**UNITED STATES**SECURITIES AND EXCHANGE COMMISSION

**Washington, D.C. 20549**

**FORM 10-Q**
| **(Mark One)** |
|----------------|
|           |
| **þ**     | **Quarterly Report Pursuant to Section 13 or  15(d) of The Securities Exchange Act of 1934.** |
| ** **     | ** ** |
| ** **     | **For the quarterly period ended: September 30,  2004** |
| ** **     | ** ** |
| ** **     | **OR** |
| ** **     | ** ** |
| **o**          | **Transition Report Pursuant to Section 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 otherjurisdiction ofincorporation or organization)

**59-2757389**

**(**I.R.S.EmployerIdentification No.)

**One Park Avenue, New York,NY**

(Address of principalexecutive offices)

**10016**

(Zip Code)

Registrant’s Telephone Number, Including Area Code: **(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 theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes  þ    No  o

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

Asof November 15, 2004, 1,000,000 shares of the registrant’s common stockwere outstanding.

 

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|                                                                     |  

**       **                                                                    | ** **   | **Page in this  QuarterlyReport** |
|---------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|--------------|----------------------------------------|
| **PART I     FINANCIAL  INFORMATION** | ** **                                                                                                                | ** **   |
| **Item 1.**                                                         | ***Financial Statements:***                                                                                               |         |                                   |
|                                                                | Condensed  Consolidated Balance Sheets at September 30, 2004 (unaudited) and  December 31, 2003.                |         | 2                                      |
|                                                                | Condensed  Consolidated Statements of Operations (unaudited) for the three months ended  September 30, 2004 and 2003 |         | 3                                      |
|                                                                | Condensed  Consolidated Statements of Operations (unaudited) for the nine months ended  September 30, 2004 and 2003  |         | 4                                      |
|                                                                | Condensed  Consolidated Statements of Cash Flows (unaudited) for the nine months ended  September 30, 2004 and 2003  |         | 5                                      |
|                                                                | Notes to Condensed  Consolidated Financial Statements (unaudited)                                                         |         | 6                                      |
| **Item  2.**                                                        | ***Management’s  Discussion and Analysis of Financial Condition and Results of Operations***                         | *** *** | 25                                     |
| **Item  3.**                                                        | ***Quantitative  and Qualitative Disclosures About Market Risk***                                                         | *** *** | 41                                     |
| **Item 4.**                                                         | ***Controls and  Procedures***                                                                                            | *** *** | 42                                     |
| **PART II     OTHER  INFORMATION**    | *** ***                                                                                                              | *** *** |
| **Item 6.**                                                         | Exhibits                                                                                                                  | *** *** | 43                                     |
| Signatures                                                          | *** ***                                                                                                              | 44           |

 

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**PART I   FINANCIAL INFORMATION**

**AdvanstarCommunications Inc.**

**CondensedConsolidated Balance Sheets**

**(In thousands,except share and per share data)**
| ** **                                                                                                                                        | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                        | ** ** | **2004**               | ** ** | **2003**              | ** ** |
| ** **                                                                                                                                        | ** ** | **(unaudited)**        | ** ** |
| **ASSETS**                                                                                                                                        |       |                   |       |                  |       |   |   |   |   |
| Current assets:                                                                                                                                   |       |                   |       |                  |       |   |   |   |   |
| Cash and cash  equivalents                                                                                                                        |       |                   | $          | 40,662                |       |   |   | $ | 29,274 |   |   |
| Accounts receivable, net  of allowance of $1,110 and $1,006 at September 30, 2004 and December 31, 2003                                           |       |                   | 30,874     |                  |       |   | 33,844 |   |   |
| Prepaid expenses                                                                                                                                  |       |                   | 7,377      |                  |       |   | 7,892 |   |   |
| Other                                                                                                                                             |       |                   | 1,651      |                  |       |   | 1,771 |   |   |
| Current assets of  discontinued operations                                                                                                        |       |                   | —     |                  |       |   | 3,316 |   |   |
| Total current assets                                                                                                                              |       |                   | 80,564     |                  |       |   | 76,097 |   |   |
| Property, plant and  equipment, net                                                                                                               |       |                   | 24,074     |                  |       |   | 23,758 |   |   |
| Intangible and other assets:                                                                                                                      |       |                   |       |                  |       |   |   |   |   |
| Goodwill                                                                                                                                          |       |                   | 704,984    |                  |       |   | 699,221 |   |   |
| Intangibles and other,  net                                                                                                                       |       |                   | 111,277    |                  |       |   | 141,627 |   |   |
| Total intangible and  other assets, net                                                                                                           |       |                   | 816,261    |                  |       |   | 840,848 |   |   |
| Non current assets of  discontinued operations                                                                                                    |       |                   | —     |                  |       |   | 45,887 |   |   |
|                                                                                                                                              |       |                   | $          | 920,899               |       |   |   | $ | 986,590 |   |   |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY**                                                                                                    |       |                   |       |                  |       |   |   |   |   |
| Current liabilities:                                                                                                                              |       |                   |       |                  |       |   |   |   |   |
| Current maturities of  long-term debt                                                                                                             |       |                   | $          | 1,800                 |       |   |   | $ | 3,700 |   |   |
| Accounts payable                                                                                                                                  |       |                   | 21,061     |                  |       |   | 29,110 |   |   |
| Accrued compensation                                                                                                                              |       |                   | 7,701      |                  |       |   | 6,940 |   |   |
| Other accrued expenses                                                                                                                            |       |                   | 29,367     |                  |       |   | 27,707 |   |   |
| Deferred revenue                                                                                                                                  |       |                   | 34,192     |                  |       |   | 56,470 |   |   |
| Current liabilities of  discontinued operations                                                                                                   |       |                   | —     |                  |       |   | 4,947 |   |   |
| Total current  liabilities                                                                                                                        |       |                   | 94,121     |                  |       |   | 128,874 |   |   |
| Long-term debt, net of  current maturities                                                                                                        |       |                   | 613,281    |                  |       |   | 622,369 |   |   |
| Deferred income taxes                                                                                                                             |       |                   | 13,880     |                  |       |   | 6,990 |   |   |
| Other long-term  liabilities                                                                                                                      |       |                   | 3,996      |                  |       |   | 5,322 |   |   |
| Due to parent                                                                                                                                     |       |                   | 3,467      |                  |       |   | 3,650 |   |   |
| Minority interests                                                                                                                                |       |                   | 4,220      |                  |       |   | 3,516 |   |   |
| Long term liabilities of  discontinued operations                                                                                                 |       |                   | —     |                  |       |   | 6,573 |   |   |
| Commitments and contingencies                                                                                                                     |       |                   |       |                  |       |   |   |   |   |
| Stockholder’s equity:                                                                                                                        |       |                   |       |                  |       |   |   |   |   |
| Common stock, $.01 par  value, 40,000,000 shares authorized; 1,000,000 shares issued and outstanding  at September 30, 2004 and December 31, 2003 |       |                   | 10         |                  |       |   | 10 |   |   |
| Capital in excess of par  value                                                                                                                   |       |                   | 447,367    |                  |       |   | 447,367 |   |   |
| Accumulated deficit                                                                                                                               |       |                   | (263,123   | )                     |       |   | (241,594 | ) |   |
| Accumulated other  comprehensive income                                                                                                           |       |                   | 3,680      |                  |       |   | 3,513 |   |   |
| Total stockholder’s  equity                                                                                                                  |       |                   | 187,934    |                  |       |   | 209,296 |   |   |
|                                                                                                                                              |       |                   | $          | 920,899               |       |   |   | $ | 986,590 |   |   |

 

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

2

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**AdvanstarCommunications Inc.**

**CondensedConsolidated Statements of Operations**

**(In thousands)**
| ** **                                                                                                                                              | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                                              | ** ** | **September**                    | ** ** |
| ** **                                                                                                                                              | ** ** | **2004**                         | ** ** | **2003** | ** ** |
| ** **                                                                                                                                              | ** ** | **(unaudited)**                  | ** ** |
| Revenue                                                                                                                                                 |       | $                                | 99,801     |   | $ | 73,812 |   |
| Operating  expenses:                                                                                                                                    |       |                             |       |   |   |
| Cost of production                                                                                                                                      |       | 19,173                           |       | 13,803 |   |
| Selling, editorial and circulation                                                                                                                      |       | 39,899                           |       | 27,424 |   |
| General and administrative                                                                                                                              |       | 10,209                           |       | 8,002 |   |
| Restructuring charge                                                                                                                                    |       | —                           |       | 2,051 |   |
| Funding of affiliated dot.com company operations  (see Note 10)                                                                                         |       | 308                              |       | 107 |   |
| Amortization of intangibles                                                                                                                             |       | 10,574                           |       | 10,882 |   |
| Depreciation                                                                                                                                            |       | 1,849                            |       | 1,637 |   |
| Total operating expenses                                                                                                                                |       | 82,012                           |       | 63,906 |   |
| Operating income                                                                                                                                        |       | 17,789                           |       | 9,906 |   |
| Other income  (expense):                                                                                                                                |       |                             |       |   |   |
| Interest expense, net                                                                                                                                   |       | (17,268                          | )          | (15,682 | ) |
| Write-off of deferred financing costs                                                                                                                   |       | —                           |       | (11,324 | ) |
| Other expense, net                                                                                                                                      |       | (385                             | )          | (733 | ) |
| Income (loss)  from continuing operations before income taxes and minority interests                                                                    |       | 136                              |       | (17,833 | ) |
| Provision (benefit) for income taxes                                                                                                               |       | 3,113                            |       | (177 | ) |
| Minority interests                                                                                                                                      |       | (267                             | )          | (141 | ) |
| Loss from continuing operations                                                                                                                         |       | (3,244                           | )          | (17,797) |   |
| Discontinued  operations (see Note 3):                                                                                                                  |       |                             |       |   |   |
| Loss from  operations of discontinued businesses (including a goodwill impairment charge  of $6,150 for the three months ended September 30, 2004) |       | (6,604)                          |       | (352) |   |
| Net loss                                                                                                                                                |       | $                                | (9,848)    |   | $ | (18,149) |   |

 

 

 

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

3

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**AdvanstarCommunications Inc.**

**CondensedConsolidated Statements of Operations**

**(In thousands)**
| ** **                                                                                                                                                                                           | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                           | ** ** | **September 30,**          | ** ** |
| ** **                                                                                                                                                                                           | ** ** | **2004**                        | ** ** | **2003** | ** ** |
| ** **                                                                                                                                                                                           | ** ** | **(unaudited)**                 | ** ** |
| Revenue                                                                                                                                                                                              |       | $                               | 304,319    |   | $ | 233,096 |   |
| Operating  expenses:                                                                                                                                                                                 |       |                            |       |   |   |
| Cost of production                                                                                                                                                                                   |       | 58,822                          |       | 45,527 |   |
| Selling, editorial and circulation                                                                                                                                                                   |       | 124,176                         |       | 88,040 |   |
| General and administrative                                                                                                                                                                           |       | 31,758                          |       | 25,688 |   |
| Restructuring charge                                                                                                                                                                                 |       | —                          |       | 2,051 |   |
| Funding of affiliated dot.com company operations  (see Note 10)                                                                                                                                      |       | 3,071                           |       | 742 |   |
| Amortization of intangibles                                                                                                                                                                          |       | 30,569                          |       | 32,314 |   |
| Depreciation                                                                                                                                                                                         |       | 5,945                           |       | 5,944 |   |
| Total operating expenses                                                                                                                                                                             |       | 254,341                         |       | 200,306 |   |
| Operating income                                                                                                                                                                                     |       | 49,978                          |       | 32,790 |   |
| Other income  (expense):                                                                                                                                                                             |       |                            |       |   |   |
| Interest expense, net                                                                                                                                                                                |       | (52,638                         | )          | (40,150 | ) |
| Write-off of deferred financing costs                                                                                                                                                                |       | —                          |       | (11,324 | ) |
| Other income (expense), net                                                                                                                                                                          |       | 1,148                           |       | (585 | ) |
| Loss from  continuing operations before income taxes and minority interests                                                                                                                          |       | (1,512                          | )          | (19,269 | ) |
| Provision for income taxes                                                                                                                                                                      |       | 9,671                           |       | 119 |   |
| Minority interests                                                                                                                                                                                   |       | (704                            | )          | (334 | ) |
| Loss from continuing operations                                                                                                                                                                      |       | (11,887                         | )          | (19,722 | ) |
| Discontinued  operations (see Note 3):                                                                                                                                                               |       |                            |       |   |   |
| (Loss) income  from operations of discontinued businesses (including a goodwill impairment  charge of $15,570 net of minority interest of $5,072 for the nine months  ended September 30, 2004) |       | (9,642                          | )          | 2,969 |   |
| Net loss                                                                                                                                                                                             |       | $                               | (21,529    | ) | $ | (16,753 | ) |

 

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

4

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**AdvanstarCommunications Inc.Condensed Consolidated Statementsof Cash Flows(In thousands)**
| ** **                                                                                 | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                 | ** ** | **September 30,**          | ** ** |
| ** **                                                                                 | ** ** | **2004**                        | ** ** | **2003** | ** ** |
| ** **                                                                                 | ** ** | **(unaudited)**                 | ** ** |
| Operating activities:                                                                      |       |                            |       |   |   |
| Net loss                                                                                   |       | $                               | (21,529    | ) | $ | (16,753 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities: |       |                            |       |   |   |
| Write-off of deferred financing costs                                                      |       | —                          |       | 11,324 |   |
| Restructuring charge                                                                       |       | —                          |       | 2,051 |   |
| Depreciation and amortization                                                              |       | 36,777                          |       | 39,393 |   |
| Impairment of goodwill                                                                     |       | 15,570                          |       | — |   |
| Gain on derivative financial instruments                                                   |       | (1,300                          | )          | 135 |   |
| Undistributed earnings of minority interest holders                                        |       | 704                             |       | 560 |   |
| Non-cash interest expense                                                                  |       | 2,447                           |       | 2,287 |   |
| Gain on sale of business and other assets                                                  |       | (1,179                          | )          | (33 | ) |
| Deferred income taxes                                                                      |       | 6,890                           |       | 660 |   |
| Provision for bad debts                                                                    |       | 637                             |       | 417 |   |
| Changes in operating assets and liabilities                                                |       | (27,204                         | )          | (19,481 | ) |
| Net cash provided by operating activities                                             |       | 11,813                          |       | 20,560 |   |
| Investing  activities:                                                                     |       |                            |       |   |   |
| Additions to property, plant and equipment                                                 |       | (6,288                          | )          | (4,253 | ) |
| Acquisitions of publications and trade shows, net of  cash acquired                        |       | (7,915                          | )          | (216 | ) |
| Proceeds from sale of business and other assets                                            |       | 24,294                          |       | 3 |   |
| Net cash provided by (used in) investing activities                                        |       | 10,091                          |       | (4,466 | ) |
| Financing  activities:                                                                     |       |                            |       |   |   |
| Payments on revolving credit loan                                                          |       | (14,000                         | )          | 21,000 |   |
| Proceeds from revolving credit loan                                                        |       | 6,000                           |       | (45,100 | ) |
| Proceeds from issuance of long-term debt                                                   |       | —                          |       | 431,050 |   |
| Payments of long-term debt                                                                 |       | (2,875                          | )          | (332,700 | ) |
| Contribution of capital from parent                                                        |       | —                          |       | 50,000 |   |
| Dividends paid to minority interest holders                                                |       | —                          |       | (227 | ) |
| Deferred financing costs                                                                   |       | (302                            | )          | (16,207 | ) |
| Net cash (used in) provided by financing activities                                        |       | (11,177                         | )          | 107,816 |   |
| Effect of  exchange rate changes on cash                                                   |       | 661                             |       | 453 |   |
| Net increase in  cash and cash equivalents                                                 |       | 11,388                          |       | 124,363 |   |
| Cash and cash equivalents, beginning of period                                             |       | 29,274                          |       | 18,930 |   |
| Cash and cash  equivalents, end of period                                                  |       | $                               | 40,662     |   | $ | 143,293 |   |

 

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

5

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**Advanstar Communications Inc. Notes to Condensed Consolidated Financial Statements**

**1.   Basis of Presentation**

The accompanying unauditedcondensed consolidated financial statements have been prepared by AdvanstarCommunications Inc. (“Communications”, or the “Company”) in accordance with theinstructions to Form 10-Q and, therefore, do not include all theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements. Management believes that all adjustments,consisting solely of normal recurring items, considered necessary for a fairpresentation have been included. These condensed consolidated financialstatements, however, should be read in conjunction with the audited financialstatements and the related notes included in the Company’s annual report on Form 10-Kfor the year ended December 31, 2003, filed with the Securities andExchange Commission on March 29, 2004. The results of operations for thethree and nine month periods ended September 30, 2004 are not necessarilyindicative of the operating results that may be expected for the entire yearending December 31, 2004.

**2.   Summary of Significant Interim AccountingPolicies**

***Stock-Based Compensation***

As permitted by Statement of Financial AccountingStandards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” theCompany has elected to account for stock options and awards to employees underthe provisions of Accounting Principles Board (“APB) Opinion No. 25, “Accountingfor Stock Issued to Employees,” and related interpretations.

If theCompany had elected to recognize compensation costs based on the fair value ofthe options granted as prescribed by SFAS No. 123, results would have beenadjusted to the pro forma amounts indicated in the table below (in thousands):
| ** **                                         | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                         | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                         | ** ** | **2004**                         | ** ** | **2003**                        | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net loss—as  reported                         |       | $                                | (9,848     | )                               | $          | (18,149 | ) | $ | (21,529 | ) | $ | (16,753 | ) |
| Less: pro forma  stock based employee compensation |       | (521                             | )          | (592                            | )          | (1,903 | ) | (1,776 | ) |
| Net loss—pro forma                            |       | $                                | (10,369    | )                               | $          | (18,741 | ) | $ | (23,432 | ) | $ | (18,529 | ) |

 

***Interim Income TaxExpense*********

The Company determines itsquarterly income tax provision based upon an estimated annual effective incometax rate. In determining the effective income tax rate applicable to interimperiods, the Company excludes tax jurisdictions where no tax expense or benefitis expected for the entire year.

