| General and administrative (excluding depreciation)                           |       | 18,676                           |       | 8,871 |   |
| Restructuring charge                                                          |       | —                           |       | 1,041 |   |
| Depreciation and amortization                                                 |       | 8,708                            |       | 8,927 |   |
|                                                                          |       |                             |       |   |   |
| Total operating expenses                                                      |       | 80,188                           |       | 63,635 |   |
|                                                                          |       |                             |       |   |   |
| Operating income                                                              |       | 15,861                           |       | 22,056 |   |
|                                                                          |       |                             |       |   |   |
| Other income  (expense):                                                      |       |                             |       |   |   |
| Interest expense                                                              |       | (13,355                          | )          | (13,919 | ) |
| Interest income                                                               |       | 530                              |       | 284 |   |
| Loss on extinguishment of debt                                                |       | (102                             | )          | — |   |
| Other expense, net                                                            |       | (65                              | )          | (54 | ) |
|                                                                          |       |                             |       |   |   |
| Income from  continuing operations before income taxes                        |       | 2,869                            |       | 8,367 |   |
|                                                                          |       |                             |       |   |   |
| Provision for  income taxes                                              |       | 1,999                            |       | 5,894 |   |
|                                                                          |       |                             |       |   |   |
| Income from  continuing operations                                            |       | 870                              |       | 2,473 |   |
|                                                                          |       |                             |       |   |   |
| Income from  operations of discontinued businesses, net of taxes (see Note 4) |       | 235                              |       | 2,733 |   |
|                                                                          |       |                             |       |   |   |
|                                                                          |       |                             |       |   |   |
| Net income                                                                    |       | $                                | 1,105      |   | $ | 5,206 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

3

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**AdvanstarCommunications Inc.Condensed Consolidated Statements of Operations (Unaudited)(In thousands)**
| ** **                                                                     | ** ** | **For the**           | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                     | ** ** | **Nine Months Ended** | ** ** |
| ** **                                                                     | ** ** | **September 30,**     | ** ** |
| ** **                                                                     | ** ** | **2006**              | ** ** | **2005** | ** ** |
| ** **                                                                     |       |                  |       |   |   |
| ** **                                                                     |       |                  |       |   |   |
| Revenue                                                                        |       | $                     | 261,865    |   | $ | 232,253 |   |
|                                                                           |       |                  |       |   |   |
| Operating expenses:                                                            |       |                  |       |   |   |
| Cost of production  (excluding depreciation)                                   |       | 55,243                |       | 43,923 |   |
| Selling, editorial and  circulation (excluding depreciation)                   |       | 92,047                |       | 85,058 |   |
| General and  administrative (excluding depreciation)                           |       | 39,233                |       | 31,371 |   |
| Restructuring charge                                                           |       | 2,325                 |       | 3,056 |   |
| Depreciation and  amortization                                                 |       | 27,400                |       | 28,404 |   |
|                                                                           |       |                  |       |   |   |
| Total operating  expenses                                                      |       | 216,248               |       | 191,812 |   |
|                                                                           |       |                  |       |   |   |
| Operating income                                                               |       | 45,617                |       | 40,441 |   |
|                                                                           |       |                  |       |   |   |
| Other income (expense):                                                        |       |                  |       |   |   |
| Interest expense                                                               |       | (41,182               | )          | (49,192 | ) |
| Interest income                                                                |       | 1,488                 |       | 1,128 |   |
| Loss on extinguishment  of debt (see Note 5)                                   |       | (599                  | )          | (12,581 | ) |
| Other expense, net                                                             |       | (222                  | )          | (75 | ) |
|                                                                           |       |                  |       |   |   |
| Income (loss) from continuing operations before income taxes                   |       |                  |       |   |   |
| and cumulative effect of accounting change                                     |       | 5,102                 |       | (20,279 | ) |
|                                                                           |       |                  |       |   |   |
| Provision for income taxes                                                |       | 5,869                 |       | 4,009 |   |
|                                                                           |       |                  |       |   |   |
| Loss from continuing operations before cumulative effect of  accounting change |       | (767                  | )          | (24,288 | ) |
|                                                                           |       |                  |       |   |   |
| Income from operations of discontinued businesses, net of taxes (see  Note 4)  |       | 113                   |       | 46,530 |   |
|                                                                           |       |                  |       |   |   |
| (Loss) income before cumulative effect of accounting change                    |       | (654                  | )          | 22,242 |   |
|                                                                           |       |                  |       |   |   |
| Cumulative effect of accounting change (see Note 11)                           |       | —                |       | 4,618 |   |
|                                                                           |       |                  |       |   |   |
| Net (loss) income                                                              |       | $                     | (654       | ) | $ | 26,860 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

4

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**AdvanstarCommunications Inc.Condensed Consolidated Statements of Cash Flows (Unaudited)(In thousands)**
| ** **                                                                         | ** ** | **For the**                | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                         | ** ** | **Nine Months Ended** | ** ** |
| ** **                                                                         | ** ** | **September 30,**          | ** ** |
| ** **                                                                         | ** ** | **2006**                        | ** ** | **2005** | ** ** |
|                                                                               |       |                            |       |   |   |
| Operating  activities:                                                             |       |                            |       |   |   |
| Net (loss) income                                                                  |       | $                               | (654       | ) | $ | 26,860 |   |
| Adjustments to reconcile net (loss) income to net  cash from operating activities: |       |                            |       |   |   |
| Cumulative effect of accounting change                                             |       | —                          |       | (4,618 | ) |
| Impairment of intangible assets                                                    |       | —                          |       | 2,272 |   |
| Depreciation and amortization                                                      |       | 27,400                          |       | 31,356 |   |
| Write-off of deferred financing costs                                              |       | 599                             |       | 3,517 |   |
| Gain on derivative financial instruments                                           |       | —                          |       | (77 | ) |
| Loss on asset disposal                                                             |       | 235                             |       | — |   |
| Gain on sale of business and other assets                                          |       | —                          |       | (52,959 | ) |
| Losses of minority interest holders                                                |       | —                          |       | 566 |   |
| Non-cash interest expense                                                          |       | 1,754                           |       | 2,282 |   |
| Deferred income taxes                                                              |       | 5,807                           |       | 13,766 |   |
| Provision for bad debts                                                            |       | 343                             |       | 739 |   |
| Changes in operating assets and liabilities                                        |       | (10,752                         | )          | (27,708 | ) |
|                                                                               |       |                            |       |   |   |
| Net cash provided by (used in) operating activities                           |       | 24,732                          |       | (4,004 | ) |
|                                                                               |       |                            |       |   |   |
| Investing  activities:                                                             |       |                            |       |   |   |
| Additions to property, plant and equipment                                         |       | (11,824                         | )          | (5,051 | ) |
| Acquisitions of intangible assets and other                                        |       | (41                             | )          | (15,503 | ) |
| Proceeds from sale of business and other assets                                    |       | 37                              |       | 173,842 |   |
|                                                                               |       |                            |       |   |   |
| Net cash (used in) provided by investing activities                                |       | (11,828                         | )          | 153,288 |   |
|                                                                               |       |                            |       |   |   |
| Financing  activities:                                                             |       |                            |       |   |   |
| Payments of long-term debt                                                         |       | (9,972                          | )          | (152,142 | ) |
| Proceeds from issuance of long-term debt                                           |       | 10,000                          |       | — |   |
| Payment of deferred finance costs                                                  |       | (1,706                          | )          | (129 | ) |
| Dividends paid to minority interest holders                                        |       | —                          |       | (900 | ) |
| Project grant funds distributed                                                    |       | (175                            | )          | — |   |
| Dividend paid to stockholder                                                       |       | (16,229                         | )          | — |   |
|                                                                               |       |                            |       |   |   |
| Net cash used in financing activities                                              |       | (18,082                         | )          | (153,171 | ) |
|                                                                               |       |                            |       |   |   |
| Effect of exchange  rate changes on cash                                           |       | (474                            | )          | 660 |   |
|                                                                               |       |                            |       |   |   |
| Net decrease in  cash and cash equivalents                                         |       | (5,652                          | )          | (3,227 | ) |
|                                                                               |       |                            |       |   |   |
| Cash and cash  equivalents, beginning of period                                    |       | 46,609                          |       | 41,223 |   |
|                                                                               |       |                            |       |   |   |
| Cash and cash  equivalents, end of period                                          |       | $                               | 40,957     |   | $ | 37,996 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

5

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**AdvanstarCommunications Inc.Notes to Condensed Consolidated Financial Statements (Unaudited)**

**1.****                          Basis ofPresentation**

The accompanying unaudited condensedconsolidated financial statements have been prepared by AdvanstarCommunications Inc. (the “Company”) in accordance with the instructions to Form10-Q and, therefore, do not include all the information and footnotes requiredby generally accepted accounting principles for complete financialstatements.  Management believes that alladjustments, consisting solely of normal recurring items, considered necessaryfor a fair statement of financial position and results of operations, have beenincluded.  These condensed consolidatedfinancial statements, however, should be read in conjunction with the audited financialstatements and the related notes included in the Company’s annual report onForm 10-K for the year ended December 31, 2005, filed with the Securities andExchange Commission on March 30, 2006. The results of operations for the three and nine months ended September30, 2006 are not necessarily indicative of the operating results that may beexpected for the entire year ending December 31, 2006.

**2.**                          Summary of Significant Interim Accounting Policies

**Interimincome tax expense**

The Company determines itsquarterly income tax provision based upon an estimated annual effective incometax rate and discrete items as they occur.  In determining the effectiveincome tax rate applicable to interim periods, the Company excludes taxjurisdictions where no tax expense or benefit is expected for the entire year.

**3.**                          Goodwill and OtherIntangible Assets

The changes in the carrying amount of goodwill by operating segment areas follows:

| (in thousands)                                                | ** ** | ** **                        | ** ** | ** **                 | ** ** | ** **                            | ** ** | ** **                                       | ** ** | ** **                 | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------|------------|----------------------------|------------|---------------------------------------|------------|--------------------------------------------------|------------|----------------------------|------------|
|                                                               | ** ** | **Fashion &  Licensing** | ** ** | **Life  Sciences**         | ** ** | **Powersports**                       | ** ** | **Other**                                        | ** ** | **Total**                  | ** ** |
|                                                          |       |                              |       |                       |       |                                  |       |                                             |       |                       |       |
| Balance as of December  31, 2005                              |       | $   316,554        |       | $   188,837 |       | $     79,674 |       | $       9,917 |       | $   594,982 |       |
| Goodwill acquired or  completion of purchase price allocation |       | —                            |       | —                     |       | 41                                    |       | —                                           |       | 41                         |       |
| Foreign currency  translation                                 |       | —                            |       | —                     |       | —                                |       | 1,965                                            |       | 1,965                      |       |
|                                                          |       |                              |       |                       |       |                                  |       |                                             |       |                       |       |
| Balance as of September 30, 2006                              |       | $   316,554        |       | $   188,837 |       | $     79,715 |       | $     11,882            |       | $   596,988 |       |

 

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Trade exhibitorand advertiser lists are amortized on a double-declining balance method oversix years and five years, respectively, subscriber lists and other intangibleassets are amortized on a straight-line basis over three to ten years, andtrademarks and trade names are amortized on a straight-line basis over twentyyears.  These intangible assets consistof the following:

| (in thousands)                     | ** ** | **September 30,**                            | ** ** | **December 31,**                             | ** ** |
|-----------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                              | ** ** | **2006**                                          | ** ** | **2005**                                          | ** ** |
|                                    |       |                                              |       |                                              |       |
| Trade exhibitor lists                   |       | $     133,360            |       | $     132,936            |       |
| Advertiser lists                        |       | 29,680                                            |       | 29,680                                            |       |
| Subscriber lists                        |       | 6,023                                             |       | 6,023                                             |       |
| Trade names and  trademarks             |       | 19,211                                            |       | 19,211                                            |       |
| Other intangible assets                 |       | 20,072                                            |       | 20,275                                            |       |
| Deferred financing  costs               |       | 16,479                                            |       | 18,668                                            |       |
|                                    |       |                                              |       |                                              |       |
|                                    |       | 224,825                                           |       | 226,793                                           |       |
| Accumulated  amortization               |       | (183,011                                          | )          | (164,149                                          | )          |
|                                    |       |                                              |       |                                              |       |
| Total intangible and  other assets, net |       | $       41,814 |       | $       62,644 |       |

 

Estimated amortization expense of identified intangible and otherassets for the remaining three months of 2006 and for the next five years is asfollows:

| (in thousands) | ** ** | ** ** | ** ** |
|---------------------|------------|------------|------------|
| * *            |       |       |       |
| 2006                |       | $2,468     |       |
| 2007                |       | 8,372      |       |
| 2008                |       | 5,454      |       |
| 2009                |       | 1,919      |       |
| 2010                |       | 1,570      |       |
| 2011                |       | 1,092      |       |

 

**4.**                          Acquisitions, Divestitures and Dispositions

**Acquisitions**

All acquisitions(collectively, the “Acquired Businesses”) have been accounted for using thepurchase method of accounting and, accordingly, the assets acquired andliabilities assumed have been recorded at their fair values as of the dates ofthe acquisitions.  The excess of thepurchase price over the fair value of the assets acquired and liabilitiesassumed has been recorded as goodwill. Results of operations for the Acquired Businesses have been included inthe accompanying condensed consolidated financial statements since theirrespective dates of acquisition.  TheAcquired Businesses have been consummated to expand the Company’s show andpublication presence within its existing market sector and to maximizemarketing and customer service infrastructure and expertise.

On September 12, 2005,the Company purchased an off-road consumer event business from Petersen EventsCorporation (“Off-Road Expo”) for $2.2 million in cash.  In addition, the Company may pay additionalcontingent cash consideration to the former shareholders based on the 2006operating revenue from the acquired business. Any contingent consideration paid will be recorded as goodwill whenearned by the former shareholder.

7

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On August 23, 2005, theCompany purchased a fashion industry tradeshow business and related productsfrom the owner of POOL Tradeshow (‘‘POOL’’) for $3.0 million in cash. In July 2006,the Company and the former owner of POOL entered into an agreement whichterminated the former owner’s employment with the Company and settled all theirrespective rights and obligations under the POOL asset purchase agreement andthe employment agreement which was originally entered into in connection withthe POOL acquisition.  Upon execution ofthis agreement, the Company made an initial payment of $1.5 million to theformer owner. A final payment of $0.5 million under the agreement will be madein 2007.  The $2.0 million considerationwas recorded as compensation expense in the third quarter of 2006.  Theoriginal POOL purchase agreement provided for additional contingent cashconsideration to be paid to the former owner based on the 2007 and 2008operating results of POOL and required the owner’s continued employment withthe Company.  These future contingent purchase price andemployment-related payments were canceled as part of the July 2006 agreement.

On August 19, 2005, theCompany purchased Project Global Tradeshow, Inc. (‘‘Project”), a producer oftradeshows serving the fashion industry, for $9.9 million in cash. In addition,the Company may pay additional contingent cash consideration, to the formerowners based on the 2007 and 2008 operating results of the acquired businessand their continued employment with the Company.  Management currently estimates the contingentpayment to be $17.5 million.  Contingentconsideration is estimated when it is probable that it has been earned and willbe recorded as compensation expense over the former owners’ employmentperiod.  This estimate will change basedon actual future results.  For the threeand nine months ended September 30, 2006, the Company recorded $5.7 million incompensation expense related to the estimated additional contingentconsideration.

