**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

**(MarkOne)**

 
| **ý** | ** ** | **Quarterly Report Pursuant to Section 13 or  15(d) of The Securities Exchange Act of 1934.** |
|------------|------------|---------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                    |
|       |       | **For the quarterly period ended: September 30,  2005**                                            |
|       |       |                                                                                                    |
| **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 other jurisdiction of

incorporation or organization)

 

**59-2757389**

(I.R.S. Employer

Identification No.)

 

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

(Address of principal executive offices)

 

**10016**

(Zip Code)

 

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

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes  ý  No  o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act)  Yes  o  No  ý

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes  o  No  ý

 

As of November 14,2005, 1,000,000 shares of the registrant’s common stock were outstanding.

 

 

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| **PART I**  | **Financial Information**                                                                                                 | ** **   |
|------------------|---------------------------------------------------------------------------------------------------------------------------|--------------|
|             |                                                                                                                      |
| **Item 1.**      | ***Financial Statements:***                                                                                               | *** *** |
|             |                                                                                                                      |         |
|             | Condensed  Consolidated Balance Sheets (unaudited) at September 30, 2005 and December 31,  2004.                |         |
|             |                                                                                                                      |         |
|             | Condensed  Consolidated Statements of Operations (unaudited) for the three months ended September 30,  2005 and 2004 |         |
|             |                                                                                                                      |         |
|             | Condensed  Consolidated Statements of Operations (unaudited) for the nine months ended September 30,  2005 and 2004  |         |
|             |                                                                                                                      |         |
|             | Condensed  Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30,  2005 and 2004  |         |
|             |                                                                                                                      |         |
|             | Notes  to Condensed Consolidated Financial Statements (unaudited).                                                        |         |
|             |                                                                                                                      |         |
| **Item 2.**      | ***Management’s  Discussion and Analysis of Financial Condition and Results of Operations***                         | *** *** |
| ** **       | *** ***                                                                                                              | *** *** |
| **Item 3.**      | ***Quantitative  and Qualitative Disclosures About Market Risk***                                                         | *** *** |
| ** **       | *** ***                                                                                                              | *** *** |
| **Item 4.**      | ***Controls and  Procedures***                                                                                            | *** *** |
| ** **       | *** ***                                                                                                              | *** *** |
| **PART II** | **OTHER INFORMATION**                                                                                                     | ** **   |
| ** **       | *** ***                                                                                                              | *** *** |
| **Item 6.**      | ***Exhibits***                                                                                                            | *** *** |
| ** **       | *** ***                                                                                                              | *** *** |
| **Signatures**   | *** ***                                                                                                              |
|                  |                                                                                                                           |              |  |  |

 

----

 

**PART I FINANCIAL INFORMATION**

 

**Advanstar Communications Inc.**

**Condensed Consolidated BalanceSheets (Unaudited)**

 (In thousands, except share andper share data)

 
| ** **                                                                                                                                                 | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                 | ** ** | **2005**               | ** ** | **2004**              | ** ** |
|                                                                                                                                                       |       |                   |       |                  |       |
| **ASSETS**                                                                                                                                                 | ** ** | ** **             | ** ** | ** **            | ** ** |
|                                                                                                                                                       |       |                   |       |                  |       |
| Current assets:                                                                                                                                            |       |                   |       |                  |       |
| Cash and cash equivalents                                                                                                                                  |       | $                      | 37,996     |                  | $          | 41,223 |   |
| Accounts receivable, net of allowance of $798 and  $785 at September 30, 2005 and December 31, 2004                                              |       | 24,325                 |       | 26,699                |       |
| Prepaid expenses                                                                                                                                           |       | 7,720                  |       | 6,406                 |       |
| Other                                                                                                                                                      |       | 2,633                  |       | 2,450                 |       |
| Current assets of discontinued operations                                                                                                                  |       | —                 |       | 2,690                 |       |
|                                                                                                                                                       |       |                   |       |                  |       |
| Total current assets                                                                                                                                       |       | 72,674                 |       | 79,468                |       |
|                                                                                                                                                       |       |                   |       |                  |       |
| Due from parent                                                                                                                                            |       | 1,379                  |       | —                |       |
|                                                                                                                                                       |       |                   |       |                  |       |
| Property, plant and equipment, net                                                                                                                         |       | 18,701                 |       | 18,717                |       |
|                                                                                                                                                       |       |                   |       |                  |       |
| Intangible and other assets:                                                                                                                               |       |                   |       |                  |       |
| Goodwill                                                                                                                                                   |       | 595,217                |       | 586,967               |       |
| Intangibles and other, net                                                                                                                                 |       | 70,701                 |       | 91,948                |       |
|                                                                                                                                                       |       |                   |       |                  |       |
| Total intangible and other assets, net                                                                                                                     |       | 665,918                |       | 678,915               |       |
|                                                                                                                                                       |       |                   |       |                  |       |
| Non current assets of discontinued operations and  assets held for sale                                                                                    |       | 4,620                  |       | 135,837               |       |
|                                                                                                                                                       |       | $                      | 763,292    |                  | $          | 912,937 |   |
|                                                                                                                                                       |       |                   |       |                  |       |
| **LIABILITIES AND STOCKHOLDER’S EQUITY**                                                                                                              | ** ** | ** **             | ** ** | ** **            | ** ** |
|                                                                                                                                                       |       |                   |       |                  |       |
| Current liabilities:                                                                                                                                       |       |                   |       |                  |       |
| Current maturities of long-term debt                                                                                                                       |       | $                      | 201        |                  | $          | 1,300 |   |
| Accounts payable                                                                                                                                           |       | 16,655                 |       | 13,451                |       |
| Accrued compensation                                                                                                                                       |       | 3,831                  |       | 7,451                 |       |
| Other accrued expenses                                                                                                                                     |       | 30,094                 |       | 32,979                |       |
| Deferred revenue                                                                                                                                           |       | 23,994                 |       | 39,282                |       |
| Current liabilities of discontinued operations                                                                                                             |       | —                 |       | 15,886                |       |
|                                                                                                                                                       |       |                   |       |                  |       |
| Total current liabilities                                                                                                                                  |       | 74,775                 |       | 110,349               |       |
|                                                                                                                                                       |       |                   |       |                  |       |
| Long-term debt, net of current maturities                                                                                                                  |       | 461,849                |       | 612,919               |       |
| Deferred income taxes                                                                                                                                      |       | 32,016                 |       | 18,250                |       |
| Other long-term liabilities                                                                                                                                |       | 4,270                  |       | 4,229                 |       |
| Due to parent                                                                                                                                              |       | —                 |       | 2,698                 |       |
| Long-term liabilities of discontinued operations                                                                                                           |       | —                 |       | 3,627                 |       |
|                                                                                                                                                       |       |                   |       |                  |       |
| Commitments and contingencies                                                                                                                              |       |                   |       |                  |       |
|                                                                                                                                                       |       |                   |       |                  |       |
| Stockholder’s equity:                                                                                                                                 |       |                   |       |                  |       |
| Common stock, $.01 par value, 3,500,000 shares  authorized; 1,000,000 shares issued and outstanding at September 30,  2005 and December 31, 2004 |       | 10                     |       | 10                    |       |
| Capital in excess of par value                                                                                                                             |       | 447,367                |       | 447,367               |       |
| Accumulated deficit                                                                                                                                        |       | (265,897               | )          | (292,757              | )          |
| Accumulated other comprehensive income                                                                                                                     |       | 8,902                  |       | 6,245                 |       |
|                                                                                                                                                       |       |                   |       |                  |       |
| Total stockholder’s equity                                                                                                                            |       | 190,382                |       | 160,865               |       |
|                                                                                                                                                       |       |                   |       |                  |       |
|                                                                                                                                                       |       | $                      | 763,292    |                  | $          | 912,937 |   |

 

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

 

2

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**Advanstar Communications Inc.**

**Condensed Consolidated Statementsof Operations (Unaudited)**

(In thousands)

 
| ** **                                                              | ** ** | **For the**            | ** ** |
|-------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                              | ** ** | **Three Months Ended** | ** ** |
| ** **                                                              | ** ** | **September 30,** | ** ** |
| ** **                                                              | ** ** | **2005**               | ** ** | **2004** | ** ** |
|                                                                    |       |                   |       |   |   |
| Revenue                                                                 |       | $                      | 85,691     |   | $ | 77,957 |   |
|                                                                    |       |                   |       |   |   |
| Operating expenses:                                                     |       |                   |       |   |   |
| Cost of production (excluding depreciation)                             |       | 16,404                 |       | 14,520 |   |
| Selling, editorial and circulation (excluding  depreciation)            |       | 28,582                 |       | 27,357 |   |
| General and administrative (excluding depreciation)                     |       | 8,896                  |       | 8,930 |   |
| Restructuring charge                                                    |       | 1,041                  |       | — |   |
| Funding of affiliated dot.com company operations  (see Note 9)          |       | —                 |       | 308 |   |
| Amortization of intangibles                                             |       | 7,214                  |       | 8,917 |   |
| Depreciation                                                            |       | 1,713                  |       | 1,777 |   |
|                                                                    |       |                   |       |   |   |
| Total operating expenses                                                |       | 63,850                 |       | 61,809 |   |
|                                                                    |       |                   |       |   |   |
| Operating income                                                        |       | 21,841                 |       | 16,148 |   |
|                                                                    |       |                   |       |   |   |
| Other income (expense):                                                 |       |                   |       |   |   |
| Interest expense, net                                                   |       | (13,635                | )          | (17,362 | ) |
| Other (expense) income, net                                             |       | (60                    | )          | 26 |   |
|                                                                    |       |                   |       |   |   |
| Income (loss) from continuing operations before  income taxes           |       | 8,146                  |       | (1,188 | ) |
|                                                                    |       |                   |       |   |   |
| Provision for income taxes                                              |       | 5,894                  |       | 2,656 |   |
| Income (loss) from continuing operations                                |       | 2,252                  |       | (3,844 | ) |
|                                                                    |       |                   |       |   |   |
| Discontinued operations (see Note 3):                                   |       |                   |       |   |   |
| Income (loss) from operations of discontinued  businesses, net of taxes |       | 2,954                  |       | (6,004 | ) |
|                                                                    |       |                   |       |   |   |
| Net income (loss)                                                       |       | $                      | 5,206      |   | $ | (9,848 | ) |

 

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

 

3

----

 

**Advanstar Communications Inc.**

**Condensed Consolidated Statementsof Operations (Unaudited)**

(In thousands)

 
| ** **                                                                                       | ** ** | **For the**            | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                       | ** ** | **Nine Months Ended**  | ** ** |
| ** **                                                                                       | ** ** | **September 30,** | ** ** |
| ** **                                                                                       | ** ** | **2005**               | ** ** | **2004** | ** ** |
|                                                                                             |       |                   |       |   |   |
| Revenue                                                                                          |       | $                      | 232,253    |   | $ | 219,673 |   |
|                                                                                             |       |                   |       |   |   |
| Operating expenses:                                                                              |       |                   |       |   |   |
| Cost of production (excluding depreciation)                                                      |       | 43,923                 |       | 39,464 |   |
| Selling, editorial and circulation (excluding  depreciation)                                     |       | 85,665                 |       | 82,247 |   |
| General and administrative (excluding depreciation)                                              |       | 31,150                 |       | 28,005 |   |
| Restructuring charge                                                                             |       | 3,056                  |       | — |   |
| Funding of affiliated dot.com company operations  (see Note 9)                                   |       | —                 |       | 3,071 |   |
| Amortization of intangibles                                                                      |       | 22,510                 |       | 25,424 |   |
| Depreciation                                                                                     |       | 5,894                  |       | 5,727 |   |
|                                                                                             |       |                   |       |   |   |
| Total operating expenses                                                                         |       | 192,198                |       | 183,938 |   |
|                                                                                             |       |                   |       |   |   |
| Operating income                                                                                 |       | 40,055                 |       | 35,735 |   |
|                                                                                             |       |                   |       |   |   |
| Other income (expense):                                                                          |       |                   |       |   |   |
| Interest expense, net                                                                            |       | (48,064                | )          | (52,939 | ) |
| Loss on extinguishment of debt (see Note 6)                                                      |       | (12,581                | )          | — |   |
| Other (expense) income, net                                                                      |       | (75                    | )          | 1,239 |   |
|                                                                                             |       |                   |       |   |   |
| Loss from continuing operations before income taxes,  and cumulative effect of accounting change |       | (20,665                | )          | (15,965 | ) |
|                                                                                             |       |                   |       |   |   |
| Provision for income taxes                                                                  |       | 4,009                  |       | 3,548 |   |
| Loss from continuing operations before cumulative  effect of accounting change                   |       | (24,674                | )          | (19,513 | ) |
|                                                                                             |       |                   |       |   |   |
| Discontinued operations (see Note 3):                                                            |       |                   |       |   |   |
| Income (loss) from operations of discontinued  businesses, net of taxes                          |       | 46,916                 |       | (2,016 | ) |
| Income (loss) before cumulative effect of accounting  change                                     |       | 22,242                 |       | (21,529 | ) |
|                                                                                             |       |                   |       |   |   |
| Cumulative effect of accounting change (see Note 9)                                              |       | 4,618                  |       | — |   |
|                                                                                             |       |                   |       |   |   |
| Net income (loss)                                                                                |       | $                      | 26,860     |   | $ | (21,529 | ) |

 

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

 

4

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**Advanstar Communications Inc.**