***Recently Issued Accounting Standards***

In December 2003, theFinancial Accounting Standards Board (“FASB”) issued Interpretation No. 46R,*Consolidation of Variable Interest Entities*,which addresses accounting for special-purpose and variable interest entitiesand which superseded Interpretation No. 46.  The provisions of Interpretation No. 46Rare effective for the Company in the first quarter of 2005. Specifically, basedupon the Company’s preliminary analysis, the Company believes that it will berequired to consolidate the operations of Advanstar.com effective January 1,2005. If the Company consolidates Advanstar.com, management 

6

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**Advanstar Communications Inc. Notes to Condensed Consolidated Financial Statements (Continued)**

believesthe effect will be to reduce the amount of Advanstar.com losses included in theCompany’s operating results. The Company does not expect this consolidation tohave a material effect on its financial position, results of operations or cashflows.

**3.   Acquisitions and Divestitures**

***Acquisitions***

On October 1, 2003, the Company purchased aportfolio of healthcare industry magazines and related custom projects businessfrom the Thomson Corporation and its subsidiaries (“Thomson”) for $150.7 million,including $136.5 million in cash (including related fees and expenses) and$14.1 million of assumed liabilities.

On March 8, 2004, the Company purchased aportfolio of pharmaceutical industry conferences and magazines from theInstitute of Validation Technology, Inc. (“IVT”) for $7.9million in cash plus assumed liabilities. In addition, the Company agreed topay additional contingent cash consideration based on 2004 and 2005 operatingresults of the acquired assets. Certain acquired assets and assumed liabilitiesare recorded based upon preliminary estimates of their respective fair valuesas of the date of the acquisition. The Company does not believe the finalallocation of purchase price will be materially different from preliminaryallocations.

Thefollowing table provides the unaudited pro forma operating results of theCompany for the three and nine month periods ended September 30, 2003 asif the Thomson acquisition had taken place at January 1, 2003. The proforma operating results do not include the effect of the IVT acquisitiondescribed above because the acquisition is not material (in thousands):
| ** **                       | ** ** | **Three Months Ended  September 30,  2003** | ** ** | **Nine Months Ended  September 30,  2003** | ** ** |
|----------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Revenue                          |       |                                                       | $          | 96,390                                                    |       |   |   | $ | 296,495 |   |   |
| Loss from  continuing operations |       |                                                       | (37,772    | )                                                         |       |   | (33,075 | ) |   |
| Net Loss                         |       |                                                       | (38,124    | )                                                         |       |   | (30,106 | ) |   |

 

The unaudited pro formaoperating results do not purport to represent what the Company’s results ofoperations actually would have been if the acquisition had occurred as of thedate indicated or what such results will be for any future periods.

***Divestitures***

*Art Group*

On March 12, 2004, the Company completed the saleof its art industry trade shows and magazines (the “Art Group”) for a totalselling price of $19.6 million in cash. The portfolio included three tradeshows and two publications. The Company recorded a gain on the sale of $1.0million plus a tax benefit of $2.4 million.

The results of the Art Group have been reported indiscontinued operations in the condensed consolidated statements of operationsfor the nine months ended September 30, 2004 and the three and nine monthsended September 30, 2003. In addition, the assets and liabilities of theArt Group are reported in discontinued operations in the condensed consolidatedbalance sheet at December 31, 2003. 

7

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**Advanstar Communications Inc. Notes to Condensed Consolidated Financial Statements (Continued)**

Prior year consolidatedfinancial statements have been restated to present the Art Group indiscontinued operations.

Revenues of the Art Group,included in discontinued operations in the condensed consolidated statements ofoperations, were $8.5 million for the period from January 1, 2004 to March 12,2004.  For the three and nine monthsended September 30, 2003, Art Group revenues were  $0.5 million and $10.2 million,respectively. Income (loss) before income taxes of the Art Group reported indiscontinued operations in the condensed consolidated statements of operations,which excludes the gain on sale, was $3.4 million for the period from January 1,2004 to March 12, 2004, a loss of $0.4 million for the three monthsended September 30, 2003 and a profit of $2.5 million for the ninemonths ended September 30, 2003.

*SeCA*

On August 5, 2004, the Company completed thesale, for a total selling price of $3.1 million in cash, of its 65% ownershipin its French joint venture (“SeCA”), which consisted of one trade show. Inconnection with the sale, the Company recorded a goodwill impairment charge of$9.4 million in the second quarter of 2004. The amount of the impairment chargewas determined based upon the excess of the carrying value of the Company’sinterest in SeCA over the selling price, less the costs incurred by the Companyto sell SeCA. This charge is reported separately as a component of discontinuedoperations for the nine months ended September 30, 2004.

The results of SeCA have been reported as a componentof discontinued operations in the condensed consolidated statements ofoperations for the three and nine months ended September 30, 2004 and 2003.Prior year consolidated financial statements have been restated to present SeCAin discontinued operations. In addition, the assets and liabilities of SeCA arereported as assets and liabilities of discontinued operations in the condensedconsolidated balance sheet at December 31, 2003.

Revenues of SeCA were $2.9 million from January 1,2004 to June 30, 2004. There were no revenues for the three months ended September 30,2004. Revenues of SeCA were $0.1 million and $3.8 million for the three andnine months ended September 30, 2003. Income (loss) before income taxes ofSeCA, net of minorityinterest, reported in discontinued operations in the condensed consolidatedstatements of operations for the nine months ended September 30, 2004 wasa loss of $8.5 million. This loss included agoodwill impairment charge of $9.4 million. SeCA had no income (loss) beforeincome taxes for the three months ended September 30, 2004. SeCA generateda loss before income taxes of $0.3 million and income before income taxes of$0.9 million for the three and nine months ended September 30, 2003.

*DMS*

On September 8, 2004, the Company sold its Germantrade show business (“DMS”) for $1.7 million in cash. In connection with thesale, the Company recorded a goodwill impairment charge of $6.2 million in thethird quarter of 2004. The amount of the impairment charge was determined basedupon the excess of the carrying value of DMS over the selling price, less thecosts incurred by the Company to sell DMS. This charge is reported as acomponent of discontinued operations for the three and nine months ended September 30,2004.

Revenues of DMS were $0.1 million for the three andnine months ended September 30, 2004. DMS revenues were $1.7 million and$1.8 million for the three and nine months ended September 30, 2003. 

8

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**Advanstar Communications Inc. Notes to Condensed Consolidated Financial Statements (Continued)**

Income (loss) beforeincome taxes reported in discontinuedoperations in the condensed consolidated statements of operations were a loss of $6.5 million and $7.5 million forthe three and nine months ended September 30, 2004, respectively.  The loss in each ofthese periods includeda goodwill impairment charge of $6.2 million.DMS’ income (loss) before income taxes were a profit of $0.3 million and $0.1million for the three and nine months ended September 30, 2003,respectively.

Thediscontinued operations of the Art Group, SeCA and DMS included in thecondensed consolidated Balance Sheets as of December 31, 2003 are asfollows (in thousands):
| ** **                                                                             | ** ** | **December 31, 2003** | ** ** |
|----------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| Assets                                                                                 |       |                            |       |   |   |
| Accounts receivable                                                                    |       |                            | $          | 2,221 |   |   |
| Prepaid expenses                                                                       |       |                            | 1,095      |   |   |
| Total current assets of discontinued operations and  assets held for sale              |       |                            | 3,316      |   |   |
| Property, plant and equipment, net                                                     |       |                            | 128        |   |   |
| Goodwill                                                                               |       |                            | 43,275     |   |   |
| Intangibles and other, net                                                             |       |                            | 2,484      |   |   |
| Total non current assets of discontinued operations  and assets held for sale          |       |                            | 45,887     |   |   |
| Liabilities                                                                            |       |                            |       |   |   |
| Accounts payable and other accrued expenses                                            |       |                            | 519        |   |   |
| Deferred revenue                                                                       |       |                            | 4,428      |   |   |
| Total current liabilities of discontinued operations  and assets held for sale         |       |                            | 4,947      |   |   |
| Minority interests                                                                     |       |                            | 6,573      |   |   |
| Total long term liabilities of discontinued operations  and assets held for sale  |       |                            | 6,573      |   |   |
| Net assets of  discontinued operations and assets held for sale                        |       |                            | $          | 37,683 |   |   |

 

The ArtGroup, SeCA and DMS assets included in discontinued operations in the Company’sreportable segments at December 31, 2003 (in thousands) are as follows:
| ** **     | ** ** | **Trade Shows  and  Conferences** | ** ** | **Trade  Publications** | ** ** | **Market  Development** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
|----------------|------------|----------------------------------------|------------|-------------------------|------------|-------------------------|------------|---------------|------------|-----------|------------|
| Segment assets |       |                                   | 45,167     |                    |       |                    | 3,908      |          |       |      | —     |   |   |   | 128 |   |   | 49,203 |   |
|                |            |                                        |            |                         |            |                         |            |               |            |           |            |  |  |  |  |  |  |  |  |

 

9

----

**Advanstar Communications Inc. Notes to Condensed Consolidated Financial Statements (Continued)**

**4.**   Goodwill and OtherIntangible Assets

The changes in the carrying amount of goodwill byoperating segment are as follows (in thousands):
| ** **                                                | ** ** | **Trade Shows  and  Conferences** | ** ** | **Trade  Publications** | ** ** | **Market  Development  and  Other** | ** ** | **Totals** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------|------------|-------------------------|------------|-------------------------------------|------------|------------|------------|
| Balance as of  December 31, 2003                     |       |                                   | $          | 457,700                 |       |                                |       | $          | 210,443    |   |   |   | $ | 31,078 |   |   | $ | 699,221 |   |
| Goodwill acquired  or finally allocated during the period |       |                                   | —     |                    |       |                                | 6,268      |       |       |   | — |   |   | 6,268 |   |
| Goodwill  allocated to buisness disposition               |       |                                   | —     |                    |       |                                | (900       | )          |       |   | — |   |   | (900 | ) |
| Foreign currency  translation                             |       |                                   | 300        |                    |       |                                | 101        |       |       |   | (6 | ) |   | 395 |   |
| Balance as of  September 30, 2004                    |       |                                   | $          | 458,000                 |       |                                |       | $          | 215,912    |   |   |   | $ | 31,072 |   |   | $ | 704,984 |   |

 

Tradeexhibitor and advertiser lists are amortized on a double-declining balancemethod over six years and five years, respectively, subscriber lists and otherintangible assets are amortized on a straight-line basis over three to tenyears, trademarks and trade names are amortized on a straight-line basis overtwenty years. These intangible assets consist of the following as of September 30,2004 and December 31, 2003 (in thousands):
| ** **                              | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Trade exhibitor  lists                  |       |                         | $          | 155,227                     |       |   |   | $ | 155,043 |   |   |
| Advertiser lists                        |       |                         | 61,507     |                        |       |   | 62,303 |   |   |
| Subscriber lists                        |       |                         | 29,188     |                        |       |   | 28,577 |   |   |
| Trade names and  trademarks             |       |                         | 18,108     |                        |       |   | 18,008 |   |   |
| Other intangible  assets                |       |                         | 22,803     |                        |       |   | 21,323 |   |   |
| Deferred  financing costs               |       |                         | 22,244     |                        |       |   | 21,942 |   |   |
|                                    |       |                         | 309,077    |                        |       |   | 307,196 |   |   |
| Accumulated  amortization               |       |                         | (197,800   | )                           |       |   | (165,569 | ) |   |
| Total intangible  and other assets, net |       |                         | $          | 111,277                     |       |   |   | $ | 141,627 |   |   |

 

Estimatedamortization expense of identified intangible assets and other for theremaining three months of 2004 and for the next five years is as follows: (inthousands):
| 2004 |   | $      | 11,066 |   |
|------|--------|--------|--------|--------|
| 2005 |   | 37,379 |   |
| 2006 |   | 26,892 |   |
| 2007 |   | 11,124 |   |
| 2008 |   | 7,683  |   |
| 2009 |   | 3,635  |   |

 

**5.**   Restructuring Charge

In September 2003,the Company consolidated its midtown New York leased office space from twofloors to one. These actions resulted in a 2003 third quarter charge ofapproximately $2.1 million. In December 2003, the Company consolidated itsChester U.K. leased office space, resulting in a fourth 

10

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**Advanstar Communications Inc. Notes to Condensed Consolidated Financial Statements (Continued)**

quarter charge ofapproximately $0.6 million. The balance of the accrual for these costs at September 30,2004 and December 31, 2003 was $1.8 million and $2.4 million, whichprincipally represents remaining facility lease costs of which $0.4 million and$0.5 million is included in accrued liabilities, respectively, and $1.4 millionand $1.9 million is included in other long term liabilities, respectively, inthe accompanying condensed consolidated balance sheet at September 30,2004 and December 31, 2003.

**6.**   FinancialDerivative Instruments

The Company usesderivative instruments to manage exposure to interest rate and foreign currencyrisks. The Company’s objectives for holding derivatives are to minimize theserisks using the most effective methods to eliminate or reduce the impact ofthese exposures.

***Interest Rate Risk***

Variable rate debt instruments are subject to interestrate risk. In 2001 the Company entered into an interest rate collar agreementexpiring February 2004 to manage its exposure to interest rate movementson a portion of its variable rate debt obligations. The effective portion ofthe cumulative gain or loss on the interest rate collar agreement was reportedas a component of accumulated other comprehensive income in stockholder’sequity and recognized in earnings as the underlying interest expense wasincurred. The ineffective portion of the interest rate collar agreement wasrecognized in current earnings. Gains and losses on the undesignated portion ofthis agreement were recognized in current earnings until expiration.

In May 2003, theCompany entered into an interest rate swap agreement expiring November 2005.The Company terminated this agreement in December 2003. The net gain attermination of approximately $0.2 million will continue to be reported inaccumulated other comprehensive income and will be amortized into earnings overthe original contract term.

***Foreign Currency Risk***

The Company uses forward contracts to manage itsexposure associated with forecasted international revenue and expensetransactions for up to 15 months in the future. Foreign currencies hedged arethe euro, British Pound Sterling and the Brazilian Real. Changes in the fair valueof these instruments are reported as a component of accumulated othercomprehensive income in stockholder’s equity and are recognized in earnings asthe underlying revenue is recognized. Forward contracts not designated ashedging instruments under SFAS No. 133 are also used to manage theimpact of the variability in exchange rates. Changes in the fair value of theseforeign exchange contracts are recognized in current earnings.

At September 30,2004, the Company had foreign exchange derivative contracts to sell with anotional amount totaling $1.9 million and to buy totaling $0.5 million. Theestimated fair value of the foreign exchange contracts based upon market quoteswas a net liability of $0.1 million.

11

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**Advanstar Communications Inc. Notes to Condensed Consolidated Financial Statements (Continued)**

***Accumulated Other Comprehensive Income (Loss)***

Thefollowing table summarizes the effects of SFAS 133 on the Company’s accumulatedother comprehensive income (loss) as of September 30, 2004 and 2003 (inthousands):
| ** **                                                                        | ** ** | **Interest Rate  Collar  Agreements** | ** ** | **Foreign  Exchange  Contracts** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------------|------------|----------------------------------|------------|-----------|------------|
| Accumulated other  comprehensive income (loss) balance at December 31, 2003  |       |                                       | $          | (42                              | )          |      |       | $ | — |   |   | $ | (42 | ) |
| Unwound from  accumulated other comprehensive income (loss) during the period     |       |                                       | (74        | )                                |       |      | —     |   |   | (74 | ) |
| Mark to market  hedge contracts                                                   |       |                                       | 244        |                             |       |      | —     |   |   | 244 |   |
| Accumulated other  comprehensive income (loss) balance at September 30, 2004 |       |                                       | $          | 128                              |       |      |       | — |   |   | $ | 128 |   |
| Accumulated other  comprehensive income (loss) balance at December 31, 2002  |       |                                       | $          | (4,350                           | )          |      |       | $ | — |   |   | $ | (4,350 | ) |
| Unwound from  accumulated other comprehensive income (loss) during the period     |       |                                       | 4,057      |                             |       |      | —     |   |   | 4,057 |   |
| Mark to market  hedge contracts                                                   |       |                                       | (1,017     | )                                |       |      | (22        | ) |   | (1,039 | ) |
| Accumulated other  comprehensive income (loss) balance at September 30, 2003 |       |                                       | $          | (1,310                           | )          |      |       | $ | (22 | ) |   | $ | (1,332 | ) |

 

At September 30,2004, the Company estimates that it will reclassify out of accumulated othercomprehensive income approximately $0.1 million of deferred gains into earningswithin the next 12 months. The fair value of the Company’s derivatives was anet liability position of $0.1 million and $1.5 million at September 30,2004 and December 31, 2003, respectively, which is included in otheraccrued expenses in the accompanying condensed consolidated balance sheets.