In the second quarter of2005, the Company completed two other acquisitions of consumer tradeshowbusinesses with an aggregate purchase price of $0.5 million in cash.

In 2004, the Companypurchased a portfolio of pharmaceutical industry conferences and magazines (“IVT”)for which it is required to pay additional contingent consideration during 2006based on the 2005 operating results of the acquired businesses and theircontinued employment with the Company which was recorded as compensationexpense in 2005 when earned by former shareholders.

TheCompany has recognized contingent consideration for the Acquired Businesses ascompensation expense in the condensed consolidated statements of operations asfollows:

| (in thousands)               | ** ** | **Three Months Ended**                              | ** ** | **Nine Months Ended**                | ** ** |
|-----------------------------------|------------|---------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                        | ** ** | **September 30,**                                        | ** ** | **September 30,**                         | ** ** |
| ** **                        | ** ** | **2006**                                                      | ** ** | **2005**                                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|                              | ** ** | ** **                                                    | ** ** | ** **                                     |       | ** ** | ** ** | ** ** | ** ** |
| IVT contingent  consideration     |       | $         — |       | $       360 |       | $         — |   | $       980 |   |
| Project contingent  consideration |       | 5,673                                                         |       | —                                         |       | 5,673 |   | — |   |
| POOL contingent consideration     |       | 2,000                                                         |       | —                                         |       | 2,000 |   | — |   |

 

8

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Thechange in the balance of accrued contingent consideration in the accompanyingcondensed consolidated balance sheet is as follows:

| (in thousands)                     | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|------------|------------|
| ** **                              | ** ** | **Total**  | ** ** |
| Balance at  December 31, 2005 |       | $1,336     |       |
| Contingent  consideration               |       | 7,673      |       |
| Payments to  former shareholders        |       | (1,948     | )          |
|                                    |       |       |       |
| Balance at September 30, 2006           |       | $7,061     |       |

 

Thecontingent consideration accrual balance in the accompanying condensedconsolidated balance sheet is $7.1 million and $1.3 million at September 30, 2006and December 31, 2005, of which $1.4 million and $1.3 million is in otheraccrued expenses at September 30, 2006 and December 31, 2005, and $5.7 millionis in other long term liabilities at September 30, 2006.

The pro forma combinedoperating results of the AcquiredBusinesses and the Company for the three and nine months ended September 30,2005 discussed above are not materially different from the Company’sconsolidated results of operations.

**Divestitures****andDispositions**

The operating results,related income taxes, and any gains or losses of the following divestitures anddispositions (collectively, the “Disposed Businesses”) have been reported indiscontinued operations in the condensed consolidated statements of operationsfor the three and nine months ended September 30, 2006 and 2005. ** ******Interest expense wasnot allocated to any of the Company’s discontinued operations.****

*Arenacross*

In December 2005, theCompany sold its Arenacross Championship Series business (“Arenacross”) for atotal selling price of $0.2 million. The Company recorded a $0.4 million losson the sale.  Arenacross had no revenuein the three or nine months ended September 30, 2005.

*EastCoast Fashion Tradeshow Acquired from Larkin-Pluznik-Larkin, LLC*

In the second quarter of2005, the Company discontinued the remaining East Coast Fashion tradeshowbusiness acquired in the 1999 Larkin transaction (“East Coast Fashion”) andrecognized a $2.3 million impairment, which was the carrying value of therelated intangibles.  East Coast Fashionhad $0.9 million of revenue in the nine months ended September 30, 2005. EastCoast Fashion had no revenue in the three months ended September 30, 2005.

9

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*PortfolioGroup*

On May 23, 2005, theCompany, Advanstar, Inc. and certain affiliates (Advanstar Expositions CanadaLimited and Advanstar.com) completed the sale of virtually all its businessassets and liabilities associated with its tradeshows and conferences, tradepublications and direct marketing products serving information technology,communications, travel, beauty, home entertainment, and portfolio markets,including the shares of the Company’s Hong Kong subsidiaries.  The shares of the Company’s Braziliansubsidiary were sold to the same buyer in July 2005 after obtaining finalregulatory approval. Collectively, all of the above properties are referred toas “the Portfolio Group.” The sale price for these assets and shares was $185.0million in cash less selling expenses and working capital adjustments of $11.2million.  The Company recorded a gain of $52.9million on the sale.

Revenue of the Portfolio Group, included indiscontinued operations in the condensed consolidated statements of operationsfor the period from January 1, 2005 to May 23, 2005 was $49.0 million.

**Non-Current Assets Held for Sale**

In the second quarter of2005, the Company committed to a plan to sell its Cleveland office building andland (“the Cleveland Office”). The Company ceased depreciation of these assets,effective the second quarter of 2005. As of September 30, 2006 and December 31,2005, the Company reported this building and land as assets held for sale inthe condensed consolidated balance sheet.

The financial results ofthe Disposed Businesses included in discontinued operations in the accompanyingcondensed consolidated statements of operations are as follows:

| (in thousands)                               | ** ** | **Three Months Ended**                                      | ** ** | **Nine Months Ended**                 | ** ** |
|---------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                        | ** ** | **September 30,**                                                | ** ** | **September 30,**                          | ** ** |
| ** **                                        | ** ** | **2006**                                                              | ** ** | **2005**                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                              |       |                                                                  | ** ** |                                            |       |   | ** ** |   |   |
| (Loss) income before  income taxes                |       | $           (8 | )          | $       (326 | )          | $       (175 | ) | $   58,249 |   |
| Income tax (benefit)  provision                   |       | (243                                                                  | )          | (3,059                                          | )          | (288 | ) | 11,153 |   |
| Minority interests                                |       | —                                                                |       | —                                          |       | — |   | (566 | ) |
|                                              |       |                                                                  |       |                                            |       |   |   |   |   |
| Income from operations of discontinued businesses |       | $        235                  |       | $     2,733            |       | $        113 |   | $   46,530 |   |

 

The Company allocated$121.8 million of goodwill to the Portfolio Group and included the allocatedgoodwill in its calculation of gain on disposal in the second quarter of2005.  Goodwill allocated to thePortfolio Group was based on its relative fair value to the entire reportingunit prior to disposal.

10

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**5.**                          Debt

**Creditfacility**

The Company is party to acredit facility (the “Credit Facility”) with a group of financial institutionsacting as lenders. On May 24, 2006, the Company amended and restated itsexisting credit facility. The amended Credit Facility reduced the revolvingloan from $60.0 million to $50.0 million, added a $10.0 million Term Loan,modified or eliminated certain restrictive covenants and extended the maturitydate from April 2007 to May 2009 for the entire Credit Facility.  The Credit Facility is guaranteed by theCompany’s parent, Advanstar, Inc., its parent, Advanstar Holdings Corp., and bythe Company’s domestic subsidiaries and is collateralized by first priorityliens on substantially all of the assets of the Company and the guarantors.  As a result of the amendment and restatementof the Credit Facility, the Company expensed unamortized deferred finance costsof $0.5 million and capitalized additional deferred finance costs of $1.5million.

The Credit Facilitycontains restrictive covenants, including limitations on certain assetdispositions, dividends, investments and other restricted payments.  Failure to comply with thecovenants could cause an event of default under the Credit Facility.  As of September 30, 2006, the Company had $2.1million of unused letters of credit, which reduced borrowings available underthe Credit Facility to $47.9 million.

Prior to June 2005, theCredit Facility consisted of (i) $25.0 million of term B loans dueOctober 11, 2008, and (ii) $60.0 million of revolving loanavailability through April 11, 2007. In June 2005, the Company repaid the outstanding term B loans withproceeds from the sale of the Portfolio Group (see Note 4).

**Seniorsecured notes**

The Senior SecuredNotes initially consisted of $130.0 million of Second Priority Senior SecuredFloating Rate Notes due 2008 (the “floating rate notes”), which requiredquarterly amortization equal to 0.25% of the principal amount thereof, and$300.0 million of 10.75% Second Priority Senior Secured Notes due 2010 (the “fixedrate notes”).

The fixed rate notes arefully and unconditionally guaranteed on a senior basis, jointly and severally,by the Company’s wholly owned domestic subsidiaries and collateralized by second priorityliens on substantially all the collateral pledged against borrowings under theCompany’s Credit Facility (other than the capital stock of certain of itssubsidiaries and assets of its parent companies, Advanstar, Inc., and AdvanstarHoldings Inc. (“Holdings”), the parent company of Advanstar, Inc.).  The covenants under the notesinclude limitations on certain asset dispositions, liens, debt incurrence,dividends, investments and other restricted payments.

In June 2005, theCompany used a portion of the proceeds from the Portfolio Group sale torepurchase $8.7 million of the fixed rate notes at a price equal to 100% of theprincipal amount plus accrued interest.  Separately, the Company also consummated a tender offer in June 2005 forthe floating rate notes and repurchased $117.8 million of the floating ratenotes at a price equal to $1,073 per $1,000 principal amount tendered plusaccrued and unpaid interest to the date of settlement.  In the second quarter of 2005, the Company recognized a $12.6 million loss onextinguishment of debt related to the repurchase, including $8.6 million in tender offer premium andconsent fees, a write-off of $3.5 million in unamortized deferred financingcosts, and $0.5 million in legal fees and expenses.

11

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In August 2006,the Company used a portion of the proceeds from the Term Loan to redeem all of its remaining $9.8 millionof outstanding floating rate notes at par. As a result of the redemption, the Company recognized a $0.1 million loss onextinguishment of debt related to the redemption for unamortized deferred financing costs.

**Seniorsubordinated notes**

The Company’s$160.0 million unsecured, 12% senior subordinated notes due 2011 (the “SeniorSubordinated Notes”) bear interest payable semiannually on February 15 andAugust 15 of each year.  The Senior SubordinatedNotes are fully and unconditionally guaranteed on a senior subordinated basis,jointly and severally, by the Company’s wholly owned domesticsubsidiaries.  The covenants under theSenior Subordinated Notes include limitations on certain asset dispositions,liens, debt incurrence, dividends, investments and other restricted payments.

Long-term debtconsists of the following:

| (in thousands)                                                                                                                                          | ** ** | **September 30,**                                                                      | ** ** | **December 31,**                                                                       | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                                   | ** ** | **2006**                                                                                    | ** ** | **2005**                                                                                    | ** ** |
|                                                                                                                                                         |       |                                                                                        |       |                                                                                        |       |
| Revolving credit loan,  interest at LIBOR plus 2.5%; due 2009                                                                                                |       | $              — |       | $              — |       |
| Term loan, interest at  LIBOR plus 2.5%; 7.82% at September 30, 2006 due 2009                                                                                |       | 10,000                                                                                      |       | —                                                                                      |       |
| Second priority senior  secured floating rate notes, interest at LIBOR plus 7.5%                                                                             |       | —                                                                                      |       | 9,872                                                                                       |       |
| 10.75% Second priority  senior secured notes, due 2010, plus unamortized premium of $570 and $680 at  September 30, 2006 and December 31, 2005, respectively |       | 291,905                                                                                     |       | 292,015                                                                                     |       |
| Senior subordinated  notes, interest at 12.00%, due 2011                                                                                                     |       | 160,000                                                                                     |       | 160,000                                                                                     |       |
| Acquisition note                                                                                                                                             |       | —                                                                                      |       | 100                                                                                         |       |
|                                                                                                                                                         |       |                                                                                        |       |                                                                                        |       |
|                                                                                                                                                         |       | 461,905                                                                                     |       | 461,987                                                                                     |       |
| Less current maturities                                                                                                                                      |       | —                                                                                      |       | (201                                                                                        | )          |
|                                                                                                                                                         |       |                                                                                        |       |                                                                                        |       |
|                                                                                                                                                         |       | $     461,905                                                      |       | $     461,786                                                      |       |

 

**6.**                          Comprehensive Income

The table below presentscomprehensive income, defined as changes in the equity of the Company excludingchanges resulting from investments by and distributions to shareholders:

| (in thousands)                                              | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                       | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                       | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                             |       |                             |       |                            |       |   |   |   |   |
| Net income (loss)                                                |       | $    1,105   |       | $    5,206  |       | $      (654 | ) | $  26,860 |   |
| Change in cumulative  translation adjustment                     |       | 567                              |       | 2,657                           |       | 1,529 |   | 2,734 |   |
| Change in unrealized  losses on derivative financial instruments |       | —                           |       | (26                             | )          | — |   | (77 | ) |
|                                                             |       |                             |       |                            |       |   |   |   |   |
| Comprehensive income                                             |       | $    1,672   |       | $    7,837  |       | $       875 |   | $  29,517 |   |

 

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**7.**                          Segments

The Company follows theprovisions of SFAS No. 131, “Disclosures about Segments of an Enterpriseand Related Information.” During the first quarter of 2006, the Companyundertook a strategic change in the monitoring and management of the businessto better reflect management’s focus and commitment to its threeindustry-focused segments: Fashion & Licensing, Life Sciences, andPowersports.  This change was prompted asa result of a substantial change in the business organization following the divestitureof the Portfolio Group (see Note 4).  TheCompany has included its non reportable operating segments in Other.  In the Company’s most recently filed annualreport on Form 10-K for the year ended December 31, 2005, the Company’sreportable segments were by product type rather than by market sector ascurrently is being reported.  The Companyhas restated its segment information for the three and nine months endedSeptember 30, 2005 to reflect the new reportable segments.