**Condensed Consolidated Statementsof Cash Flows (Unaudited)**

(In thousands)

 
| ** **                                                                   | ** ** | **For the**            | ** ** |
|------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                   | ** ** | **Nine Months Ended**  | ** ** |
| ** **                                                                   | ** ** | **September 30,** | ** ** |
| ** **                                                                   | ** ** | **2005**               | ** ** | **2004** | ** ** |
|                                                                         |       |                   |       |   |   |
| Operating activities:                                                        |       |                   |       |   |   |
| Net income (loss)                                                            |       | $                      | 26,860     |   | $ | (21,529 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                   |       |   |   |
| Cumulative effect of accounting change                                       |       | (4,618                 | )          | — |   |
| Impairment of intangible assets                                              |       | 2,272                  |       | — |   |
| Impairment of goodwill                                                       |       | —                 |       | 15,570 |   |
| Depreciation and amortization                                                |       | 31,356                 |       | 36,777 |   |
| Write-off of deferred financing costs                                        |       | 3,517                  |       | — |   |
| Gain on derivative financial instruments                                     |       | (77                    | )          | (1,300 | ) |
| Losses of minority interest holders                                          |       | 566                    |       | 704 |   |
| Non-cash interest expense                                                    |       | 2,282                  |       | 2,447 |   |
| Gain on sale of business and other assets                                    |       | (52,959                | )          | (1,179 | ) |
| Deferred income taxes                                                        |       | 13,766                 |       | 6,890 |   |
| Provision for bad debts                                                      |       | 739                    |       | 637 |   |
| Changes in operating assets and liabilities                                  |       | (27,708                | )          | (27,204 | ) |
|                                                                         |       |                   |       |   |   |
| Net cash (used in) provided by  operating activities                    |       | (4,004                 | )          | 11,813 |   |
|                                                                         |       |                   |       |   |   |
| Investing activities:                                                        |       |                   |       |   |   |
| Additions to property, plant and equipment                                   |       | (5,051                 | )          | (6,288 | ) |
| Acquisitions of publications and tradeshow  businesses, net of cash acquired |       | (15,503                | )          | (7,915 | ) |
| Proceeds from sale of business and other assets                              |       | 173,842                |       | 24,294 |   |
|                                                                         |       |                   |       |   |   |
| Net cash provided by investing activities                                    |       | 153,288                |       | 10,091 |   |
|                                                                         |       |                   |       |   |   |
| Financing activities:                                                        |       |                   |       |   |   |
| Payments on revolving credit loan                                            |       | —                 |       | (14,000 | ) |
| Proceeds from revolving credit loan                                          |       | —                 |       | 6,000 |   |
| Payments of long-term debt                                                   |       | (152,142               | )          | (2,875 | ) |
| Deferred financing costs                                                     |       | (129                   | )          | (302 | ) |
| Dividends paid to minority interest holders                                  |       | (900                   | )          | — |   |
|                                                                         |       |                   |       |   |   |
| Net cash used in financing activities                                        |       | (153,171               | )          | (11,177 | ) |
|                                                                         |       |                   |       |   |   |
| Effect of exchange rate changes on cash                                      |       | 660                    |       | 661 |   |
|                                                                         |       |                   |       |   |   |
| Net (decrease) increase in cash and cash equivalents                         |       | (3,227                 | )          | 11,388 |   |
|                                                                         |       |                   |       |   |   |
| Cash and cash equivalents, beginning of period                               |       | 41,223                 |       | 29,274 |   |
|                                                                         |       |                   |       |   |   |
| Cash and cash equivalents, end of period                                     |       | $                      | 37,996     |   | $ | 40,662 |   |

 

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

 

5

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**Advanstar Communications Inc.**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited)**

 

**1.****                          Basisof Presentation**

** **

Theaccompanying unaudited condensed consolidated financial statements have beenprepared by Advanstar Communications Inc. (“Communications,” or the “Company”)in accordance with the instructions to Form 10-Q and, therefore, do notinclude all the information and footnotes required by generally acceptedaccounting principles for complete financial statements.  Management believes that all adjustments,consisting solely of normal recurring items, considered necessary for a fairstatement of financial position and results of operations, have beenincluded.  These condensed consolidatedfinancial statements, however, should be read in conjunction with the auditedfinancial statements and the related notes included in the Company’s annualreport on Form 10-K for the year ended December 31, 2004, filed withthe Securities and Exchange Commission on March 29, 2005 and the amendmentto annual report on Form 10-K filed on Form 10-K/A on June 28,2005.  The results of operations for thethree and nine months ended September 30, 2005 are not necessarilyindicative of the operating results that may be expected for the entire yearending December 31, 2005.

 

**2.**                          Summary of Significant Interim AccountingPolicies

 

**Stock-basedcompensation**

Aspermitted by Statement of Financial Accounting Standards (“SFAS”) No. 123,*Accounting for Stock-Based Compensation*,the Company has elected to account for stock options and awards to employeesunder the provisions of Accounting Principles Board (“APB”) Opinion No. 25,*Accounting for Stock Issued to Employees,*and related interpretations.

 

Thefollowing table presents unaudited pro forma net income (loss) as if theCompany had elected to recognize compensation costs based on the fair value ofthe options granted as prescribed by SFAS No. 123 (in thousands):

 
| ** **                                        | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|---------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                        | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                        | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                              |       |                   |       |                   |       |   |   |   |   |
| Net income (loss) —as reported               |       | $                      | 5,206      |                   | $          | (9,848 | ) | $ | 26,860 |   | $ | (21,529 | ) |
|                                              |       |                   |       |                   |       |   |   |   |   |
| Less: pro forma stock-based employee compensation |       | (1,502                 | )          | (521                   | )          | (4,308 | ) | (1,903 | ) |
|                                              |       |                   |       |                   |       |   |   |   |   |
| Net income (loss) —pro forma                 |       | $                      | 3,704      |                   | $          | (10,369 | ) | $ | 22,552 |   | $ | (23,432 | ) |

 

**Interim income tax expense**

The Companydetermines its quarterly income tax provision based upon an estimated annualeffective income tax rate and discrete items as they occur.  Indetermining the effective income tax rate applicable to interim periods, theCompany excludes tax jurisdictions where no tax expense or benefit is expectedfor the entire year.

 

**Recentlyissued accounting standards**

In December 2004, the Financial AccountingStandards Board issued SFAS No. 123R, *Share-BasedPayment*, which revises SFAS 123 and supersedes APB 25.  This statement establishes standards relatingto accounting for transactions in which equity instruments are exchanged for 

 

6

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goodsor services, such as the granting of employee stock options.  Under this statement, the Company mustmeasure the cost of employee services received in exchange for an award ofequity instruments based upon the fair value of the award.  This cost must be recognized over the periodduring which an employee is required to provide the service (usually thevesting period).  The Company is requiredto adopt the provisions of this standard effective January 1, 2006.  The adoption of this standard will result inan increase in compensation expense in future periods.

 

**3.**                          Acquisitions and Divestitures

 

**Acquisitions**

 

On August 19,2005, the Company purchased Project Global Tradeshow, Inc. (‘‘Project”), aproducer of tradeshows serving the premium contemporary sector of the fashionindustry, for $9.9 million in cash, subject to a working capital adjustment,which will be completed in the fourth quarter of 2005.  In addition, the Company may pay additionalcontingent cash consideration to the former shareholders based on the 2007 and2008 operating results of the acquired assets and their continued employmentwith the Company.  Certain acquiredassets and assumed liabilities are recorded based on preliminary estimates oftheir respective fair values as of the date of the acquisition. The Companydoes not believe the final allocation of purchase price will be materiallydifferent from preliminary allocations.

 

On August 23,2005, the Company purchased two fashion industry tradeshow businesses andrelated products from Pool Tradeshow (‘‘Pool’’) for $3.0 million in cash,subject to a working capital adjustment, which will be completed in the fourthquarter of 2005.  In addition, theCompany may pay additional contingent cash consideration to the formershareholder based on the 2007 and 2008 operating results from the acquiredassets and their continued employment with the Company.  Certain acquired assets and assumedliabilities are recorded based on preliminary estimates of their respectivefair values as of the date of the acquisition. The Company does not believe thefinal allocation of purchase price will be materially different frompreliminary allocations.

 

On September 12,2005, the Company purchased an off-road consumer event business from PetersenEvents Corporation (“Off-Road Expo”) for $2.2 million in cash.  In addition, the Company may pay additionalcontingent cash consideration to the former shareholders based on the 2006operating revenue from the acquired assets. Certain acquired assets and assumed liabilities are recorded based onpreliminary estimates of their respective fair values as of the date of theacquisition. The Company does not believe the final allocation of purchaseprice will be materially different from preliminary allocations.

 

From January 1,2005 through September 30, 2005, the Company completed two otheracquisitions of consumer tradeshow businesses with an aggregate purchase priceof $0.5 million in cash.

 

On March 8,2004, the Company purchased a portfolio of pharmaceutical industry conferencesand magazines from the Institute of Validation Technology, Inc. (‘‘IVT’’) for$7.9 million in cash.  The Company isrequired to pay additional contingent cash consideration to the formershareholder based on 2004 and 2005 operating results of the acquired assets andtheir continued employment with the Company. As of December 31, 2004, the Company had accrued $1.5 million ofcontingent consideration.  The Companyaccrued additional contingent consideration of $0.4 million and $1.0 million inthe three and nine months ended September 31, 2005, respectively.  These charges were 

 

7

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recorded as compensationexpense in the condensed consolidated statement of operations in the periodsindicated.  In the first quarter of 2005,the Company paid contingent consideration of $0.9 million to the formershareholder.  As of September 31,2005, the balance of the accrual is $1.6 million and is included in otheraccrued liabilities in the accompanying consolidated balance sheet.

 

Thepro forma operating results of the acquisitions discussed above are immaterialto the Company’s consolidated results of operations.

 

**Divestituresand assets held for sale**

Theresults and any gains or losses of the following divestitures (collectively,the “Disposed Businesses”) and assets held for sale have been reported indiscontinued operations in the consolidated statements of operations for thethree and nine months ended September 30, 2005 and 2004. ** ******Interest expense wasnot allocated to any of the Company’s discontinued operations.****

 

Theassets and liabilities of the following Disposed Businesses and assets held forsale are reported as assets and liabilities of discontinued operations andassets held for sale, where appropriate, in the condensed consolidated balancesheet as of September 30, 2005 and December 31, 2004.

 

*ArtGroup*

On March 12,2004, the Company completed the sale of its art industry tradeshows andmagazines (the “Art Group”) for a total selling price of $19.6 million incash.  The Company recorded a gain aftertaxes on the sale of $3.4 million.

 

Revenueof the Art Group, included in discontinued operations in the condensedconsolidated statements of operations, was $8.5 million for the period from January 1,2004 to March 12, 2004.

 

*Post*

On July 2,2004, the Company completed the sale of its *Post*business trade publication (“Post”) for $1.0 million in cash.  The Company recorded an after tax loss on thesale of $1.3 million.

 

Revenueof Post, included in discontinued operations in the condensed consolidatedstatements of operations, was $0.7 million for the period from January 1,2004 to July 2, 2004.

 

*SeCA*

On August 5,2004, the Company completed the sale of its 65% ownership in its French jointventure (“SeCA”), for a total selling price of $3.1 million in cash.  In connection with the sale, the Companyrecorded a goodwill impairment charge of $9.4 million, net of minority interesteffect of $5.1 million in the second quarter of 2004.  The impairment charge relates to the Company’stradeshow reporting segment and was determined based upon the excess of thecarrying value of the Company’s interest in SeCA over the selling price, lessthe costs incurred by the Company to sell SeCA.

 

SeCAhad $2.9 million in revenue, included in discontinued operations in thecondensed consolidated statements of operations, for the period from January 1,2004 to August 5, 2004.

 

*DMS*

On September 8,2004, the Company sold its German tradeshow business (“DMS”) for $1.7 millionin cash.  In connection with the sale,the Company recorded a goodwill impairment charge of $6.2 million in the thirdquarter of 2004.  The amount of theimpairment charge was determined 

 

8

----

 

based upon the excess ofthe carrying value of DMS over the selling price, less the costs incurred bythe Company to sell DMS.  The Company iscontinuing to incur accounting and legal fees in connection with the closure ofits DMS office. These costs will be reported in income (loss) from discontinuedoperations.

 

Revenueof DMS, included in discontinued operations in the condensed consolidatedstatements of operations, was $0.1 million for the three and nine months ended September 30,2004.

 

*PortfolioGroup*

On May 23,2005, the Company, its parent company and certain affiliates (AdvanstarExpositions Canada Limited and Advanstar.com) completed the sale of virtuallyall business assets and liabilities associated with its tradeshows andconferences, trade publications and direct marketing products in the followingprimary industries: Information Technology & Communications,Travel/Hospitality, Beauty, Home Entertainment, Abilities and Portfolio,including the shares of the Company’s Hong Kong subsidiaries.  The shares of the Company’s Braziliansubsidiary were sold to the same buyer in July 2005 after final regulatoryapproval. Collectively, all of the above properties are referred to as “thePortfolio Group.” The sale price for these assets and shares was $173.8 millionin cash, net of expenses.  The Companyrecorded a gain on the sale of $53.0 million.

 

Revenue of thePortfolio Group, included in discontinued operations in the condensedconsolidated statements of operations, was $49.0 million for the period from January 1,2005 to May 23, 2005, and $21.9 million and $78.8 million for the threeand nine months ended September 30, 2004.

 

*EastCoast Fashion*

In thesecond quarter of 2005, the Company discontinued its East Coast Fashion group (“EastCoast Fashion”) and recognized an impairment of the related intangibles at netbook value of $2.3 million. This charge is reported as a component ofdiscontinued operations for the nine months ended September 30, 2005.

 

Revenue of the East Coast Fashion group included indiscontinued operations in the condensed consolidated statements of operationswas $0.9 million and $5.1 million for the nine months ended September 30,2005 and 2004. East Coast Fashion had no revenue for the three months ended September 30,2005 and 2004.

 

*Otherassets*

In thesecond quarter of 2005, the Company committed to a plan to sell its Clevelandoffice building and land (“the Cleveland Office”) as a result of the sale ofthe Portfolio Group. As of September 30, 2005, the Company reported thisbuilding and land as assets held for sale and ceased depreciation of theseassets, effective second quarter of 2005.

 

9

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Thefinancial results of the Disposed Businesses included in discontinuedoperations in the accompanying condensed consolidated statements of operationsare as follows:

 
| ** **                                                                                 | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                 | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                 | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                       |       |                   |       |                   |       |   |   |   |   |
| (Loss) income before income taxes (including  goodwill impairment charge and gain on sale) |       | $                      | (104       | )                      | $          | (5,293 | ) | $ | 58,635 |   | $ | (2,004 | ) |
| Income tax (benefit) provision                                                             |       | (3,058                 | )          | 450                    |       | 11,153 |   | 4,134 |   |
| Minority interests                                                                         |       | —                 |       | (261                   | )          | (566 | ) | 4,122 |   |
|                                                                                       |       |                   |       |                   |       |   |   |   |   |
| Income (loss) from operations of discontinued  businesses                                  |       | $                      | 2,954      |                   | $          | (6,004 | ) | $ | 46,916 |   | $ | (2,016 | ) |

 

TheCompany allocated goodwill to the Disposed Businesses and included theallocated goodwill in its determined gain or loss on disposal.  Goodwill allocated to the Art Group, Post andthe Portfolio Group is based on the relative fair values of the Disposed Businessto the entire reporting unit prior to disposal.  SeCA and DMS were neverintegrated into the Company’s broader reporting units. Thus, the carryingamount of acquired goodwill for those businesses was included in thecalculation of any gain or loss on disposal.