***Statement of Operations***

Thefollowing tables summarize the effects of SFAS No. 133 included in otherincome (expense) in the Company’s statement of operations related to theineffective portion of the Company’s interest rate protection agreements andforeign exchange contracts not designated as hedging instruments for the threeand nine months ended September 30, 2004 and 2003 (in thousands):
| ** **                                  | ** ** | **Interest Rate  Collar  Agreements** | ** ** | **Foreign  Exchange  Contracts** | ** ** | **Total** | ** ** |
|---------------------------------------------|------------|--------------------------------------------|------------|----------------------------------|------------|-----------|------------|
| Three months  ended September 30, 2004 |       |                                       | $          | —                           |       |      |       | $ | 14 |   |   | $ | 14 |   |
| Three months  ended September 30, 2003 |       |                                       | (774       | )                                |       |      | (71        | ) |   | (845 | ) |
| Nine months ended  September 30, 2004  |       |                                       | 1,294      |                             |       |      | 5          |   |   | 1,299 |   |
| Nine months ended  September 30, 2003  |       |                                       | 368        |                             |       |      | 599        |   |   | 967 |   |
|                                             |            |                                            |            |                                  |            |           |            |  |  |  |  |  |  |  |

 

12

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**Advanstar Communications Inc. Notes to Condensed Consolidated Financial Statements (Continued)**

**7.**   Debt

***Credit Facility***

The credit facility (the “CreditFacility”) consists of (i) $25.0 million of term loans B payable inquarterly installments through October 11, 2008, and (ii) $60.0million of revolving loans availability through April 11, 2007. The CreditFacility contains restrictive covenants which require the Company to, amongother things, maintain a minimum fixed charge ratio (as defined). Failure ofthe Company to comply with the current covenants may cause an event of defaultunder the Credit Facility. Borrowings under the Credit Facility arecollateralized by substantially all of the Company’s assets.

**Senior SecuredNotes**

On August 18, 2003, the Company issued $360.0million of second priority senior secured notes (the “August seniorsecured notes”). On September 25, 2003, the Company issued an additional$70.0 million of second priority senior secured notes (the “September seniorsecured notes”), which were issued at a premium (together with the August seniorsecured notes, the “Senior Secured Notes”). The Senior Secured Notes wereissued in two tranches: $130.0 million of Second Priority Senior SecuredFloating Rate Notes due 2008, which require quarterly amortization equal to0.25% of the principal amount thereof (the “floating rate notes”), and $300.0million of 10.75% Second Priority Senior Secured Notes due 2010. Interest onthe floating rate notes is payable at a rate equal to three-month LIBOR, whichis reset quarterly, plus 7.5%. Each tranche of the notes is collateralized bysecond priority liens on substantially all of the collateral pledged againstborrowings under the Company’s Credit Facility (other than the capital stock ofcertain of its subsidiaries and assets of its parent companies). The notescontain restrictive covenants that, among other things, limit the Company’sability to incur debt, pay dividends and make investments. The Company enteredinto a registration rights agreement in connection with the private placementpursuant to which the Company has registered substantially all of the notesunder the Securities Act of 1933, as amended.

The Company used the net proceeds from the August seniorsecured notes offering to repay and terminate all outstanding term A loansunder the Credit Facility and all but $25.0 million of the outstanding term Bloans and a portion of its revolving credit borrowings under the CreditFacility. The Company used the net proceeds of the September seniorsecured notes offering to reduce revolver borrowings and acquire a portfolio ofhealthcare industry magazines and related custom projects business from theThomson Corporation (Note 3).

The Senior Secured Notes arefully and unconditionally guaranteed on a senior basis, jointly and severally,by the Company’s wholly owned domestic subsidiaries. The financial covenantsunder the Senior Secured Notes include limitations on certain assetdispositions, payments, debt incurrence, dividends and other restrictedpayments.

13

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**Advanstar Communications Inc. Notes to Condensed Consolidated Financial Statements (Continued)**

***Senior Subordinated Notes***

The Company’s $160.0 million unsecured, 12%senior subordinated notes due 2011 (the “Senior Subordinated Notes”) requiresemiannual interest-only payments on February 15 and August 15 ofeach year. The Senior Subordinated Notes are fully and unconditionallyguaranteed on a senior subordinated basis, jointly and severally, by theCompany’s wholly owned domestic subsidiaries. The financial covenants under theSenior Subordinated Notes include limitations on certain asset dispositions,payments, debt incurrence, dividends and other restricted payments.

Long-termdebt consists of the following (in thousands):
| ** **                                                                                                                                                             | ** ** | **September 30,** | ** **   | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|--------------|-----------------------|------------|
| ** **                                                                                                                                                             | ** ** | **2004**               | ** **   | **2003**              | ** ** |
| Term loan B,  interest at LIBOR plus 4.50%; 6.34% at September 30, 2004, due quarterly  through October 11, 2008                                        |       |                   | $            | 25,000                |       |   |   | $ | 25,000 |   |   |
| Revolving credit  loan, interest at LIBOR plus 3.75%; due April 11, 2007                                                                                     |       |                   | —  |                  |       |   | 8,000 |   |   |
| Second priority  senior secured floating rate notes, interest at LIBOR plus 7.5%, 9.21% at  September 30, 2004, due 2008                                          |       |                   | 128,700      |                  |       |   | 129,675 |   |   |
| 10.75% Second  priority senior secured notes, due 2010, plus unamortized premium of $881 and  $994 at September 30, 2004 and December 31, 2003, respectively |       |                   | 300,881      |                  |       |   | 300,994 |   |   |
| Senior  subordinated notes, interest at 12.00%, due 2011                                                                                                               |       |                   | 160,000      |                  |       |   | 160,000 |   |   |
| Acquisition note  payable, interest at 5.50%, due monthly through 2004                                                                                                 |       |                   | 500          |                  |       |   | 2,000 |   |   |
| Acquisition note  payable, interest at 6.00%, due April 1, 2004                                                                                                   |       |                   | —       |                  |       |   | 400 |   |   |
|                                                                                                                                                                   |       |                   | 615,081      |                  |       |   | 626,069 |   |   |
| Less current  maturities                                                                                                                                               |       |                   | (1,800       | )                     |       |   | (3,700 | ) |   |
|                                                                                                                                                                   |       |                   | $            | 613,281               |       |   |   | $ | 622,369 |   |   |

 

**8.   Comprehensive Income**

Thetable below presents comprehensive income (loss), defined as changes in the equityof the Company excluding changes resulting from investments by anddistributions to shareholders (in thousands):
| ** **                                                       | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                       | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                       | ** ** | **2004**                         | ** ** | **2003**                        | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net (Loss) income                                                |       | $                                | (9,848     | )                               | $          | (18,149 | ) | $ | (21,529 | ) | $ | (16,753 | ) |
| Change in  cumulative translation adjustment                     |       | (1,551                           | )          | 61                              |       | (3 | ) | 5,560 |   |
| Change in  unrealized losses on derivative financial instruments |       | 22                               |       | 2,516                           |       | 170 |   | 3,018 |   |
| Comprehensive (loss)  income                                     |       | $                                | (11,377    | )                               | $          | (15,572 | ) | $ | (21,362 | ) | $ | (8,175 | ) |

 

**9.   Segments**

The Company follows the provisions of SFAS No. 131,“Disclosures about Segments of an Enterprise and Related Information,” and hasthree reportable segments: trade shows and conferences, trade publications andmarket development.

14

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**Advanstar Communications Inc. Notes to Condensed Consolidated Financial Statements (Continued)**

TheCompany evaluates the performance of, and allocates resources to, its segmentsbased on contribution margin—defined as net revenue less cost of production andselling, editorial and circulation costs. The accounting policies of thereportable segments are the same as those described in the summary ofsignificant accounting policies. There are no inter-segment sales or transfers.Segment assets are primarily intangible assets, prepaid expenses and accountsreceivable. Revenues, contribution margins and segment assets of the Company’sreportable segments are as follows (in thousands):
| ** **                                  | ** ** | **Trade Shows** | ** ** | ** **       | ** ** | ** **      | ** ** | ** **    | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|----------------------|------------|------------------|------------|-----------------|------------|---------------|------------|------------|------------|
| ** **                                  | ** ** | **and**              | ** ** | **Trade**        | ** ** | **Market**      | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | **Conferences**      | ** ** | **Publications** | ** ** | **Development** | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
| Three months ended  September 30, 2004 |       |                 |       |             |       |            |       |          |       |       |       |   |   |   |   |   |   |
| Revenues                                    |       |                 | $          | 45,864           |       |            |       | $             | 49,095     |       |       |   | $ | 4,842 |   |   | $ | — |   | $ | 99,801 |   |
| Contribution margin (loss)                  |       |                 | 25,615     |             |       |            | 13,932     |          |       |       | 2,593      |   |   | (1,411 | ) | 40,729 |   |
| Segment assets (at period end)              |       |                 | 504,161    |             |       |            | 302,815    |          |       |       | 33,513     |   |   | 80,410 |   | 920,899 |   |
| Three months  ended September 30, 2003 |       |                 |       |             |       |            |       |          |       |       |       |   |   |   |   |   |   |
| Revenues                                    |       |                 | $          | 39,923           |       |            |       | $             | 30,057     |       |       |   | $ | 3,832 |   |   | $ | — |   | 73,812 |   |
| Contribution margin (loss)                  |       |                 | 22,571     |             |       |            | 9,054      |          |       |       | 1,717      |   |   | (757 | ) | 32,585 |   |
| Segment assets (at period end)              |       |                 | 568,818    |             |       |            | 171,760    |          |       |       | 32,766     |   |   | 188,294 |   | 961,638 |   |
| Nine months ended  September 30, 2004  |       |                 |       |             |       |            |       |          |       |       |       |   |   |   |   |   |   |
| Revenues                                    |       |                 | $          | 135,662          |       |            |       | $             | 153,999    |       |       |   | $ | 14,658 |   |   | $ | — |   | $ | 304,319 |   |
| Contribution margin (loss)                  |       |                 | 72,741     |             |       |            | 45,367     |          |       |       | 7,833      |   |   | (4,620 | ) | 121,321 |   |
| Segment assets (at period end)              |       |                 | 504,161    |             |       |            | 302,815    |          |       |       | 33,513     |   |   | 80,410 |   | 920,899 |   |
| Nine months ended  September 30, 2003  |       |                 |       |             |       |            |       |          |       |       |       |   |   |   |   |   |   |
| Revenues                                    |       |                 | $          | 126,021          |       |            |       | $             | 95,576     |       |       |   | $ | 11,499 |   |   | $ | — |   | 233,096 |   |
| Contribution margin (loss)                  |       |                 | 67,634     |             |       |            | 29,903     |          |       |       | 4,573      |   |   | (2,581 | ) | 99,529 |   |
| Segment assets  (at period end)             |       |                 | 568,818    |             |       |            | 171,760    |          |       |       | 32,766     |   |   | 188,294 |   | 961,638 |   |

 

The reconciliation oftotal segment contribution margin to consolidated loss from continuingoperations before income taxes, and minority interests is as follows (inthousands):
| ** **                                                                  | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                  | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                  | ** ** | **2004**                         | ** ** | **2003**                        | ** ** | **2004** | ** ** | **2003** | ** ** |
| Total segment  contribution margin                                          |       | $                                | 40,729     |                            | $          | 32,585 |   | $ | 121,321 |   | $ | 99,529 |   |
| General and  administrative expense                                    |       | (10,209                          | )          | (8,002                          | )          | (31,758 | ) | (25,688 | ) |
| Restructuring  charge                                                       |       | —                           |       | (2,051                          | )          | — |   | (2,051 | ) |
| Funding of  affiliated dot.com company operations                           |       | (308                             | )          | (107                            | )          | (3,071 | ) | (742 | ) |
| Depreciation and  amortization                                              |       | (12,423                          | )          | (12,519                         | )          | (36,514 | ) | (38,258 | ) |
| Other expense  (primarily interest)                                         |       | (17,653                          | )          | (27,739                         | )          | (51,490 | ) | (52,059 | ) |
| Loss from  continuing operations before income taxes and minority interests |       | $                                | 136        |                            | $          | (17,833 | ) | $ | (1,512 | ) | $ | (19,269 | ) |

 

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

Advanstar.com, Inc. (Advanstar.com), an affiliateof the Company, operates the Company’s event and publication-related web sitesand develops certain enhanced web opportunities to serve the Company’s 

15

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**Advanstar Communications Inc. Notes to Condensed Consolidated Financial Statements (Continued)**

customers in selectedindustries. The Company provides Advanstar.com with certain administrative supportservices and charges for these services based on a general overhead charge. Inaddition, selected sales, editorial, marketing and production staff of theCompany are shared with Advanstar.com. The Company also provides Advanstar.comwith marketing and promotional support through advertising pages in itstrade publications and exhibit space in its trade shows. In return,Advanstar.com provides support on its web sites for the Company’s tradepublications and trade shows.

The Company recordsadvances and notes issued in support of Advanstar.com operations as anoperating expense on the Company’s consolidated statement of operations, as areflection of the ongoing nature of the operations of Advanstar.com in supportof the Company’s operations. Net advances and notes charged to the Company’soperations during the three months ended September 30, 2004 and 2003 were$0.3 million and $0.1 million, respectively. Net advances and notes charged tothe Company’s operations during the nine months ended September 30, 2004and 2003 were $3.1 million and $0.7 million, respectively. In May 2004,the Company made a $1.9 million advance to Advanstar.com to fund the settlementof Advanstar.com’s outstanding New York lease obligation. As described in Note2, the Company expects to begin consolidating the operations of Advanstar.comwith those of the Company, effective on January 1, 2005.

**11.   Parent Company Notes**

Aspart of the financing for the acquisition of the Company by the DLJ MerchantBanking Funds in October 2000 (the “Acquisition”) and concurrently withthe closing of the offering of the Senior Subordinated Notes in February 2001,the Company’s parent, Advanstar, Inc., issued discount notes (the “DiscountNotes”) with an aggregate principal amount at maturity in aggregate of $171.8million. These notes do not require cash interest payments until 2006. Neitherthe Company nor any of its subsidiaries guaranteed the Discount Notes. Advanstar, Inc.,however, is a holding company and its ability to pay interest on these DiscountNotes will be dependent upon the receipt of dividends from its subsidiaries,principally the Company. The CreditFacility, the Senior Secured Notes and the Senior Subordinated Notes imposesubstantial restrictions on the Company’s and its subsidiaries’ ability to paydividends.

**12.   UnauditedSupplemental Guarantor Condensed Consolidating Financial Statements**

***Basis of Presentation***

The Company’s Senior Subordinated Notes and SeniorSecured Notes are fully and unconditionally guaranteed on a senior subordinatedbasis and senior basis, respectively, jointly and severally, by the Company andit’s wholly owned domestic subsidiaries. The subsidiary guarantors are MAGICand Applied Business TeleCommunications. The unaudited condensed consolidatingfinancial statements of the guarantors are presented below and should be readin conjunction with the consolidated financial statements of the Company. Separatefinancial statements of the guarantors are not presented because the guarantorsare jointly, severally, fully and unconditionally liable under the guaranteesand the Company believes the condensed consolidating financial statementspresented are sufficiently meaningful in understanding the financial positionand results of the guarantors. There are no significant restrictions on theability of the subsidiary guarantors to make distributions to the Company.