The Company evaluates theperformance of, and allocates resources to, its segments based on contributionmargin — defined as revenue less cost of production; selling,editorial and circulation; and certain allocated general and administrativecosts, which is anon-GAAP measure.  The accountingpolicies of the reportable segments are the same as those described in thesummary of significant accounting policies. There are no inter-segment sales or transfers.  Assets are not allocated to segments andtherefore have not been presented.  Revenueand contribution margins of the Company’s reportable segments are as follows:

| (in thousands)             | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **September 30,**      | ** ** | **September 30,**     | ** ** |
| ** **                 | ** ** | **2006**               | ** ** | **2005**              | ** ** | **2006** | ** ** | **2005** | ** ** |
|                       | ** ** | ** **             | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                    |       |                   |       |                  |       |   |   |   |   |
| Fashion & Licensing    |       | $                      | 51,006     |                  | $          | 42,740 |   | $ | 110,052 |   | $ | 89,710 |   |
| Life Sciences              |       | 37,452                 |       | 35,956                |       | 112,574 |   | 107,636 |   |
| Powersports                |       | 4,960                  |       | 4,596                 |       | 31,620 |   | 27,655 |   |
| Other                      |       | 2,631                  |       | 2,399                 |       | 7,619 |   | 7,252 |   |
| Total                      |       | $                      | 96,049     |                  | $          | 85,691 |   | $ | 261,865 |   | $ | 232,253 |   |
|                       |       |                   |       |                  |       |   |   |   |   |
|                       |       |                   |       |                  |       |   |   |   |   |
| Contribution margin (loss) |       |                   |       |                  |       |   |   |   |   |
| Fashion & Licensing    |       | $                      | 28,355     |                  | $          | 27,343 |   | $ | 62,272 |   | $ | 55,215 |   |
| Life Sciences              |       | 13,289                 |       | 11,502                |       | 36,869 |   | 33,163 |   |
| Powersports                |       | (325                   | )          | (645                  | )          | 10,085 |   | 7,468 |   |
| Other                      |       | 855                    |       | 1,709                 |       | 2,025 |   | 4,166 |   |

 

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The reconciliation oftotal segment contribution margin to consolidated income (loss) from continuingoperations before income taxes and cumulative effect of accounting change is asfollows:

| (in thousands)                                                                                       | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                                                | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Total segment  contribution margin                                                                        |       | $                                | 42,174     |                            | $          | 39,909 |   | $ | 111,251 |   | $ | 100,012 |   |
| General and  administrative expense not allocated to segment operations                              |       | (17,605                          | )          | (7,885                          | )          | (35,909 | ) | (28,111 | ) |
| Restructuring charge                                                                                      |       | —                           |       | (1,041                          | )          | (2,325 | ) | (3,056 | ) |
| Depreciation and  amortization                                                                            |       | (8,708                           | )          | (8,927                          | )          | (27,400 | ) | (28,404 | ) |
| Other expense  (primarily interest)                                                                       |       | (12,992                          | )          | (13,689                         | )          | (40,515 | ) | (60,720 | ) |
|                                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Income (loss) from  continuing operations before income taxes and cumulative effect of accounting  change |       | $                                | 2,869      |                            | $          | 8,367 |   | $ | 5,102 |   | $ | (20,279 | ) |

 

**8.**                          RestructuringActivity

Relatedto the sale of the Portfolio Group (see Note 4), in May 2005, the Companyceased use of certain leased office space in New York, NY, Milford, CT, andSanta Ana, CA.  In the third quarter of 2005, the Companyvacated additional leased office space in Milford, CT and Chicago, IL. These activitiesresulted in charges to the Company’s operations during 2005.  In thefirst quarter of 2006, the Company vacated additional leased office space inNew York, NY, and revised its estimate of expected future sublease income forthis space, resulting in additional charges during the first quarter of 2006. These charges consist of the discountedremaining future minimum lease payments due under non-cancelable leases, net ofestimated future sublease income. These lease commitments expire at variousdates through 2010.

InJune 2006, the Company entered into a lease modification and surrenderagreement for approximately 60% of its vacated office space in New York,NY.  Under the terms of the agreement,the Company paid the landlord $2.8 million in cash, the lease covering thesurrendered space was terminated and the Company has no further future leaseobligations for the surrendered space. In June 2006 the Company adjusted its accrual for this space based uponthe terms of the agreement and recorded a gain of $0.1 million.

During2005 the Company notified certain employees that they would be severed from theCompany in connection with the sale of the Portfolio Group and thereorganization of the Company’s operating and support department management team.

14

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Restructuringcharges incurred are as follows:

| (in thousands)                             | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                      | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                            | ** ** | ** **                       |       | ** **                      | ** ** | ** ** |   | ** ** | ** ** |
| Facility exit costs                             |       | $                                | —     |                            | $          | 442 |   | $ | 2,339 |   | $ | 1,236 |   |
| Employee severance and  other termination costs |       | —                           |       | 599                             |       | (14 | ) | 1,820 |   |
| Restructuring charge                            |       | $                                | —     |                            | $          | 1,041 |   | $ | 2,325 |   | $ | 3,056 |   |

 

Thesummary of the Company’s change in restructuring accruals is as follows:

| (in thousands)                     | ** ** | **Facility Exit  Costs** | ** ** | **Employee  Severance** | ** ** | **Total**  | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                              | ** ** | ** **                    | ** ** | ** **              | ** ** | ** ** | ** ** |
| Balance at  December 31, 2005 |       | $                             | 3,412      |                    | $          | 807        |       | $ | 4,219 |   |
| Restructuring  charge                   |       | 2,339                         |       | (14                     | )          | 2,325      |       |
| Utilized-cash                           |       | (4,499                        | )          | (766                    | )          | (5,265     | )          |
| Utilized-non-cash                       |       | —                        |       | —                  |       | —     |       |
| Balance at September 30, 2006           |       | $                             | 1,252      |                    | $          | 27         |       | $ | 1,279 |   |

 

Therestructuring accrual balance in the accompanying condensed consolidatedbalance sheet is $1.3 million and $4.2 million at September 30, 2006 andDecember 31, 2005, of which $0.5 million and $2.1 million is in other accruedexpenses at September 30, 2006 and December 31, 2005, and $0.8 million and $2.1million is in other long term liabilities at September 30, 2006 and December31, 2005.

**9.**                          Stock Based Compensation

OnJanuary 1, 2006, the Company adopted Statementsof Financial Accounting Standards No. 123R, *Share-BasedPayment* (“SFAS 123R”).  UnderSFAS 123R, the Company’s share based awards meet the definition of liabilityawards.  As allowed under the provisions of this statement forentities not meeting the public company definition, the Company adopted theintrinsic value method of accounting for its liability awards.  Accordingly, compensation expense and arelated liability is recorded only if the value of the Company’s sharesunderlying its share based awards are greater than the awards’ exercise priceas of the end of the applicable reporting period.  As of September 30, 2006, the Company’smanagement has determined that the fair value of its common stock underlyingits share based option awards is less than the exercise price of all itsoptions.  Accordingly, no liability orexpense has been recorded during the three or nine months ended September 30,2006.  The Company had no optionsexercised or cash settlement transactions during the three or nine months endedSeptember 30, 2006 relating to its stock option plan.

Priorto January 1, 2006, the Company accounted for its stock options and awards to employees under theprovisions of Accounting Principles Board (“APB”) Opinion No. 25, *Accounting for Stock Issued to Employees*, and relatedinterpretations.  No compensation expenserelating to stock options was recorded in the condensed consolidated statementof operations for the three and nine months ended September 30, 2005.

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On October 12, 2000,Holdings, adopted the 2000 Management Incentive Plan (“the Plan”).  A maximum of 4,072,789 shares of Holdings areauthorized for grant to participants under the Plan.  Options are granted by Holdings’ board ofdirectors at an exercise price of not less than the fair value of Holdingscommon stock at the date of grant and vest over a maximum of nine years.   Shares available for grant under the Plantotaled 1,347,789 at September 30, 2006.

A summary of stock optionactivity under the Plan is as follows:

 

|                                        | ** ** | ** **      | ** ** | **Weighted** | ** ** |
|----------------------------------------|------------|-----------------|------------|--------------|------------|
| ** **                             | ** ** | ** **      | ** ** | **Average**  | ** ** |
| ** **                             | ** ** | **Options**     | ** ** | **Exercise** | ** ** |
| ** **                             | ** ** | **Outstanding** | ** ** | **Price**    | ** ** |
|                                   | ** ** | ** **      | ** ** | ** **   | ** ** |
| Outstanding at  December 31, 2005 |       | 3,965,000       |       | $            | 10.00      |   |
| Cancelled                              |       | (1,240,000      | )          | 10.00        |       |
| Outstanding at September 30, 2006      |       | 2,725,000       |       | $            | 10.00      |   |

 

At September 30, 2006,the outstanding stock options had a weighted average remaining contractual lifeof 5.1 years and an exercise price of $10.00 per option.  Of the options outstanding at September 30,2006, 1,671,978 were exercisable.

**10.**                   Related-PartyTransactions

**Financial advisory fees andagreements**

In May 2005, the Companypaid a consulting fee of $1.5 million to Credit Suisse Securities (USA), LLC (“CSS(USA)”), an affiliate of Credit Suisse Corporation (“CS Corp.”), an affiliateof the DLJ Merchant Banking funds, related to the sale of the Portfolio Group(see Note 4).

InJune 2005, theCompany repurchased $7.1 million of its fixed rate notes at par, and $4.6million of its floating rate notes at a price equal to 107.3% of principal,from CSS (USA) pursuant to the Company’s tender offer (see Note 5).

**Advanstar, Inc. notes**

InFebruary 2001, Advanstar, Inc. issued discount notes bearing interest at 15%(the “Discount Notes”) with an aggregate principal amount due October 2011 of$171.8 million.  These notes requiresemi-annual cash interest payments. Neither the Company nor any of its subsidiaries guarantee the DiscountNotes.

Advanstar,Inc. is a holding company and its ability to pay interest on the Discount Noteswill be dependent upon the receipt of dividends from its subsidiaries,including the Company.  The Credit Facility,Senior Secured Notes and the Senior Subordinated Notes impose substantial restrictions on the Company’s and its subsidiaries’ability to pay dividends.

16

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The restricted paymentscovenants in the Company’s Senior Secured Notes indenture and SeniorSubordinated Notes indenture provide that the Company can pay dividends only ifits leverage ratio (as defined) is 6.0 to 1.0 or better and only from a “basket”as defined as the amount by which its cumulative EBITDA (as defined) sinceJanuary 1, 2001 exceeds 150% of the Company’s cumulative interest expense inthat period plus other items including proceeds from equity offerings. TheCompany cannot provide assurance that its results will allow it to make futuredistributions in light of these restrictions. Failure to pay the interest on these notes will be a default under the notes and also result in a default underthe Company’s Credit Facility, which could have a material adverse effect onthe Company’s financial position, results of operations, and cash flows and/orcould impact the Company’s ability to continue to operate without an amendmentor restructuring of its Credit Facility and the notes.  Notwithstandingthe leverage ratio limitation on restricted payments, the Company can makerestricted payments in an aggregate amount of up to $20 million toAdvanstar, Inc., none of which has been used as of September 30, 2006.  Both onMarch 14, 2006 and on October 14, 2006 the Company declared and paid a dividendof $12.9 million to Advanstar, Inc. to be used for its April 2006 and October2006 interest payments for its Discount Notes. Debt service on the discount notes will be $38.7 million fromOctober 1, 2006 through December 31, 2007, including payment relating to thedividend made in October 2006.  Althoughthere can be no assurance, the Company expects its results will allow it tocontinue to make dividend payments to Advanstar, Inc., to satisfy its debtservice obligations.

**Dividend Payment**

In July 2006, Holdingsentered into a stock purchase agreement with the Company’s former ChiefExecutive Officer, Robert L. Krakoff. Pursuant to the agreement, Advanstar Holdings Corp. agreed to repurchaseall of the shares of its common stock held by Mr. Krakoff and Mr. Krakoffsurrendered all of his stock options in exchange for a $3.3 millionpayment.  The Company declared and paid a$3.3 million dividend to Advanstar, Inc. for purposes of funding thistransaction.

**11.**                   Relationship with Advanstar.com, Inc.

Advanstar.com, Inc. (“Advanstar.com”),an affiliate of the Company, operates the Company’s event andpublication-related web sites and develops certain enhanced web opportunitiesto serve the Company’s customers in selected industries.

Effective January 1,2005, the Company began consolidating the operations of Advanstar.com with itsoperations upon the adoption of Financial Accounting Standards Board (“FASB”)Interpretation No. 46R**(“FIN 46R”), *Consolidation of Variable Interest Entities*.  As a result of the adoption of FIN 46R, theCompany recorded a $4.6 million gain, which was recorded as a cumulative effectof accounting change in the first quarter of 2005.

**12.**                   Recently Issued Accounting Pronouncements

In July 2006 FASB issuedInterpretation No. 48 (“FIN 48”) *Accounting for Uncertaintyin Income Taxes — an interpretation of FASB Statement No. 109*. FIN 48 prescribes a recognition threshold and measurement process for thefinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return.  Additionally, FIN 48 providesguidance on the derecognition, classification, accounting in interim periodsand disclosure requirements for uncertain tax positions.  The accountingprovisions of FIN 48 will be effective for the Company beginning January 1,2007.  The Company is in the process of determining the effect, if any,that the adoption of FIN 48 will have on its consolidated financial statements.

17

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InSeptember 2006, the FASB issued Statement of Financial Accounting Standard No.157, *Fair Value Measurement (“*SFASNo. 157”). SFAS No. 157 defines fair value, establishes a framework formeasuring fair value in generally accepted accounting principles, and expandsdisclosures about fair value measurements. This Statement does not require anynew fair value measurements. SFAS No. 157 is effective for the Company onJanuary 1, 2008. The Company is currently assessing the impact of SFAS No. 157on its financial statements.

The FASB also issued in September 2006Statement of Financial Accounting Standards No. 158, *Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans*. The new standard requires companies torecognize the overfunded or underfunded status of a defined benefitpostretirement plan as an asset or liability on the balance sheet and torecognize changes in that funded status in the year in which the change occursthrough comprehensive income. SFAS No. 158 provides for adoption effectiveDecember 31, 2007. As such, the Company’s consolidated balance sheet as ofDecember 31, 2007 will reflect the funded status of our postretirement benefitplans, with the offset reported in other comprehensive income (loss). TheCompany is currently assessing the impact of SFAS No. 158 on its financialstatements.

**13.**                   Subsequent Event

In October 2006, theCompany and one of its vendors entered into a termination agreement toterminate and cancel a long-term contract between the parties originallyeffective through December 31, 2008. Under the terms of the new agreement, services will be provided throughApril 1, 2007 and the Company will pay a $1.9 million termination fee.

**14.**                   Unaudited Supplemental Guarantor Condensed Consolidating FinancialStatements

**Basis of presentation**

TheCompany’s Senior Subordinated Notes and Senior Secured Notes are fully andunconditionally guaranteed on a senior subordinated basis and senior basis,respectively, jointly and severally, by the Company’s wholly owned domesticsubsidiaries.  The subsidiary guarantorsare Men’s Apparel Guild in California, Inc., Applied BusinessteleCommunications, CME2, Inc. and Project Global Tradeshow, Inc.  The unaudited condensed consolidatingfinancial statements of the guarantors are presented below and should be readin conjunction with the condensed consolidated financial statements of theCompany.  Separate financial statementsof the guarantors are not presented because the guarantors are jointly,severally, fully and unconditionally liable under the guarantees and theCompany believes the condensed consolidating financial statements presented aresufficiently meaningful in understanding the financial position and results ofthe guarantors.  There are no significantrestrictions on the ability of the subsidiary guarantors to make distributionsto the Company.