 

Goodwillallocated to the businesses disposed of and used in the calculation of the gainor loss on sale of the Disposed Businesses by reporting segment was as follows(in thousands):

 
| ** **                                 | ** ** | ** **      | ** ** | ** **       | ** ** | **Direct**    | ** ** | ** **    | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|-----------------|------------|------------------|------------|---------------|------------|---------------|------------|------------|------------|
| ** **                                 | ** ** | **Tradeshows**  | ** ** | ** **       | ** ** | **Marketing** | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **and**         | ** ** | **Trade**        | ** ** | **Products**  | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **Conferences** | ** ** | **Publications** | ** ** | **and Other** | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
|                                       |       |            |       |             |       |          |       |          |       |       |       |
| Three months ended September 30, 2005 |       | $               | —     |             | $          | —        |       | $             | —     |       | $          | — |   | $ | — |   |
|                                       |       |            |       |             |       |          |       |          |       |       |       |
| Three months ended September 30, 2004 |       | 2,727           |       | 900              |       | —        |       | —        |       | 3,627      |       |
|                                       |       |            |       |             |       |          |       |          |       |       |       |
| Nine months ended September 30, 2005  |       | 62,857          |       | 52,873           |       | 6,082         |       | —        |       | 121,812    |       |
|                                       |       |            |       |             |       |          |       |          |       |       |       |
| Nine months ended September 30, 2004  |       | 19,287          |       | 4,246            |       | —        |       | —        |       | 23,533     |       |
|                                            |            |                 |            |                  |            |               |            |               |            |            |            |  |  |  |  |  |

 

10

----

 

Theassets held for sale and discontinued operations of the Portfolio Group, EastCoast Fashion and the Cleveland Office included in the condensed consolidatedbalance sheets as of September 30, 2005 and December 31, 2004 are asfollows (in thousands):

 
| ** **                                                                       | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                                                       | ** ** | **Assets Held  For Sale**   | ** ** | **Assets Held  For Sale**  | ** ** | **Discontinued  Operations** | ** ** | **Total** | ** ** |
|                                                                             |       |                        |       |                       |       |   |   |   |   |
| Assets                                                                           |       |                        |       |                       |       |   |   |   |   |
| Accounts receivable                                                              |       | $                           | —     |                       | $          | — |   | $ | 242 |   | $ | 242 |   |
| Prepaid expenses and other                                                       |       | —                      |       | —                     |       | 2,448 |   | 2,448 |   |
| Total current assets of discontinued operations and  assets held for sale        |       | —                      |       | —                     |       | 2,690 |   | 2,690 |   |
|                                                                             |       |                        |       |                       |       |   |   |   |   |
| Property, plant and equipment, net                                               |       | 4,620                       |       | 4,648                      |       | 1,174 |   | 5,822 |   |
| Goodwill                                                                         |       | —                      |       | —                     |       | 120,789 |   | 120,789 |   |
| Intangibles and other, net                                                       |       | —                      |       | —                     |       | 9,226 |   | 9,226 |   |
| Total non current assets of discontinued operations  and assets held for sale    |       | 4,620                       |       | 4,648                      |       | 131,189 |   | 135,837 |   |
|                                                                             |       |                        |       |                       |       |   |   |   |   |
| Liabilities                                                                      |       |                        |       |                       |       |   |   |   |   |
| Accounts payable and other accrued expenses                                      |       | —                      |       | —                     |       | 2,812 |   | 2,812 |   |
| Deferred revenue                                                                 |       | —                      |       | —                     |       | 13,074 |   | 13,074 |   |
| Total current liabilities of discontinued operations  and assets held for sale   |       | —                      |       | —                     |       | 15,886 |   | 15,886 |   |
|                                                                             |       |                        |       |                       |       |   |   |   |   |
| Other long term liabilities                                                      |       |                        |       | —                     |       | 48 |   | 48 |   |
| Minority interests                                                               |       | —                      |       | —                     |       | 3,579 |   | 3,579 |   |
| Total long term liabilities of discontinued  operations and assets held for sale |       | —                      |       | —                     |       | 3,627 |   | 3,627 |   |
|                                                                             |       |                        |       |                       |       |   |   |   |   |
| Net assets of discontinued operations and assets  held for sale                  |       | $                           | 4,620      |                       | $          | 4,648 |   | $ | 114,366 |   | $ | 119,014 |   |

 

ThePortfolio Group, East Coast Fashion and the Cleveland Office assets included inassets held for sale and discontinued operations in the Company’s reportablesegments as of September 30, 2005 and December 31, 2004 are asfollows (in thousands):

 
| ** **                                | ** ** | ** **      | ** ** | ** **       | ** ** | **Direct**    | ** ** | ** **    | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|-----------------|------------|------------------|------------|---------------|------------|---------------|------------|------------|------------|
| ** **                                | ** ** | **Tradeshows**  | ** ** | ** **       | ** ** | **Marketing** | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **and**         | ** ** | **Trade**        | ** ** | **Products**  | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **Conferences** | ** ** | **Publications** | ** ** | **and Other** | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
|                                      |       |            |       |             |       |          |       |          |       |       |       |
| Segment assets at September 30, 2005 |       | $               | —     |             | $          | —        |       | $             | —     |       | $          | 4,620 |   | $ | 4,620 |   |
|                                      |       |            |       |             |       |          |       |          |       |       |       |
| Segment assets at December 31, 2004  |       | 71,997          |       | 54,626           |       | 6,082         |       | 5,822         |       | 138,527    |       |
|                                           |            |                 |            |                  |            |               |            |               |            |            |            |  |  |  |  |  |

 

11

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**4.**                          Goodwill and OtherIntangible Assets

 

The changes in the carrying amount of goodwill byoperating segment are as follows (in thousands):

 
| ** **                                                    | ** ** | ** **      | ** ** | ** **       | ** ** | **Direct**    | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|-----------------|------------|------------------|------------|---------------|------------|------------|------------|
| ** **                                                    | ** ** | **Tradeshows**  | ** ** | ** **       | ** ** | **Marketing** | ** ** | ** ** | ** ** |
| ** **                                                    | ** ** | **and**         | ** ** | **Trade**        | ** ** | **Products**  | ** ** | ** ** | ** ** |
| ** **                                                    | ** ** | **Conferences** | ** ** | **Publications** | ** ** | **and Other** | ** ** | **Total**  | ** ** |
|                                                          |       |            |       |             |       |          |       |       |       |
| Balance as of December 31, 2004                          |       | $               | 398,582    |             | $          | 163,595       |       | $          | 24,790     |   | $ | 586,967 |   |
| Goodwill acquired or completion of purchase price  allocation |       | 10,377          |       | —           |       | —        |       | 10,377     |       |
| Foreign currency translation                                  |       | (761            | )          | (1,314           | )          | (52           | )          | (2,127     | )          |
|                                                          |       |            |       |             |       |          |       |       |       |
| Balance as of September 30, 2005                         |       | $               | 408,198    |             | $          | 162,281       |       | $          | 24,738     |   | $ | 595,217 |   |

 

Trade exhibitor and advertiser lists are amortized on adouble-declining balance method over six years and five years, respectively,subscriber lists and other intangible assets are amortized on a straight-linebasis over three to ten years, and trademarks and trade names are amortized ona straight-line basis over twenty years. These intangible assets consist of the following (in thousands):

 
| ** **                             | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **2005**               | ** ** | **2004**              | ** ** |
|                                   |       |                   |       |                  |       |
| Trade exhibitor lists                  |       | $                      | 133,734    |                  | $          | 129,691 |   |
| Advertiser lists                       |       | 29,668                 |       | 46,712                |       |
| Subscriber lists                       |       | 6,023                  |       | 15,238                |       |
| Trade names and trademarks             |       | 19,088                 |       | 17,982                |       |
| Other intangible assets                |       | 19,974                 |       | 19,928                |       |
| Deferred financing costs               |       | 18,629                 |       | 22,258                |       |
|                                   |       |                   |       |                  |       |
|                                   |       | 227,116                |       | 251,809               |       |
| Accumulated amortization               |       | (156,415               | )          | (159,861              | )          |
|                                   |       |                   |       |                  |       |
| Total intangible and other assets, net |       | $                      | 70,701     |                  | $          | 91,948 |   |

 

12

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Estimatedamortization expense of identified intangible and other assets for theremaining three months of 2005 and for the next five years is as follows (inthousands):

 

| 2005 |   | $      | 7,296  |   |
|------|--------|--------|--------|--------|
| 2006 |   | 21,270 |   |
| 2007 |   | 8,438  |   |
| 2008 |   | 5,309  |   |
| 2009 |   | 1,918  |   |
| 2010 |   | 1,591  |   |

 

**5.**                          Financial Derivative Instruments

 

TheCompany periodically uses derivative instruments to manage exposure to interestrates.  The Company’s objectives forholding derivatives are to minimize the risks using the most effective methodsto eliminate or reduce the impact of these exposures.

 

**Interestrate risk**

Variablerate debt instruments are subject to interest rate risk.  In 2001 the Company entered into an interestrate collar agreement expiring February 2004 to manage its exposure tointerest rate movements on a portion of its variable rate debtobligations.  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 was recognized in earnings as the underlying interest expense isincurred.  The ineffective portion of theinterest rate collar and swap agreements is recognized in currentearnings.  The Company used a portion ofthese agreements as hedges of the Company’s second priority senior securedfloating rate notes described below. Gains and losses on the undesignated portion of these agreements at theend of each fiscal quarter (which are calculated as the net amount payable upontermination at the date of termination) were recognized in current earningsuntil expired.

 

In May 2003,the Company entered into an interest rate swap agreement expiring November 2005,and subsequently terminated the agreement in December 2003.  The net gain at termination of approximately$0.2 million will continue to be reported in accumulated other comprehensiveincome and amortized into earnings over the original contract term.

 

TheCompany had no derivatives in the consolidated balance sheet as of September 30,2005.

 

13

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**Statementof operations**

 

Thefollowing table summarizes the effects of SFAS No. 133 on the Company’sstatement of operations related to the ineffective portion of the Company’sinterest rate collar agreements and changes in the fair value of foreignexchange contracts not designated as hedging instruments for the three and ninemonths ended September 30, 2005 and 2004:

 
| ** **                                 | ** ** | **Interest Rate** | ** ** | **Foreign**   | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|-------------------|------------|---------------|------------|------------|------------|
| ** **                                 | ** ** | **Collar**        | ** ** | **Exchange**  | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **Agreements**    | ** ** | **Contracts** | ** ** | **Total**  | ** ** |
|                                       |       |              |       |          |       |       |       |
| Three months ended September 30, 2005 |       | $                 | 26         |          | $          | —     |       | $ | 26 |   |
|                                       |       |              |       |          |       |       |       |
| Three months ended September 30, 2004 |       | —            |       | 14            |       | 14         |       |
|                                       |       |              |       |          |       |       |       |
| Nine months ended September 30, 2005  |       | 77                |       | —        |       | 77         |       |
|                                       |       |              |       |          |       |       |       |
| Nine months ended September 30, 2004  |       | 1,294             |       | 5             |       | 1,299      |       |
|                                            |            |                   |            |               |            |            |            |  |  |  |

 

**6.**                          Debt

 

**Creditfacility**

 

TheCompany is party to a credit facility (the “Credit Facility”) with a group offinancial institutions acting as lenders. The Credit Facility is guaranteed by the Company’s domestic subsidiariesand by the Company’s parent company, Advanstar, Inc., and iscollateralized by first priority liens on substantially all of the assets ofthe Company and the guarantors.  TheCredit Facility contains restrictive covenants, including limitations oncertain asset dispositions, dividends, investments and other restrictedpayments.  In addition, the CreditFacility requires a minimum quarterly fixed charge coverage ratio (as defined).  Failure to comply with thecovenants could cause an event of default under the Credit Facility.

 

Priorto the June 2005 transaction described below, the Credit Facilityconsisted of (i) $25.0 million of term B loans due October 11, 2008,and (ii) $60.0 million of revolving loan availability through April 11,2007.

 

In June 2005, the Company repaid the outstandingterm B loans with proceeds from the sale of the Portfolio Group and amended theCredit Facility to allow the Company to retain its revolving loan availabilityat $60 million while allowing for repayment of second lien and junior debt withproceeds from the sale of the Portfolio Group (see Note 3).

 

**Seniorsecured notes**

 

The Senior Secured Notes consist of $130.0 million ofSecond Priority Senior Secured Floating Rate Notes due 2008 (the “floating ratenotes”), which require quarterly amortization equal to 0.25% of the principalamount thereof, and $300.0 million of 10.75% Second Priority Senior SecuredNotes due 2010 (the “fixed rate notes”). Interest on the floating rate notes ispayable at a rate equal to three-month LIBOR, which is reset quarterly, plus7.5%.

 

14

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The Company was required under the Senior SecuredNotes indenture to use a portion of the proceeds from the Portfolio Group saleto offer to purchase Senior Secured Notes at a price equal to 100% of theprincipal amount plus accrued interest. In June 2005, the Company consummated that offer and repurchased$8.7 million of the fixed rate notes.

 

Separately, the Company also consummated a tenderoffer in June 2005 for the floating rate notes and repurchased $117.8million of the floating rate notes at a price equal to $1,043 plus a consentpayment of $30 per $1,000 principal amount tendered, and accrued and unpaidinterest to the date of settlement.  Inconnection with the tender offer, the Company and the trustee entered into asupplemental indenture that eliminated substantially all of the restrictive andreporting covenants, certain events of default and certain other provisionswith respect to the floating rate notes and released the floating rate notes’lien on the collateral under the indenture. The fixed rate notes remain collateralized by the collateral and subjectto the restrictive covenants in the indenture.