16

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**AdvanstarCommunications Inc.Condensed Consolidating Balance Sheets (Unaudited)At September 30, 2004(In thousands)**
| ** **                                             | ** ** | **Communications** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  Total** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
| **ASSETS**                                             | ** ** |               | ** ** | ** **                  |       |                           | ** ** | ** **       |       |                    | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current assets:                                        |       |               |       | ** **                  |       |                           |       | ** **       |       |                    |       | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |
| Cash and cash  equivalents                             |       |               | $          | 31,934                      | ** ** |                           |       | $                | —     | ** **              |       |   | $ | 8,728 | ** ** |   |   | $ | — | ** ** |   |   | $ | 40,662 | ** ** |   |
| Accounts  receivable, net                              |       |               | 29,480     | ** **                  |       |                           | 107        | ** **       |       |                    | 1,287      | ** ** |   |   | — | ** ** |   |   | 30,874 | ** ** |   |
| Prepaid expenses                                       |       |               | 5,843      | ** **                  |       |                           | 19         | ** **       |       |                    | 1,515      | ** ** |   |   | — | ** ** |   |   | 7,377 | ** ** |   |
| Other                                                  |       |               | 1,616      | ** **                  |       |                           | —     | ** **       |       |                    | 35         | ** ** |   |   | — | ** ** |   |   | 1,651 | ** ** |   |
| Current assets of  discontinued   operations           |       |               | —     | ** **                  |       |                           | —     | ** **       |       |                    | —     | ** ** |   |   | — | ** ** |   |   | — | ** ** |   |
| Total current  assets                                  |       |               | 68,873     | ** **                  |       |                           | 126        | ** **       |       |                    | 11,565     | ** ** |   |   | — | ** ** |   |   | 80,564 | ** ** |   |
| Noncurrent assets:                                     |       |               |       | ** **                  |       |                           |       | ** **       |       |                    |       | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |
| Property, plant  and equipment, net                    |       |               | 22,350     | ** **                  |       |                           | 1,225      | ** **       |       |                    | 499        | ** ** |   |   | — | ** ** |   |   | 24,074 | ** ** |   |
| Deferred tax asset                                     |       |               | 13,524     | ** **                  |       |                           | 35         | ** **       |       |                    | —     | ** ** |   |   | (13,559 | **)** |   |   | — | ** ** |   |
| Intangible and  other assets, net                      |       |               | 501,425    | ** **                  |       |                           | 271,315    | ** **       |       |                    | 43,521     | ** ** |   |   | — | ** ** |   |   | 816,261 | ** ** |   |
| Investments in  subsidiaries                           |       |               | 516,439    | ** **                  |       |                           | —     | ** **       |       |                    | 9,129      | ** ** |   |   | (525,568 | **)** |   |   | — | ** ** |   |
| Intercompany  receivable                               |       |               | —     | ** **                  |       |                           | 227,870    | ** **       |       |                    | (4,442     | **)** |   |   | (223,428 | **)** |   |   | — | ** ** |   |
| Non-current assets  of discontinued operations         |       |               | —     | ** **                  |       |                           | —     | ** **       |       |                    | —     | ** ** |   |   | — | ** ** |   |   | — | ** ** |   |
|                                                   |       |               | $          | 1,122,611                   | ** ** |                           |       | $                | 500,571    | ** **              |       |   | $ | 60,272 | ** ** |   |   | $ | (762,555 | **)** |   |   | $ | 920,899 | ** ** |   |
| **LIABILITIES AND  STOCKHOLDER’S EQUITY**         |       |               |       | ** **                  |       |                           |       | ** **       |       |                    |       | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |
| Current liabilities:                                   |       |               |       | ** **                  |       |                           |       | ** **       |       |                    |       | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |
| Current maturities  of long-term debt                  |       |               | $          | 1,800                       | ** ** |                           |       | $                | —     | ** **              |       |   | $ | — | ** ** |   |   | $ | — | ** ** |   |   | $ | 1,800 | ** ** |   |
| Accounts payable                                       |       |               | 11,322     | ** **                  |       |                           | 7,232      | ** **       |       |                    | 2,507      | ** ** |   |   | — | ** ** |   |   | 21,061 | ** ** |   |
| Accrued  liabilities                                   |       |               | 29,133     | ** **                  |       |                           | 6,917      | ** **       |       |                    | 1,018      | ** ** |   |   | — | ** ** |   |   | 37,068 | ** ** |   |
| Deferred revenue                                       |       |               | 30,448     | ** **                  |       |                           | —     | ** **       |       |                    | 3,744      | ** ** |   |   | — | ** ** |   |   | 34,192 | ** ** |   |
| Current  liabilities of discontinued operations        |       |               | —     | ** **                  |       |                           | —     | ** **       |       |                    | —     | ** ** |   |   | — | ** ** |   |   | — | ** ** |   |
| Total current  liabilities                             |       |               | 72,703     | ** **                  |       |                           | 14,149     | ** **       |       |                    | 7,269      | ** ** |   |   | — | ** ** |   |   | 94,121 | ** ** |   |
| Long-term debt,  net of current  maturities            |       |               | 613,281    | ** **                  |       |                           | —     | ** **       |       |                    | —     | ** ** |   |   | — | ** ** |   |   | 613,281 | ** ** |   |
| Deferred income  taxes and other long-term liabilities |       |               | 17,578     | ** **                  |       |                           | 13,559     | ** **       |       |                    | 298        | ** ** |   |   | (13,559 | **)** |   |   | 17,876 | ** ** |   |
| Intercompany  payable                                  |       |               | 223,428    | ** **                  |       |                           | —     | ** **       |       |                    | —     | ** ** |   |   | (223,428 | **)** |   |   | — | ** ** |   |
| Due to parent                                          |       |               | 3,467      | ** **                  |       |                           | —     | ** **       |       |                    | —     | ** ** |   |   | — | ** ** |   |   | 3,467 | ** ** |   |
| Minority interests                                     |       |               | 4,220      | ** **                  |       |                           | —     | ** **       |       |                    | —     | ** ** |   |   | — | ** ** |   |   | 4,220 | ** ** |   |
| Long-term  liabilities of discontinued operations      |       |               | —     | ** **                  |       |                           | —     | ** **       |       |                    | —     | ** ** |   |   | — | ** ** |   |   | — | ** ** |   |
| Stockholder’s equity:                             |       |               |       | ** **                  |       |                           |       | ** **       |       |                    |       | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |
| Common stock                                           |       |               | 10         | ** **                  |       |                           | 3          | ** **       |       |                    | 947        | ** ** |   |   | (950 | **)** |   |   | 10 | ** ** |   |
| Capital in excess  of par value                        |       |               | 447,367    | ** **                  |       |                           | 438,117    | ** **       |       |                    | 86,602     | ** ** |   |   | (524,719 | **)** |   |   | 447,367 | ** ** |   |
| (Accumulated  deficit) retained earnings          |       |               | (263,123   | **)**                       |       |                           | 34,743     | ** **       |       |                    | (38,399    | **)** |   |   | 3,656 | ** ** |   |   | (263,123 | **)** |   |
| Accumulated other  comprehensive income                |       |               | 3,680      | ** **                  |       |                           | —     | ** **       |       |                    | 3,555      | ** ** |   |   | (3,555 | **)** |   |   | 3,680 | ** ** |   |
| Total stockholder’s  equity                       |       |               | 187,934    | ** **                  |       |                           | 472,863    | ** **       |       |                    | 52,705     | ** ** |   |   | (525,568 | **)** |   |   | 187,934 | ** ** |   |
|                                                   |       |               | $          | 1,122,611                   | ** ** |                           |       | $                | 500,571    | ** **              |       |   | $ | 60,272 | ** ** |   |   | $ | (762,555 | **)** |   |   | $ | 920,899 | ** ** |   |

 

17

----

**AdvanstarCommunications Inc.Condensed Consolidating Statements of Operations (Unaudited)For the three months ended September 30, 2004(In thousands)**
| ** **                                                                                | ** ** | **Communications** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  Total** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
| Revenue                                                                                   |       |               | $          | 60,432                      |       |                           |       | $                | 35,504     |                    |       |   | $ | 3,865 |   |   |   | $ | — |   |   |   | $ | 99,801 |   |   |
| Operating  expenses:                                                                      |       |               |       |                        |       |                           |       |             |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Cost of production and selling, editorial and  circulation                                |       |               | 44,267     |                        |       |                           | 11,394     |             |       |                    | 3,411      |   |   |   | — |   |   |   | 59,072 |   |   |
| General and administrative                                                                |       |               | 8,931      |                        |       |                           | 390        |             |       |                    | 888        |   |   |   | — |   |   |   | 10,209 |   |   |
| Restructuring charge                                                                      |       |               | —     |                        |       |                           | —     |             |       |                    | —     |   |   |   | — |   |   |   | — |   |   |
| Funding of affiliated company operations                                                  |       |               | 308        |                        |       |                           | —     |             |       |                    | —     |   |   |   | — |   |   |   | 308 |   |   |
| Depreciation and amortization                                                        |       |               | 8,662      |                        |       |                           | 3,439      |             |       |                    | 322        |   |   |   | — |   |   |   | 12,423 |   |   |
| Total operating expenses                                                                  |       |               | 62,168     |                        |       |                           | 15,223     |             |       |                    | 4,621      |   |   |   | — |   |   |   | 82,012 |   |   |
| Operating (loss) income                                                                   |       |               | (1,736     | )                           |       |                           | 20,281     |             |       |                    | (756       | ) |   |   | — |   |   |   | 17,789 |   |   |
| Other income  (expense):                                                                  |       |               |       |                        |       |                           |       |             |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                                                                     |       |               | (17,364    | )                           |       |                           | —     |             |       |                    | 96         |   |   |   | — |   |   |   | (17,268 | ) |   |
| Other income, net                                                                         |       |               | (280       | )                           |       |                           | —     |             |       |                    | (105       | ) |   |   | — |   |   |   | (385 | ) |   |
| (Loss) income  from continuing operations before income taxes and minority interests |       |               | (19,380    | )                           |       |                           | 20,281     |             |       |                    | (765       | ) |   |   | — |   |   |   | 136 |   |   |
| (Benefit) provision for income taxes                                                 |       |               | (4,285     | )                           |       |                           | 7,434      |             |       |                    | (36        | ) |   |   | — |   |   |   | 3,113 |   |   |
| Minority interests                                                                        |       |               | (267       | )                           |       |                           | —     |             |       |                    | —     |   |   |   | — |   |   |   | (267 | ) |   |
| Equity in earnings of subsidiaries                                                   |       |               | 12,118     |                        |       |                           | —     |             |       |                    | —     |   |   |   | (12,118 | ) |   |   | — |   |   |
| (Loss) income  from continuing operations                                                 |       |               | (3,244     | )                           |       |                           | 12,847     |             |       |                    | (729       | ) |   |   | (12,118 | ) |   |   | (3,244 | ) |   |
| Discontinued  operations:                                                                 |       |               |       |                        |       |                           |       |             |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| (Loss) income  from operations of discontinued business                                   |       |               | (6,604     | )                           |       |                           | —     |             |       |                    | (6,568     | ) |   |   | 6,568 |   |   |   | (6,604 | ) |   |
| Net (loss) income                                                                         |       |               | $          | (9,848                      | )          |                           |       | $                | 12,847     |                    |       |   | $ | (7,297 | ) |   |   | $ | (5,550 | ) |   |   | $ | (9,848 | ) |   |

 

18

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**AdvanstarCommunications Inc.Condensed Consolidating Statements of Operations (Unaudited)For the nine months ended September 30, 2004(In thousands)**
| ** **                                                                                | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Nonguarantor** | ** **   | ** **       | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------|--------------|------------------|------------|------------------|------------|
| ** **                                                                                | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** **   | **Eliminations** | ** ** | **Total**        | ** ** |
| Revenue                                                                                   |       |               | $          | 221,782          |       |             |         | $                | 68,277     |             |       |   | $ | 14,260 |   |   |   | $ | — |   |   |   | $ | 304,319 |   |   |
| Operating  expenses:                                                                      |       |               |       |             |       |             |         |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Cost of production and selling, editorial and  circulation                                |       |               | 148,534    |             |       |             | 23,811       |             |       |             | 10,653     |   |   |   | — |   |   |   | 182,998 |   |   |
| General and administrative                                                                |       |               | 27,939     |             |       |             | 1,180        |             |       |             | 2,639      |   |   |   | — |   |   |   | 31,758 |   |   |
| Restructuring charge                                                                      |       |               | —     |             |       |             | —       |             |       |             | —     |   |   |   | — |   |   |   | — |   |   |
| Funding of affiliated company operations                                                  |       |               | 3,071      |             |       |             | —       |             |       |             | —     |   |   |   | — |   |   |   | 3,071 |   |   |
| Depreciation and amortization                                                        |       |               | 25,118     |             |       |             | 10,377       |             |       |             | 1,019      |   |   |   | — |   |   |   | 36,514 |   |   |
| Total operating expenses                                                                  |       |               | 204,662    |             |       |             | 35,368       |             |       |             | 14,311     |   |   |   | — |   |   |   | 254,341 |   |   |
| Operating income (loss)                                                                   |       |               | 17,120     |             |       |             | 32,909       |             |       |             | (51        | ) |   |   | — |   |   |   | 49,978 |   |   |
| Other income  (expense):                                                                  |       |               |       |             |       |             |         |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                                                                     |       |               | (52,929    | )                |       |             | —       |             |       |             | 291        |   |   |   | — |   |   |   | (52,638 | ) |   |
| Other income, net                                                                         |       |               | 201        |             |       |             | —       |             |       |             | 947        |   |   |   | — |   |   |   | 1,148 |   |   |
| (Loss) income  from continuing operations before income taxes and minority interests |       |               | (35,608    | )                |       |             | 32,909       |             |       |             | 1,187      |   |   |   | — |   |   |   | (1,512 | ) |   |
| (Benefit) provision for income taxes                                                 |       |               | (2,874     | )                |       |             | 12,182       |             |       |             | 363        |   |   |   | — |   |   |   | 9,671 |   |   |
| Minority interests                                                                        |       |               | (704       | )                |       |             | —       |             |       |             | —     |   |   |   | — |   |   |   | (704 | ) |   |
| Equity in earnings of subsidiaries                                                   |       |               | 21,551     |             |       |             | —       |             |       |             | —     |   |   |   | (21,551 | ) |   |   | — |   |   |
| Net (loss) income  from continuing operations                                             |       |               | (11,887    | )                |       |             | 20,727       |             |       |             | 824        |   |   |   | (21,551 | ) |   |   | (11,887 | ) |   |
| Discontinued  operations:                                                                 |       |               |       |             |       |             |         |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| (Loss) income  from operations of discontinued business                                   |       |               | (9,642     | )                |       |             | —  |             |       |             | (16,384    | ) |   |   | 16,384 |   |   |   | (9,642 | ) |   |
| Net (loss) income                                                                         |       |               | $          | (21,529          | )          |             |         | $                | 20,727     |             |       |   | $ | (15,560 | ) |   |   | $ | (5,167 | ) |   |   | $ | (21,529 | ) |   |

 

19

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**Advanstar Communications Inc.Condensed Consolidating Statements of Cash Flows (Unaudited)For the nine months ended September 30, 2004(In thousands)**
| ** **                                                                                | ** ** | **Communications** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  Total** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
| Operating  activities:                                                                    |       |               |       |                        |       |                           |       |             |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Net (loss) income                                                                         |       |               | $          | (21,529                     | )          |                           |       | $                | 20,727     |                    |       |   | $ | (15,560 | ) |   |   | $ | (5,167 | ) |   |   | $ | (21,529 | ) |   |
| Adjustments to reconcile net (loss) income to net  cash provided by operating activities: |       |               |       |                        |       |                           |       |             |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Equity in earnings of subsidiaries                                                   |       |               | (5,167     | )                           |       |                           | —     |             |       |                    | —     |   |   |   | 5,167 |   |   |   | — |   |   |
| Gain on derivative financial instruments                                                  |       |               | (1,300     | )                           |       |                           | —     |             |       |                    | —     |   |   |   | — |   |   |   | (1,300 | ) |   |
| Impairment of goodwill                                                                    |       |               | —     |                        |       |                           | —     |             |       |                    | 15,570     |   |   |   | — |   |   |   | 15,570 |   |   |
| Depreciation and amortization                                                             |       |               | 25,180     |                        |       |                           | 10,377     |             |       |                    | 1,220      |   |   |   | — |   |   |   | 36,777 |   |   |
| Other noncash items                                                                       |       |               | 9,304      |                        |       |                           | 147        |             |       |                    | 48         |   |   |   | — |   |   |   | 9,499 |   |   |
| Change in working capital items                                                           |       |               | 7,837      |                        |       |                           | (30,563    | )                |       |                    | (4,478     | ) |   |   | — |   |   |   | (27,204 | ) |   |
| Net cash provided by (used in) operating activities                                       |       |               | 14,325     |                        |       |                           | 688        |             |       |                    | (3,200     | ) |   |   | — |   |   |   | 11,813 |   |   |
| Investing activities:                                                                     |       |               |       |                        |       |                           |       |             |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Additions to property, plant and equipment                                                |       |               | (5,406     | )                           |       |                           | (688       | )                |       |                    | (194       | ) |   |   | — |   |   |   | (6,288 | ) |   |
| Acquisitions of publications and trade shows, net of  proceeds                            |       |               | (7,915     | )                           |       |                           | —     |             |       |                    | —     |   |   |   | — |   |   |   | (7,915 | ) |   |
| Proceeds from sale of business and other assets                                           |       |               | 20,539     |                        |       |                           | —     |             |       |                    | 3,755      |   |   |   | — |   |   |   | 24,294 |   |   |
| Net cash provided by (used in) investing activities                                       |       |               | 7,218      |                        |       |                           | (688       | )                |       |                    | 3,561      |   |   |   | — |   |   |   | 10,091 |   |   |
| Financing activities:                                                                     |       |               |       |                        |       |                           |       |             |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Borrowings of long term debt, net                                                         |       |               | (10,875    | )                           |       |                           | —     |             |       |                    | —     |   |   |   | — |   |   |   | (10,875 | ) |   |
| Deferred financing costs                                                                  |       |               | (302       | )                           |       |                           |       |             |       |                    |       |   |   |   |   |   |   |   | (302 | ) |   |
| Dividends paid to minority interest holders                                               |       |               | —     |                        |       |                           | —     |             |       |                    | —     |   |   |   | — |   |   |   | — |   |   |
| Net cash used in financing activities                                                     |       |               | (11,177    | )                           |       |                           | —     |             |       |                    | —     |   |   |   | — |   |   |   | (11,177 | ) |   |
| Effect of exchange rate changes on cash                                                   |       |               | —     |                        |       |                           | —     |             |       |                    | 661        |   |   |   | — |   |   |   | 661 |   |   |
| Net increase in cash and cash equivalents                                                 |       |               | 10,366     |                        |       |                           | —     |             |       |                    | 1,022      |   |   |   | — |   |   |   | 11,388 |   |   |
| Cash and cash equivalents, beginning of year                                              |       |               | 21,568     |                        |       |                           | —     |             |       |                    | 7,706      |   |   |   | — |   |   |   | 29,274 |   |   |
| Cash and cash  equivalents, end of year                                                   |       |               | $          | 31,934                      |       |                           |       | $                | —     |                    |       |   | $ | 8,728 |   |   |   | $ | — |   |   |   | $ | 40,662 |   |   |

 