18

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**AdvanstarCommunications Inc.Condensed Consolidating Balance Sheets (Unaudited)At September 30, 2006**
| **(in thousands)**                                | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Non Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**       | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| **ASSETS**                                             | ** ** | ** **         | ** ** | ** **       | ** ** | ** **             | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current assets:                                        |       |               |       |             |       |                   |       |             |       |             |       |
| Cash and cash  equivalents                             |       | $                  | 36,766     |             | $          | 2,661                  |       | $                | 1,530      |             | $          | — |   | $ | 40,957 |   |
| Accounts  receivable, net                              |       | 20,976             |       | 1,913            |       | 1,181                  |       | —           |       | 24,070           |       |
| Prepaid expenses                                       |       | 4,826              |       | 1,918            |       | 938                    |       | —           |       | 7,682            |       |
| Other                                                  |       | 2,293              |       | —           |       | 44                     |       | —           |       | 2,337            |       |
|                                                   |       |               |       |             |       |                   |       |             |       |             |       |
| Total current  assets                                  |       | 64,861             |       | 6,492            |       | 3,693                  |       | —           |       | 75,046           |       |
|                                                   |       |               |       |             |       |                   |       |             |       |             |       |
| Non-current assets:                                    |       |               |       |             |       |                   |       |             |       |             |       |
| Due from parent                                        |       | 2,468              |       | —           |       | —                 |       | —           |       | 2,468            |       |
| Property, plant  and equipment, net                    |       | 20,876             |       | 4,155            |       | 176                    |       | —           |       | 25,207           |       |
| Deferred tax  asset                                    |       | 3,394              |       | 502              |       | —                 |       | (3,896           | )          | —           |       |
| Intangible and  other assets, net                      |       | 359,333            |       | 255,228          |       | 24,241                 |       | —           |       | 638,802          |       |
| Investments in  subsidiaries                           |       | 542,509            |       | —           |       | —                 |       | (542,509         | )          | —           |       |
| Intercompany  receivable                               |       | —             |       | 284,104          |       | —                 |       | (284,104         | )          | —           |       |
| Non-current  assets held for sale                      |       | 4,620              |       | —           |       | —                 |       | —           |       | 4,620            |       |
|                                                   |       |               |       |             |       |                   |       |             |       |             |       |
|                                                   |       | $                  | 998,061    |             | $          | 550,481                |       | $                | 28,110     |             | $          | (830,509 | ) | $ | 746,143 |   |
|                                                   |       |               |       |             |       |                   |       |             |       |             |       |
| **LIABILITIES  AND  STOCKHOLDER’S EQUITY**        |       |               |       |             |       |                   |       |             |       |             |       |
|                                                   |       |               |       |             |       |                   |       |             |       |             |       |
| Current liabilities:                                   |       |               |       |             |       |                   |       |             |       |             |       |
| Accounts payable                                       |       | $                  | 10,531     |             | $          | 9,141                  |       | $                | 1,197      |             | $          | — |   | $ | 20,869 |   |
| Accrued  liabilities                                   |       | 26,756             |       | 6,408            |       | 300                    |       | —           |       | 33,464           |       |
| Deferred revenue                                       |       | 18,393             |       | 7,242            |       | 2,033                  |       | —           |       | 27,668           |       |
|                                                   |       |               |       |             |       |                   |       |             |       |             |       |
| Total current  liabilities                             |       | 55,680             |       | 22,791           |       | 3,530                  |       | —           |       | 82,001           |       |
|                                                   |       |               |       |             |       |                   |       |             |       |             |       |
| Long-term debt, net of  current maturities             |       | 461,905            |       | —           |       | —                 |       | —           |       | 461,905          |       |
| Deferred income taxes  and other long-term liabilities |       | 45,816             |       | 3,896            |       | 167                    |       | (3,896           | )          | 45,983           |       |
| Intercompany payable                                   |       | 278,406            |       | —           |       | 5,698                  |       | (284,104         | )          | —           |       |
|                                                   |       |               |       |             |       |                   |       |             |       |             |       |
| Stockholder’s equity:                             |       |               |       |             |       |                   |       |             |       |             |       |
| Common stock                                           |       | 10                 |       | 8                |       | 353                    |       | (361             | )          | 10               |       |
| Capital in  excess of par value                        |       | 431,138            |       | 448,112          |       | 48,704                 |       | (496,816         | )          | 431,138          |       |
| (Accumulated  deficit) retained earnings               |       | (284,836           | )          | 75,674           |       | (40,284                | )          | (35,390          | )          | (284,836         | )          |
| Accumulated  other comprehensive income                |       | 9,942              |       | —           |       | 9,942                  |       | (9,942           | )          | 9,942            |       |
|                                                   |       |               |       |             |       |                   |       |             |       |             |       |
| Total  stockholder’s equity                       |       | 156,254            |       | 523,794          |       | 18,715                 |       | (542,509         | )          | 156,254          |       |
|                                                   |       |               |       |             |       |                   |       |             |       |             |       |
|                                                   |       | $                  | 998,061    |             | $          | 550,481                |       | $                | 28,110     |             | $          | (830,509 | ) | $ | 746,143 |   |

 

19

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**AdvanstarCommunications Inc.Condensed Consolidating Statements of Operations (Unaudited)For the three months ended September 30, 2006**
| **(in thousands)**                                                 | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Non Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                              | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**       | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| ** **                                                              | ** ** | ** **         | ** ** | ** **       | ** ** | ** **             | ** ** | ** **       | ** ** | ** **       | ** ** |
| Revenue                                                                 |       | $                  | 43,756     |             | $          | 50,267                 |       | $                | 2,026      |             | $          | — |   | $ | 96,049 |   |
|                                                                    |       |               |       |             |       |                   |       |             |       |             |       |
| Operating  expenses:                                                    |       |               |       |             |       |                   |       |             |       |             |       |
| Cost of production, selling, editorial, and  circulation                |       | 29,967             |       | 21,195           |       | 1,642                  |       | —           |       | 52,804           |       |
| General and administrative                                              |       | 17,772             |       | 639              |       | 265                    |       | —           |       | 18,676           |       |
| Depreciation and amortization                                           |       | 4,486              |       | 4,053            |       | 169                    |       | —           |       | 8,708            |       |
|                                                                    |       |               |       |             |       |                   |       |             |       |             |       |
| Total operating expenses                                                |       | 52,225             |       | 25,887           |       | 2,076                  |       | —           |       | 80,188           |       |
|                                                                    |       |               |       |             |       |                   |       |             |       |             |       |
| Operating (loss)  income                                                |       | (8,469             | )          | 24,380           |       | (50                    | )          | —           |       | 15,861           |       |
|                                                                    |       |               |       |             |       |                   |       |             |       |             |       |
| Other income  (expense):                                                |       |               |       |             |       |                   |       |             |       |             |       |
| Interest (expense) income, net                                          |       | (12,830            | )          | —           |       | 5                      |       | —           |       | (12,825          | )          |
| Loss on extinguishment of debt                                          |       | (102               | )          | —           |       | —                 |       | —           |       | (102             | )          |
| Other income (expense), net                                             |       | 76                 |       | —           |       | (141                   | )          | —           |       | (65              | )          |
|                                                                    |       |               |       |             |       |                   |       |             |       |             |       |
| (Loss) income  from continuing operations before income taxes           |       | (21,325            | )          | 24,380           |       | (186                   | )          | —           |       | 2,869            |       |
|                                                                    |       |               |       |             |       |                   |       |             |       |             |       |
| (Benefit)  provision for income taxes                              |       | (7,348             | )          | 9,355            |       | (8                     | )          | —           |       | 1,999            |       |
|                                                                    |       |               |       |             |       |                   |       |             |       |             |       |
| Equity in earnings  of subsidiaries                                     |       | 14,847             |       | —           |       | —                 |       | (14,847          | )          | —           |       |
|                                                                    |       |               |       |             |       |                   |       |             |       |             |       |
| Income (loss)  from continuing operations                               |       | 870                |       | 15,025           |       | (178                   | )          | (14,847          | )          | 870              |       |
|                                                                    |       |               |       |             |       |                   |       |             |       |             |       |
| Income (loss)  from operations of discontinued businesses, net of taxes |       | 235                |       | —           |       | (8                     | )          | 8                |       | 235              |       |
|                                                                    |       |               |       |             |       |                   |       |             |       |             |       |
| Net income (loss)                                                       |       | $                  | 1,105      |             | $          | 15,025                 |       | $                | (186       | )                | $          | (14,839 | ) | $ | 1,105 |   |

 

20

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**AdvanstarCommunications Inc.Condensed Consolidating Statements of Operations (Unaudited)For the nine months ended September 30, 2006**
| **(in thousands)**                                                 | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Nonguarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                              | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| ** **                                                              | ** ** | ** **         | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Revenue                                                                 |       | $                  | 157,516    |             | $          | 98,376           |       | $                | 5,973      |             | $          | — |   | $ | 261,865 |   |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Operating  expenses:                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Cost of production and selling, editorial and  circulation              |       | 100,548            |       | 41,707           |       | 5,035            |       | —           |       | 147,290          |       |
| General and administrative                                              |       | 36,563             |       | 1,795            |       | 875              |       | —           |       | 39,233           |       |
| Restructuring charge                                                    |       | 2,325              |       | —           |       | —           |       | —           |       | 2,325            |       |
| Depreciation and amortization                                           |       | 14,875             |       | 12,033           |       | 492              |       | —           |       | 27,400           |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Total operating  expenses                                               |       | 154,311            |       | 55,535           |       | 6,402            |       | —           |       | 216,248          |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Operating income  (loss)                                                |       | 3,205              |       | 42,841           |       | (429             | )          | —           |       | 45,617           |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Other income  (expense):                                                |       |               |       |             |       |             |       |             |       |             |       |
| Interest (expense) income, net                                          |       | (39,706            | )          | —           |       | 12               |       | —           |       | (39,694          | )          |
| Loss on extinguishment of debt                                          |       | (599               | )          | —           |       | —           |       | —           |       | (599             | )          |
| Other income (expense), net                                             |       | 176                |       | (2               | )          | (396             | )          | —           |       | (222             | )          |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| (Loss) income  from continuing operations before income taxes           |       | (36,924            | )          | 42,839           |       | (813             | )          | —           |       | 5,102            |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| (Benefit)  provision for income taxes                              |       | (10,667            | )          | 16,544           |       | (8               | )          | —           |       | 5,869            |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Equity in  earnings of subsidiaries                                     |       | 25,490             |       | —           |       | —           |       | (25,490          | )          | —           |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| (Loss) income  from continuing operations                               |       | (767               | )          | 26,295           |       | (805             | )          | (25,490          | )          | (767             | )          |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Discontinued  operations:                                               |       |               |       |             |       |             |       |             |       |             |       |
| Income (loss)  from operations of discontinued businesses, net of taxes |       | 113                |       | —           |       | 11               |       | (11              | )          | 113              |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Net (loss) income                                                       |       | $                  | (654       | )                | $          | 26,295           |       | $                | (794       | )                | $          | (25,501 | ) | $ | (654 | ) |

 

21

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**AdvanstarCommunications Inc.Condensed Consolidating Statements of Cash Flows (Unaudited)For the nine months ended September 30, 2006**
| **(in thousands)**                                                            | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Non Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                         | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**       | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| ** **                                                                         | ** ** | ** **         | ** ** | ** **       | ** ** | ** **             | ** ** | ** **       | ** ** | ** **       | ** ** |
| Operating  activities:                                                             |       |               |       |             |       |                   |       |             |       |             |       |
| Net (loss) income                                                                  |       | $                  | (654       | )                | $          | 26,295                 |       | $                | (794       | )                | $          | (25,501 | ) | $ | (654 | ) |
| Adjustments to reconcile net (loss) income to net cash  from operating activities: |       |               |       |             |       |                   |       |             |       |             |       |
| Equity in earnings of subsidiaries                                                 |       | (25,501            | )          | —           |       | —                 |       | 25,501           |       | —           |       |
| Depreciation and amortization                                                      |       | 14,875             |       | 12,033           |       | 492                    |       | —           |       | 27,400           |       |
| Other non-cash items                                                               |       | 8,396              |       | 387              |       | (45                    | )          | —           |       | 8,738            |       |
| Change in working capital items                                                    |       | 22,802             |       | (35,181          | )          | 1,627                  |       | —           |       | (10,752          | )          |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Net cash provided by operating activities                                          |       | 19,918             |       | 3,534            |       | 1,280                  |       | —           |       | 24,732           |       |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Investing  activities:                                                             |       |               |       |             |       |                   |       |             |       |             |       |
| Additions to property, plant and equipment                                         |       | (9,339             | )          | (2,433           | )          | (52                    | )          | —           |       | (11,824          | )          |
| Acquisitions of intangible assets and other                                        |       | (14                | )          | 10               |       | —                 |       | —           |       | (4               | )          |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Net cash used in investing activities                                              |       | (9,353             | )          | (2,423           | )          | (52                    | )          | —           |       | (11,828          | )          |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Financing  activities:                                                             |       |               |       |             |       |                   |       |             |       |             |       |
| Payments of long-term debt                                                         |       | (9,972             | )          | —           |       | —                 |       | —           |       | (9,972           | )          |
| Proceeds from issuance of long-term debt                                           |       | 10,000             |       | —           |       | —                 |       | —           |       | 10,000           |       |
| Deferred finance costs                                                             |       | (1,706             | )          | —           |       | —                 |       | —           |       | (1,706           | )          |
| Project grant refunds distributed                                                  |       | —             |       | (175             | )          | —                 |       | —           |       | (175             | )          |
| Dividend paid to stockholder                                                       |       | (16,229            | )          | —           |       | —                 |       | —           |       | (16,229          | )          |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Net cash used in financing activities                                              |       | (17,907            | )          | (175             | )          | —                 |       | —           |       | (18,082          | )          |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Effect of  exchange rate changes on cash                                           |       | —             |       | —           |       | (474                   | )          | —           |       | (474             | )          |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Net (decrease)  increase in cash and cash equivalents                              |       | (7,342             | )          | 936              |       | 754                    |       | —           |       | (5,652           | )          |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Cash and cash  equivalents, beginning of year                                      |       | 44,108             |       | 1,725            |       | 776                    |       | —           |       | 46,609           |       |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Cash and cash  equivalents, end of year                                            |       | $                  | 36,766     |             | $          | 2,661                  |       | $                | 1,530      |             | $          | — |   | $ | 40,957 |   |

 