 

In the second quarter of 2005, the Company recognized $12.6 million in expense relatedto the purchase, including $8.6 million in tender offer premium and consentfees, write-off of $3.5 million in unamortized deferred financing costs, and$0.5 million in legal fees and expenses.

 

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

 

**Seniorsubordinated notes**

 

TheCompany’s $160.0 million unsecured, 12% senior subordinated notes due 2011(the “Senior Subordinated Notes”) bear interest payable semiannually on February 15and August 15 of each year.  TheSenior Subordinated Notes are fully and unconditionally guaranteed on a seniorsubordinated basis, jointly and severally, by the Company’s wholly owneddomestic subsidiaries.  The covenantsunder the Senior Subordinated Notes include limitations on certain assetdispositions, liens, debt incurrence, dividends, investments and otherrestricted payments.

 

15

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Long-termdebt consists of the following (in thousands):

 
| ** **                                                                                                                                                             | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                             | ** ** | **2005**               | ** ** | **2004**              | ** ** |
|                                                                                                                                                                   |       |                   |       |                  |       |
| Term loan B, interest at LIBOR plus 4.50%                                                                                                                              |       | $                      | —     |                  | $          | 25,000 |   |
| Revolving credit loan, interest at LIBOR plus 3.75%;  due April 11, 2007                                                                                          |       | —                 |       | —                |       |
| Second priority senior secured floating rate notes,  interest at LIBOR plus 7.5%; 11.36% at September 30, 2005, due 2008                                          |       | 9,898                  |       | 128,375               |       |
| 10.75% Second priority senior secured notes, due  2010, plus unamortized premium of $717 and $844 at September 30, 2005  and December 31, 2004, respectively |       | 292,052                |       | 300,844               |       |
| Senior subordinated notes, interest at 12.00%, due  2011                                                                                                               |       | 160,000                |       | 160,000               |       |
| Acquisition note payable, due June 2006                                                                                                                           |       | 100                    |       | —                |       |
|                                                                                                                                                                   |       |                   |       |                  |       |
|                                                                                                                                                                   |       | 462,050                |       | 614,219               |       |
| Less current maturities                                                                                                                                                |       | (201                   | )          | (1,300                | )          |
|                                                                                                                                                                   |       |                   |       |                  |       |
|                                                                                                                                                                   |       | $                      | 461,849    |                  | $          | 612,919 |   |

 

**7.**                          Comprehensive Income

 

Thetable below presents comprehensive income, defined as changes in the equity ofthe Company excluding changes resulting from investments by and distributionsto shareholders (in thousands):

 
| ** **                                                       | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                       | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                       | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                             |       |                   |       |                   |       |   |   |   |   |
| Net income (loss)                                                |       | $                      | 5,206      |                   | $          | (9,848 | ) | $ | 26,860 |   | $ | (21,529 | ) |
| Change in cumulative translation adjustment                      |       | 2,657                  |       | 1,551                  |       | 2,734 |   | (3 | ) |
| Change in unrealized losses on derivative financial  instruments |       | (26                    | )          | (22                    | )          | (77 | ) | 170 |   |
|                                                             |       |                   |       |                   |       |   |   |   |   |
| Comprehensive income (loss)                                      |       | $                      | 7,837      |                   | $          | (8,319 | ) | $ | 29,517 |   | $ | (21,362 | ) |

 

16

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**8.**                          Segments

 

TheCompany follows the provisions of SFAS No. 131, “Disclosures aboutSegments of an Enterprise and Related Information,” and has three reportablesegments: tradeshows and conferences, trade publications and direct marketingproducts and other.

 

TheCompany evaluates the performance of, and allocates resources to, its segmentsbased on contribution margin – defined as net revenue less cost ofproduction and selling, editorial and circulation costs.  The accounting policies of the reportablesegments are the same as those described in the summary of significant accountingpolicies.  There are no inter-segmentsales or transfers.  Segment assets areprimarily intangible assets, prepaid expenses and accounts receivable.  Revenue, contribution margins and segmentassets of the Company’s reportable segments are as follows (in thousands):

 
| ** **                                 | ** ** | ** **      | ** ** | ** **       | ** ** | **Direct**    | ** ** | ** **    | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|-----------------|------------|------------------|------------|---------------|------------|---------------|------------|------------|------------|
| ** **                                 | ** ** | **Tradeshows**  | ** ** | ** **       | ** ** | **Marketing** | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **and**         | ** ** | **Trade**        | ** ** | **Products**  | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **Conferences** | ** ** | **Publications** | ** ** | **and Other** | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
| Three months ended September 30, 2005 |       |            |       |             |       |          |       |          |       |       |       |
| Revenues                                   |       | $               | 46,821     |             | $          | 34,307        |       | $             | 4,563      |       | $          | — |   | $ | 85,691 |   |
| Contribution margin (loss)                 |       | 27,963          |       | 10,361           |       | 3,059         |       | (678          | )          |       |       |
| Segment assets (at period end)             |       | 437,181         |       | 226,586          |       | 26,631        |       | 72,894        |       | 763,292    |       |
|                                       |       |            |       |             |       |          |       |          |       |       |       |
| Three months ended September 30, 2004 |       |            |       |             |       |          |       |          |       |       |       |
| Revenues                                   |       | $               | 39,493     |             | $          | 34,786        |       | $             | 3,678      |       | $          | — |   | $ | 77,957 |   |
| Contribution margin (loss)                 |       | 25,055          |       | 9,820            |       | 2,162         |       | (957          | )          |       |       |
| Segment assets (at period end)             |       | 504,161         |       | 302,815          |       | 33,513        |       | 80,410        |       | 920,899    |       |
|                                       |       |            |       |             |       |          |       |          |       |       |       |
| Nine months ended September 30, 2005  |       |            |       |             |       |          |       |          |       |       |       |
| Revenues                                   |       | $               | 111,022    |             | $          | 107,951       |       | $             | 13,280     |       | $          | — |   | $ | 232,253 |   |
| Contribution margin (loss)                 |       | 64,875          |       | 33,282           |       | 8,368         |       | (3,860        | )          |       |       |
| Segment assets (at period end)             |       | 437,181         |       | 226,586          |       | 26,631        |       | 72,894        |       | 763,292    |       |
|                                       |       |            |       |             |       |          |       |          |       |       |       |
| Nine months ended September 30, 2004  |       |            |       |             |       |          |       |          |       |       |       |
| Revenues                                   |       | $               | 97,367     |             | $          | 111,333       |       | $             | 10,973     |       | $          | — |   | $ | 219,673 |   |
| Contribution margin (loss)                 |       | 59,950          |       | 34,989           |       | 6,341         |       | (3,318        | )          |       |       |
| Segment assets (at period end)             |       | 504,161         |       | 302,815          |       | 33,513        |       | 80,410        |       | 920,899    |       |

 

17

----

 

Thereconciliation of total segment contribution margin to consolidated income fromcontinuing operations before income taxes and cumulative effect of accountingchange is as follows (in thousands):

 
| ** **                                                                                                | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                                | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                      |       |                   |       |                   |       |   |   |   |   |
| Total segment contribution margin                                                                         |       | $                      | 40,705     |                   | $          | 36,080 |   | $ | 102,665 |   | $ | 97,962 |   |
| General and administrative expense                                                                   |       | (8,896                 | )          | (8,930                 | )          | (31,150 | ) | (28,005 | ) |
| Restructuring charge                                                                                      |       | (1,041                 | )          | —                 |       | (3,056 | ) | — |   |
| Funding of affiliated dot.com company operations                                                          |       | —                 |       | (308                   | )          | — |   | (3,071 | ) |
| Depreciation and amortization                                                                             |       | (8,927                 | )          | (10,694                | )          | (28,404 | ) | (31,151 | ) |
| Other expense (primarily interest)                                                                        |       | (13,695                | )          | (17,336                | )          | (60,720 | ) | (51,700 | ) |
|                                                                                                      |       |                   |       |                   |       |   |   |   |   |
| Income (loss) from continuing operations before  income taxes, and cumulative effect of accounting change |       | $                      | 8,146      |                   | $          | (1,188 | ) | $ | (20,665 | ) | $ | (15,965 | ) |

** **

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

 

EffectiveJanuary 1, 2005, the Company began consolidating the operations ofAdvanstar.com with its operations upon the adoption of FASB Interpretation No. 46R,“Consolidation of Variable Interest Entities.” As a result of the adoption of FASB Interpretation No. 46R, theCompany recorded a $4.6 million gain, which was recorded as a cumulative effectof accounting change in the first quarter of 2005.

 

Priorto January 1, 2005, the Company recorded advances and notes issued insupport of Advanstar.com operations as an operating expense in the Company’sconsolidated statement of operations. Net advances and notes charged to the Company’s operations during thethree and nine months ended September 30, 2004 were $0.3 million and $3.1million. In May 2004, the Company made a $1.9 million advance toAdvanstar.com to fund the settlement of Advanstar.com’s outstanding New Yorklease obligations. The Company expects to legally merge the operations ofAdvanstar.com with those of the Company in early 2006. The merger will resultin a restatement of prior periods to reflect the effect of Advanstar.com on theCompany’s operations.

 

**10.**                   Parent CompanyNotes

 

As a part of the financing for the acquisition of theCompany by the DLJ Merchant Banking Funds in October 2000 and concurrentlywith the closing of the offering of the Senior Subordinated Notes in February 2001,the Company’s parent, Advanstar, Inc., issued discount notes bearinginterest at 15% (the “Discount Notes”) with an aggregate principal amount atmaturity of $171.8 million.  These notesdo not require cash interest payments until 2006.  Neither the Company nor any of itssubsidiaries guarantee the Discount Notes.

 

Advanstar, Inc. is a holding company and itsability to pay interest on the Discount Notes will be dependent upon thereceipt of dividends from its subsidiaries, including the Company.  The 

 

18

----

 

Credit Facility, SeniorSecured Notes and the Senior Subordinated Notes impose substantial restrictionson the Company’s and its subsidiaries’ ability to pay dividends.

** **

Therestricted payments covenants in the Company’s Senior Secured Notes indentureand Senior Subordinated Notes indenture provide that it can pay dividends onlyif its leverage ratio (as defined) is 6.0 to 1.0 or better and only from abasket equal to the amount by which its cumulative EBITDA (as defined) since January 1,2001 exceeds 150% of its cumulative interest expense in that same period plusother items including proceeds from equity offerings. As of September 30,2005 the Company’s leverage ratio under the most restrictive of theseindentures was 6.1 to 1.0.  TheCompany anticipates improvements in its operating results that would improveits ratio prior to the time that the Discount Notes require payment of interestin cash.  The Company’s results are subjectto a variety of factors, including general economic conditions and conditionsin its markets, and the Company cannot assure you its results will in factimprove to a point to allow it to make distributions in light of theserestrictions.  Failure to pay theinterest on these notes will be a default under the notes and also result in adefault under the Company’s Credit Facility, which could have a materialadverse effect on the Company’s financial position, results of operations, andcash flows and/or could impact the Company’s ability to continue to operatewithout an amendment or restructuring of its Credit Facility and thenotes.  Notwithstanding the leverageratio limitation on restricted payments, the Company can make restricted payments inan aggregate amount of up to $20 million to Advanstar, Inc.

 

**11.**                   RestructuringActivity

 

Related to the sale of the Portfolio Group (see Note 3),in May 2005, the Company ceased use of certain leased office space in NewYork, NY, Milford, CT, and Santa Ana, CA. Inthe third quarter of 2005, the Company vacated additional leased office spacein Milford, CT and Chicago, IL. These activities resulted in charges to the Company’s operationsduring the three and nine months ended September 30, 2005. These charges consist of the discountedremaining future minimum lease payments due under non-cancelable leases, net ofestimated future sublease income. These lease commitments expire at variousdates through 2010.

 

 In connectionwith the sale of the Portfolio Group and the reorganization of our healthcaregroup management team during 2005, the Company notified 122 employees that theywould be severed from the Company. The Company took a charge to operations during the three and nine months ended September 30,2005 for severance and other terminationcosts.  As of September 30, 2005, 91employees have been terminated, of which 54 employees were terminated in thequarter ending September 30, 2005. Severance payments will continue into2006.

 

Restructuringcharges incurred are as follows (in thousands):

 
| ** **                                     | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                     | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                     | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                           |       |                   |       |                   |       |   |   |   |   |
| Facility exit costs                            |       | $                      | 442        |                   | $          | — |   | $ | 1,236 |   | $ | — |   |
| Employee severance and other termination costs |       | 599                    |       | —                 |       | 1,820 |   | — |   |
| Restructuring charge                           |       | $                      | 1,041      |                   | $          | — |   | $ | 3,056 |   | $ | — |   |

 

19

----

 

The summary of the Company’s change in restructuringaccruals is as follows (in thousands):

 
| ** **                                 | ** ** | **Facility  Exit  Costs** | ** ** | **Employee  Severance** | ** ** | **Total** | ** ** |
|--------------------------------------------|------------|---------------------------|------------|-------------------------|------------|-----------|------------|
| **Balance at December 31, 2004** |       | $                         | 1,827      |                    | $          | —    |       | $ | 1,827 |   |
| Restructuring charge                       |       | 1,236                     |       | 1,820                   |       | 3,056     |       |
| Utilized-cash                              |       | (660                      | )          | (882                    | )          | (1,542    | )          |
| Utilized-non-cash                          |       | —                    |       | —                  |       | —    |       |
| **Balance at September 31, 2005**     |       | $                         | 2,403      |                    | $          | 938       |       | $ | 3,341 |   |

 

The restructuring accrualbalance is $3.3 million and $1.8 million at September 30, 2005, and December 31,2004 of which $1.9 million and $0.5 million is in other accrued expenses and$1.4 million and $1.3 million is in other long term liabilities at September 30,2005 and December 31, 2004, respectively, in the accompanying condensedconsolidated balance sheet.

 

**12.**                   Related-PartyTransactions

 

In May 2005,the Company paid a consulting fee of $1.5 million to CSFB, an affiliate,related to the sale of the Portfolio Group. See Note 3 for a discussion of thesale of the Portfolio Group.

 

In June 2005, the Company repurchased $7.1 million of its fixed ratenotes at par, and $4.6 million of its floating rate notes at a price equal to107.3% of principal, from CSFB pursuant to Communications’ tender offer.  See Note 6.