20

----

**Advanstar Communications Inc.Condensed Consolidating Balance Sheets (Unaudited)At December 31, 2003(In thousands)**
| ** **                                             | ** ** | **Communications** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  Total** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
| **ASSETS**                                             | ** ** |               | ** ** | ** **                  |       |                           | ** ** | ** **       |       |                    | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current assets:                                        |       |               |       | ** **                  |       |                           |       | ** **       |       |                    |       | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |
| Cash and cash  equivalents                             |       |               | $          | 21,568                      | ** ** |                           |       | $                | —     | ** **              |       |   | $ | 7,706 | ** ** |   |   | $ | — | ** ** |   |   | $ | 29,274 | ** ** |   |
| Accounts  receivable, net                              |       |               | 30,256     | ** **                  |       |                           | —     | ** **       |       |                    | 3,588      | ** ** |   |   | — | ** ** |   |   | 33,844 | ** ** |   |
| Prepaid expenses                                       |       |               | 4,626      | ** **                  |       |                           | 1,547      | ** **       |       |                    | 1,719      | ** ** |   |   | — | ** ** |   |   | 7,892 | ** ** |   |
| Other                                                  |       |               | 1,718      | ** **                  |       |                           | —     | ** **       |       |                    | 53         | ** ** |   |   | — | ** ** |   |   | 1,771 | ** ** |   |
| Current assets of discontinued operations              |       |               | 1,047      | ** **                  |       |                           | —     | ** **       |       |                    | 2,269      | ** ** |   |   | — | ** ** |   |   | 3,316 | ** ** |   |
| Total current  assets                                  |       |               | 59,215     | ** **                  |       |                           | 1,547      | ** **       |       |                    | 15,335     | ** ** |   |   | — | ** ** |   |   | 76,097 | ** ** |   |
| Noncurrent assets:                                     |       |               |       | ** **                  |       |                           |       | ** **       |       |                    |       | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |
| Property, plant  and equipment, net                    |       |               | 22,406     | ** **                  |       |                           | 850        | ** **       |       |                    | 502        | ** ** |   |   | — | ** ** |   |   | 23,758 | ** ** |   |
| Deferred tax asset                                     |       |               | 13,524     | ** **                  |       |                           | 35         | ** **       |       |                    | —     | ** ** |   |   | (13,559 | **)** |   |   | — | ** ** |   |
| Intangible and  other assets, net                      |       |               | 515,599    | ** **                  |       |                           | 281,321    | ** **       |       |                    | 43,928     | ** ** |   |   | — | ** ** |   |   | 840,848 | ** ** |   |
| Non current assets  of discontinued operations         |       |               | 18,451     | ** **                  |       |                           | —     | ** **       |       |                    | 27,436     | ** ** |   |   | — | ** ** |   |   | 45,887 | ** ** |   |
| Investments in  subsidiaries                           |       |               | 518,214    | ** **                  |       |                           | —     | ** **       |       |                    | 27,792     | ** ** |   |   | (546,006 | **)** |   |   | — | ** ** |   |
| Intercompany  receivable                               |       |               | 3          | ** **                  |       |                           | 208,188    | ** **       |       |                    | (8,952     | **)** |   |   | (199,239 | **)** |   |   | — | ** ** |   |
|                                                   |       |               | $          | 1,147,412                   | ** ** |                           |       | $                | 491,941    | ** **              |       |   | $ | 106,041 | ** ** |   |   | $ | (758,804 | **)** |   |   | $ | 986,590 | ** ** |   |
| **LIABILITIES AND  STOCKHOLDER’S EQUITY**         |       |               |       | ** **                  |       |                           |       | ** **       |       |                    |       | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |
| Current liabilities:                                   |       |               |       | ** **                  |       |                           |       | ** **       |       |                    |       | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |
| Current maturities  of long-term debt                  |       |               | $          | 3,700                       | ** ** |                           |       | $                | —     | ** **              |       |   | $ | — | ** ** |   |   | $ | — | ** ** |   |   | $ | 3,700 | ** ** |   |
| Accounts payable                                       |       |               | 23,289     | ** **                  |       |                           | 2,738      | ** **       |       |                    | 3,083      | ** ** |   |   | — | ** ** |   |   | 29,110 | ** ** |   |
| Accrued  liabilities                                   |       |               | 23,513     | ** **                  |       |                           | 6,554      | ** **       |       |                    | 4,580      | ** ** |   |   | — | ** ** |   |   | 34,647 | ** ** |   |
| Deferred revenue                                       |       |               | 37,124     | ** **                  |       |                           | 16,954     | ** **       |       |                    | 2,392      | ** ** |   |   | — | ** ** |   |   | 56,470 | ** ** |   |
| Current  liabilities of discontinued operations        |       |               | 4,198      | ** **                  |       |                           | —     | ** **       |       |                    | 749        | ** ** |   |   | — | ** ** |   |   | 4,947 | ** ** |   |
| Total current  liabilities                             |       |               | 91,824     | ** **                  |       |                           | 26,246     | ** **       |       |                    | 10,804     | ** ** |   |   | — | ** ** |   |   | 128,874 | ** ** |   |
| Long-term debt,  net of current  maturities            |       |               | 622,369    | ** **                  |       |                           | —     | ** **       |       |                    | —     | ** ** |   |   | — | ** ** |   |   | 622,369 | ** ** |   |
| Deferred income  taxes and other long-term liabilities |       |               | 12,017     | ** **                  |       |                           | 13,559     | ** **       |       |                    | 295        | ** ** |   |   | (13,559 | **)** |   |   | 12,312 | ** ** |   |
| Intercompany  payable                                  |       |               | 199,239    | ** **                  |       |                           | —     | ** **       |       |                    | —     | ** ** |   |   | (199,239 | **)** |   |   | — | ** ** |   |
| Due to parent                                          |       |               | 3,650      | ** **                  |       |                           | —     | ** **       |       |                    | —     | ** ** |   |   | — | ** ** |   |   | 3,650 | ** ** |   |
| Minority interests                                     |       |               | 9,017      | ** **                  |       |                           | —     | ** **       |       |                    | (5,501     | **)** |   |   | — | ** ** |   |   | 3,516 | ** ** |   |
| Long term  liabilities of discontinued operations      |       |               | —     | ** **                  |       |                           | —     | ** **       |       |                    | 6,573      | ** ** |   |   | — | ** ** |   |   | 6,573 | ** ** |   |
| Stockholder’s equity:                             |       |               |       | ** **                  |       |                           |       | ** **       |       |                    |       | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |
| Common stock                                           |       |               | 10         | ** **                  |       |                           | 3          | ** **       |       |                    | 950        | ** ** |   |   | (953 | **)** |   |   | 10 | ** ** |   |
| Capital in excess  of par value                        |       |               | 447,367    | ** **                  |       |                           | 438,117    | ** **       |       |                    | 112,204    | ** ** |   |   | (550,321 | **)** |   |   | 447,367 | ** ** |   |
| (Accumulated  deficit) retained  earnings              |       |               | (241,594   | **)**                       |       |                           | 14,016     | ** **       |       |                    | (22,839    | **)** |   |   | 8,823 | ** ** |   |   | (241,594 | **)** |   |
| Accumulated other  comprehensive income                |       |               | 3,513      | ** **                  |       |                           | —     | ** **       |       |                    | 3,555      | ** ** |   |   | (3,555 | **)** |   |   | 3,513 | ** ** |   |
| Total  stockholder’s equity                       |       |               | 209,296    | ** **                  |       |                           | 452,136    | ** **       |       |                    | 93,870     | ** ** |   |   | (546,006 | **)** |   |   | 209,296 | ** ** |   |
|                                                   |       |               | $          | 1,147,412                   | ** ** |                           |       | $                | 491,941    | ** **              |       |   | $ | 106,041 | ** ** |   |   | $ | (758,804 | **)** |   |   | $ | 986,590 | ** ** |   |

 

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**AdvanstarCommunications Inc.Condensed Consolidating Statements of Operations (Unaudited)For the three months ended September 30, 2003(In thousands)**
| ** **                                                                                | ** ** | **Communications** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  Total** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
| Revenue                                                                                   |       |               | $          | 37,829                      |       |                           |       | $                | 31,686     |                    |       |   | $ | 4,297 |   |   |   | $ | — |   |   |   | $ | 73,812 |   |   |
| Operating  expenses:                                                                      |       |               |       |                        |       |                           |       |             |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Cost of production and selling, editorial and  circulation                                |       |               | 26,592     |                        |       |                           | 10,169     |             |       |                    | 4,466      |   |   |   | — |   |   |   | 41,227 |   |   |
| General and administrative                                                                |       |               | 6,921      |                        |       |                           | 351        |             |       |                    | 730        |   |   |   | — |   |   |   | 8,002 |   |   |
| Restructuring charge                                                                      |       |               | 2,051      |                        |       |                           | —     |             |       |                    | —     |   |   |   | — |   |   |   | 2,051 |   |   |
| Funding of affiliated company operations                                                  |       |               | 107        |                        |       |                           | —     |             |       |                    | —     |   |   |   | — |   |   |   | 107 |   |   |
| Depreciation and amortization                                                        |       |               | 7,279      |                        |       |                           | 4,822      |             |       |                    | 418        |   |   |   | — |   |   |   | 12,519 |   |   |
| Total operating expenses                                                                  |       |               | 42,950     |                        |       |                           | 15,342     |             |       |                    | 5,614      |   |   |   | — |   |   |   | 63,906 |   |   |
| Operating (loss) income                                                                   |       |               | (5,121     | )                           |       |                           | 16,344     |             |       |                    | (1,317     | ) |   |   | — |   |   |   | 9,906 |   |   |
| Other income  (expense):                                                                  |       |               |       |                        |       |                           |       |             |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                                                                     |       |               | (15,851    | )                           |       |                           | —     |             |       |                    | 169        |   |   |   | — |   |   |   | (15,682 | ) |   |
| Other income, net                                                                         |       |               | (12,231    | )                           |       |                           | —     |             |       |                    | 174        |   |   |   | — |   |   |   | (12,057 | ) |   |
| (Loss) income  from continuing operations before income taxes and minority interests |       |               | (33,203    | )                           |       |                           | 16,344     |             |       |                    | (974       | ) |   |   | — |   |   |   | (17,833 | ) |   |
| (Benefit) provision for income taxes                                                 |       |               | (5,984     | )                           |       |                           | 5,983      |             |       |                    | (176       | ) |   |   | — |   |   |   | (177 | ) |   |
| Minority interests                                                                        |       |               | (141       | )                           |       |                           | —     |             |       |                    | —     |   |   |   | — |   |   |   | (141 | ) |   |
| Equity in earnings of subsidiaries                                                   |       |               | 9,602      |                        |       |                           | —     |             |       |                    | —     |   |   |   | (9,602 | ) |   |   | — |   |   |
| Net (loss) income  from continuing operations                                             |       |               | (17,758    | )                           |       |                           | 10,361     |             |       |                    | (798       | ) |   |   | (9,602 | ) |   |   | (17,797 | ) |   |
| Discontinued  operations:                                                                 |       |               |       |                        |       |                           |       |             |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| (Loss) income  from operations of discontinued business                                   |       |               | (352       | )                           |       |                           | —     |             |       |                    | 39         |   |   |   | (39 | ) |   |   | (352 | ) |   |
| Net (loss) income                                                                         |       |               | $          | (18,110                     | )          |                           |       | $                | 10,361     |                    |       |   | $ | (759 | ) |   |   | $ | (9,641 | ) |   |   | $ | (18,149 | ) |   |

 

 

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**Advanstar Communications Inc.Condensed Consolidating Statements of Operations (Unaudited)For the nine months ended September 30, 2003(In thousands)**
| ** **                                                                                | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Nonguarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| Revenue                                                                                   |       |               | $          | 152,461          |       |             |       | $                | 64,336     |             |       |   | $ | 16,299 |   |   |   | $ | — |   |   |   | $ | 233,096 |   |   |
| Operating  expenses:                                                                      |       |               |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Cost of production and selling, editorial and  circulation                                |       |               | 97,210     |             |       |             | 21,900     |             |       |             | 14,457     |   |   |   | — |   |   |   | 133,567 |   |   |
| General and administrative                                                                |       |               | 22,036     |             |       |             | 991        |             |       |             | 2,661      |   |   |   | — |   |   |   | 25,688 |   |   |
| Restructuring charge                                                                      |       |               | 2,051      |             |       |             | —     |             |       |             | —     |   |   |   | — |   |   |   | 2,051 |   |   |
| Funding of affiliated company operations                                                  |       |               | 742        |             |       |             | —     |             |       |             | —     |   |   |   | — |   |   |   | 742 |   |   |
| Depreciation and amortization                                                        |       |               | 22,216     |             |       |             | 14,558     |             |       |             | 1,484      |   |   |   | — |   |   |   | 38,258 |   |   |
| Total operating expenses                                                                  |       |               | 144,255    |             |       |             | 37,449     |             |       |             | 18,602     |   |   |   | — |   |   |   | 200,306 |   |   |
| Operating income (loss)                                                                   |       |               | 8,206      |             |       |             | 26,887     |             |       |             | (2,303     | ) |   |   | — |   |   |   | 32,790 |   |   |
| Other income  (expense):                                                                  |       |               |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                                                                     |       |               | (40,731    | )                |       |             | —     |             |       |             | 581        |   |   |   | — |   |   |   | (40,150 | ) |   |
| Other income, net                                                                         |       |               | (11,389    | )                |       |             | —     |             |       |             | (520       | ) |   |   | — |   |   |   | (11,909 | ) |   |
| (Loss) Income  from continuing operations before income taxes and minority interests |       |               | (43,914    | )                |       |             | 26,887     |             |       |             | (2,242     | ) |   |   | — |   |   |   | (19,269 | ) |   |
| (Benefit) provision for income taxes                                                 |       |               | (9,871     | )                |       |             | 9,873      |             |       |             | 117        |   |   |   | — |   |   |   | 119 |   |   |
| Minority interests                                                                        |       |               | (334       | )                |       |             | —     |             |       |             | —     |   |   |   | — |   |   |   | (334 | ) |   |
| Equity in earnings of subsidiaries                                                   |       |               | 14,655     |             |       |             | —     |             |       |             | —     |   |   |   | (14,655 | ) |   |   | — |   |   |
| Net (loss) income  from continuing operations                                             |       |               | (19,722    | )                |       |             | 17,014     |             |       |             | (2,359     | ) |   |   | (14,655 | ) |   |   | (19,722 | ) |   |
| Discontinued  operations:                                                                 |       |               |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Income from  operations of discontinued business                                          |       |               | 2,969      |             |       |             | —     |             |       |             | 500        |   |   |   | (500 | ) |   |   | 2,969 |   |   |
| Net (loss) income                                                                         |       |               | $          | (16,753          | )          |             |       | $                | 17,014     |             |       |   | $ | (1,859 | ) |   |   | $ | (15,155 | ) |   |   | $ | (16,753 | ) |   |

 

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**Advanstar Communications Inc.Condensed Consolidating Statements of Cash Flows (Unaudited)For the nine months ended September 30, 2003(In thousands)**
| ** **                                                                                | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Nonguarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| Operating activities:                                                                     |       |               |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Net (loss) income                                                                         |       |               | $          | (16,753          | )          |             |       | $                | 17,014     |             |       |   | $ | (1,859 | ) |   |   | $ | (15,155 | ) |   |   | $ | (16,753 | ) |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |               |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Equity in earnings of subsidiaries                                                        |       |               | (15,155    | )                |       |             | —     |             |       |             | —     |   |   |   | 15,155 |   |   |   | — |   |   |
| Gain on derivative financial instruments                                                  |       |               | 135        |             |       |             | —     |             |       |             | —     |   |   |   | — |   |   |   | 135 |   |   |
| Depreciation and amortization                                                             |       |               | 23,000     |             |       |             | 14,558     |             |       |             | 1,835      |   |   |   | — |   |   |   | 39,393 |   |   |
| Other noncash items                                                                       |       |               | 6,253      |             |       |             | 9,972      |             |       |             | 1,041      |   |   |   | — |   |   |   | 17,266 |   |   |
| Change in working capital items                                                           |       |               | 20,815     |             |       |             | (41,176    | )                |       |             | 880        |   |   |   | — |   |   |   | (19,481 | ) |   |
| Net cash provided by operating activities                                            |       |               | 18,295     |             |       |             | 368        |             |       |             | 1,897      |   |   |   | — |   |   |   | 20,560 |   |   |
| Investing  activities:                                                                    |       |               |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Additions to property, plant and equipment                                                |       |               | (3,733     | )                |       |             | (368       | )                |       |             | (152       | ) |   |   | — |   |   |   | (4,253 | ) |   |
| Acquisitions of publications and trade shows, net of  proceeds                            |       |               | (205       | )                |       |             | —     |             |       |             | (8         | ) |   |   | — |   |   |   | (213 | ) |   |
| Proceeds from sale of business and other assets                                           |       |               | —     |             |       |             | —     |             |       |             | —     |   |   |   | — |   |   |   |   |   |   |
| Net cash used in investing activities                                                     |       |               | (3,938     | )                |       |             | (368       | )                |       |             | (160       | ) |   |   | — |   |   |   | (4,466 | ) |   |
| Financing  activities:                                                                    |       |               |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Borrowings of long term debt, net                                                         |       |               | 74,250     |             |       |             | —     |             |       |             | —     |   |   |   | — |   |   |   | 74,250 |   |   |
| Deferred financing costs                                                                  |       |               | (16,207    | )                |       |             | —     |             |       |             | —     |   |   |   | — |   |   |   | (16,207 | ) |   |
| Contribution of capital from parent                                                       |       |               | 50,000     |             |       |             | —     |             |       |             | —     |   |   |   | — |   |   |   | 50,000 |   |   |
| Dividends paid to minority interest holders                                               |       |               | —     |             |       |             | —     |             |       |             | (227       | ) |   |   | — |   |   |   | (227 | ) |   |
| Net cash used in financing activities                                                     |       |               | 108,043    |             |       |             | —     |             |       |             | (227       | ) |   |   | — |   |   |   | 107,816 |   |   |
| Effect of exchange rate changes on cash                                                   |       |               | (3         | )                |       |             | —     |             |       |             | 456        |   |   |   | — |   |   |   | 453 |   |   |
| Net increase in cash and cash equivalents                                                 |       |               | 122,397    |             |       |             | —     |             |       |             | 1,966      |   |   |   | — |   |   |   | 124,363 |   |   |
| Cash and cash equivalents, beginning of year                                              |       |               | 12,282     |             |       |             | —     |             |       |             | 6,648      |   |   |   | — |   |   |   | 18,930 |   |   |
| Cash and cash  equivalents, end of year                                                   |       |               | $          | 134,679          |       |             |       | $                | —     |             |       |   | $ | 8,614 |   |   |   | $ | — |   |   |   | $ | 143,293 |   |   |

 

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

This quarterly report on Form 10-Qcontains forward-looking statements made pursuant to the safe harbor provisionsof the Private Securities Litigation Reform Act of 1995. Investors arecautioned 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 statementsare neither promises nor guarantees and involve risks and uncertainties thatcould cause actual results to differ materially from those indicated by suchforward-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 do so.Important cautionary statements and risk factors that would affect actualresults are discussed in the our periodic reports and registration statementsfiled with the Securities and Exchange Commission, including those under thecaption entitled “Risk Factors” in the our Post-effective amendment No. 2to Registration Statement on Form S-1 (File No. 333-111155)filed with the Securities and Exchange Commission on May 6, 2004.