22

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**AdvanstarCommunications Inc.Condensed Consolidating Balance Sheets (Unaudited)At December 31, 2005**
| **(in thousands)**                                | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Non Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**       | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| ** **                                             | ** ** | ** **         | ** ** | ** **       | ** ** | ** **             | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Assets**                                             | ** ** | ** **         | ** ** | ** **       | ** ** | ** **             | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current assets                                         |       |               |       |             |       |                   |       |             |       |             |       |
| Cash and cash  equivalents                             |       | $                  | 44,108     |             | $          | 1,725                  |       | $                | 776        |             | $          | — |   | $ | 46,609 |   |
| Accounts  receivable, net                              |       | 23,140             |       | 446              |       | 1,021                  |       | —           |       | 24,607           |       |
| Prepaid expenses                                       |       | 6,539              |       | 1,136            |       | 196                    |       | —           |       | 7,871            |       |
| Other                                                  |       | 1,929              |       | —           |       | 36                     |       | —           |       | 1,965            |       |
| Total current assets                                   |       | 75,716             |       | 3,307            |       | 2,029                  |       | —           |       | 81,052           |       |
| Non-current assets                                     |       |               |       |             |       |                   |       |             |       |             |       |
| Due from parent                                        |       | 2,232              |       | —           |       | —                 |       | —           |       | 2,232            |       |
| Property, plant  and equipment, net                    |       | 18,360             |       | 2,778            |       | 168                    |       | —           |       | 21,306           |       |
| Deferred tax  asset                                    |       | 3,217              |       | 502              |       | —                 |       | (3,719           | )          | —           |       |
| Intangible and  other assets, net                      |       | 368,693            |       | 266,246          |       | 22,687                 |       | —           |       | 657,626          |       |
| Investments in  subsidiaries                           |       | 515,479            |       | —           |       | —                 |       | (515,479         | )          | —           |       |
| Intercompany  receivable                               |       | —             |       | 259,760          |       | —                 |       | (259,760         | )          | —           |       |
| Non-current  assets held for sale                      |       | 4,620              |       | —           |       | —                 |       | —           |       | 4,620            |       |
|                                                   |       | $                  | 988,317    |             | $          | 532,593                |       | $                | 24,884     |             | $          | (778,958 | ) | $ | 766,836 |   |
| **Liabilities and Stockholder’s  Equity**         |       |               |       |             |       |                   |       |             |       |             |       |
| Current liabilities                                    |       |               |       |             |       |                   |       |             |       |             |       |
| Current  maturities of long-term debt                  |       | $                  | 201        |             | $          | —                 |       | $                | —     |             | $          | — |   | $ | 201 |   |
| Accounts payable                                       |       | 10,948             |       | 449              |       | 945                    |       | —           |       | 12,342           |       |
| Accrued  liabilities                                   |       | 29,625             |       | 8,086            |       | 283                    |       | —           |       | 37,994           |       |
| Deferred revenue                                       |       | 23,585             |       | 22,840           |       | 47                     |       | —           |       | 46,472           |       |
| Total current  liabilities                             |       | 64,359             |       | 31,375           |       | 1,275                  |       | —           |       | 97,009           |       |
| Long-term debt, net of  current maturities             |       | 461,786            |       | —           |       | —                 |       | —           |       | 461,786          |       |
| Deferred income taxes  and other long-term liabilities |       | 36,227             |       | 3,719            |       | 206                    |       | (3,719           | )          | 36,433           |       |
| Intercompany payable                                   |       | 254,337            |       | —           |       | (5,423                 | )          | (248,914         | )          | —           |       |
| Stockholder’s equity                              |       |               |       |             |       |                   |       |             |       |             |       |
| Common stock                                           |       | 10                 |       | 8                |       | 353                    |       | (361             | )          | 10               |       |
| Capital in  excess of par value                        |       | 447,367            |       | 448,112          |       | 48,704                 |       | (496,816         | )          | 447,367          |       |
| (Accumulated deficit)  retained earnings               |       | (284,182           | )          | 49,379           |       | (39,490                | )          | (9,889           | )          | (284,182         | )          |
| Accumulated  other comprehensive income (loss)         |       | 8,413              |       | —           |       | 8,413                  |       | (8,413           | )          | 8,413            |       |
| Total  stockholder’s equity                       |       | 171,608            |       | 497,499          |       | 17,980                 |       | (515,479         | )          | 171,608          |       |
|                                                   |       | $                  | 988,317    |             | $          | 532,593                |       | $                | 14,038     |             | $          | (768,112 | ) | $ | 766,836 |   |

 

23

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**AdvanstarCommunications Inc.Condensed Consolidating Statements of Operations (Unaudited)For the three months ended September 30, 2005**
| **(in thousands)**                                       | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Non Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**       | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| ** **                                                    | ** ** | ** **         | ** ** | ** **       |       |                   |       |             |       |             |       |
| Revenue                                                       |       | $                  | 43,380     |             | $          | 40,950                 |       | $                | 1,361      |             | $          | — |   | $ | 85,691 |   |
| Operating  expenses                                           |       |               |       |             |       |                   |       |             |       |             |       |
| Cost of production, selling, editorial, and  circulation      |       | 29,131             |       | 14,348           |       | 1,317                  |       | —           |       | 44,796           |       |
| General and administrative                                    |       | 7,811              |       | 516              |       | 544                    |       | —           |       | 8,871            |       |
| Restructure charge                                            |       | 1,041              |       | —           |       | —                 |       | —           |       | 1,041            |       |
| Depreciation and amortization                                 |       | 4,965              |       | 3,800            |       | 162                    |       | —           |       | 8,927            |       |
| Total operating expenses                                      |       | 42,948             |       | 18,664           |       | 2,023                  |       | —           |       | 63,635           |       |
|                                                          |       |               |       |             |       |                   |       |             |       |             |       |
| Operating income  (expense)                                   |       | 432                |       | 22,286           |       | (662                   | )          | —           |       | 22,056           |       |
|                                                          |       |               |       |             |       |                   |       |             |       |             |       |
| Other income  (expense)                                       |       |               |       |             |       |                   |       |             |       |             |       |
| Interest (expense) income, net                                |       | (13,639            | )          | —           |       | 4                      |       | —           |       | (13,635          | )          |
| Other income (expense), net                                   |       | 110                |       | (38              | )          | (126                   | )          | —           |       | (54              | )          |
| (Loss) income from continuing operations before  income taxes |       | (13,097            | )          | 22,248           |       | (784                   | )          | —           |       | 8,367            |       |
|                                                          |       |               |       |             |       |                   |       |             |       |             |       |
| (Benefit)  provision for income taxes                    |       | (2,702             | )          | 8,596            |       | —                 |       | —           |       | 5,894            |       |
| Equity in  earnings of subsidiaries                           |       | 12,868             |       | —           |       | —                 |       | (12,868          | )          | —           |       |
| Income (loss) from continuing operations                      |       | 2,473              |       | 13,652           |       | (784                   | )          | (12,868          | )          | 2,473            |       |
|                                                          |       |               |       |             |       |                   |       |             |       |             |       |
| Income (loss)  from operations of discontinued                |       | 2,733              |       | —           |       | (12,358                | )          | 12,358           |       | 2,733            |       |
|                                                          |       |               |       |             |       |                   |       |             |       |             |       |
| Net income (loss)                                             |       | $                  | 5,206      |             | $          | 13,652                 |       | $                | (13,142    | )                | $          | (510 | ) | $ | 5,206 |   |

 

24

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**AdvanstarCommunications Inc.Condensed Consolidating Statements of Operations (Unaudited)For the nine months ended September 30, 2005**
| ** **                                                                                                | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Nonguarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                                | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| ** **                                                                                                | ** ** | ** **         | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Revenue                                                                                                   |       | $                  | 150,562    |             | $          | 77,425           |       | $                | 4,266      |             | $          | — |   | $ | 232,253 |   |
|                                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| Operating  expenses:                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| Cost of production and selling, editorial and  circulation                                                |       | 96,962             |       | 28,041           |       | 3,978            |       | —           |       | 128,981          |       |
| General and administrative                                                                                |       | 28,328             |       | 1,231            |       | 1,812            |       | —           |       | 31,371           |       |
| Restructure charge                                                                                        |       | 3,056              |       | —           |       | —           |       | —           |       | 3,056            |       |
| Depreciation and amortization                                                                             |       | 16,857             |       | 11,019           |       | 528              |       | —           |       | 28,404           |       |
|                                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| Total operating expenses                                                                                  |       | 145,203            |       | 40,291           |       | 6,318            |       | —           |       | 191,812          |       |
|                                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| Operating income  (loss)                                                                                  |       | 5,359              |       | 37,134           |       | (2,052           | )          | —           |       | 40,441           |       |
|                                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| Other income  (expense):                                                                                  |       |               |       |             |       |             |       |             |       |             |       |
| Interest (expense) income, net                                                                            |       | (48,084            | )          | —           |       | 20               |       | —           |       | (48,064          | )          |
| Loss on early extinguishment of debt                                                                      |       | (12,581            | )          | —           |       | —           |       | —           |       | (12,581          | )          |
| Other income (expense), net                                                                               |       | 381                |       | (76              | )          | (380             | )          | —           |       | (75              | )          |
|                                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| (Loss) income  from continuing operations before income taxes and cumulative effect of  accounting change |       | (54,925            | )          | 37,058           |       | (2,412           | )          | —           |       | (20,279          | )          |
|                                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| (Benefit)  provision for income taxes                                                                |       | (10,294            | )          | 14,294           |       | 9                |       | —           |       | 4,009            |       |
| Equity in  earnings of subsidiaries                                                                       |       | 20,343             |       | —           |       | —           |       | (20,343          | )          | —           |       |
|                                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| Net (loss)  income from continuing operations before cumulative effect of accounting  change              |       | (24,288            | )          | 22,764           |       | (2,421           | )          | (20,343          | )          | (24,288          | )          |
|                                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| Income (loss)  from operations of discontinued businesses, net of tax                                     |       | 46,530             |       | —           |       | 1,693            |       | (1,693           | )          | 46,530           |       |
| Income (loss)  before cumulative effect of accounting change                                              |       | 22,242             |       | 22,764           |       | (728             | )          | (22,036          | )          | 22,242           |       |
|                                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| Cumulative  effect of accounting change                                                                   |       | 4,618              |       | —           |       | —           |       | —           |       | 4,618            |       |
| Net income (loss)                                                                                         |       | $                  | 26,860     |             | $          | 22,764           |       | $                | (728       | )                | $          | (22,036 | ) | $ | 26,860 |   |

 

25

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**AdvanstarCommunications Inc.Condensed Consolidating Statements of Cash Flows (Unaudited)For the nine months ended September 30, 2005**
| **(in thousands)**                                                            | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Non Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                         | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**       | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| ** **                                                                         | ** ** | ** **         | ** ** | ** **       | ** ** | ** **             | ** ** | ** **       | ** ** | ** **       | ** ** |
| Operating  activities:                                                             |       |               |       |             |       |                   |       |             |       |             |       |
| Net income (loss)                                                                  |       | $                  | 26,860     |             | $          | 22,764                 |       | $                | (728       | )                | $          | (22,036 | ) | $ | 26,860 |   |
| Adjustments to reconcile net income (loss) to net cash  from operating activities: |       |               |       |             |       |                   |       |             |       |             |       |
| Equity in earnings of subsidiaries                                                 |       | (22,036            | )          | —           |       | —                 |       | 22,036           |       | —           |       |
| Gain on derivative financial instruments                                           |       | (77                | )          | —           |       | —                 |       | —           |       | (77              | )          |
| Impairment loss on intangible assets                                               |       | 2,272              |       | —           |       | —                 |       | —           |       | 2,272            |       |
| Write-off of deferred financing costs                                              |       | 3,517              |       | —           |       | —                 |       | —           |       | 3,517            |       |
| Depreciation and amortization                                                      |       | 19,809             |       | 11,019           |       | 528                    |       | —           |       | 31,356           |       |
| Other non-cash items                                                               |       | (64,187            | )          | 258              |       | 23,705                 |       | —           |       | (40,224          | )          |
| Change in working capital items                                                    |       | 32,579             |       | (32,011          | )          | (28,276                | )          | —           |       | (27,708          | )          |
| Net cash (used in) provided by operating activities                           |       | (1,263             | )          | 2,030            |       | (4,771                 | )          | —           |       | (4,004           | )          |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Investing  activities:                                                             |       |               |       |             |       |                   |       |             |       |             |       |
| Additions to property, plant and equipment                                         |       | (3,642             | )          | (1,382           | )          | (27                    | )          | —           |       | (5,051           | )          |
| Acquisitions of publications and tradeshows, net of  proceeds                      |       | (4,441             | )          | (11,062          | )          | —                 |       | —           |       | (15,503          | )          |
| Proceeds from sale of business and other assets                                    |       | 172,742            |       | —           |       | 1,100                  |       | —           |       | 173,842          |       |
| Net cash provided by (used in) investing activities                                |       | 164,659            |       | (12,444          | )          | 1,073                  |       | —           |       | 153,288          |       |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Financing  activities:                                                             |       |               |       |             |       |                   |       |             |       |             |       |
| Payments of long-term debt                                                         |       | (152,142           | )          | —           |       | —                 |       | —           |       | (152,142         | )          |
| Deferred financing costs                                                           |       | (129               | )          | —           |       | —                 |       | —           |       | (129             | )          |
| Dividends paid to minority interest holders                                        |       | (900               | )          | —           |       | —                 |       | —           |       | (900             | )          |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Net cash used in financing activities                                              |       | (153,171           | )          | —           |       | —                 |       | —           |       | (153,171         | )          |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Effect of  exchange rate changes on cash                                           |       | —             |       | —           |       | 660                    |       | —           |       | 660              |       |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Net increase  (decrease) in cash and cash equivalents                              |       | 10,225             |       | (10,414          | )          | (3,038                 | )          | —           |       | (3,227           | )          |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Cash and cash  equivalents, beginning of year                                      |       | 33,956             |       | —           |       | 7,267                  |       | —           |       | 41,223           |       |
|                                                                               |       |               |       |             |       |                   |       |             |       |             |       |
| Cash and cash equivalents,  end of year                                            |       | $                  | 44,181     |             | $          | (10,414                | )          | $                | 4,229      |             | $          | — |   | $ | 37,996 |   |

 

26

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**Item 2.**                          *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations*

This quarterly report on Form 10-Q contains forward-looking statementsmade pursuant to the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995.  Investorsare cautioned not to place undue reliance on these forward-looking statements,including statements about plans and objectives of management, potentialacquisitions, market growth and opportunity. These forward-looking statements are neither promises nor guarantees andinvolve risks and uncertainties that could cause actual results to differmaterially from those indicated by such forward-looking statements.  You should not expect that these forward-lookingstatements will be updated or supplemented as a result of changingcircumstances or otherwise, and we disavow and disclaim any obligation to doso.  Important cautionary statements andrisk factors that would affect actual results are discussed in the our periodicreports and registration statements filed with the Securities and ExchangeCommission, including those under the caption entitled “Risk Factors” in our2005 annual report on Form 10-K filed with the Securities and ExchangeCommission on March 30, 2006.

**Overview**

During the first quarterof 2006, we undertook a strategic change in the monitoring and management ofour business to better reflect our focus and commitment to our threeindustry-focused segments.  This changewas prompted as a result of a substantial change in our business organizationfollowing the divestiture of the Portfolio Group. See “Presentation ofFinancial Information—Acquisitions and Divestitures.”

We report our business in thesethree industry focused segments:

·                                          Fashion& Licensing, which serves the men’s, women’s, children’s and productsourcing sectors of the apparel industry as well as the merchandise licensingindustry through industry tradeshows, conferences and on-line showrooms;publishing targeted magazines and directories; and offering a broad range ofmarketing support services;

·                                          LifeSciences, which serves the healthcare, dental, veterinary, pharmaceutical, andscience fields through publishing primary and specialty care magazines andprofessional journals; organizing conferences and other events; developing continuing medical education (“CME”)products; and the creation of a wide variety of custom marketing projects;and

·                                          Powersports,which serves the motorcycle, off-road and automotive aftermarket industriesthrough publishing trade and consumer magazines and shows and electronicproducts.

In addition to our three segments described above, wecombine our European, unallocated market development and costs to support oure-media operations into “Other.”

Unlessotherwise noted, disclosures herein relate only to our continuing operations.All historical amounts have been reclassified to exclude results and gains orlosses from discontinued operations. For further information on discontinuedproperties, see “Presentation of Financial Information—Acquisitions andDivestitures.”

27

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The percentage of our total revenue by segment for thenine months ended September 30, 2006 and 2005 is as follows:

|                          | ** ** | **Nine Months Ended** | ** ** |
|--------------------------|------------|---------------------------------|------------|
| ** **               | ** ** | **September 30,**          | ** ** |
| ** **               | ** ** | **2006**                        | ** ** | **2005** | ** ** |
|                     |       |                            |       |   |   |
| Fashion &  Licensing |       | 42                              | %          | 39 | % |
| Life Sciences            |       | 43                              | %          | 46 | % |
| Powersports              |       | 12                              | %          | 12 | % |
| Other                    |       | 3                               | %          | 3 | % |

 

Our revenue reaches its highest levels during the firstand third quarters of the year due to the timing of the MAGIC Marketplacetradeshows and our other large tradeshows and conferences.  Because show and conference revenue isrecognized when a particular event is held, we may experience fluctuations inquarterly revenue based on the movement of show dates from one quarter toanother.