 

**13.**                   Unaudited Supplemental Guarantor CondensedConsolidating 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’swholly owned domestic subsidiaries.  Thesubsidiary guarantors are Men’s Apparel Guild in California, Inc., AppliedBusiness teleCommunications, CME2, Inc. and Project Global Tradeshow, Inc.  The unaudited condensed consolidatingfinancial statements of the guarantors are presented below and should be readin conjunction with the consolidated financial statements of the Company.  Separate financial statements of theguarantors are not presented because the guarantors are jointly, severally,fully and unconditionally liable under the guarantees and the Company believesthe condensed consolidating financial statements presented are sufficientlymeaningful in understanding the financial position and results of theguarantors.  There are no significantrestrictions on the ability of the subsidiary guarantors to make distributionsto the Company.  

 

20

----

 

**Advanstar CommunicationsInc.**

**Condensed ConsolidatingBalance Sheets (Unaudited)**

**At September 30, 2005**

(In thousands)

 
| ** **                                                              | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Nonguarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                              | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| **ASSETS**                                                              | ** ** | ** **         | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                              |       |               |       |             |       |             |       |             |       |             |       |
| Current assets:                                                         |       |               |       |             |       |             |       |             |       |             |       |
| Cash and cash equivalents                                               |       | $                  | 35,001     |             | $          | 459              |       | $                | 2,536      |             | $          | — |   | $ | 37,996 |   |
| Accounts receivable, net                                                |       | 22,166             |       | 1,356            |       | 803              |       | —           |       | 24,325           |       |
| Prepaid expenses                                                        |       | 6,444              |       | 319              |       | 957              |       | —           |       | 7,720            |       |
| Other                                                                   |       | 2,592              |       | —           |       | 41               |       | —           |       | 2,633            |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Total current assets                                                    |       | 66,203             |       | 2,134            |       | 4,337            |       | —           |       | 72,674           |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Noncurrent assets:                                                      |       |               |       |             |       |             |       |             |       |             |       |
| Property, plant and equipment, net                                      |       | 16,148             |       | 2,365            |       | 188              |       | —           |       | 18,701           |       |
| Deferred tax asset                                                      |       | 8,438              |       | 292              |       | —           |       | (8,730           | )          | —           |       |
| Intangible and other assets, net                                        |       | 372,414            |       | 270,124          |       | 23,380           |       | —           |       | 665,918          |       |
| Investments in subsidiaries                                             |       | 520,393            |       | —           |       | 10,969           |       | (531,362         | )          | —           |       |
| Intercompany receivable                                                 |       | 1,379              |       | 252,003          |       | (5,538           | )          | (246,465         | )          | 1,379            |       |
| Non-current assets of discontinued operations and  assets held for sale |       | 4,620              |       | —           |       | —           |       | —           |       | 4,620            |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
|                                                                    |       | $                  | 989,595    |             | $          | 526,918          |       | $                | 33,336     |             | $          | (786,557 | ) | $ | 763,292 |   |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| **LIABILITIES AND  STOCKHOLDER’S EQUITY**                          | ** ** | ** **         | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Current liabilities:                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Current maturities of long-term debt                                    |       | $                  | 201        |             | $          | —           |       | $                | —     |             | $          | — |   | $ | 201 |   |
| Accounts payable                                                        |       | 7,561              |       | 8,225            |       | 869              |       | —           |       | 16,655           |       |
| Accrued liabilities                                                     |       | 25,371             |       | 7,866            |       | 688              |       | —           |       | 33,925           |       |
| Deferred revenue                                                        |       | 21,670             |       | 131              |       | 2,193            |       | —           |       | 23,994           |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Total current liabilities                                               |       | 54,803             |       | 16,222           |       | 3,750            |       | —           |       | 74,775           |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Long-term debt, net of current maturities                               |       | 461,849            |       | —           |       | —           |       | —           |       | 461,849          |       |
| Deferred income taxes and other long-term  liabilities                  |       | 36,096             |       | 8,730            |       | 190              |       | (8,730           | )          | 36,286           |       |
| Intercompany payable                                                    |       | 246,465            |       | —           |       | —           |       | (246,465         | )          | —           |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Stockholder’s equity:                                              |       |               |       |             |       |             |       |             |       |             |       |
| Common stock                                                            |       | 10                 |       | 8                |       | 452              |       | (460             | )          | 10               |       |
| Capital in excess of par value                                          |       | 447,367            |       | 448,112          |       | 60,220           |       | (508,332         | )          | 447,367          |       |
| (Accumulated deficit) retained earnings                                 |       | (265,897           | )          | 53,846           |       | (40,152          | )          | (13,694          | )          | (265,897         | )          |
| Accumulated other comprehensive income                                  |       | 8,902              |       | —           |       | 8,876            |       | (8,876           | )          | 8,902            |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Total stockholder’s equity                                         |       | 190,382            |       | 501,966          |       | 29,396           |       | (531,362         | )          | 190,382          |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
|                                                                    |       | $                  | 989,595    |             | $          | 526,918          |       | $                | 33,336     |             | $          | (786,557 | ) | $ | 763,292 |   |

 

21

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**Advanstar Communications Inc.**

**Condensed Consolidating Statements of Operations(Unaudited)**

**For the three months ended September 30, 2005**

(In thousands)

 
| ** **                                                              | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Nonguarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                              | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Revenue                                                                 |       | $                  | 43,380     |             | $          | 40,950           |       | $                | 1,361      |             | $          | — |   | $ | 85,691 |   |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Operating expenses:                                                     |       |               |       |             |       |             |       |             |       |             |       |
| Cost of production and selling, editorial and  circulation              |       | 29,321             |       | 14,348           |       | 1,317            |       | —           |       | 44,986           |       |
| General and administrative                                              |       | 7,836              |       | 516              |       | 544              |       | —           |       | 8,896            |       |
| Restructuring charge                                                    |       | 1,041              |       | —           |       | —           |       | —           |       | 1,041            |       |
| Depreciation and amortization                                           |       | 4,965              |       | 3,800            |       | 162              |       | —           |       | 8,927            |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Total operating expenses                                                |       | 43,163             |       | 18,664           |       | 2,023            |       | —           |       | 63,850           |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Operating income (loss)                                                 |       | 217                |       | 22,286           |       | (662             | )          | —           |       | 21,841           |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Other income (expense):                                                 |       |               |       |             |       |             |       |             |       |             |       |
| Interest expense, net                                                   |       | (13,639            | )          | —           |       | 4                |       | —           |       | (13,635          | )          |
| Other income (expense), net                                             |       | 104                |       | (38              | )          | (126             | )          | —           |       | (60              | )          |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| (Loss) income from continuing operations before  income taxes           |       | (13,318            | )          | 22,248           |       | (784             | )          | —           |       | 8,146            |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| (Benefit) provision for income taxes                               |       | (2,702             | )          | 8,596            |       | —           |       | —           |       | 5,894            |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Equity in earnings of subsidiaries                                      |       | 12,868             |       | —           |       | —           |       | (12,868          | )          | —           |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Income (loss) from continuing operations                                |       | 2,252              |       | 13,652           |       | (784             | )          | (12,868          | )          | 2,252            |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Discontinued operations:                                                |       |               |       |             |       |             |       |             |       |             |       |
| Income (loss) from operations of discontinued  businesses, net of taxes |       | 2,954              |       | —           |       | (12,358          | )          | 12,358           |       | 2,954            |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Net income (loss)                                                       |       | $                  | 5,206      |             | $          | 13,652           |       | $                | (13,142    | )                | $          | (510 | ) | $ | 5,206 |   |

 

22

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**Advanstar Communications Inc.**

**Condensed Consolidating Statements of Operations(Unaudited)**

**For the nine months ended September 30, 2005**

(In thousands)

 
| ** **                                                                                               | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Nonguarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                               | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
|                                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| Revenue                                                                                                  |       | $                  | 150,562    |             | $          | 77,425           |       | $                | 4,266      |             | $          | — |   | $ | 232,253 |   |
|                                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| Operating expenses:                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| Cost of production and selling, editorial and  circulation                                               |       | 97,570             |       | 28,040           |       | 3,978            |       | —           |       | 129,588          |       |
| General and administrative                                                                               |       | 28,106             |       | 1,232            |       | 1,812            |       | —           |       | 31,150           |       |
| Restructuring charge                                                                                     |       | 3,056              |       | —           |       | —           |       | —           |       | 3,056            |       |
| Depreciation and amortization                                                                            |       | 16,857             |       | 11,019           |       | 528              |       | —           |       | 28,404           |       |
|                                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| Total operating expenses                                                                                 |       | 145,589            |       | 40,291           |       | 6,318            |       | —           |       | 192,198          |       |
|                                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| Operating income (loss)                                                                                  |       | 4,973              |       | 37,134           |       | (2,052           | )          | —           |       | 40,055           |       |
|                                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| Other income (expense):                                                                                  |       |               |       |             |       |             |       |             |       |             |       |
| Interest expense, net                                                                                    |       | (48,084            | )          | —           |       | 20               |       | —           |       | (48,064          | )          |
| Loss on extinguishment of debt                                                                           |       | (12,581            | )          | —           |       | —           |       | —           |       | (12,581          | )          |
| Other income, net                                                                                        |       | 381                |       | (76              | )          | (380             | )          | —           |       | (75              | )          |
|                                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| (Loss) income from continuing operations before  income taxes and cumulative effect of accounting change |       | (55,311            | )          | 37,058           |       | (2,412           | )          | —           |       | (20,665          | )          |
|                                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| (Benefit) provision for income taxes                                                                |       | (10,294            | )          | 14,294           |       | 9                |       | —           |       | 4,009            |       |
|                                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| Equity in earnings of subsidiaries                                                                       |       | 20,343             |       | —           |       | —           |       | (20,343          | )          | —           |       |
|                                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| (Loss) income from continuing operations before  cumulative effect of accounting change                  |       | (24,674            | )          | 22,764           |       | (2,421           | )          | (20,343          | )          | (24,674          | )          |
|                                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| Discontinued operations:                                                                                 |       |               |       |             |       |             |       |             |       |             |       |
| Income (loss) from operations of discontinued  businesses, net of taxes                                  |       | 46,916             |       | —           |       | 1,693            |       | (1,693           | )          | 46,916           |       |
|                                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| Income (loss) before cumulative effect of accounting  change                                             |       | 22,242             |       | 22,764           |       | (728             | )          | (22,036          | )          | 22,242           |       |
| .                                                                                                        |       |               |       |             |       |             |       |             |       |             |       |
| Cumulative effect of accounting change                                                                   |       | 4,618              |       | —           |       | —           |       | —           |       | 4,618            |       |
|                                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| Net income (loss)                                                                                        |       | $                  | 26,860     |             | $          | 22,764           |       | $                | (728       | )                | $          | (22,036 | ) | $ | 26,860 |   |

 

23

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**Advanstar Communications Inc.**

**Condensed Consolidating Statements of Cash Flows(Unaudited)**

**For the nine months ended September 30, 2005**

(In thousands)

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

 

24

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**Advanstar Communications Inc.**

**Condensed Consolidating Balance Sheets**

**At December 31, 2004**

(In thousands)

 
| ** **                                                              | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Nonguarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                              | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| **Assets**                                                              | ** ** | ** **         | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current assets                                                          |       |               |       |             |       |             |       |             |       |             |       |
| Cash and cash equivalents                                               |       | $                  | 33,956     |             | $          | —           |       | $                | 7,267      |             | $          | — |   | $ | 41,223 |   |
| Accounts receivable, net                                                |       | 25,685             |       | —           |       | 1,014            |       | —           |       | 26,699           |       |
| Prepaid expenses                                                        |       | 4,859              |       | 1,265            |       | 282              |       | —           |       | 6,406            |       |
| Other                                                                   |       | 2,374              |       | —           |       | 76               |       | —           |       | 2,450            |       |
| Current assets of discontinued operations                               |       | 813                |       | —           |       | 1,877            |       | —           |       | 2,690            |       |
| Total current assets                                                    |       | 67,687             |       | 1,265            |       | 10,516           |       | —           |       | 79,468           |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Noncurrent assets                                                       |       |               |       |             |       |             |       |             |       |             |       |
| Property, plant and equipment, net                                      |       | 16,816             |       | 1,624            |       | 277              |       | —           |       | 18,717           |       |
| Deferred tax asset                                                      |       | 8,438              |       | 292              |       | —           |       | (8,730           | )          | —           |       |
| Intangible and other assets, net                                        |       | 374,357            |       | 269,500          |       | 35,058           |       | —           |       | 678,915          |       |
| Investments in subsidiaries                                             |       | 514,479            |       | —           |       | 10,421           |       | (524,900         | )          | —           |       |
| Intercompany receivable                                                 |       | —             |       | 228,779          |       | (4,274           | )          | (224,505         | )          | —           |       |
| Non-current assets of discontinued operations and  assets held for sale |       | 124,773            |       | —           |       | 11,064           |       | —           |       | 135,837          |       |
|                                                                    |       | $                  | 1,106,550  |             | $          | 501,460          |       | $                | 63,062     |             | $          | (758,135 | ) | $ | 912,937 |   |
| **Liabilities and Stockholder’s Equity**                           | ** ** | ** **         | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current liabilities                                                     |       |               |       |             |       |             |       |             |       |             |       |
| Current maturities of long-term debt                                    |       | $                  | 1,300      |             | $          | —           |       | $                | —     |             | $          | — |   | $ | 1,300 |   |
| Accounts payable                                                        |       | 11,580             |       | 699              |       | 1,172            |       | —           |       | 13,451           |       |
| Accrued liabilities                                                     |       | 32,429             |       | 7,275            |       | 726              |       | —           |       | 40,430           |       |
| Deferred revenue                                                        |       | 23,683             |       | 15,554           |       | 45               |       | —           |       | 39,282           |       |
| Current liabilities of discontinued operations                          |       | 10,768             |       | —           |       | 5,118            |       | —           |       | 15,886           |       |
| Total current liabilities                                               |       | 79,760             |       | 23,528           |       | 7,061            |       | —           |       | 110,349          |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Long-term debt, net of current maturities                               |       | 612,919            |       | —           |       | —           |       | —           |       | 612,919          |       |
| Deferred income taxes and other long-term  liabilities                  |       | 22,224             |       | 8,730            |       | 255              |       | (8,730           | )          | 22,479           |       |
| Intercompany payable                                                    |       | 224,505            |       | —           |       | —           |       | (224,505         | )          | —           |       |
| Due to parent                                                           |       | 2,698              |       | —           |       | —           |       | —           |       | 2,698            |       |
| Long-term liabilities of discontinued operations                        |       | 3,579              |       | —           |       | 48               |       | —           |       | 3,627            |       |
|                                                                    |       |               |       |             |       |             |       |             |       |             |       |
| Stockholder’s equity                                               |       |               |       |             |       |             |       |             |       |             |       |
| Common stock                                                            |       | 10                 |       | 3                |       | 959              |       | (962             | )          | 10               |       |
| Capital in excess of par value                                          |       | 447,367            |       | 438,117          |       | 86,882           |       | (524,999         | )          | 447,367          |       |
| (Accumulated deficit) retained earnings                                 |       | (292,757           | )          | 31,082           |       | (38,286          | )          | 7,204            |       | (292,757         | )          |
| Accumulated other comprehensive income (loss)                           |       | 6,245              |       | —           |       | 6,143            |       | (6,143           | )          | 6,245            |       |
| Total stockholder’s equity                                         |       | 160,865            |       | 469,202          |       | 55,698           |       | (524,900         | )          | 160,865          |       |
|                                                                    |       | $                  | 1,106,550  |             | $          | 501,460          |       | $                | 63,062     |             | $          | (758,135 | ) | $ | 912,937 |   |