**Overview**

We are a worldwide provider of integrated, B-to-Bmarketing communications products and services for targeted industry sectors,principally through trade shows and conferences and through controlledcirculation trade, business and professional magazines. We also provide a broadrange of other market development products, including classified advertising,direct mail services, reprints, database marketing, guides, and referencebooks.

We report ourbusiness in three segments:

·       tradeshows and conferences, which consists primarily of the management of tradeshows and seminars held in convention and conference centers;

·       tradepublications, which consists primarily of the creation and distribution ofcontrolled circulation trade, business and professional magazines; and

·       marketdevelopment and other, which consists primarily of sales of a variety of directmail and database products, magazine editorial reprints and classifiedadvertising.

Trade shows andconferences accounted for approximately 45% and 54% of total revenue in thenine months ended September 30, 2004 and 2003, respectively. Tradepublications accounted for approximately 51% and 41% of total revenue in thenine months ended September 30, 2004 and 2003, respectively, while marketdevelopment and other accounted for approximately 5% and 5% of total revenue inthe nine months ended September 30, 2004 and 2003, respectively. We expectthat publications will constitute slightly more than 50% of our full year 2004revenue as a result of the October 2003 acquisition of the Thomsonhealthcare publications. Our revenue reaches its highest levels during thefirst and third quarters of the year due to the timing of the MAGIC trade showsand our other large trade shows and conferences. Because trade shows andconferences revenue is recognized when a particular event is held, we mayexperience fluctuations in quarterly revenue based on the movement of tradeshow dates from one quarter to another.

**Trends and Developments**

The rebound in marketing and advertising spendingremains variable across the twenty industry sectors served by our trade showsand publications.

Our trade shows and conferencescontinued to perform well in the first nine months. Our MAGIC, Licenseand Home Entertainment events posted gains in square footage and revenue overthe first nine months of 2003. Our Powersports motorcycle events also increasedrevenue significantly over the first nine 

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months last year. Ourtrade shows serving technology markets continue to struggle but our *Sensors* event in the system design andengineering markets began to stabilize after three years of technology marketdeclines. Our recently acquired IVT conferences, which address FDA validationand compliance issues for the pharmaceutical industry, have performed ahead ofour expectations.

The primary driver in the growth of our publishingsegment to date 2004 came from the acquisition of the Thomson healthcareproperties. Our legacy healthcare and pharmaceutical publications arecontinuing their strong growth trend from 2003 in the first nine months of 2004and many of the flagship healthcare publications we recently acquired fromThomson are performing to our acquisition expectations. Trade advertising in aggregateacross our other market sectors in the first nine months of 2004 continues toshow reasonable growth over the first nine months of 2003 with the exception ofour technology and travel sectors, which continue to struggle. We do notanticipate significant near term recovery in either our technology or travelbased publications.

We have identified newopportunities and initiatives that we will be pursuing throughout the year,including opportunities to expand customer relationships and our marketposition in our MAGIC events and the healthcare sector. We are also investingin a significant new product development initiative in our Powersports groupwith the launch of several new publications and tradeshows in the off-roadtruck market.

**Presentation of Financial Information**

*Acquisitions andDivestitures*

On October 1, 2003, we purchased a portfolio ofhealthcare industry magazines and related custom projects business from TheThomson Corporation and its subsidiaries for $136.5 million in cash(including $1.0 million of related fees and expenses) (“the Thomsonacquisition”).

On March 8, 2004, we purchased a portfolio ofpharmaceutical industry specific magazines and conferences from the Instituteof Validation Technology, Inc. (“IVT”) for $7.9 million in cash. In addition, we agreed to payadditional contingent cash consideration based upon 2004 and 2005 operatingresults of the acquired assets.

We have accounted for our acquisitions under thepurchase method of accounting. Accordingly, our results of operations includethe effect of these acquisitions from the date of purchase.

On December 31, 2003, we sold a portfolio ofautomotive and technology industry trade shows and magazines operated by ourU.K. subsidiary for a total sales price of $2.2 million in cash. Total revenuefor these properties in the third quarter and first nine months of 2003 was$1.1 million and $4.0 million, respectively, and contribution margin loss of$0.1 million and $ 0.3 million for third quarter and first nine months of 2003,respectively.

On March 12, 2004, we completed the sale of ourart industry trade shows and magazines (the “Art Group”) for a total sellingprice of $19.6 million in cash. The portfolio included three trade shows andtwo publications. We recorded a gain on the sale of $1.0 million plus a taxbenefit of $2.4 million.

The results of the Art Group have been reported indiscontinued operations in the condensed consolidated statements of operationsfor the nine months ended September 30, 2004 and the three and nine monthsended September 30, 2003. In addition, the assets and liabilities of theArt Group are reported in discontinued operations in the condensed consolidatedbalance sheet at December 31, 2003. Prior year consolidated financialstatements have been restated to present the Art Group in discontinuedoperations.

Revenues of the Art Group, included in discontinuedoperations in the condensed consolidated statements of operations, were $8.5million for the period from January 1, 2004 to March 12, 2004.  For the 

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three and nine monthsended September 30, 2003, Art Group revenues were  $0.5 million and $10.2 million,respectively. Income (loss) before income taxes of the Art Group reported indiscontinued operations in the condensed consolidated statements of operations,which excludes the gain on sale, was $3.4 million for the period from January 1,2004 to March 12, 2004, a loss of $0.4 million for the three months ended September 30,2003 and a profit of $2.5 million for the nine months ended September 30,2003.

On August 5, 2004, we completed the sale, for atotal selling price of $3.1 million in cash, of our 65% ownership in its Frenchjoint venture (“SeCA”), which consisted of one trade show. In connection withthe sale, we recorded a goodwill impairment charge of $9.4 million in thesecond quarter of 2004. The amount of the impairment charge was determinedbased upon the excess of the carrying value of our interest in SeCA over theselling price, less the costs incurred by us to sell SeCA. This charge isreported separately as a component of discontinued operations for the ninemonths ended September 30, 2004.

The results of SeCA have been reported as a componentof discontinued operations in the condensed consolidated statements ofoperations for the three and nine months ended September 30, 2004 and 2003.Prior year consolidated financial statements have been restated to present SeCAin discontinued operations. In addition, the assets and liabilities of SeCA arereported as assets and liabilities of discontinued operations in the condensedconsolidated balance sheet at December 31, 2003.

Revenues of SeCA were $2.9 million from January 1,2004 to June 30, 2004. There were no revenues for the three months ended September 30,2004. Revenues of SeCA were $0.1 million and $3.8 million for the three andnine months ended September 30, 2003. Income (loss) before income taxes ofSeCA, including the goodwill impairment charge of $9.4 million and net ofminority interest, reported in discontinued operations in the condensedconsolidated statements of operations for the nine months ended September 30,2004 was a loss of $8.5 million. SeCA had no income (loss) before income taxesfor the three months ended September 30, 2004. SeCA generated a lossbefore income taxes of $0.3 million and income before income taxes of $0.9million for the three and nine months ended September 30, 2003.

On September 8, 2004, we sold our German tradeshow business (“DMS”) for $1.7 million in cash. In connection with the sale, werecorded a goodwill impairment charge of $6.2 million in the third quarter of2004. The amount of the impairment charge was determined based upon the excessof the carrying value of DMS over the selling price, less the costs incurred byus to sell DMS. This charge is reported as a component of discontinuedoperations for the three and nine months ended September 30, 2004. Prioryear consolidated financial statements have been restated to present DMS indiscontinued operations.

Revenues of DMS were $0.1million for the three and nine months ended September 30, 2004. DMSrevenues were $1.7 million and $1.8 million for the three and nine months endedSeptember 30, 2003. Income (loss) before income taxes, including thegoodwill impairment charge of $6.2 million, reported in discontinued operationsin the condensed consolidated statements of operations for the three and ninemonths ended September 30, 2004 were a loss of $6.5 million and $7.5million. DMS’ income (loss) before income taxes were a profit of $0.3 millionand $0.1 million for the three and nine months ended September 30, 2003,respectively.

*Private Placementof Second Priority Senior Secured Notes and Refinancing of Credit Facility*

In August 2003, we amended our Credit Facility topermit the issuance of $360.0 million of second priority senior securednotes and the use of the proceeds thereof, eliminate the leverage ratiocovenant and amend certain other covenants contained in the Credit Facility andreduce the revolving loan commitments thereunder from $80 million to$60 million. We recorded an expense of $11.3 million in the thirdquarter of 2003 to reflect the write-off of deferred financing costs related tothe term loans, which were repaid with the proceeds of the offering. Ourinterest expense and cash interest is higher as a result of this refinancing.In addition, we reclassified $1.8 million of deferred losses related toour interest rate collar and swap 

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agreements previouslyreported as a component of accumulated other comprehensive income into otherexpenses in the third quarter of 2003. Gains and losses on the portion of theseagreements not designated as hedges of the second priority senior securedfloating rate notes at the end of each fiscal quarter (which are calculated asthe net amount payable upon termination at the date of determination) arerecognized in current earnings.

In September 2003, weissued $70 million of second priority senior secured notes and used thenet proceeds to repay approximately $12 million of outstanding borrowingsunder our revolving Credit Facility and to purchase short-terminvestments pending completion of the Thomson acquisition. On October 1,2003, we used $136.5 million in cash, including $56 million of the netproceeds of the September offering to finance the Thomson acquisition.

**Sourcesof Revenue**

*Trade Shows andConferences*

The trade shows andconferences segment derives revenue principally from the sale of exhibit spaceand conference attendance fees generated at our events. In 2003, approximately 82% of our trade show and conferencerevenue was from the sale of exhibit space. Events are generally held on anannual basis in major metropolitan or convention areas such as New York Cityand Las Vegas. At many of our trade shows, a portion of exhibit space isreserved as much as a year in advance. The sale of exhibit space is generallyimpacted by the ongoing quality and quantity of attendance, venue selection andavailability, industry cycle and general market conditions. Revenue and relateddirect event expenses are recognized in the month in which the event is held.Cash is collected in advance of an event and is recorded on our consolidatedbalance sheet as deferred revenue.

*Trade Publications*

The trade publicationssegment derives revenue principally from the sale of advertising in our B-to-Bmagazines. Additionally, certain publications derive revenue from paidsubscriptions and custom publishing and projects. Paid subscriptions compriseless than 5% of total publishingrevenue. Most publications are produced monthly with advertising sold both on ascheduled and a single insertion basis. The sale of advertising is generallyimpacted by circulation and editorial quality, readership, new product releasesand general market conditions. Advertising revenue is recognized on thepublication issue date, and subscription revenue, if any, is recognized overthe subscription period, typically one year.

*Ma*rketDevelopment and Other

The market developmentsegment derives its revenue from the sale of value-added marketingproducts such as print and internet based classified advertising, direct mailservices, reprints, database marketing, directories, guides and referencebooks. These products complement and utilize the content or databases generatedby our trade shows, conferences and publications. The sale of these products isgenerally impacted by the success of the event or publication from which theseproducts are derived, the quality of the sales team and general marketconditions. Revenue is generally recognized when the applicable product isshipped or otherwise delivered.

**Components of Expenses**

*Trade Shows andConferences*

Costs incurred by thetrade shows and conferences segment include facility rent, attendee andexhibitor promotion and on-site services such as registration, security andset-up. Exhibitors generally contract directly with third parties for on-siteservices such as electrical and booth set-up. Staff salaries and 

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relatedpayroll expenses are treated as monthly period expenses. All other direct costsare expensed in the month the event occurs.

*Trade Publications*

Costs incurred by thetrade publications segment include printing, paper and postage; selling andpromotion; editorial and prepress; and circulation acquisition and fulfillment.Additionally, publisher and sales staff costs, and production, editorial andcirculation staff costs, with related payroll taxes and benefits, are chargedto the publications segment. We outsource the actual printing of ourpublications. Printing, paper and postage costs are charged to operations atthe time of publication issuance. All other direct costs are charged tooperations in the month incurred.

*Market Developmentand Other*

Costs of the marketdevelopment and other segment include printing and distribution costs, databaseadministration fees and selling and product development salaries and relatedpayroll taxes and benefits. All direct costs are expensed in the monthincurred.

**Significant Accounting Policies and Estimates**

The discussion and analysis of our financial conditionand results of operations is based upon our consolidated financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States of America. The preparation of these financialstatements requires management to make estimates and judgments that affect thereported amounts of assets, liabilities, revenues and expenses. We evaluatethese estimates on an ongoing basis, including those related to bad debts,intangible assets and income taxes. We base these estimates on historical experienceand on various other assumptions that we believe to be reasonable under thecircumstances. These estimates form the basis for making judgments about thecarrying values of assets and liabilities that are not readily apparent fromother sources. Actual results may differ from these estimates under differentassumptions or conditions.

We apply the followingcritical accounting policies in the preparation of our consolidated financialstatements:

*Revenue Recognition*

We recognize revenue asdiscussed in the “Sources of Revenue” section above. The balance of deferredrevenue was $34.2 million at September 30, 2004; $12.2 million fortrade publications and $22.0 million for trade shows. On a relative basis,deferred revenue reaches its highest levels during the second and fourthquarters of the year largely due to the timing of the *MAGIC*trade shows and our other large trade shows and conferences.

*Allowance forDoubtful Accounts*

We maintain an allowance for doubtful accounts forestimated losses resulting from the inability of our customers to make requiredpayments. The balance of the allowance for doubtful accounts at September 30,2004 and December 31, 2003 was $1.1 millionand $1.0 million, respectively. If the financial condition of ourcustomers were to deteriorate, resulting in an impairment of their ability tomake payments, additional allowances may be required.

The allowance for doubtfulaccounts is an estimate based on specifically identified accounts as well asgeneral reserves. We evaluate specific accounts where we have information thatthe customer may have an inability to meet its financial obligations. In thesecases, management uses its judgment, based on the best 

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availablefacts and circumstances, to determine if a specific reserve for that customer’sreceivable is warranted. These specific reserves are reevaluated and adjustedas additional information is received that impacts the amount reserved. We alsoestablish a general reserve for all customers based on percentages applied tocustomer balances depending on the age of the amount due. This percentage isbased on historical collection and write-off experience and varies bygeographic region. If circumstances change, our estimates of the recoverabilityof amounts due us could be reduced or increased by a material amount. Such achange in estimated recoverability would be accounted for in the period inwhich the facts that give rise to the change become known.

*Deferred Taxes*

Pursuant to therequirements of SFAS No. 109, we record a valuation allowance to reduceour deferred tax assets to the amount that we determine is more likely than notto be realized. At September 30, 2004, we have recorded a valuationallowance to offset the deferred tax benefit associated with all of our U.S.and foreign net operating loss carryforwards because the realization of thesebenefits is not considered likely. We have considered future taxable income andongoing prudent and feasible tax planning strategies in assessing the need forthe valuation allowance. In the event we were to subsequently determine that wewould be able to realize our deferred tax assets in the future in excess of ournet recorded amount, a reduction in the valuation allowance would result in anincome tax benefit and would increase net income or reduce net loss in theperiod such determination was made. In addition to the deferred tax assets,which are fully reserved, we have established a deferred tax liability basedupon the excess of the carrying value of our goodwill for financial reportingpurposes over the tax basis of this goodwill. We establish this liabilitybecause we do not amortize goodwill for financial reporting purposes but we doamortize goodwill for tax reporting purposes.

*Amortization ofIntangible Assets*

Intangible assets relatedto trade exhibitor and advertiser lists are amortized using a double-decliningbalance method over 6 years and 5 years, respectively. Intangibleassets related to tradenames and trade marks are amortized using astraight-line method over 20 years. Intangible assets related to subscriberlists and other intangible assets are amortized using a straight-line methodover 3 to 10 years. We amortize intangible assets on a basis, whichcorresponds to our projections of future cash flows directly related to theseintangible assets. A change in circumstances could result in a determinationthat asset lives should be changed or that the related assets are impaired andimpairment charges to reduce the carrying value of intangible assets may benecessary. The effect of any changes in useful lives or a determination thatthe carrying value of an intangible asset is impaired would be accounted for inthe period that such determination was made.

*Impairment ofLong-Lived Assets*

We evaluate the carrying value of long-lived assets,including identifiable intangibles, for impairment when events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. If impairment indicators are present and the estimated futureundiscounted cash flows are less than the carrying value of the assets, thecarrying value is reduced to the estimated fair value as measured by theassociated discounted cash flows.

In accordance with the provisions of SFAS No. 142,we evaluate goodwill for impairment using a two-step test based upon a fairvalue approach. The first step is used to identify a potential impairment bycomparing the carrying value of the net assets of each reporting unit to anestimate of the fair value of each of our reporting units (as defined by SFAS No. 142),while the second step calculates the amount of impairment, if any.Additionally, goodwill will be tested for impairment between annual tests if anevent occurs or circumstances change that would more likely than not reduce thefair value of an entity below its 

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carrying value. Wedetermine the fair value of our reporting units by application of a discountedcash flow analysis. If circumstances change, our estimates of fair value willalso change and could result in a determination that additional impairmentcharges to reduce the carrying value of goodwill are necessary. We engaged anappraiser to assist us in completing the first step of our annual goodwillimpairment test for each of our three reporting units as of July 1, 2004. Basedon this first step test, which utilized a discounted cash flow method, therewas no impairment of goodwill indicated.