**Trends and Developments**

Results for thefirst nine months of 2006 reflect the successful execution of our strategy tofocus where we can leverage our strong market positions, customer relationshipsand management teams.  We continue todevelop new revenue streams through a variety of initiatives and are constantlystriving to improve operating efficiency.

In addition to theexpansion and development of new categories and trend areas in MAGIC, therecent acquisitions of POOL and Project have been integrated into the overallMAGIC Marketplace and contributed to the expansion of our fashion offerings toour exhibitors and attendees during the February and August MAGIC Marketplaceevents.

The recentlaunches in Powersports in the off-road market continue to develop, including *DIRTsports* and *Off-Road Business*magazines, Off-Road Impact tradeshow and the Off-Road Expo consumer eventacquired in October 2005.

In Life Sciencesour healthcare projects business continues to develop through the strengtheningof our sales efforts and effectively addressing our pharmaceutical customers’needs to comply with tighter regulations relating to the management anddelivery of educational projects.  Wecontinued our growth initiatives including the launch of five new publicationsand seven new conferences and the development of several new web seminars andother electronic media.

In the first quarter of 2006 we established a dedicated electronicmedia group to focus on developing opportunities for electronic products tomeet our customers’ evolving marketing and information requirements.

On May 24, 2006, the Company amended and restated its existing creditfacility. The amended Credit Facility reduced the revolving loan from $60.0million to $50.0 million, added a $10.0 million Term Loan, modified oreliminated certain restrictive covenants and extended the maturity date fromApril 2007 to May 2009 for the entire Credit Facility.  See “Liquidity and Capital Resources-Creditfacility amendment and restatement.”

28

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## **Presentationof Financial Information**

*Acquisitionsand divestitures*

We continue to look for opportunities to execute ourstrategy of building significant positions in targeted markets, through theacquisition of identified assets.  In2005, we completed five acquisitions as follows:

·                  OnSeptember 12, 2005, we purchased an off-road consumer event business fromPetersen Events Corporation (“Off-Road Expo”) for $2.2 million in cash.  In addition, we may pay additional contingentcash consideration to the former shareholders based on the 2006 operatingrevenue from the acquired business.

·                  On August 23, 2005, the Company purchased two fashion industrytradeshows based in Las Vegas from the owner of the POOL Tradeshow (‘‘POOL”)for $3.0 million in cash. In July 2006, the former owner of POOL and weentered into an agreement which terminated the former owner’s employment withus and settled all their respective rights and obligations under the POOL assetpurchase agreement and the employment agreement.  Upon execution of this agreement, we made aninitial payment of $1.5 million to the former owner, and will make a finalpayment of $0.5 million in 2007.  The$2.0 million consideration was recorded as compensation expense in the thirdquarter of 2006.  The original purchase agreement provided for additionalcontingent cash consideration to be paid to the former owner based on the 2007and 2008 operating results of POOL and required the owner’s continuedemployment with us.  These future contingent purchase price andemployment-related payments were canceled as part of the July 2006 agreement.

·                  On August 19, 2005, we purchased ProjectGlobal Tradeshow, Inc. (‘‘Project”), a producer of tradeshows for the fashionindustry in New York and Las Vegas, for $9.9 million in cash.  In addition, we may pay additional contingentcash consideration to the former owners based on the 2007 and 2008 operatingresults of the acquired business and their continued employment with us.  Management currently estimates the contingentpayment to be $17.5 million.  Contingentconsideration is estimated when it is probable that, it has been earned andwill be recorded as compensation expense over the former owners’ employmentperiod  This estimate will change basedon actual future results.  We recorded$5.7 million in compensation expense related to the estimated additionalcontingent consideration in the third quarter of 2006.

·                  In 2005, we completed two otheracquisitions of consumer shows in our Powersports group with an aggregatepurchase price of $0.5 million in cash.

Wehave accounted for these acquisitions under the purchase method ofaccounting.  Accordingly, our results ofoperations include the effect of the acquisition from the date of purchase.

In addition, non-core divestitures and discontinuedoperations in 2005 include:

·                  On December 31, 2005, we sold ourArenacross Championship Series (“Arenacross”) for a total selling price of $0.2million. We recorded a loss on the sale of $0.4 million in December 2005.** **Arenacross had norevenue in the three or nine months ended September 30, 2005.****Arenacross had a $0.2 million and $0.3 million contributionloss in the three and nine months ended September 30, 2005.

29

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·                  In the second quarter of 2005, we discontinued theremaining East Coast Fashion tradeshow business acquired in 1999 fromLarkin-Pluznik-Larkin, LLC. (the “East Coast Fashion Group”) as part of our newstrategy.  We recorded a $2.3 millionimpairment charge for the remaining intangible assets of this business in 2005.East Coast Fashion Group had $0.9 million of revenue in the nine months endedSeptember 30, 2005.  Contribution marginfor the nine months ended September 30, 2005 was $0.1 million. East CoastFashion had no revenue or contribution margin for the three months endedSeptember 30, 2005.

·                  On May 23, 2005, we, our parent companyand certain affiliates (Advanstar Expositions Canada Limited and Advanstar.com)completed the sale of our business assets and liabilities associated with ourtradeshows and conferences, trade publications and direct marketing productsservicing the information, technology, telecommunications, travel, beauty, homeentertainment, and portfolio markets, including the shares of our Hong Kongsubsidiaries.  The shares of ourBrazilian subsidiary were sold in July 2005 after receipt of final regulatoryapproval. Collectively, these assets and shares are referred to as the “PortfolioGroup.” The sale price for the Portfolio Group was $185.0 million less $11.2million in working capital adjustments and expenses.  We recorded a gain on the sale of $52.9million.  Revenue and contribution marginfrom January 1, 2005 to May 23, 2005 was $49.0 million and $14.9 million.

The financial results of the businesses included in discontinuedoperations in the accompanying condensed consolidated statements of operationsare as follows:

| (in thousands)                               | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                        | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                        | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                              |       |                             | ** ** |                            |       |   | ** ** |   |   |
| (Loss) income before  income taxes                |       | $                                | (8         | )                               | $          | (326 | ) | $ | (175 | ) | $ | 58,249 |   |
| Income tax (benefit)  provision                   |       | (243                             | )          | (3,059                          | )          | (288 | ) | 11,153 |   |
| Minority interests                                |       | —                           |       | —                          |       | — |   | (566 | ) |
|                                              |       |                             |       |                            |       |   |   |   |   |
| Income from operations of discontinued businesses |       | $                                | 235        |                            | $          | 2,733 |   | $ | 113 |   | $ | 46,530 |   |

 

30

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**Selected Financial Data**

The followingtable sets forth selected statements of operations and other financial data.
| **(in thousands)**                                                                                   | ** ** | **For the**                 | ** ** | **For the**                | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| ** **                                                                                                | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                                                | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                                                      | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Income  Statement Data:**                                                                               |       |                             |       |                            |       |   |   |   |   |
| Revenue                                                                                                   |       |                             |       |                            |       |   |   |   |   |
| Fashion & Licensing                                                                                   |       | $                                | 51,006     |                            | $          | 42,740 |   | $ | 110,052 |   | $ | 89,710 |   |
| Life Sciences                                                                                             |       | 37,452                           |       | 35,956                          |       | 112,574 |   | 107,636 |   |
| Powersports                                                                                               |       | 4,960                            |       | 4,596                           |       | 31,620 |   | 27,655 |   |
| Other                                                                                                     |       | 2,631                            |       | 2,399                           |       | 7,619 |   | 7,252 |   |
|                                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Total revenue                                                                                             |       | 96,049                           |       | 85,691                          |       | 261,865 |   | 232,253 |   |
|                                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Cost of  production and selling, editoral and circulation                                                 |       |                             |       |                            |       |   |   |   |   |
| Fashion & Licensing                                                                                   |       | 22,458                           |       | 15,338                          |       | 47,427 |   | 34,329 |   |
| Life Sciences                                                                                             |       | 23,658                           |       | 23,788                          |       | 73,734 |   | 72,133 |   |
| Powersports                                                                                               |       | 4,912                            |       | 4,980                           |       | 20,535 |   | 19,433 |   |
| Other                                                                                                     |       | 1,776                            |       | 690                             |       | 5,594 |   | 3,086 |   |
|                                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Total cost of production and selling                                                                      |       | 52,804                           |       | 44,796                          |       | 147,290 |   | 128,981 |   |
|                                                                                                      |       |                             |       |                            |       |   |   |   |   |
| General and  administrative expenses                                                                      |       | 18,676                           |       | 8,871                           |       | 39,233 |   | 31,371 |   |
| Restructuring  charge                                                                                     |       | —                           |       | 1,041                           |       | 2,325 |   | 3,056 |   |
| Depreciation and  amortization                                                                            |       | 8,708                            |       | 8,927                           |       | 27,400 |   | 28,404 |   |
|                                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Operating income                                                                                          |       | 15,861                           |       | 22,056                          |       | 45,617 |   | 40,441 |   |
| Other income  (expense):                                                                                  |       |                             |       |                            |       |   |   |   |   |
| Interest expense                                                                                          |       | (13,355                          | )          | (13,919                         | )          | (41,182 | ) | (49,192 | ) |
| Interest income                                                                                           |       | 530                              |       | 284                             |       | 1,488 |   | 1,128 |   |
| Loss on extinguishment of debt                                                                            |       | (102                             | )          | —                          |       | (599 | ) | (12,581 | ) |
| Other expense, net                                                                                        |       | (65                              | )          | (54                             | )          | (222 | ) | (75 | ) |
|                                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Income (loss)  from continuing operations before income taxes and cumulative effect of  accounting change |       | 2,869                            |       | 8,367                           |       | 5,102 |   | (20,279 | ) |
| Provision for  income taxes                                                                               |       | 1,999                            |       | 5,894                           |       | 5,869 |   | 4,009 |   |
|                                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Income (loss)  from continuing operations before cumulative effect of accounting change                   |       | 870                              |       | 2,473                           |       | (767 | ) | (24,288 | ) |
|                                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Income from  operations of discontinued businesses, net of taxes                                          |       | 235                              |       | 2,733                           |       | 113 |   | 46,530 |   |
|                                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Income (loss)  before cumulative effect of accounting change                                              |       | 1,105                            |       | 5,206                           |       | (654 | ) | 22,242 |   |
|                                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Cumulative  effect of accounting change                                                                   |       | —                           |       | —                          |       | — |   | 4,618 |   |
|                                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Net income (loss)                                                                                         |       | $                                | 1,105      |                            | $          | 5,206 |   | $ | (654 | ) | $ | 26,860 |   |

 

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**Results of Operations**

# THREE MONTHS ENDED SEPTEMBER30, 2006 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2005

# *Revenue*

Revenue in the thirdquarter of 2006 increased 12.1% to $96.0 million from $85.7 million in thethird quarter of 2005.

Fashion and Licensing revenue of $51.0 million increased 19.3% or $8.3million from $42.7 million in the third quarter of 2005.  Revenue from MAGIC Marketplace grew 11.3% or $4.8million due to increases in yields, square feet sold and sponsorships.  MAGIC Marketplace square feet grew by 7% over2005 to 1.1 million square feet.  Revenuegrowth of $3.4 million was also generated from our July 2006 New York Projectand POOL events, which were acquired in August 2005.  Our third quarter revenue growth was alsoattributable to our *License!*publicationgrowth in revenue of 36.7% driven by an increase in ad pages over the samequarter of 2005.

Life Sciencesrevenue of $37.5 million increased 4.2% or $1.5 million from $36.0 million inthe third quarterof 2005 primarily due to a 14.8% revenue growth driven by an increase of 20.2%in ad pages from our primary and dental publications,**aswell as the launch of several new publications. Ad page growth for allpublications in the Life Sciences segment was 12.0% in the third quarter of2006 over the same quarter last year.  These revenuegains were partially offset by market softness in our IVT pharmaceuticalconferences.

Powersports revenue of$5.0 million increased 7.9% or $0.4 million from $4.6 million in the thirdquarter of 2005.  This increase was driven primarily by strong growth in ourautomotive publications*.* Ad pages and ad revenue for these automotivepublications grew 3.2% and 12.7%.

Revenue from our Other operations in the thirdquarter of 2006 was $2.6 million compared to $2.4 million reported in the thirdquarter of 2005.

*Cost of production, selling, editorial  and circulation costs*

Cost of production,selling, editorial and circulation expenses in the third quarter of 2006increased 17.9% to $52.8 million from $44.8 million in the third quarter of2005.

Fashion & Licensingexpenses in the third quarter of 2006 increased by 46.4%, or $7.2 million, to$22.5 million from $15.3 million in the third quarter of 2005, primarily due tothe expansion of our MAGIC Marketplace, including POOL and Project Las Vegasand our first New York POOL and Project events.

Life Sciences expenses inthe third quarter of 2006 decreased by 0.5%, or $0.1 million, to $23.7 millionfrom $23.8 million in the third quarter of 2005.  Cost declines were primarily due to operatingefficiencies achieved through our restructuring efforts begun in 2005.  These cost reductions were partially offsetby $0.7 million in launch costs for new conferences and publications in thequarter and increased costs to support growth in our primary and dentalpublications.

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Powersports expenses inthe third quarter of 2006 decreased by 1.4%, or $0.1 million, to $4.9 millionfrom $5.0 million in the third quarter of 2005 due primarily to reduced costsfrom our off-road group.

Expenses of Otheroperations in the third quarter of 2006 were $1.8 million, compared to $0.7million in the third quarter of 2005. This increase is primarily due to the renegotiation of certain tradeshowvendor agreements, investments in the development of our e-media productofferings and launch costs for *OphthalmologyTimes Europe*.

# *General and administrative expenses*

General and administrative costs increased $9.8 million to$18.7 million in the third quarter of 2006 from $8.9 million in the thirdquarter of 2005.  This increase is primarily due to a $5.7 million charge related to theestimated contingent consideration payments for the Project acquisition and a$2.0 million charge pursuant to an agreement to settle all future contingentpayments under the POOL asset purchase agreement including the termination ofemployment of the former owner of POOL.  Additionally, general andadministrative expenses in the third quarter of 2006 includes $2.4 million innon-recurring charges related to executive separation costs, legal claims andproperty obligations. See further information regarding theProject and POOL transactions in “—Presentation of Financial Information—Acquisitionsand Divestitures.”

# *Restructuring charge*

In May 2005, we ceased use of certain leasedoffice space in New York, NY, Milford, CT, and Santa Ana, CA related to thesale of the Portfolio Group (see Note 4 of the notes to our consolidatedfinancial statements).  In the third quarter of 2005, we vacatedadditional leased office space in Milford, CT and Chicago, IL. These activitiesresulted in charges to our operations during 2005.  In thefirst quarter of 2006, we vacated additional leased office space in New York,NY, and revised our estimate of expected future sublease income for this space, resulting inadditional charges in the first quarter of 2006. Thesecharges consist of the discounted remaining future minimum lease payments dueunder non-cancelable leases, net of estimated future sublease income. Theselease commitments expire at various dates through 2010.