 

25

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**Advanstar Communications Inc.**

**Condensed Consolidating Statements of Operations(Unaudited)**

**For the three months ended September 30, 2004**

(In thousands)

 
| ** **                                                 | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Nonguarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
|                                                       |       |               |       |             |       |             |       |             |       |             |       |
| Revenue                                                    |       | $                  | 41,115     |             | $          | 35,504           |       | $                | 1,338      |             | $          | — |   | $ | 77,957 |   |
|                                                       |       |               |       |             |       |             |       |             |       |             |       |
| Operating expenses:                                        |       |               |       |             |       |             |       |             |       |             |       |
| Cost of production and selling, editorial and  circulation |       | 29,446             |       | 11,394           |       | 1,037            |       | —           |       | 41,877           |       |
| General and administrative                                 |       | 8,073              |       | 390              |       | 467              |       | —           |       | 8,930            |       |
| Funding of affiliated company operations                   |       | 308                |       | —           |       | —           |       | —           |       | 308              |       |
| Depreciation and amortization                              |       | 7,081              |       | 3,439            |       | 174              |       | —           |       | 10,694           |       |
|                                                       |       |               |       |             |       |             |       |             |       |             |       |
| Total operating expenses                                   |       | 44,908             |       | 15,223           |       | 1,678            |       | —           |       | 61,809           |       |
|                                                       |       |               |       |             |       |             |       |             |       |             |       |
| Operating (loss) income                                    |       | (3,793             | )          | 20,281           |       | (340             | )          | —           |       | 16,148           |       |
|                                                       |       |               |       |             |       |             |       |             |       |             |       |
| Other income (expense):                                    |       |               |       |             |       |             |       |             |       |             |       |
| Interest expense, net                                      |       | (17,364            | )          | —           |       | 2                |       | —           |       | (17,362          | )          |
| Other income (expense), net                                |       | 1,134              |       | —           |       | (1,108           | )          | —           |       | 26               |       |
|                                                       |       |               |       |             |       |             |       |             |       |             |       |
| (Loss) from continuing operations before income  taxes     |       | (20,023            | )          | 20,281           |       | (1,446           | )          | —           |       | (1,188           | )          |
|                                                       |       |               |       |             |       |             |       |             |       |             |       |
| (Benefit) provision for income taxes                  |       | (4,786             | )          | 7,434            |       | 8                |       | —           |       | 2,656            |       |
|                                                       |       |               |       |             |       |             |       |             |       |             |       |
| Equity in earnings of subsidiaries                         |       | 11,393             |       | —           |       | —           |       | (11,393          | )          | —           |       |
|                                                       |       |               |       |             |       |             |       |             |       |             |       |
| Net (loss) income from continuing operations               |       | (3,844             | )          | 12,847           |       | (1,454           | )          | (11,393          | )          | (3,844           | )          |
|                                                       |       |               |       |             |       |             |       |             |       |             |       |
| Discontinued operations:                                   |       |               |       |             |       |             |       |             |       |             |       |
| (Loss) income from operations of discontinued  businesses  |       | (6,004             | )          | —           |       | (5,843           | )          | 5,843            |       | (6,004           | )          |
|                                                       |       |               |       |             |       |             |       |             |       |             |       |
| Net (loss) income                                          |       | $                  | (9,848     | )                | $          | 12,847           |       | $                | (7,297     | )                | $          | (5,550 | ) | $ | (9,848 | ) |

 

26

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**Advanstar Communications 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                                                       |       | $                  | 147,120    |             | $          | 68,277           |       | $                | 4,276      |             | $          | — |   | $ | 219,673 |   |
|                                                          |       |               |       |             |       |             |       |             |       |             |       |
| Operating expenses:                                           |       |               |       |             |       |             |       |             |       |             |       |
| Cost of production and selling, editorial and  circulation    |       | 94,436             |       | 23,811           |       | 3,464            |       | —           |       | 121,711          |       |
| General and administrative                                    |       | 25,379             |       | 1,180            |       | 1,446            |       | —           |       | 28,005           |       |
| Funding of affiliated company operations                      |       | 3,071              |       | —           |       | —           |       | —           |       | 3,071            |       |
| Depreciation and amortization                                 |       | 20,203             |       | 10,377           |       | 571              |       | —           |       | 31,151           |       |
|                                                          |       |               |       |             |       |             |       |             |       |             |       |
| Total operating expenses                                      |       | 143,089            |       | 35,368           |       | 5,481            |       | —           |       | 183,938          |       |
|                                                          |       |               |       |             |       |             |       |             |       |             |       |
| Operating income (loss)                                       |       | 4,031              |       | 32,909           |       | (1,205           | )          | —           |       | 35,735           |       |
|                                                          |       |               |       |             |       |             |       |             |       |             |       |
| Other income (expense):                                       |       |               |       |             |       |             |       |             |       |             |       |
| Interest expense, net                                         |       | (52,930            | )          | —           |       | (9               | )          | —           |       | (52,939          | )          |
| Other income (expense), net                                   |       | 1,615              |       | —           |       | (376             | )          | —           |       | 1,239            |       |
|                                                          |       |               |       |             |       |             |       |             |       |             |       |
| (Loss) income from continuing operations before  income taxes |       | (47,284            | )          | 32,909           |       | (1,590           | )          | —           |       | (15,965          | )          |
|                                                          |       |               |       |             |       |             |       |             |       |             |       |
| (Benefit) provision for income taxes                     |       | (8,635             | )          | 12,182           |       | 1                |       | —           |       | 3,548            |       |
|                                                          |       |               |       |             |       |             |       |             |       |             |       |
| Equity in earnings of subsidiaries                            |       | 19,136             |       | —           |       | —           |       | (19,136          | )          | —           |       |
|                                                          |       |               |       |             |       |             |       |             |       |             |       |
| Net (loss) income from continuing operations                  |       | (19,513            | )          | 20,727           |       | (1,591           | )          | (19,136          | )          | (19,513          | )          |
|                                                          |       |               |       |             |       |             |       |             |       |             |       |
| Discontinued operations:                                      |       |               |       |             |       |             |       |             |       |             |       |
| (Loss) income from operations of discontinued  businesses     |       | (2,016             | )          | —           |       | (13,969          | )          | 13,969           |       | (2,016           | )          |
|                                                          |       |               |       |             |       |             |       |             |       |             |       |
| Net (loss) income                                             |       | $                  | (21,529    | )                | $          | 20,727           |       | $                | (15,560    | )                | $          | (5,167 | ) | $ | (21,529 | ) |

 

27

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**Advanstar Communications Inc.**

**Condensed Consolidating Statements of Cash Flows(Unaudited)**

**For the nine months ended September 30, 2004**

(In thousands)

 
| ** **                                                                                | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Nonguarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
|                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| Operating activities:                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| Net (loss) income                                                                         |       | $                  | (21,529    | )                | $          | 20,727           |       | $                | (15,560    | )                | $          | (5,167 | ) | $ | (21,529 | ) |
| Adjustments to reconcile net income (loss) 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 tradeshows, 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 |   |

 

28

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**Item2.   *Management’s Discussionand Analysis of Financial Condition and Results of Operations***

 

This quarterly report on Form 10-Q contains forward-lookingstatements made pursuant to the safe harbor provisions of the PrivateSecurities Litigation Reform Act of 1995. Investors are cautioned not to place undue reliance on theseforward-looking statements, including statements about plans and objectives ofmanagement, potential acquisitions, market growth and opportunity.  These forward-looking statements are neitherpromises nor guarantees and involve risks and uncertainties that could causeactual results to differ materially from those indicated by suchforward-looking statements.  You shouldnot expect that these forward-looking statements will be updated orsupplemented as a result of changing circumstances or otherwise, and we disavowand disclaim any obligation to do so. Important cautionary statements and risk factors that would affectactual results are discussed in the our periodic reports and registrationstatements filed with the Securities and Exchange Commission, including thoseunder the caption entitled “Factors Which May Affect Future Results” inour 2004 annual report on Form 10-K filed with the Securities and ExchangeCommission on March 29, 2005.

 

**Overview**

 

We are a worldwide provider of integrated marketing communicationsproducts and services for targeted industry sectors, principally through tradeand consumer shows, conferences, and through controlled circulation trade,business and professional magazines.  Wealso provide a broad range of other direct marketing products, includingclassified advertising, direct mail services, reprints, database marketing,guides, and reference books.

 

We report our business in three segments:

 

•                  shows and conferences, which consistsprimarily of the management of trade and consumer shows and seminars held inconvention and conference centers;

 

•                  trade publications, which consistsprimarily of the creation and distribution of controlled circulation trade,business and professional magazines; and

 

•                  direct marketing products and other,which consists primarily of sales of a variety of direct mail and databaseproducts, magazine editorial reprints and classified advertising.

 

In addition to our shows, trade publications and direct marketingproducts, we deliver our integrated B-to-B marketing communications productsand services to our customers using the internet.  For discussion purposes, we have included ourinternet activity in our direct marketing products and other segment.

 

Shows and conferences accounted for approximately 48% and 44% of totalrevenue for the nine months ended September 30, 2005 and 2004.  Trade publications accounted forapproximately 46% and 51% of total revenue for the nine months ended September 30,2005 and 2004, respectively, while direct marketing products and otheraccounted for approximately 6% and 5% of total revenue for the nine monthsended September 30, 2005 and 2004, respectively.  Our revenue reaches its highest levels duringthe first and third quarters of the year due to the timing of the MAGICtradeshows and our other large tradeshows and conferences.  Because tradeshow and conference revenue isrecognized when a particular event is held, we may experience fluctuations inquarterly revenue based on the movement of tradeshow dates from one quarter toanother.

 

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**RecentDevelopments**

 

On May 23, 2005, we, our parent company and certain affiliates(Advanstar Expositions Canada Limited and Advanstar.com) completed the sale ofbusiness assets and liabilities associated with our tradeshows and conferences,trade publications and direct marketing products in our: Information Technology &Communications, Travel/Hospitality, Beauty, Home Entertainment, Abilities andPortfolio groups, including the shares of our Hong Kong subsidiaries (the “SoldPortfolio Group”).  The shares of our Braziliansubsidiary were sold in July 2005 after receipt of final regulatoryapproval. Collectively, the Sold Portfolio Group and Brazilian subsidiary arereferred to as the “Portfolio Group.” The sale price for these assets andshares was $173.8 million in cash, net of expenses.  We recorded a gain on the sale of $53.0million.

 

Revenue of the Portfolio Group, included indiscontinued operations, were $49.0 million for the period from January 1,2005 through May 23, 2005, and $21.9 million and $78.8 million for thethree and nine months ended September 30, 2004.

 

In connection with the sale of the Portfolio Groupwe repaid all outstanding term debt under our credit facility and amended thecredit facility to retain revolving loan availability at $60 million whileallowing for repayment of second lien and junior debt with a portion of theproceeds from the sale of the Portfolio Group. The amendment also revised the fixed charge coverage ratio to excludefrom the calculation any interest expense related to debt repaid prior to July 31,2005 with the proceeds from the sale of the Portfolio Group.

 

As a result of the sale of the PortfolioGroup, our second priority senior secured notes indenture required that weeither use the remaining net proceeds (after repayment of the Credit Facilityborrowings) to invest in our business or to offer to purchase our secondpriority senior secured notes at par plus accrued interest.  In June 2005, we offered to purchase upto $140 million of the second lien notes. Holders of $8,665,000 principal amount of the 10.75% Second PrioritySenior Secured Notes (the “fixed rate notes”) tendered their notes forpurchase, and we purchased all such notes.

 

Also in June 2005, we completed a cashtender offer for any and all of our outstanding Second Priority Senior SecuredFloating Rate Notes due 2008 (the “floating rate notes”).  Holders of $117,801,750 aggregate outstandingprincipal amount of the floating rate notes tendered their notes for purchase,and we purchased all such notes at a price equal to 107.3% (including a 3%consent fee) of outstanding principal plus accrued interest.  In connection with the tender offer, wereceived consents to proposed amendments to the indenture governing the notes,resulting in the elimination of substantially all of the restrictive covenantsand certain default provisions with respect to the floating rate notes.

 

Under our indentures, any net proceeds fromthe sale of the Portfolio Group not used to reinvest in the business or topurchase second lien notes within one year after closing of the sale will berequired to be used to offer to repurchase the subordinated notes and then thediscount notes.  After application of thenet proceeds of the sale of the Portfolio Group to repay the Credit Facility borrowingsand finance the tender offers, we had net proceeds of approximately $13.4million remaining, all of which was used in the third quarter of 2005 foracquisitions.

 

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**Trendsand Developments**

 

Our first nine months of 2005 results were impacted by the sale of the Portfolio Group to Questex MediaGroup in the second quarter and related $3.1 million restructuring charge,$12.6 million in costs related to the repayment of a portion of our debt,new product launches, investments in our Life Sciences and Powersportsoperating groups, the impact of our restructuring on current sales in ourhealthcare special projects group, anda favorable impact of a $4.6 million cumulative effect of accounting changerelated to the consolidation of Advanstar.com operating results into ourresults.