**Selected Financial Data**

Thefollowing table sets forth selected statements of operations and otherfinancial data.
| ** **                                                                                                                                                                                                                       | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                                       | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                                                                                                                                                                       | ** ** | **2004**                         | ** ** | **2003**                        | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                                                                                                                                                       | ** ** | **(in thousands)**          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| **Income Statement Data:**                                                                                                                                                                                                       |       |                             |       |                            |       |   |   |   |   |
| Revenue                                                                                                                                                                                                                          |       |                             |       |                            |       |   |   |   |   |
| Trade shows and conferences                                                                                                                                                                                                      |       | $                                | 45,864     |                            | $          | 39,923 |   | $ | 135,662 |   | $ | 126,021 |   |
| Publications                                                                                                                                                                                                                     |       | 49,095                           |       | 30,057                          |       | 153,999 |   | 95,576 |   |
| Market development and other                                                                                                                                                                                                     |       | 4,842                            |       | 3,832                           |       | 14,658 |   | 11,499 |   |
| Total revenue                                                                                                                                                                                                                    |       | 99,801                           |       | 73,812                          |       | 304,319 |   | 233,096 |   |
|                                                                                                                                                                                                                             |       |                             |       |                            |       |   |   |   |   |
| Cost of production and  selling                                                                                                                                                                                                  |       |                             |       |                            |       |   |   |   |   |
| Trade shows and conferences                                                                                                                                                                                                      |       | 20,249                           |       | 17,352                          |       | 62,921 |   | 58,387 |   |
| Publications                                                                                                                                                                                                                     |       | 35,163                           |       | 21,003                          |       | 108,632 |   | 65,673 |   |
| Market development and other                                                                                                                                                                                                     |       | 2,249                            |       | 2,115                           |       | 6,825 |   | 6,926 |   |
| Department and support costs                                                                                                                                                                                                     |       | 1,411                            |       | 757                             |       | 4,620 |   | 2,581 |   |
| Total cost of production and selling                                                                                                                                                                                             |       | 59,072                           |       | 41,227                          |       | 182,998 |   | 133,567 |   |
|                                                                                                                                                                                                                             |       |                             |       |                            |       |   |   |   |   |
| General and  administrative expenses                                                                                                                                                                                             |       | 10,209                           |       | 8,002                           |       | 31,758 |   | 25,688 |   |
| Restructuring  charge                                                                                                                                                                                                            |       | —                           |       | 2,051                           |       | — |   | 2,051 |   |
| Funding of  affiliated dot.com company operations                                                                                                                                                                                |       | 308                              |       | 107                             |       | 3,071 |   | 742 |   |
| Depreciation and  amortization                                                                                                                                                                                                   |       | 12,423                           |       | 12,519                          |       | 36,514 |   | 38,258 |   |
| Operating income                                                                                                                                                                                                                 |       | 17,789                           |       | 9,906                           |       | 49,978 |   | 32,790 |   |
| Other income (expense):                                                                                                                                                                                                          |       |                             |       |                            |       |   |   |   |   |
| Interest expense                                                                                                                                                                                                                 |       | (17,268                          | )          | (15,682                         | )          | (52,638 | ) | (40,150 | ) |
| Write-off of deferred financing costs                                                                                                                                                                                            |       | —                           |       | (11,324                         | )          | — |   | (11,324 | ) |
| Other income (expense), net                                                                                                                                                                                                      |       | (385                             | )          | (733                            | )          | 1,148 |   | (585 | ) |
| Income (loss)  from continuing operations before income taxes and minority interests                                                                                                                                             |       | 136                              |       | (17,833                         | )          | (1,512 | ) | (19,269 | ) |
| Provision  (benefit) for income taxes                                                                                                                                                                                            |       | 3,113                            |       | (177                            | )          | 9,671 |   | 119 |   |
| Minority  interests                                                                                                                                                                                                              |       | (267                             | )          | (141                            | )          | (704 | ) | (334 | ) |
| Loss from  continuing operations                                                                                                                                                                                                 |       | (3,244                           | )          | (17,797                         | )          | (11,887 | ) | (19,722 | ) |
|                                                                                                                                                                                                                             |       |                             |       |                            |       |   |   |   |   |
| (Loss) income  from operations of discontinued businesses (including a goodwill impairment  charge of $6,150 and $15,570 net of minority interest of $0 and $5,072 for  the three and nine months ended September 30, 2004) |       | (6,604                           | )          | (352                            | )          | (9,642 | ) | 2,969 |   |
| Net loss                                                                                                                                                                                                                         |       | $                                | (9,848     | )                               | $          | (18,149 | ) | $ | (21,529 | ) | $ | (16,753 | ) |

 

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**Results of Operations**

**THREE MONTHS ENDEDSEPTEMBER 30, 2004 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2003**

*Revenue*

Revenue in the third quarter of 2004 increased 35.2%to $99.8 million from $73.8 million in the third quarter of 2003.

Revenue from trade shows and conferences increased$5.9 million, or 14.9%, to $45.9 million in the third quarter of 2004 due tothe strong performance of the fall 2004 MAGIC event, which increased totalsquare feet and revenue approximately 12% compared to the fall 2003 event. OurIVT pharmaceutical conferences acquired in March 2004, and the CentralVeterinary Conference acquired in October 2003, contributed $3.5 millionof revenue in the quarter.  These revenuegains were partially offset by poor performance in technology events heldduring the quarter.

Revenue from publications increased $19.0 million, or63.3%, to $49.1 million in the third quarter of 2004 from $30.1 million in thethird quarter of 2003. The Company’s healthcare and pharmaceutical publicationscontributed approximately $18.7 million in revenue to this increase, whichincluded $16.6 million from the Thomson healthcare properties acquired in October 2003.Revenue increases are also attributable to strong performances by *American Spa*; *Video Store*; *Hotel &Motel Management*; *Golfdom*;*Pest Control* and *Motor Age* as well as the launch of two newpublications, *Off Road Retailer*and *Dirt Sports*, in the off roadtruck and dirt sports markets. The positive performance of these publicationswas partially offset by revenue reductions attributable to the sale of certainUK publications in December 2003 and declines in our technology and travelpublications. Overall advertising pages for the third quarter of 2004increased 36.3% compared to the third quarter of 2003, principally due to ourhealthcare and pharmaceutical properties.

Revenue from marketdevelopment and other in the third quarter of 2004 increased 26.4% to $4.8 millionfrom $3.8 million in the third quarter of 2003, reflecting positive results inclassified and recruitment advertising, list sales and permissions, which wereprincipally the result of the Thomson acquisition.

*Cost of productionand selling*

Cost of production and selling expenses in the thirdquarter of 2004 increased 43.3% to $59.1 million from $41.2 million in thethird quarter of 2003 primarily due to the Thomson acquisition in October 2003.

Expenses of trade shows and conferences in the thirdquarter of 2004 increased 16.7% to $20.2 million from $17.4 million in thethird quarter of 2003. The increase is principally due to our investment in thefall MAGIC event, including the addition of new exhibit areas and showfeatures, and our IVT and Veterinary conferences acquired in late 2003 andearly 2004, as further discussed above.

Expenses of trade publications in the third quarter of2004 increased 67.4% to $35.2 million from $21.0 million in the third quarterof 2003. Trade publication expenses were impacted by $14.4 million ofadditional costs associated with our healthcare publications, principallyrelated to our acquisition of the Thomson healthcare publications in October 2003and IVT in March 2004. Expenses also increased due to new investments insales resources to support our healthcare publications. These cost increaseswere partially offset by cost savings of $1.6 million attributable to the saleof certain of our U.K. based properties at the end of 2003. Prices for paperand postage have increased slightly in the third quarter of 2004 compared tothe third quarter of 2003. We have indications that paper prices will increase5% to 8% by the end of the first quarter of 2005.

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Expenses of market development and other remainedstable at $2.2 million in the third quarter of 2004 compared to $2.1 million inthe third quarter of 2003.

Department and supportcosts increased $0.7 million to $1.4 million compared to the third quarter of2003 due to higher departmental production staff costs related to support ofthe publications acquired in the Thomson acquisition and additional staffrelated to a pending launch of publications serving the Powersports market.

*General andadministrative expenses*

General and administrativecosts increased $2.2 million to $10.2 million in the third quarter of 2004 from$8.0 million in the third quarter 2003. The increase includes higher office andadministrative costs attributable to the acquisition of the Thomson healthcareproperties which resulted in the addition of three offices and approximately300 employees.

*Restructuringcharge*

In the third quarter of2003 Advanstar recorded a restructuring charge of $2.1 million related to theconsolidation of the Company’s midtown New York leased office space from twofloors to one floor**.**The charge****principally represents remaining facilitylease costs.

*Funding ofaffiliated dot.com company operations*

Advanstar.com, Inc. (“Advanstar.com”), anaffiliate of ours, operates our event and publication-related web sites anddevelops certain enhanced web opportunities to serve our customers in selectedindustries. We provide Advanstar.com with certain administrative supportservices and charge for these services based on a general overhead charge. Inaddition, we share selected sales, editorial, marketing and production staffwith Advanstar.com. We also provide Advanstar.com with marketing andpromotional support through advertising pages in our trade publicationsand exhibit space in our trade shows. In return, Advanstar.com provides us withsupport on its web sites for trade publications and trade shows.

Expense associated withour funding of Advanstar.com in the third quarter of 2004 increased $0.2 millionto $0.3 million from $0.1 million in the third quarter of 2003. Asdescribed in “—Recent Accounting Developments”, we expect to beginconsolidating the operations of Advanstar.com with those of the Company,effective on January 1, 2005.

*Depreciation andamortization*

Depreciation andamortization expense in the third quarter of 2004 declined $0.1 million to$12.4 million from $12.5 million in the third quarter of 2003primarily due to the effect of the declining balance method of acceleratedamortization on our exhibitor and advertiser lists, partially offset byadditional amortization related to the Thomson and IVT acquisitions.

*Interest expense*

Interest expense in the third quarter of 2004increased $1.6 million, or 10.1%, to $17.3 million from $15.7 million inthe third quarter of 2003 due to an increase in our weighted-average debtoutstanding of approximately $57.3 million as a result of our issuance of $360million of Senior Secured Notes in August 2003 and $70 million SeniorSecured Notes in September 2003, offset by a decrease in our debtoutstanding under the Credit Facility due to the repayment, in August 2003of all but $25 million of the outstanding term B loans and a portion of ourrevolving credit borrowings under our Credit Facility. See “Presentation ofFinancial Information—PrivatePlacement of Second Priority Senior Secured Notes and Refinancing of CreditFacility”.

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At September 30,2004, $461.4 million, or 75%, of our total debt is at a fixed rate with thebalance subject to interest rate fluctuations. A 100 basis point increase ininterest rates on our current variable rate debt would result in an increase inannual interest expense of $1.5 million. We previously entered into an interest rate collaragreement to hedge our interest rate risk on these variable rate borrowings.The agreement expired in February 2004 and we currently have no plans to renew this interest rate collar agreement orotherwise hedge our remaining floating rate debt.

*Other income(expense), net*

Other expense for thethird quarter of 2004 declined $0.3 million to $0.4 million from $0.7 millionin the third quarter of 2003, principally due to a decline in losses on foreigncurrency translation adjustments and interest rate protection agreements.

*Provision (benefit)for income taxes*

The provision for incometaxes was $3.1 million in the third quarter of 2004 compared to a benefit of$0.2 million in the third quarter of 2003. The third quarter 2004 provision relatesto income 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. We recorded no income taxbenefit related to the net operating losses we generated during 2003 or 2004 becausewe have established a valuation allowance to offset any related tax benefitsdue to uncertainty about realization of these benefits. Our third quarter 2003provision relates to income tax benefits in certain foreign jurisdictions.

*Discontinuedoperations*

On September 8, 2004, as a result of the sale ofDMS we recorded a goodwill impairment as a component of discontinued operationsfor the three months ended September 30, 2004. Income (loss) before incometaxes, including the goodwill impairment charge of $6.2 million, reported indiscontinued operations in the condensed consolidated statements of operationsfor the three  months ended September 30,2004 were a loss of $6.4 million. DMS’ income (loss)before income taxes were a profit of $0.3 million for the three months ended September 30,2003.

See further informationregarding discontinued operations of DMS in “—Presentation of FinancialInformation”.

**NINE MONTHS ENDEDSEPTEMBER 30, 2004 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30,2003**

*Revenue*

Revenue in the first nine months of 2004 increased30.6% to $304.3 million from $233.1 million in the first nine months of 2003.

Revenue from trade shows and conferences increased$9.6 million, or 7.7%, to $135.7 million in the first nine months of 2004 from$126.0 million in the first nine months of 2003. The increase reflects strongperformances from MAGIC, as well as the Powersports motorcycle, License andHome Entertainment events. MAGIC revenue and square footage for the 2004 eventsincreased approximately 8.8% and 8.4%, respectively, over 2003. Revenue for thefirst nine months of 2004 from the Powersports events, including the DealerExpo trade show and the International Motorcycle Show tour, increased 14.7%over the first nine months of last year, while revenue from our License andHome Entertainment events increased 24.4% and 33.4%, respectively, over thefirst nine months of last year. Our acquisitions in October 2003 of aveterinary conference from Thomson, and in March 2004 of pharmaceuticalconferences from IVT, combined with new product launches, contributedadditional revenue of $6.8 million in first nine months of 

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2004 compared to 2003. Theserevenue gains were partially offset by our decision to hold three fewer eventsin the technology and beauty markets, revenue reductions attributable to thesale of certain UK events in December 2003, the cancellation of our *Industry 212* event which was held during2003, and declining performance at our technology events.

Revenue from publications increased $58.4 million, or61.1%, to $154.0 million in the first nine months of 2004 from $95.6 million inthe first nine months of 2003. The Thomson healthcare publications and specialprojects acquired in October 2003 contributed $55.6 million in revenue.Revenue was also driven by strong performances from our specialty carehealthcare publications; our pharmaceutical and science publications; *DVM; American Spa; Pharm Tech Europe; Video Store;**Motor Age* and several productlaunches. These increases were partially offset by continued declines in theperformance of our travel publications and revenue reductions attributable tothe sale of certain UK publications in December 2003. Overall advertising pages increased31.5%, principally due to our healthcare and pharmaceutical properties. 

Revenue from market development and other in the firstnine months of 2004 increased $3.2 million, or 27.5% to $14.7 million from$11.5 million in the first nine months of 2003, due to positive results inclassified and recruitment advertising, list sales and reprints, whichprincipally resulted from the Thomson acquisition.

*Cost of productionand selling*

Cost of production and selling expenses in the firstnine months of 2004 increased 37.0% to $183.0 million from $133.6 millionin the first nine months of 2003 primarily due to the acquisition of thehealthcare properties in October 2003.

Expenses of trade shows and conferences in the firstnine months of 2004 increased 7.8% to $62.9 million from $58.4 millionin the first nine months of 2003. This increase was due primarily to the impactof investments made in our MAGIC and Powersports events to pursue futurerevenue growth opportunities, several launches of new events in the UnitedStates and Europe and our IVT and Veterinary conferences acquired in late 2003and early 2004. These increases in costs were partially offset by cost savingsassociated with our decision to hold three fewer events serving our technologyand beauty markets in 2004 and cost reductions related to our sale of certainof our U.K. based properties at the end of 2003.

Expenses of trade publications in the first ninemonths of 2004 increased 65.4% to $108.6 million from $65.7 million in thefirst nine months of 2003. Operating costs were impacted by $45.3 million ofadditional costs associated with our healthcare publications, principally ouracquisition of the Thomson healthcare publications in October 2003 and IVTin March 2004. These cost increases were partially offset by cost savingsof $4.0 million attributable to the sale of certain of our U.K. basedproperties at the end of 2003. Prices for paper and postage have increasedslightly in the first nine months of 2004 compared to the first nine months of2003. We have indications that paper prices will increase 5% to 8% by the endof the first quarter of 2005.

Expenses of market development and other in the firstnine months declined 1.5% to $6.8 million from $6.9 million in the first ninemonths of 2003, due to cost savings associated with the refocusing of ourmarket development department.

Department and supportcosts in the first nine months of 2004 increased $2.0 million to $4.6 million,due to increased staffing as a result of the Thomson acquisition.

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*General andadministrative expenses*

General and administrativeexpenses increased $6.1 million, or 23.6% to $31.8 million in the first ninemonths of 2004 from $25.7 million in the first nine months 2003, due in part toincreased office and administrative costs attributable to the addition of threeoffices and approximately 300 employees as a result of the acquisition of theThomson healthcare properties.

*Restructuringcharge*

In the third quarter of2003 Advanstar recorded a restructuring charge of $2.1 million related to theconsolidation of the Company’s midtown New York leased office space from twofloors to one floor****andprincipally represents remaining facility lease costs.

*Funding ofaffiliated dot.com company operations*

Advanstar.com, Inc. (“Advanstar.com”), anaffiliate of ours, operates our event and publication-related web sites anddevelops certain enhanced web opportunities to serve our customers in selectedindustries. We provide Advanstar.com with certain administrative supportservices and charge for these services based on a general overhead charge. Inaddition, we share selected sales, editorial, marketing and production staffwith Advanstar.com. We also provide Advanstar.com with marketing andpromotional support through advertising pages in our trade publicationsand exhibit space in our trade shows. In return, Advanstar.com provides us withsupport on its web sites for trade publications and trade shows.

Expense associated withour funding of Advanstar.com in the first nine months of 2004 increased $2.3 millionto $3.1 million from $0.7 million in the first nine months of 2003. In thesecond quarter of 2004, we funded Advanstar.com $1.9 million for the buyout oftheir long-term facility lease in New York. As described in “—Recent AccountingDevelopments”, we expect to begin consolidating the operations of Advanstar.comwith those of the Company, effective on January 1, 2005.

*Depreciation andamortization*

Depreciation andamortization expense in the first nine months of 2004 declined $1.7 million to$36.5 million from $38.3 million in the first nine months of 2003primarily due to the effect of the declining balance method of acceleratedamortization on our exhibitor and advertiser lists, partially offset byadditional amortization related to the assets purchased in the Thomson and IVTacquisitions.