Effective June 2006, we entered into a leasemodification and surrender agreement for approximately 60% of our vacatedoffice space in New York, NY.  Under theterms of the agreement, we paid the landlord $2.8 million in cash, the leasecovering the surrendered space was terminated and we will have no furtherfuture lease obligations for the portion of the space surrendered.  At the same time, we adjusted our accrual forthis space based upon the terms of the agreement and recorded a gain of $0.1million.

During 2005 we notified certain employees thatthey would be severed from the Company in connection with the sale of thePortfolio Group and the reorganization of our operating and support departmentmanagement team.

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Pre-tax restructuring charges incurred are asfollows:

| (in thousands)                             | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                      | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                            | ** ** | ** **                       |       | ** **                      | ** ** | ** ** |   | ** ** | ** ** |
| Facility exit costs                             |       | $                                | —     |                            | $          | 442 |   | $ | 2,339 |   | $ | 1,236 |   |
| Employee severance and  other termination costs |       | —                           |       | 599                             |       | (14 | ) | 1,820 |   |
| Restructuring charge                            |       | $                                | —     |                            | $          | 1,041 |   | $ | 2,325 |   | $ | 3,056 |   |

 

# *Depreciation and amortizationexpense*

Depreciation andamortization expense decreased $0.2 million to $8.7 million in the thirdquarter of 2006 from $8.9 million in the third quarter of 2005 primarily due tothe reduction in amortization attributable to the effect of the doubledeclining balance method of accelerated amortization on our exhibitor andadvertiser lists, partially offset by additional amortization expense relatedto the businesses acquired in 2005.

# *Interest expense*

Interest expense in the third quarter of 2006 decreased $0.5 million,or 4.1%, to $13.4 million from $13.9 million in the third quarter of 2005.  The decrease is primarily due to our $9.8million repayment of our floating rate notes in August 2006. See “—Liquidity and Capital Resources—secondpriority secured notes.”

At September 30, 2006, $451.9 million, or 98%, of our total debt is ata fixed rate with the remaining 2% of our debt subject to interest ratefluctuations.

# *Provision (benefit) for income taxes*

The provision for incometaxes before discontinued operations was $2.0 million in the third quarter of2006 compared to $5.9 million in the third quarter of 2005.  For both 2006 and 2005, the provisionincludes income taxes in certain foreign jurisdictions and a deferred taxprovision related to the basis of goodwill for tax purposes being less than thecarrying value of goodwill for financial reporting purposes.  The third quarter 2005 provision alsoincludes an adjustment to the allocation of taxes between continuing operationsand discontinued operations based on year to date results.  This tax provision is offset by a tax benefitincluded in discontinued operations.  Werecorded no income tax benefit related to the net operating losses we generatedduring 2005 because we established a valuation allowance to offset any relatedtax benefits due to uncertainty about realization of these benefits.

# *Discontinued operations*

In December 2005, we sold our Arenacross Championship Series for atotal selling price of $0.2 million. The loss on the sale of $0.4 million wasrecorded in December 2005.

In the second quarter of 2005, we discontinued the remaining East CoastFashion tradeshow business acquired in the 1999 Larkin transaction andrecognized a $2.3 million impairment charge for the remaining carrying value ofthe intangible assets of this business.

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In May and July 2005, we sold certain businesses to Questex for netcash of $173.8 million.  A gain of $52.9million on the sale of these assets was recorded in 2005.

See further information regarding discontinued operations in “—Presentationof Financial Information—Acquisitions and Divestitures.”

# NINE MONTHS ENDED SEPTEMBER30, 2006 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2005

# *Revenue*

Revenue in the first ninemonths of 2006 increased 12.7% to $261.9 million from $232.3 million in thefirst nine months of 2005.

Fashion and Licensingrevenue of $110.1 million increased 22.7% or $20.4 million from $89.7 millionin the first nine months of 2005. Revenue from our 2006 MAGIC Marketplace Las Vegas spring and fall eventsincreased a combined $13.0 million or 16.5% over 2005 due to an increase insquare feet sold, yields and sponsorships. Total exhibit space for both eventsincreased by 11.7% to 2,145,000 square feet. The August 2005 acquisitions ofPOOL and Project expanded our presence in the contemporary and boutique fashionmarkets.  The spring POOL and Project events,which were integrated into MAGIC Marketplace in Las Vegas, along with theProject and POOL  New York events,contributed $12.6 million of revenue and 260,000 square feet in the first andthird quarters of 2006.  Revenue in thefirst nine months of 2006 also benefited from a successful LicensingInternational event held in New York and 15.3% growth in revenue from our *License!* magazine.

Life Sciencesrevenue of $112.6 million increased 4.6% or $5.0 million from $107.6 million inthe first nine months of 2005.  Revenuefrom healthcare custom projects increased $1.7 million or 21.1% from the firstnine months of 2005 primarily due to more focused selling efforts and ourability to meet the new pharmaceutical regulatory rules governing themanagement and delivery of many of these projects. Strong performances alsowere achieved from several of our primary care, specialty care and dentalpublications. In addition, our launches of *Firstline*and*Modern Hygienist*magazines, and a veterinary conferencegenerated $2.2 million of revenue.  Theserevenue gains were partially offset by a decline of $2.5 million from our IVTpharmaceutical conferences, *Drug Topics* and*RN Magazine*, as well as the effect ofthe sale of *Pharmaceutical Discovery* in late2005.  Ad page growth for allpublications in the Life Sciences segment grew 6.2% in the first nine months of2006 over the same period last year primarily due to strong performances fromour specialty healthcare, primary healthcare and dental publications.

Powersports revenue of$31.6 million increased 14.3% or $3.9 million from $27.7 million in the firstnine months of 2005.  The International Motorcycle Show events andDealer Expo experienced an increase in square feet of 5.8% and revenue of $1.4million or 9.9% in first nine months of 2006 over the same period lastyear.  In the off-road market we held astrong Off-Road Impact Expo trade event and held our first Off-Road Expo-SaltLake City event, a consumer off-road event acquired in October 2005. Ad revenuefor Powersports publications grew 19.5% or $2.0 million and Powersports adpages grew 15.3% primarily due to strong performance from our automotivepublications as well as the continued development of our Off-Road publications,*DIRTsports* and *Off-RoadBusiness*.

Revenue from our Other operations in the firstnine months of 2006 was $7.6 million, compared to $7.3 million reported in thefirst nine months of 2005.

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*Cost of production, selling, editorial andcirculation*

Cost of production,selling, editorial and circulation expenses in the first nine months of 2006increased 14.2% to $147.3 million from $129.0 million in the first nine monthsof 2005 due to acquisitions and growth across our segments.

Fashion & Licensingexpenses in the first nine months of 2006 increased by 38.2%, or $13.1 million,to $47.4 million from $34.3 million in the first nine months of 2005, primarilydue to our program to expand our MAGIC Marketplace spring and fall, and ourPOOL and Project New York events. Expenses to support our first spring Las Vegas POOL and Project events,included in MAGIC Marketplace, and our first Project and POOL New York eventswere $7.5 million for the first nine months of 2006.

Life Sciences expenses inthe first nine months of 2006 increased by 2.2%, or $1.6 million, to $73.7million from $72.1 million in the first nine months of 2005.  The increase is primarily due to $2.6 millionin product launch costs for new conferences and publications launches, a $1.7million increase in healthcare special projects costs related to the growth inthe number of delivered projects, and increased costs associated with our basepublication ad page growth, offset by reductions of $0.9 million in costsrelated to the sold publication *Pharmaceutical Discovery*and $1.9 million in cost reductions due to improved operating efficiencies fromthe restructuring program implemented at the end of the second quarter of 2005.

Powersports expenses inthe first nine months of 2006 increased by 5.7%, or $1.1 million, to $20.5million from $19.4 million in the first nine months of 2005.  Expenses increased primarily due to increaseddirect costs for the Powersports publications in support of ad page increasesover the same period last year and due to our first Off-Road Expo — Salt Lakeevent.

Expenses of our Otheroperations in thefirst nine months of 2006 were $5.6 million, compared to $3.1 million in firstnine months of 2005.  This increase isprimarily due to the renegotiation of certain tradeshow vendor agreements,investments in the development of our e-media product offerings and launchcosts for *Ophthalmology Times Europe*.

# *General and administrative expenses*

General andadministrative costs increased 25.1% to $39.2 million in the first nine monthsof 2006 from $31.4 million in the first nine months of 2005.  Expenses increased primarily due to the $7.7million of expected payments for our Project and POOL acquisitions, asdescribed above, $0.8 million in executive separation costs, $2.6 million inproperty obligations and increased charges related to outstanding legal claims.These increases were partially offset by operating efficiencies achieved due to2005 restructuring actions. Additionally, the first nine months of 2005 had non recurring costs of  $1.0 million in employee contingent compensationcharges related to the IVT acquisition and $2.7 million in reduced strategicconsulting and employee medical costs.

# *Restructuring charge*

See information regardingrestructuring activities in “—Results of Operations-Three Months EndedSeptember 30, 2006 compared to the three months ended September 30,2005-Restructuring charge.”

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# *Depreciation and amortizationexpense*

Depreciation andamortization expense declined $1.0 million to $27.4 million in the first ninemonths of 2006 from $28.4 million in the first nine months of 2005 primarilydue to the effect of the double declining balance method of acceleratedamortization on our exhibitor and advertiser lists, partially offset byaccelerated depreciation for leaseholds in leased office space vacated in 2006and additional amortization expense related to the businesses acquired in 2005.

# *Interest expense*

Interest expense in the first nine months of 2006 declined $8.0million, or 16.3%, to $41.2 million from $49.2 million in the first nine monthsof 2005 primarily due to the repayment of $20.4 million of our term loans, $8.7million of our fixed rate notes, and $117.8 million of our floating rate notesin the second quarter of 2005 with the proceeds from the sale of the PortfolioGroup. See “—Liquidity and Capital Resources-**Second priority secured and floating rate notes repayment.”

We incurred $0.6 millionin costs related to the write off of unamortized deferred finance costs relatedto the amendment and restatement of the credit facility in May 2006 and repaymentof floating rate notes in August 2006. See “—Liquidity and CapitalResources-**Credit facility amendment andrestatement.”

We incurred $12.6 millionin costs related to the repurchase of a part of our fixed and floating ratesenior secured debt in the first nine months of 2005 discussed above.  These costs include $8.6 million in tenderoffer premium and consent fees, $3.5 million in unamortized deferred financingcosts, and $0.5 million in legal fees and expenses.

# *Provision (benefit) for income taxes*

The provision for incometaxes before discontinued operations was $5.9 million in the first nine monthsof 2006 compared to $4.0 million in the first nine months of 2005.  For both 2006 and 2005, the provision includesincome taxes in certain foreign jurisdictions and a deferred tax provisionrelated to the basis of goodwill for tax purposes being less than the carryingvalue of goodwill for financial reporting purposes.  Additionally, the 2005 tax provision includesa tax benefit provided by losses from continuing operations to the extent thatsuch losses offset the income from discontinued operations. This tax benefit isoffset by a tax provision included in discontinued operations resulting fromthe operating income and gain attributable to the sale of the Portfolio Groupbusiness. We recorded no income tax benefit related to the net operating losseswe generated during 2005 because we have established a valuation allowance tooffset any related tax benefits due to uncertainty about realization of thesebenefits.

# *Discontinued operations*

See information regardingdiscontinued operations in “—Results of Operations-Three Months Ended September30, 2006 compared to the three months ended September 30, 2005-Discontinuedoperations.”

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**Liquidity and Capital Resources**

Our principal sources of liquidity have been, and areexpected to be, cash flow from operations and borrowings under our creditfacility.  Our principal uses of cashhave been, and are expected to be, the debt service requirements of ourindebtedness described below, dividends to Advanstar, Inc. to permit funding ofits debt service, capital expenditures, investments in our products andselective acquisitions.

*Sources and uses of funds*

Operating cash flows may be significantly affected by theworking capital characteristics of our business. We generally operate withnegative working capital, excluding cash and current maturities of long-termdebt, due to the impact of deferred revenue from shows, which is billed andcollected as deposits up to one year in advance of the respective show.Deferred revenue increases on the balance sheet in the quarters immediatelypreceding our busy first quarter show season as we collect deposits for boothspace several months in advance of the shows. Revenue and contribution margin are recognized in the quarter that theevents are held, resulting in the reversal of the deferred revenue.

We anticipate that our operating cash flow, together withborrowings under the credit facility and other future financings andrefinancings, will be sufficient to fund our anticipated future operatingexpenses, capital expenditures, debt service, dividends to our parent,Advanstar, Inc to be used for servicing its debt obligations, and otherobligations as they become due.  However,our ability to make scheduled payments of principal, to pay interest on or torefinance our indebtedness and to satisfy our other debt obligations willdepend upon our future operating performance. Our future performance and continued compliance with the covenantscontained in our credit facility will be affected by general economic,financial, competitive, legislative, regulatory, business and other factorsbeyond our control.  We expect to be incompliance with our debt covenants during 2006 and 2007.

As of September 30, 2006, we had cash and cashequivalents of $41.0 million and also had $47.9 million in availability underour revolving credit facility. The following table shows our cash flow activityfor the nine months ended September 30, 2006 and 2005, and includes the resultsof discontinued operations, and should be read in conjunction with theconsolidated statements of cash flows:
| **(in thousands)**                                   | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                | ** ** | **September 30,**          | ** ** |
| ** **                                                | ** ** | **2006**                        | ** ** | **2005** | ** ** |
|                                                      |       |                            |       |   |   |
| Net cash provided by  (used in) operating activities |       | $                               | 24,732     |   | $ | (4,004 | ) |
| Net cash (used in)  provided by investing activities      |       | (11,828                         | )          | 153,288 |   |
| Net cash used in  financing activities                    |       | (18,082                         | )          | (153,171 | ) |
| Effect of exchange rate  changes on cash                  |       | (474                            | )          | 660 |   |
|                                                      |       |                            |       |   |   |
| Net decrease in cash  and cash equivalents                |       | $                               | (5,652     | ) | $ | (3,227 | ) |

 

The $28.7 million increase incash provided by operating activities as compared to the first nine months of2005 was due principally to a reduction in cash interest payments of $9.2million, $4.2 million in improved operating results, an increase in ouroutstanding accounts payable by $4.2 million, other long-term liabilitiesincreases of $4.4 million, an increase in cash collected in advance of ourfourth quarter events of $3.7 million and $9.1 million in non-recurring cash feesand expenses related to our repurchase of a portion of our outstanding debt inJune 2005, partially offset by declines in other accrued expenses.

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Net cash used in investing activities increased $165.1 million to $11.8 million in thefirst nine months of 2006, from $153.3 million provided by investingactivities in the first nine months of 2005. This increase was principally due to the proceeds received in the secondquarter of 2005 from the sale of the Portfolio Group.  We also increased capitalexpenditures in 2006 for computer upgrades, applications development and forbuild-outs and furnishing of our new downsized office in New York.  Weincurred capital expenditures of $11.8 million and $5.1 million in the firstnine months of 2006 and 2005.  The majorityof these expenditures are related to expansions and enhancements to our IT andcommunications infrastructure and management and operating group informationsystems, and office build-outs arising from our recent office consolidations.  We believe that this amount of capitalexpenditure will be adequate to grow our business according to our businessstrategy and to maintain the key tradeshows, publications and business of ourcontinuing operations.