 

Net income in the first nine months of 2005 includes the results for approximately fivemonths of the groups sold to Questex Media Group in May 2005, a $53.0million gain on the sale of these assets and a $2.3 million intangible assetimpairment charge related to the closing of our East Coast Fashion events. Allof these are reported as discontinued operations.

 

The sale of the Portfolio Group allows us to concentrate our resourceson three markets in which we have our strongest product and market positions,which are the fashion and licensing, life sciences, and the motorcycle andautomotive aftermarket markets.  In thefirst nine months of 2005, we invested in these core markets through existingproduct development, launching of new events and conferences and development ofcontinuing education capabilities in our healthcare, dental and veterinarymarkets.

 

Our tradeshows and conferences continued to perform well in 2005.  Revenue in the first nine months of 2005 fromour three largest events, MAGIC, Dealer Expo and Licensing International,increased $8.0 million, or 9.6%, compared to the first nine months of 2004. ** **We also launched theOff-Road Impact tradeshow and conference, complementing our 2004 launches of *Dirt Sports* and *Off-Road Business* magazines, 15 new IVT and pharmaceuticalconferences, a dental conference — Digital Radiography Congress, and alicensing conference.

 

The decline in revenue in our publishing segment in the first ninemonths of 2005 is the result of a decline in sales in our healthcare customprojects as we restructured our operations, and a contraction in advertising andsubscriptions in our nursing publications.

 

We have identifiednew opportunities and initiatives that we will be pursuing through the balanceof 2005 and into 2006, including opportunities to expand customer relationshipsand our market position in our MAGIC events and the development of a standalone continuing medical education business and other diversified customerofferings in our healthcare sector.  Wealso anticipate our fourth quarter launch of our Arenacross ChampionshipMotorcycle Racing series in conjunction with our existing International MotorcycleShow series.

 

## **Presentationof Financial Information**

 

*Acquisitions and divestitures*

 

On September 12, 2005, we purchased an off-road consumer eventbusiness from Petersen Events Corporation (“Off-Road Expo”) for $2.2 million incash.  In addition, we may pay additionalcontingent cash consideration to the former shareholders based on the 2006operating revenue from the acquired assets. Certain acquired assets and assumed liabilities are recorded based onpreliminary estimates of their respective fair values as of the date of theacquisition. We do not believe the final allocation of purchase price will bematerially different from preliminary allocations.

 

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On August 23, 2005, we purchased two fashion industry tradeshowbusinesses and related products from Pool Tradeshow (‘‘Pool’’) for $3.0 millionin cash, subject to a working capital adjustment, which will be completed inthe fourth quarter of 2005.  In addition,we may pay additional contingent cash consideration to the former shareholderbased on the 2007 and 2008 operating results from the acquired assets and theircontinued employment with us.  Certainacquired assets and assumed liabilities are recorded based on preliminaryestimates of their respective fair values as of the date of the acquisition. Wedo not believe the final allocation of purchase price will be materiallydifferent from preliminary allocations.

 

On August 19, 2005, we purchased Project Global Tradeshow, Inc.(‘‘Project”), a producer of tradeshows for the premium contemporary sector ofthe fashion industry, for $9.9 million in cash, subject to a working capitaladjustment, which will be completed in the fourth quarter of 2005.  In addition, we may pay additional contingentcash consideration to the former shareholders based on the 2007 and 2008operating results of the acquired assets and their continued employment withus.  Certain acquired assets and assumedliabilities are recorded based on preliminary estimates of their respectivefair values as of the date of the acquisition. We do not believe the finalallocation of purchase price will be materially different from preliminaryallocations.

 

From January 1, 2005 through September 30,2005, we completed two other acquisitions of consumer shows with an aggregatepurchase price of $0.5 million in cash.

 

On March 8, 2004, we purchased a portfolio of pharmaceuticalindustry specific magazines and conferences from the Institute of ValidationTechnology, Inc. (“IVT”) for $7.9 million in cash.  In addition, we may pay additional contingentcash consideration to the prior owners based upon 2004 and 2005 operatingresults generated from the acquired assets and their continued employment withus.  Operating results for the three andnine months ended September 30, 2005 include $0.4 million and $1.0 millionin compensation expense, respectively, to reflect the accrual of the 2005component of the expected contingent payment.

 

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

 

In May 2005,we sold our Portfolio Group.  See “—RecentDevelopments” for additional information regarding this sale.

 

In the secondquarter of 2005, we closed the last remaining East Coast Fashion event (the “EastCoast Fashion Group”) as part of our ongoing strategy and evaluation of ourproduct portfolio.  Revenue of the EastCoast Fashion Group included in discontinued operations was $0.9 million and$5.2 million for the first nine months of 2005 and 2004. East Coast FashionGroup had no revenue in the third quarter of 2005 and 2004.  We recorded a $2.3 million impairment chargefor the remaining intangible assets of this business in the second quarter of2005.

 

In thethird quarter of 2004, we sold our German tradeshow business (“DMS”) for $1.7million in cash.  As a result of the saleof DMS we recorded a goodwill impairment charge of $6.2 million.  Total DMS revenue in the three and ninemonths ended September 30, 2004 were not material.

 

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                        In the third quarter of 2004, we sold our 65%ownership in our French joint venture (“SeCA”), which consisted of onetradeshow, for $3.1 million in cash.  Inconjunction with our sale of SeCA we recorded a goodwill impairment charge of$9.4 million, net of minority interest. SeCA had $2.9 million in revenue, included in discontinued operationsfor the nine months ended September 30, 2004.  SeCA had no revenue in the third quarter of2004.

 

In the third quarter of 2004, we sold our *Post* business trade publication (“Post”)for $1.0 million in cash. We recorded a loss after taxes on the sale of $1.3million.  Revenue in the first ninemonths of 2004 was $0.7 million.  Posthad no revenue in the third quarter of 2004.

 

In the first quarter of 2004, we sold our art industrytradeshows and magazines for a total sales price of $19.6 million in cash (“ArtGroup”).  Total revenue for the Art Groupin the nine months ended September 30, 2004, included in discontinuedoperations, was $8.5 million.  We recorded a gain after taxes on the saleof $3.4 million.

 

The financial results of the businesses included indiscontinued operations in the accompanying condensed consolidated statementsof operations are as follows (in thousands):

 
| ** **                                                                              | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|-----------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                              | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                              | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                              | ** ** | ** **             | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** |
| (Loss) income before income taxes (including  goodwill impairment charge and gain sale) |       | $                      | (104       | )                      | $          | (5,293 | ) | $ | 58,635 |   | $ | (2,004 | ) |
| Income tax(benefit) provision                                                           |       | (3,058                 | )          | 450                    |       | 11,153 |   | 4,134 |   |
| Minority interests                                                                      |       | —                 |       | (261                   | )          | (566 | ) | 4,122 |   |
|                                                                                    |       |                   |       |                   |       |   |   |   |   |
| Income (loss) from operations of discontinued  business                                 |       | $                      | 2,954      |                   | $          | (6,004 | ) | $ | 46,916 |   | $ | (2,016 | ) |

 

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**SelectedFinancial Data**

 

Thefollowing table sets forth selected statements of operations and otherfinancial data.

 
| ** **                                                                                                | ** ** | **For the**            | ** ** | **For the**            | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
| ** **                                                                                                | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                                | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                | ** ** | **(in thousands)**     | ** ** | **(in thousands)**     | ** ** |
| **Income Statement Data:**                                                                                |       |                   |       |                   |       |   |   |   |   |
| Revenue                                                                                                   |       |                   |       |                   |       |   |   |   |   |
| Tradeshows and conferences                                                                                |       | $                      | 46,821     |                   | $          | 39,493 |   | $ | 111,022 |   | $ | 97,367 |   |
| Publications                                                                                              |       | 34,307                 |       | 34,786                 |       | 107,951 |   | 111,333 |   |
| Direct marketing products and other                                                                       |       | 4,563                  |       | 3,678                  |       | 13,280 |   | 10,973 |   |
|                                                                                                      |       |                   |       |                   |       |   |   |   |   |
| Total revenue                                                                                             |       | 85,691                 |       | 77,957                 |       | 232,253 |   | 219,673 |   |
|                                                                                                      |       |                   |       |                   |       |   |   |   |   |
| Cost of production and selling                                                                            |       |                   |       |                   |       |   |   |   |   |
| Tradeshows and conferences                                                                                |       | 18,858                 |       | 14,438                 |       | 46,147 |   | 37,417 |   |
| Publications                                                                                              |       | 23,946                 |       | 24,966                 |       | 74,669 |   | 76,344 |   |
| Direct marketing products and other                                                                       |       | 2,182                  |       | 2,473                  |       | 8,772 |   | 7,950 |   |
|                                                                                                      |       |                   |       |                   |       |   |   |   |   |
| Total cost of production and selling                                                                      |       | 44,986                 |       | 41,877                 |       | 129,588 |   | 121,711 |   |
|                                                                                                      |       |                   |       |                   |       |   |   |   |   |
| General and administrative expenses                                                                       |       | 8,896                  |       | 8,930                  |       | 31,150 |   | 28,005 |   |
| Restructuring charge                                                                                      |       | 1,041                  |       | —                 |       | 3,056 |   | — |   |
| Funding of affiliated dot.com company operations                                                          |       | —                 |       | 308                    |       | — |   | 3,071 |   |
| Depreciation and amortization                                                                             |       | 8,927                  |       | 10,694                 |       | 28,404 |   | 31,151 |   |
|                                                                                                      |       |                   |       |                   |       |   |   |   |   |
| Operating income                                                                                          |       | 21,841                 |       | 16,148                 |       | 40,055 |   | 35,735 |   |
| Other income (expense):                                                                                   |       |                   |       |                   |       |   |   |   |   |
| Interest expense                                                                                          |       | (13,635                | )          | (17,362                | )          | (48,064 | ) | (52,939 | ) |
| Loss on extinguishment of debt                                                                            |       | —                 |       | —                 |       | (12,581 | ) | — |   |
| Other (expense) income, net                                                                               |       | (60                    | )          | 26                     |       | (75 | ) | 1,239 |   |
|                                                                                                      |       |                   |       |                   |       |   |   |   |   |
| Income (loss) from continuing operations before  income taxes, and cumulative effect of accounting change |       | 8,146                  |       | (1,188                 | )          | (20,665 | ) | (15,965 | ) |
| Provision for income taxes                                                                                |       | 5,894                  |       | 2,656                  |       | 4,009 |   | 3,548 |   |
|                                                                                                      |       |                   |       |                   |       |   |   |   |   |
| Income (loss) from continuing operations before  cumulative effect of accounting change                   |       | 2,252                  |       | (3,844                 | )          | (24,674 | ) | (19,513 | ) |
|                                                                                                      |       |                   |       |                   |       |   |   |   |   |
| Income (loss) from operations of discontinued  businesses, net of taxes                                   |       | 2,954                  |       | (6,004                 | )          | 46,916 |   | (2,016 | ) |
|                                                                                                      |       |                   |       |                   |       |   |   |   |   |
| Income (loss) before cumulative effect of accounting  change                                              |       | 5,206                  |       | (9,848                 | )          | 22,242 |   | (21,529 | ) |
|                                                                                                      |       |                   |       |                   |       |   |   |   |   |
| Cumulative effect of accounting change                                                                    |       | —                 |       | —                 |       | 4,618 |   | — |   |
|                                                                                                      |       |                   |       |                   |       |   |   |   |   |
| Net income (loss)                                                                                         |       | $                      | 5,206      |                   | $          | (9,848 | ) | $ | 26,860 |   | $ | (21,529 | ) |

 

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**Resultsof Operations**

 

# **THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THE THREE MONTHSENDED SEPTEMBER 30, 2004**

##  

# ***Revenue***

 

Revenuein the third quarter of 2005 increased 9.9% to $85.7 million from $78.0 millionin the third quarter of 2004.

 

Revenue from tradeshows and conferences increased18.6%, or $7.3 million, to $46.8 million from $39.5 million in the thirdquarter of 2004. Our fall 2005 MAGIC event increased revenue over third quarter2004 by $3.1 million or 8.6% with exhibit space reaching 946,000 square feetand increased yield by 3.5%. The acquisitions of Pool and Project, whichexpanded our presence in the contemporary and boutique fashion markets,contributed $3.3 million of revenue in third quarter of 2005. The third quarterlaunch of four new conferences, including three IVT and pharmaceuticalconferences and a licensing conference, contributed a combined $0.7 million inrevenue growth in third quarter 2005.

 

Revenuefrom publications in the third quarter of 2005 declined 1.4%, or $0.5 million,to $34.3 million from $34.8 million in the third quarter of 2004.  Revenue from Life Sciences custom projectsdeclined $1.2 million in the quarter due to the continued impact from the restructuring ofthe Life Sciences operating group and its effect on the 2005 sales cycle.Additionally, primary healthcare andpharmaceutical publications’ revenue declined $0.6 million and $0.4 millionrespectively in the third quarter.  Ourflagship primary care publication, *MedicalEconomics*, increased revenue in the quarter by 9.4%.  In specialty care, while softer revenues weregenerated from our nursing publications, revenue from our other six specialtytitles increased revenue 13.5% over the third quarter of last year.  Revenue from the dental and veterinarypublications increased $0.3 million or 6.6% and $0.2 million or 6.7%respectively over the third quarter in 2004. New publication launches, including those in Powersports/Automotive with*Dirt Sports* and *Off-Road Business*and in Life Sciences with*Locum Life*, *Firstline*, *Ophthalmology Times Europe* and *Contract Services Europe,* generated $1.1 million in revenuein the third quarter 2005.

 

In the third quarter of 2005, revenue from the direct marketingproducts and other segment increased 24.1%, or $0.9 million, to $4.6 millionfrom $3.7 million in the third quarter of 2004. This increase is primarily due to the adoption of FASB Interpretation No. 46R,“Consolidation of Variable Interest Entities,” which required us to consolidatethe results of our affiliate, Advanstar.com.

 

# ***Cost of production and selling***

 

Costof production and selling expenses in the third quarter of 2005 increased 7.4%to $45.0 million from $41.9 million in the third quarter of 2004.