*Interest expense*

Interest expense in thefirst nine months of 2004 increased $12.5 million, or 31.1%, to $52.6 millionfrom $40.2 million in the first nine months of 2003 due to an increase in our weighted-averageinterest rate of approximately 260 basis points and an increase in ourweighted-average debt outstanding of approximately $62.3 million as a result ofour financings in August and September 2003. See “Presentation ofFinancial Information—Private Placement of Second Priority Senior Secured Notesand Refinancing of Credit Facility”.

*Other income(expense), net*

Other income in the firstnine months of 2004 increased $1.7 million to $1.1 million from expense of $0.6million in the first nine months of 2003. This increase is attributable togains associated with our interest rate protection agreement, which expired in February 2004,and foreign currency translation gains.

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*Provision (benefit)for income taxes*

The provision for incometaxes was $9.7 million in the first nine months of 2004 compared to $0.1 millionin the first nine months of 2003. Our income tax provision for the first ninemonths 2004 relates to income taxes in certain foreign jurisdictions and adeferred tax provision related to the basis of goodwill for tax purposes beingless than the carrying value of goodwill for financial reporting purposes. Werecorded no income tax benefit related to the net operating losses we generatedduring 2003 because we have established a valuation allowance to offset anyrelated tax benefits due to uncertainty about realization of these benefits. Ourfirst nine months 2003 provision relates to income taxes in certain foreignjurisdictions.

*Discontinuedoperations*

In conjunction with the saleof the Art Group in the first quarter of 2004, we recorded a gain on thesale of $1.0 million plus a tax benefit of $2.4 million. Pretax profit of the Art Groupreported was $3.4 million for the period from January 1, 2004 to March 12,2004 and $2.5 million for the nine months ended September 30, 2003.

In the second quarter 2004, in conjunction with oursale of SeCA we recorded a goodwill impairment charge of $9.4 million. Pretaxresults of SeCA, net of minority interest, were a loss of $8.5 million andincome of $1.1 million for the nine months ended September 30, 2004 and2003.

In the third quarter 2004, as a result of the sale ofDMS we recorded a goodwill impairment as a component of discontinued operationsfor the three months ended September 30, 2004. Pretax results, includingthe goodwill impairment charge of $6.2 million, reported in discontinuedoperations in the condensed consolidated statements of operations for the ninemonths ended September 30, 2004 were a loss of $7.5 million. Pretaxresults were a profit of $0.1 million for the nine months ended September 30,2003.

See further informationregarding discontinued operations of the Art Group, SeCA and DMS in“—Presentation of Financial Information”.

**Liquidity and Capital Resources**

Our principal sources ofliquidity have been, and are expected to be, cash flows from operations andborrowings under our Credit Facility. Our principal uses of cash have been, andare expected to be, the debt service requirements of our indebtedness describedbelow, capital expenditures, investments in our publications and trade showsand strategic acquisitions.

*Sources and Uses ofFunds*

We generally operate with negative working capital,excluding cash and current maturities of long-term debt, due to the impact ofdeferred revenue from trade shows, which is billed and collected as deposits upto one year in advance of the respective trade show. Consequently, our existingoperations are expected to maintain very low or negative working capitalbalances, excluding cash and current maturities of long-term debt.

On a relative basis, our revenue reaches its highestlevels during the first and third quarters of the year largely due to thetiming of the *MAGIC* trade shows and our otherlarge trade shows and conferences. This seasonality, when combined with theshift in the timing of when events take place from year to year, may have asignificant effect on our quarterly deferred revenue and working capitalbalances.

 

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We anticipate that our operating cash flow, togetherwith borrowings under the credit facility (assuming continued compliance withthe covenants contained therein or a modification thereof) and other futurefinancings and refinancings, will be sufficient to meet our anticipated futureoperating expenses, capital expenditures, debt service and other obligations asthey become due. However, our ability to make scheduled payments of principal,to pay interest on or to refinance our indebtedness and to satisfy our otherdebt obligations will depend upon our future operating performance, which willbe affected by general economic, financial, competitive, legislative,regulatory, business and other factors beyond our control.

Historically, our financing requirements have beenfunded primarily through cash generated by operating activities and borrowingsunder our revolving credit facility. From time to time, we have also raisedadditional funds through sales of common stock, high yield offerings and termborrowings under our credit facility for purposes of completing strategicacquisitions.

Operating cash flows may be significantly affected bythe working capital characteristics of our business, in particular the tradeshows and conferences business. Deferred revenue increases on the balance sheetin the quarters immediately preceding our busy first quarter trade show seasonas we collect deposits for booth space several months in advance of the tradeshows. Revenue and contribution margin are recognized in the quarter as theevents are held, releasing the deferred revenue from the balance sheetresulting in a use of cash from the increase in net operating assets.

*Cashflows from operating activities**  *Netcash provided by operations in the first nine months of 2004 declined$8.8 million to $11.8 million compared to $20.6 million in the firstnine months of 2003. This decline was principally due to an increase ininterest expense of $12.5 million and a reduction in our negative workingcapital due to the release of deferred revenue in the first nine months of 2004attributable to advertising programs for our healthcare publications which wereprepaid in the fourth quarter of 2003, sold and discontinued trade shows and tochanges in the timing of our payments of accounts payable in the first ninemonths of 2004. These declines were partially offset by an increase inoperating income of $17.2 million in the first nine months of 2004 compared tothe first nine months of 2003.

*Cashflows provided by (used in) investing activities**  *Net cash provided by investing activities in thefirst nine months of 2004 was$10.1 million compared to net cash used in investing activities of $4.5million in the first nine months of 2003. This change was principally due to thesale in 2004 of our art shows and magazines and our call center and documentmanagement shows for a total sales price of $24.3 million in cash, partiallyoffset by $7.9 million in cash used for the acquisition of the pharmaceuticalpublications and conferences as further discussed below.

We made capital expenditures of $6.3 million and $4.3million in the first nine months of 2004 and 2003, respectively. We anticipatethat we will spend approximately $7.5 millionon capital expenditures in 2004. The majority of these expenditures are relatedto expansions and enhancements to our IT and communications infrastructure andmanagement and operating group information systems. We believe that this amountof capital expenditure will be adequate to meet the needs of our businessaccording to our business strategy and to maintain the key trade shows,publications and business of our continuing operations.

Cash used for acquisitions in the first nine months of2004 increased $7.7 million compared to the first nine months of 2003 dueto the acquisition in March 2004 of IVT conferences and magazines for$7.9 million in cash. Ourbusiness strategy includes the consummation of strategic acquisitions. Inconnection with any future acquisitions, we may require additional funding,which may be provided in the form of additional debt or equity financing or acombination thereof. There can be no assurance that any additional financingwill be available to us on acceptable terms or in a manner that complies withthe restrictive covenants in our debt instruments.

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*Cash flows used infinancing activities**  *Cashused in financing activities in the first nine months of 2004 were $11.2 million compared tocash provided by financing activities in the first nine months of 2003 of$107.8 million. We paid down $10.9 million in debt during the first ninemonths of 2004, including $8.0 million on our revolving credit facility. Duringthe third quarter of 2003 we issued $430 million principal amount of the SeniorSecured Notes and received $50.0 million in equity contributions from ourparent company. We used the proceeds from these issuances to repay andterminate all outstanding term A loans and $12.0 million of outstandingborrowings under our revolving Credit Facility, and pay fees of $12.3 millionin connection with the offering. Fees paid to our senior lenders for anamendment to our Credit Facility in April 2003 were $3.9 million.

*Debt Service.*

As of September 30,2004, we had total indebtedness of $615.1 millionand $59.1 million of borrowings available under our revolving CreditFacility. Our principal debt obligations are described below.

*Credit Facility*

Our Credit Facilityconsists of a $60.0 million revolving credit facility and$25.0 million outstanding under the Term Loan B facility. The revolvingcredit facility will terminate in April 2007 and the Term Loan B maturesin October 2008. Borrowings under the Credit Facility generally bearinterest based on a margin over, at our option, the base rate or LIBOR. Theapplicable margin for revolving credit loans varies based upon our ratio ofconsolidated debt to EBITDA, as defined in the Credit Facility, and iscurrently 3.75% over LIBOR and 2.50% over the base rate. The applicable marginfor the Term Loan B varies based upon the rating assigned by S&P andMoody’s to our Credit Facility and is currently 4.50% over LIBOR and 3.25% overthe base rate. Our obligations under the Credit Facility are guaranteed byAdvanstar Holdings Corp. (“Advanstar Holdings”), our ultimate parent company,Advanstar, Inc., our direct parent company, and all our existing andfuture domestic subsidiaries and are collateralized by substantially all of theassets of our company and the subsidiary guarantors, including a pledge of thecapital stock of all our existing and future domestic subsidiaries, a pledge ofno more than 65% of the voting stock of any foreign subsidiary directly ownedby our company or any domestic subsidiary, a pledge of all intercompanyindebtedness in favor of our company and our domestic subsidiaries, a pledge ofour company’s and Advanstar IH, Inc.’s capital stock by our parentcompany, and a pledge of our parent company’s capital stock by AdvanstarHoldings. Our Credit Facility contains restrictive covenants, which require usto, among other things, maintain a minimum fixed charge coverage ratio (asdefined in the credit facility documents) as of the end of each fiscal quarter.Although there can be no assurance, we believe, based on our anticipatedperformance and expected economic conditions, that we will be able to complywith the amended financial covenant contained in the Credit Facility in 2004.

*Second PrioritySenior Secured Notes*

Our $129 millionof floating rate notes mature in 2008 and our $300 million of fixed ratenotes mature in 2010. The notes of each series 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). Thefixed rate notes bear interest at an annual rate of 10.75% and the floatingrate notes bear interest at an annual rate equal to the three-monthLIBOR, which is reset quarterly, plus 7.50%. Interest on the fixed rate notesis payable semi-annually in cash and interest on the floating rate notes, alongwith amortization of 0.25% of the principal of such floating rate notes, ispayable quarterly in cash. The notes contain restrictive covenants that, amongother things, limit our ability to incur debt, pay dividends and makeinvestments.

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*Senior SubordinatedNotes*

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

*Parent CompanyNotes*

Our parent, Advanstar, Inc.,issued 15% senior discount notes due October 2011 with a principal amountat maturity of $171.8 million. These discount notes do not require cashinterest payments until April 2006 and contain restrictive covenants that,among other things, limit the ability of Advanstar, Inc. and itssubsidiaries (including us) to incur debt, pay dividends and make investments.Neither we nor any of our subsidiaries have guaranteed the discount notes.Advanstar, Inc., however, is a holding company and its ability to payinterest on these discount notes will be dependent upon the receipt ofdividends from its subsidiaries, principally Advanstar. However, the terms ofour borrowing arrangements significantly restrict our ability to pay dividendsto Advanstar, Inc. and Advanstar, Inc.’s failure to pay these noteswould be a default under our Credit Facility.

*Contractual andcontingent obligations*

Ourcontractual obligations (excluding accounts payable and accrued expenses), asof September 30, 2004 are as set forthbelow (in millions):
| ** **                          | ** ** | **Payments Due By Period** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|
| ** **                          | ** ** | **2004(1)**                               | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **After  2009** | ** ** | **Total** | ** ** |
| Indebtedness                        |       | $                                         | 0.8        |   | $ | 1.3 |   | $ | 1.3 |   | $ | 1.3 |   | $ | 149.5 |   | $ | — |   | $ | 460.0 |   | $ | 614.2 |   |
| Interest on  indebtedness(2)        |       | 19.6                                      |       | 65.2 |   | 65.1 |   | 65.0 |   | 61.4 |   | 51.5 |   | 53.0 |   | 380.8 |   |
| Operating lease  obligations        |       | 1.6                                       |       | 7.1 |   | 6.4 |   | 5.2 |   | 4.6 |   | 3.1 |   | 1.7 |   | 29.7 |   |
| Total Contractual  Cash Obligations |       | $                                         | 22.0       |   | $ | 73.6 |   | $ | 72.8 |   | $ | 71.5 |   | $ | 215.5 |   | $ | 54.6 |   | $ | 514.7 |   | $ | 1,024.7 |   |

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(1)          Forthe period from October 1, 2004 through December 31, 2004.

(2)          Interest on the secondpriority floating rate notes, revolving credit facility and Term Loan B iscalculated using LIBOR of 1.84%,the rate in effect on September 30, 2004. Because the floating rate notes,revolving credit facility and Term Loan B bear interest at a variable rate,actual payments could differ.

We have no materialcapital lease obligations or purchase obligations. Our contingent obligationsare primarily composed of $0.9 million of letters of credit and ourinterest rate and foreign currency derivatives discussed more fully below inItem 3. “Quantitative and Qualitative Disclosure About Market Risk.”

*Off-Balance SheetArrangements.*

We have no materialoff-balance sheet arrangements.

**Recently Issued Accounting Standards**

In December 2003, theFASB issued Interpretation No. 46R, *Consolidationof Variable Interest Entities*, which addresses accounting forspecial-purpose and variable interest entities and which supersededInterpretation No. 46. The provisions of Interpretation No. 46R areeffective for us in the first quarter of 2005. Based upon our preliminaryanalysis, we believe that it will be required to consolidate the 

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operationsof Advanstar.com effective January 1, 2005. If we consolidateAdvanstar.com, management believes the effect of adoption will be to reduce theamount of Advanstar.com losses included in our operating results. We do notexpect this consolidation to have a material effect on our financial position,results of operations or cash flows.

**Item 3.   *Quantitative and Qualitative Disclosures about Market Risk***

We are exposed to variousmarket risks, which is the potential loss arising from adverse changes inmarket rates and prices, such as foreign currency exchange and interest rates.We do not enter into derivatives or other financial instruments for trading orspeculative purposes. We enter into financial instruments to manage and reducethe impact of changes in interest rates and foreign currency exchange rates.

*Interest Rates*

At September 30, 2004, we had fixed rate debt of$461.4 million and variable rate debt of $153.7 million. The annualpre-tax earnings and cash flows impact resulting from a 100 basis pointincrease in interest rates on variable rate debt, holding other variablesconstant and excluding the impact of the hedging agreements described below,would be approximately $1.5 million per year.

The term loan B under ourCredit Facility bears interest at a variable rate. We previously entered intoan interest rate collar agreement to hedge our interest rate risk on theseborrowings. This interest rate collar agreement expired in February 2004. Changesin fair value of the undesignated portion of this instrument were recognized incurrent earnings. We currently have no plans to renew this interest rateprotection agreement or otherwise hedge our remaining floating rate debt.

*Currencies*

Outside of the United States, we maintain assets andoperations in Europe, South America and Asia. The results of operations andfinancial position of our foreign operations are principally measured in theirrespective currency and translated into U.S. dollars. As a result, exposure toforeign currency gains and losses exists. The reported income of thesesubsidiaries will be higher or lower depending on a weakening or strengtheningof the U.S. dollar against the respective foreign currency. Our subsidiariesand affiliates also purchase and sell products and services in variouscurrencies. As a result, we may be exposed to cost increases relative to thelocal currencies in the markets in which we sell.

A portion of our assets are based in our foreignlocations and are translated into U.S. dollars at foreign currency exchangerates in effect as of the end of each period, with the effect of suchtranslation reflected in other comprehensive income (loss). Accordingly, ourconsolidated stockholder’s equity will fluctuate depending upon the weakeningor strengthening of the U.S. dollar against the respective foreign currency.

Our strategy formanagement of currency risk relies primarily on conducting our operations in acountry’s respective currency and may, from time to time, involve currencyderivatives, primarily forward exchange contracts, to reduce our exposure tocurrency fluctuations. As of September 30, 2004, we had open foreignexchange derivative contracts to sell with a notional amount totaling$1.9 million, and to buy with a notional amount totaling$0.5 million. The estimated fair value of the foreign exchange contractsbased upon market quotes was a net liability of approximately$0.1 million. The potential loss in fair value resulting from ahypothetical 10% adverse change in quoted foreign currency exchange ratesamounts to an additional loss of approximately $0.2 million. Actualresults may differ.

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**Item 4.   *Controls and Procedures***

*Evaluationof Disclosure Controls and Procedures.*   Advanstar’sChief Executive 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 SecuritiesExchange Act of 1934, as amended (the “Exchange Act”)) as of the end of theperiod covered by this report (the “Evaluation Date”), have concluded that asof the Evaluation Date, our disclosure controls and procedures were effectiveand designed to ensure that information required to be disclosed by us in thereports that we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the Securities andExchange Commission’s rules and forms.

*Changesin Internal Controls.*   There were no changesduring the third fiscal quarter in our internal controls over financialreporting that have materially affected or are reasonably likely to materiallyaffect the Company’s internal controls over financial reporting.

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# **PART II      OTHERINFORMATION**

| **Item 6.** | Exhibits |                                                                                                                           |
|-------------|----------|--------------------------------------------------------------------------------------------------------------------------------|
|        | 31.1     | Certification of  principal executive officer required by Rule 13a-14(a) or  Rule 15d-14(a) of the Exchange Act |
|        | 31.2     | Certification of  principal financial officer required by Rule 13a-14(a) or  Rule 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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** **

**SIGNATURES**

**Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.**
|                        | ** ** | ADVANSTAR  COMMUNICATIONS INC.                                                                                                                        |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| November 15, 2004 | ** ** | /s/ DAVID W. MONTGOMERY                                                                                                                               |
| ** **             | ** ** | David W. Montgomery                                                                                                                                   |
| ** **             | ** ** | *Vice President—Finance, 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 Rule 15d-14(a) of the  Exchange Act |
| **31.2**         |       | Certification of  principal financial officer required by Rule 13a-14(a) or  Rule 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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