Wedid not complete any acquisitions in the first nine months of 2006. In connection with any future acquisitions, as apart of our on-going business strategy, we may require additional funding,which may be provided in the form of additional debt or equity financing or acombination thereof.  There can be noassurance that any additional financing will be available to us on acceptableterms or in a manner that complies with the restrictive covenants in our debtinstruments.  Consistent with ourlongstanding strategy, we continue to pursue potential acquisitions ofcomplementary businesses.

Cash used in financing activities in the first ninemonths of 2006 was$18.1 million compared to $153.2 million in the first nine months of2005.  In the first nine months of 2006,we paid $16.2 million in dividends to our stockholder, Advanstar, Inc., to beused for cash interest payments in April 2006 relating to its 15% seniordiscount notes and for a stock and option repurchase from a former ChiefExecutive Officer. We also repaid the remaining $9.8 million of our second priorityfloating rate notes at par in August 2006. We borrowed $10.0 million and incurred financing costs of $1.5 millionin connection with the amendment and restatement of our credit facility in May2006 (see “—Credit facility amendment and restatement”).  In March 2005, we repaid $4.6 million of ouroutstanding Term Loan B with the 2004 proceeds from the sale of a tradeshowbusiness.  In June 2005, we repaid ouroutstanding Term Loan B of $20.4 million and repurchased $126.5 million of ourfloating and fixed rate notes, using the proceeds from Portfolio Group sale.

*Debt service*

As of September 30, 2006, we had total indebtedness of$461.9 million and $47.9 million of borrowings available under ourrevolving credit facility.  Our principaldebt obligations are described below.

*Credit facility amendment and restatement*

On May 24, 2006, we amended and restated our existing credit facility.The amended credit facility reduced the revolving loan commitment amount from$60.0 million to $50.0 million, added a $10.0 million Term Loan, modifiedcertain restrictive covenants and extended the maturity date from April 2007 toMay 2009 for the entire Credit Facility. The amendment also eliminated the minimum quarterly fixed charge coverage ratiocovenant.

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*Credit facility and second priority secured andfloating rate notes repayment*

Asa result of the sale of the Portfolio Group, our second priority senior securednotes indenture required that we either use the remaining net proceeds (afterrepayment of the Credit Facility borrowings) to invest in our business or tooffer to purchase our second priority senior secured notes at par plus accruedinterest.  In June 2005, we offered topurchase up to $140.0 million of the second lien notes.  Holders of the $8.7 million principal amount of the 10.75% Second Priority SeniorSecured Notes (the “fixed rate notes”) tendered their notes for purchase, andwe purchased all such notes.

Alsoin June 2005, we completed a cash tender offer for any and all of ouroutstanding Second Priority Senior Secured Floating Rate Notes due 2008 (the “floatingrate notes”).  Holders of the $117.8million aggregate outstanding principal amount of the floating rate notestendered their notes for purchase, and we purchased all such notes at a priceequal to 107.3% (including a 3% consent fee) of outstanding principal plusaccrued interest.  In connection with thetender offer, we received consents to proposed amendments to the indenturegoverning the notes, resulting in the elimination of substantially all of therestrictive covenants and certain default provisions with respect to thefloating rate notes.

*Credit facility*

OurCredit Facility consists of a $50.0 million revolving credit facilitywhich terminates in May 2009, and a $10.0 million term loan which matures inMay 2009.  Borrowings under the CreditFacility generally bear interest based on a margin over, at our option, thebase rate or LIBOR.  The applicablemargin for revolving credit loans varies based upon our ratio of consolidateddebt to EBITDA, as defined in the credit facility, and is currently 2.5% overLIBOR or 2.5% over the base rate.  Ourobligations under the credit facility are guaranteed by Advanstar HoldingsCorp. (“Advanstar Holdings” or “Holdings”), our ultimate parent company, Advanstar, Inc.,our direct parent company, and all of our existing and future domesticsubsidiaries.  Our obligations under theCredit Facility are collateralized by substantially all of the assets of ourcompany and the subsidiary guarantors, including a pledge of the capital stockof all our existing and future domestic subsidiaries, a pledge of no more than65% of the voting stock of any foreign subsidiary directly owned by our companyor any domestic subsidiary, a pledge of all intercompany indebtedness in favorof our company and our domestic subsidiaries, a pledge of our Company’s andAdvanstar IH, Inc.’s capital stock held by our direct parent company, anda pledge of our direct parent company’s capital stock held by AdvanstarHoldings.  The Credit Facility containsrestrictive covenants, including limitations on certain asset dispositions,dividends, investments and other restricted payments.  Failure to comply with the covenants could cause an event of defaultunder the Credit Facility.

*Second priority senior securednotes*

Our$292.0 million of fixed rate notes mature in 2010.  The notes are guaranteed by each of ourexisting and future domestic restricted subsidiaries and collateralized bysecond-priority liens on the assets collateralizing our credit facility(other than certain subsidiary stock and assets of our parent companies).  The fixed rate notes bear interest at anannual rate of 10.75%, which is payable semi-annually in cash.  The notes contain restrictive covenants that,among other things, limit our ability to incur debt, pay dividends and makeinvestments.

In August 2006, we used aportion of the proceeds from the Term Loan to redeem allof our remaining $9.8 million of outstanding floating rate notes at par.

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*Senior subordinated notes*

Our$160 million 12% senior subordinated notes mature in 2011 and areguaranteed by each of our existing and future domestic restricted subsidiaries.Interest on the notes is payable semi-annually in cash.  The notes contain restrictive covenants that,among other things, limit our ability to incur debt, pay dividends and makeinvestments.

*Parent company notes*

Our parent, Advanstar, Inc., issued 15% seniordiscount notes (“the discount notes”) due October 2011 with a principalamount at maturity of $171.8 million. Interest on the discount notes ispayable in cash beginning in April 2006. These discount notes containrestrictive covenants that, among other things, limit the ability ofAdvanstar, Inc. and its subsidiaries (including us) to incur debt, paydividends and make investments.  Neitherwe nor any of our subsidiaries have guaranteed the discount notes.  Advanstar, Inc., however, is a holdingcompany and its ability to pay interest on these discount notes will bedependent upon the receipt of dividends from its direct and indirectsubsidiaries, principally dividends from us. However, the terms of our borrowing arrangements significantly restrictour ability to pay dividends to Advanstar, Inc. and Advanstar, Inc.’sfailure to pay these notes would be a default under our credit facility.

Therestrictive covenants in our senior secured notes indenture and seniorsubordinated notes indenture provide that we can pay dividends only if ourleverage ratio (as defined) is 6.0 to 1.0 or better and only from a “basket”equal to the amount by which our cumulative EBITDA (as defined) since January1, 2001 exceeds 150% of our cumulative interest expense in that same periodplus other items, including proceeds from equity offerings. In addition to thebasket and notwithstanding the leverage ratio limitation on restrictedpayments, we can make additional restricted payments in an aggregateamount of up to $20 million to Advanstar, Inc., none of which has been used as of September 30, 2006.   As of December 31, 2005, our leverageratio under the most restrictive of these indentures was 5.96 to1.0.  Both in March 2006 and October2006, we declared and paid a dividend of $12.9 million to Advanstar, Inc. to beused for servicing its debt obligations. As of September 30, 2006, our leverage ratio under the mostrestrictive of these indentures was 5.39 to 1.0.

Debtservice on the discount notes will be $38.7 million from October 1, 2006through December 31, 2007.  We expect ourresults will allow us to continue to make dividend payments to Advanstar, Inc.for purposes of servicing this debt. However, our results are subject to a variety of factors, includinggeneral economic conditions and conditions in our markets.   We maynot generate sufficient cash flow from operations or be permitted by the termsof our debt instruments to pay dividends or distributions to Advanstar, Inc. inamounts sufficient to allow it to pay cash interest on the parent companynotes.   If Advanstar, Inc. is unable tomeet its debt service obligations, it could attempt to restructure or refinanceits indebtedness or seek additional equity capital.   We cannot assure you that Advanstar, Inc.will be able to accomplish these actions on satisfactory terms or at all.  A default under the parent company notescould result in an acceleration of all outstanding loans under our creditfacility which, in turn, would trigger a cross-default under both oursecond priority senior secured notes and our senior subordinated notes.

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*Contractual and contingentobligations*

Ourcontractual obligations (excluding accounts payable and accrued expenses), asof September 30, 2006 are as set forthbelow:

 
| **(in millions)**              | ** ** | **Payments Due By Period** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|
| ** **                          | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **After** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **2006 (1)**                         | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2011** | ** ** | **Total** | ** ** |
|                                |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Indebtedness                        |       | $                                         | —     |   | $ | — |   | $ | — |   | $ | 10.0 |   | $ | 291.9 |   | $ | 160.0 |   | $ | — |   | $ | 461.9 |   |
| Interest on  indebtedness (2)       |       | 16.0                                      |       | 51.7 |   | 51.7 |   | 51.2 |   | 42.7 |   | 9.6 |   | — |   | 222.9 |   |
| Contingent consideration            |       | 0.9                                       |       | 0.5 |   | 17.5 |   | — |   | — |   | — |   | — |   | 18.9 |   |
| Operating lease  obligations        |       | 1.1                                       |       | 4.6 |   | 4.3 |   | 3.0 |   | 2.7 |   | 2.1 |   | 5.8 |   | 23.6 |   |
|                                |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  contractual cash obligations |       | $                                         | 18.0       |   | $ | 56.8 |   | $ | 73.5 |   | $ | 64.2 |   | $ | 337.3 |   | $ | 171.7 |   | $ | 5.8 |   | $ | 727.3 |   |

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(1)                                  Forthe period from October 1, 2006 through December 31, 2006.

(2)                                  Intereston our variable rate debt is calculated using LIBOR of 5.32%, the rate ineffect on September 30, 2006.  Becauseour variable rate debt bears interest at a variable rate, actual payments coulddiffer.

We haveno material capital lease obligations or purchase obligations.  We have contingent obligations composed of$2.1 million of letters of credit securing our lease facilities.Additionally, as a result of acquisitions discussed above, we may haveadditional future cash consideration payable to the former selling shareholdersbased on the acquired businesses’ future periods operating results.

*Off-balancesheet arrangements*

We haveno material off-balance sheet arrangements.

*Recentlyissued accounting pronouncements*

In July,2006 the Financial Accounting Standards Board (“FASB”) issued InterpretationNo. 48 (“FIN 48”) *Accounting for Uncertainty in Income Taxes —an interpretation of FASB Statement No. 109*.  FIN 48 prescribesa recognition threshold and measurement process for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return.  Additionally, FIN 48 provides guidance on thederecognition, classification, accounting in interim periods and disclosurerequirements for uncertain tax positions.  The accounting provisions ofFIN 48 will be effective for the Company beginning January 1, 2007.  TheCompany is in the process of determining the effect, if any, that the adoptionof FIN 48 will have on its consolidated financial statements.

In September 2006, the FASB issued Statementof Financial Accounting Standard No. 157, *FairValue Measurement (“*SFAS No. 157”). SFAS No. 157 defines fair value,establishes a framework for measuring fair value in generally acceptedaccounting principles, and expands disclosures about fair value measurements.This Statement does not require any new fair value measurements. SFAS No. 157is effective for the Company on January 1, 2008. The Company is currentlyassessing the impact of SFAS No. 157 on its financial statements.

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TheFASB also issued in September 2006 Statement of Financial Accounting StandardsNo. 158, *Employers’ Accounting for DefinedBenefit Pension and Other Postretirement Plans*. The new standardrequires companies to recognize the overfunded or underfunded status of adefined benefit postretirement plan as an asset or liability on the balancesheet and to recognize changes in that funded status in the year in which thechange occurs through comprehensive income. SFAS No. 158 provides for adoptioneffective December 31, 2007. As such, the Company’s consolidated balance sheetas of December 31, 2007 will reflect the funded status of our postretirementbenefit plans, with the offset reported in other comprehensive income (loss).The Company is currently assessing the impact of SFAS No. 158 on its financialstatements.

***Item 3.  Quantitative and QualitativeDisclosures About Market Risk***

We are exposed to various market risks, which are thepotential losses arising from adverse changes in market rates and prices, suchas foreign currency exchange and interest rates.  We do not enter into derivatives or otherfinancial instruments for trading or speculative purposes.  We have previously entered into financialinstruments to manage and reduce the impact of changes in interest rates andforeign currency exchange rates.

# **Interest Rates**

AtSeptember 30, 2006, we had fixed rate debt of $451.9 million and variablerate debt of $10.0 million.   Achange in interest rates of 1% would not be material to our operating results.

**Currencies**

Outsideof the United States, we maintain assets and operations in the United Kingdom.These assets and operations, and our exposure to any currency gains or losses,are not material to our operating results.

**Item 4.  Controls and Procedures**

*Evaluationof disclosure controls and procedures*.

Advanstar’s ChiefExecutive Officer and Chief Financial Officer, after evaluating theeffectiveness of the Company’s disclosure controls and procedures (as definedin Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, asamended (the “Exchange Act”)) as of the end of the period covered by thisreport (the “Evaluation Date”), have concluded that as of the Evaluation Date,our disclosure controls and procedures were effective.

*Changesin internal controls*.

There were no significantchanges during the Company’s third fiscal quarter in our internal controls overfinancial reporting that have materially affected or are reasonably likely tomaterially affect the Company’s internal controls over financial reporting.

It should be noted thatin the third quarter 2006, the Company hired Ted Alpert as the Company’s ChiefFinancial Officer.

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**PART II  Other Information**

Items 1 to 5 of form 10-Qare not applicable.

 

**Item 6.**                          Exhibits 

 

                                                31.1        Certification of principalexecutive officer required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act

 

                                                31.2        Certification of principalfinancial officer required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act

 

                                                32.1         Certification of principal executiveofficer required by Rule 13a-14(b) or 15d-14(b) of the Exchange Act

 

                                                32.2         Certification of principal financialofficer required by Rule 13a-14(b) or 15d-14(b) of the Exchange Act

 

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**SIGNATURES**

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.
| November 14, 2006 | **ADVANSTAR  COMMUNICATIONS INC.** |
|-------------------|------------------------------------|
|              | ** **                         | ** ** |
|              |  /s/ Ted S. Alpert            |
|              |                               | Theodore S. Alpert   Vice President-Finance, Assistant Secretary and Chief Financial Officer   (Principal Financial Officer and Authorized Representative of the Registrant) |

 

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**Exhibit Index**
| Exhibit No. | ** ** | **Document**                                                                                               |
|-------------|------------|------------------------------------------------------------------------------------------------------------|
| 31.1        |       | Certification of principal executive officer  required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act  |
|        |       |                                                                                                       |
| 31.2        |       | Certification of principal financial officer  required by Rule 13a-14(a) or 15d- 14(a) of the Exchange Act |
|        |       |                                                                                                       |
| 32.1        |       | Certification of principal executive officer  required by Rule 13a-14(b) or 15d-14(b) of the Exchange Act  |
|        |       |                                                                                                       |
| 32.2        |       | Certification of principal financial officer  required by Rule 13a-14(b) or 15d-14(b) of the Exchange Act  |

 

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