 

Expensesof tradeshows and conferences in the third quarter of 2005 increased 30.6%, or$4.4 million, to $18.9 million from $14.4 million in the third quarter of2004.  The increase is primarily due toincreased investment in our fall 2005 MAGIC event, the Pool and Projectacquisitions, growth in our Licensing International event, and staffing and other direct costs to support: 1)our first quarter launch of the Off-Road Impact tradeshow, 2) our newlylaunched Life Sciences conferences and 3) our Arenacross championship series tobe launched in fourth quarter 2005.

 

Expenses of trade publications in the third quarter of 2005 declined4.1%, or $1.0 million, to $23.9 million from $25.0 million in the third quarterof 2004.  The decline is primarily due tothe decline in 

 

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healthcare custom projects and primary care markets asdiscussed above, partially offset by an increase in paper costs of $0.3million, and $0.5 million of costs associated with the launch of *Dirt Sports* and *Off-Road Business* as discussed above.

 

Expensesof direct marketing products and other declined 11.8% to $2.2 million in thethird quarter of 2005 from $2.5 million in the third quarter of 2004. Thedecrease was driven by cost savings efforts in our operating supportdepartments. This decrease was partially offset by approximately $0.2 millionof increased costs due to the consolidation of the results of Advanstar.comupon the adoption of FASB Interpretation No. 46R, as discussed above.

 

# ***General and administrative expenses***

 

General and administrative costs decreased 0.4%, to $8.9 million in thethird quarter of 2005, primarily due to $0.7 million of savings associated withthe restructuring of our leased office space (as discussed below), partiallyoffset by $0.4 million of contingent employee compensation related to the IVTacquisition earn-out and increased costs due to the consolidation of theresults of Advanstar.com upon the adoption of FASB Interpretation No. 46R,as discussed above.

 

# ***Restructuring charge***

##  

Related to the sale of thePortfolio Group (see –”Recent Developments”), in May 2005, we ceased useof certain leased office space in New York, NY, Milford, CT, and Santa Ana, CA. In the third quarter of 2005, we also vacated additional leased officespace in Milford, CT and Chicago, IL. These activities resulted in charges to our operations during thethree and nine months ended September 30, 2005. These charges consist of the discounted future minimum lease payments,net of estimated future sublease income. These lease commitments expire atvarious dates through 2010.

 

 In connection with the sale of the PortfolioGroup and the reorganization of our healthcare group management team during2005, we notified 122 employees that they would be severed from the Company. Wetook a charge to operations during the three and nine months ended September 30, 2005 for severance and other termination costs.  As of September 30, 2005, 91 employeeshave been terminated, of which 54 employees were terminated in the quarterending September 30, 2005. Severance payments will continue into 2006.

 

Pre-taxrestructuring charges incurred are as follows (in thousands):

 
| ** **                                     | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                     | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                     | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                     | ** ** | ** **             | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Facility exit costs                            |       | $                      | 442        |                   | $          | — |   | $ | 1,236 |   | $ | — |   |
| Employee severance and other termination costs |       | 599                    |       | —                 |       | 1,820 |   | — |   |
| Restructuring charge                           |       | $                      | 1,041      |                   | $          | — |   | $ | 3,056 |   | $ | — |   |

 

We expect an additional $1.2 million charge to be takenin the next six months as we vacate additional office space and terminateemployees pursuant to our restructuring plan.

 

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# ***Funding of affiliated dot.com company operations***

 

Asdescribed above, on January 1, 2005 we began consolidating the operationsof Advanstar.com with our operations upon adoption of FASB Interpretation No. 46Rand therefore we are no longer recording a separate operating expense relatedto our funding of Advanstar.com.  Expenseassociated with our funding of Advanstar.com in the third quarter of 2004 was$0.3 million.

 

# ***Interest expense***

 

Interestexpense in the third quarter of 2005 declined $3.7 million, or 21.5%, to $13.6million from $17.4 million in the third quarter of 2004 primarily due to therepayment of $20.4 million of our term loans, $8.7 million of our fixed ratenotes, and $117.8 million of our floating rate notes in the second quarter of2005 with the proceeds from the sale of the Portfolio Group.

 

In June 2005, werepurchased $8.7 million of our fixed rate notes pursuant to an offer topurchase at an offer price of 100% of principal amount tendered, plus accruedand unpaid interest to the date of settlement. We also repurchased $117.8 million of our floating rate notes pursuantto a cash tender offer for $1,043 plus a consent payment of $30 per $1,000principal amount tendered, plus accrued and unpaid interest to the date ofsettlement.  See “–Recent Developments”for further information.

 

At September 30, 2005, $452.2 million, or 98%, of our total debtis at a fixed rate with the balance subject to interest rate fluctuations.

 

# ***Provision (benefit) for income taxes***

 

Theprovision for income taxes before discontinued operations was a provision of$5.9 million in the third quarter of 2005 compared to a provision of $2.7million in the third quarter of 2004.  The provision for the third quarter of 2005and 2004 includes a tax provision representing the elimination of aportion of the second quarter tax benefit provided by losses from continuingoperations to the extent that such losses offset the income from discontinuedoperations.  The tax provision is offsetby a tax benefit included in discontinued operations.  Additionally, a deferred tax provisionrelated to the basis of goodwill for tax purposes being less than the carryingvalue of goodwill for financial reporting purposes was recorded.  We recorded no income tax benefit related tothe net operating losses we generated during 2005 or 2004 because we haveestablished a valuation allowance to offset any related tax benefits due to uncertaintyabout realization of these benefits.

 

# ***Discontinued operations***

##  

In the third quarter of 2004, we sold Post, SeCA and DMS for anaggregate of $5.8 million in cash. The total loss on sale the of thesebusinesses was $1.3 million, after tax effect. The aggregate goodwillimpairment charge recorded in the third quarter of 2004 relating to theseassets was $6.2 million.

 

See further informationregarding discontinued operations in “–Presentation of Financial Information–Acquisitionsand Divestitures.”

 

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# **NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THE NINE MONTHSENDED SEPTEMBER 30, 2004**

##  

# ***Revenue***

 

Revenuein the first nine months of 2005 increased 5.7% to $232.3 million from $219.7million in the first nine months of 2004.

 

Revenue from tradeshows and conferences increased14.0%, or $13.7 million, to $111.0 million from $97.4 million in the first ninemonths of 2004.  Revenue from ourthree largest events, MAGIC, Dealer Expo, and Licensing International,increased $8.0 million, or 9.6%, compared to the first nine months of 2004.**** The exhibit space atthe MAGIC spring and fall 2005 events grew by a combined 2.3% over 2004 to1,833,300 square feet, Licensing International increased 6.7% to 194,400 squarefeet and Dealer Expo increased 1.7% to 328,300 square feet.  Yield increased 4.8% for MAGIC spring and fall 2005 events, 4.2% forLicensing International and 5.2% for Dealer Expo contributing to an increase inrevenue over the first nine months of 2004. The acquisitions of Pool and Project, which expand our presence in thecontemporary and boutique fashion markets, contributed $3.3 million of revenuefrom the events held in Las Vegas in August 2005 in coordination with the August 2005MAGIC tradeshow. We also launched the Off-Road Impact tradeshow andconference complementing our 2004 launches of *DirtSports* and *Off-Road Business*magazines,15 new IVT and pharmaceutical conferences, a dental conference — DigitalRadiography Congress and a licensing conference.  These launches generated revenue of $3.6million in the first nine months of 2005. The increased revenue generated from these tradeshows and conferenceswas partially offset by holding one less IMS motorcycle event in the first ninemonths of 2005 as compared to the first nine months of 2004.

 

Revenue from publications in the first nine monthsof 2005 declined 3.0%, or $3.4 million, to $108.0 million from $111.3 millionin the first nine months of 2004. Revenue from healthcare custom projects declined $4.2 million in thefirst nine months of 2005, attributable in part to the restructuring of the Life Sciencesoperating group and its effect on the 2005 sales cycle. In specialty care, revenue from the nursingpublications declined $1.6 million or 20.7% as nursing advertising andsubscriptions continue to contract.  Theother six publications in specialty care increased revenue 5.8% over the firstnine months of 2004.  Primary healthcarepublication revenue declined 4.0% in the first nine months of the year.  Revenue from dental publications increased9.7% and automotive publications increased revenue 12.1% over the same periodlast year.  New publication launches,including those in Powersports/Automotive with *Dirt Sports* and *Off-Road Business*and in Life Sciences with *Locum Life*, *Firstline*, *OphthalmologyTimes Europe* and *ContractServices Europe,* generated $1.8 million in revenue in the first ninemonths of 2005.

 

In the first nine months of 2005, revenue from our direct marketingproducts and other segment increased 21.0%, or $2.3 million, to $13.3 millionfrom $11.0 million in the first nine months of 2004.  This increase is primarily due to theadoption of FASB Interpretation No. 46R, “Consolidation of VariableInterest Entities,” which required us to consolidate the results of ouraffiliate, Advanstar.com, effective January 1, 2005.

 

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# ***Cost of production and selling***

 

Costof production and selling expenses in the first nine months of 2005 increased6.5% to $129.6 million from $121.7 million in the first nine months of 2004.

 

Expensesof tradeshows and conferences in the first nine months of 2005 increased 23.3%,or $8.7 million, to $46.1 million from $37.4 million in the first nine monthsof 2004.  Staffing and other direct costs to supportour first quarter launch of the Off-Road Impact tradeshow andconference, our newly launched IVT and dental conferences, and our Arenacrosschampionship series to be launched in fourth quarter 2005 contributed approximately$3.3 million to this increase.  We alsoincurred an additional $3.0 million of expenses to support the growth in ourMAGIC and Licensing International events.The acquisitions of Pool and Project, along with continued investment in ourIMS series also contributed to the increase in 2005 over 2004.

 

Expenses of trade publications in the first nine months of 2005declined 2.2%, or $1.7 million, to $74.7 million from $76.3 million in thefirst nine months of 2004.  The declineis primarily due to the decline in healthcare custom projects and primary caremarkets as discussed above, partially offset by an increase in paper costs of$0.7 million and $1.6 million of costs associated with the launch investmentsin *Dirt Sports* and *Off-Road Business* as discussed above.

 

Expensesof direct marketing products and other in the first nine months of 2005increased 10.3%, or $0.8 million, to $8.8 million from $8.0 million in thefirst nine months of 2004.  Results inthe first nine months of 2005 include approximately $0.7 million of increasedcosts due to the consolidation of the results of Advanstar.com upon theadoption of FASB Interpretation No. 46R, as discussed above.  We also incurred additional staffing andconsulting costs related to a realignment of our healthcare project businessand the launches of publications and tradeshows serving thePowersports/Automotive markets, which was offset by cost savings efforts in ouroperating and support departments.

 

# ***General and administrative expenses***

 

General and administrative costs increased 11.2%, or $3.1 million, to$31.2 million in the first nine months of 2005 from $28.0 million in the firstnine months of 2004 due primarily to $0.9 million of additional investments inour group management team and staff, primarily related to our Life Sciencesgroup, $0.6 million of costs related to strategic consulting and marketinginitiatives, $1.0 million of contingent employee compensation related to theIVT acquisition earn-out, an increase of $0.2 million for audit, tax, legal andSarbanes-Oxley consulting services and increased costs due to the consolidationof the results of Advanstar.com upon the adoption of FASB Interpretation No. 46R,as discussed above, offset by savings associated with our restructuringactivities.

 

# ***Restructuring charge***

 

Seeinformation regarding restructuring activities in “–Results of Operations-ThreeMonths Ended September 30, 2005 compared to the three months ended September 30,2004-Restructuring charge.”

 

# ***Funding of affiliated dot.com company operations***

 

Asdescribed above, on January 1, 2005 we began consolidating the operationsof Advanstar.com with our operations upon adoption of FASB Interpretation No. 46Rand therefore we are no longer recording a separate operating expense relatedto our funding of Advanstar.com.  Expenseassociated with our funding of Advanstar.com in the first nine months of 2004was $3.1 million.

 

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# ***Interest expense***

 

Interestexpense in the first nine months of 2005 declined $4.9 million, or 9.2%, to$48.1 million from $52.9 million in the first nine months of 2004 primarily dueto the repayment of $20.4 million of our term loans, $8.7 million of our fixedrate notes, and $117.8 million of our floating rate notes in the second quarterof 2005 with the proceeds from the sale of the Portfolio Group. The reductionwas also impacted by a reduction in cash payments on our interest rate collaragreement in the first quarter of 2004. We made payments of $0.9 million onthis agreement, which expired in February 2004.  We currently have no plans to hedge ourremaining floating rate debt.

 

In June 2005, werepurchased $8.7 million of our fixed rate notes pursuant to an offer topurchase at an offer price of 100% of principal amount tendered, plus accruedand unpaid interest to the date of settlement. We also repurchased $117.8 million of our floating rate notes pursuantto a cash tender offer for $1,043 per $1,000 principal amount tendered, plus aconsent payment of $30 per $1,000 principal amount tendered, plus accrued andunpaid interest to the date of settlement. Our interest expense will be lower in future periods as a result ofthese activities.  See “—RecentDevelopments” for further information.

 

Weincurred $12.6 million in costs related to the repurchase.  These costs include $8.6 million in tenderoffer premium and consent fees, $3.5 million in unamortized deferred financingcosts, and $0.5 million in legal fees and expenses.

 

At September 30,2005, $452.2 million, or 98%, of our total debt is at a fixed rate with thebalance subject to interest rate fluctuations.

 

*Otherincome (expense), net*

 

Otherincome in the first nine months of 2004 includes a gain of $1.3 million relatedto our interest rate protection agreements, which expired in February 2004.

 

# ***Provision (benefit) for income taxes***

 

Theprovision for income taxes was $4.0 million in the first nine months of 2005compared to a provision of $3.5 million in the first nine months of 2004.  The provision for the first nine months of 2005 includes a tax benefitrepresenting the tax benefit provided by losses from continuing operations tothe extent that such losses offset the income from discontinued operations. Thistax benefit is offset by a tax provision included in discontinued operations.  This benefit was partially offset by adeferred tax provision related to the basis of goodwill for tax purposes beingless than the carrying value of goodwill for financial reporting purposes.  We recorded no income tax benefit related tothe net operating losses we generated during 2005 or 2004 because we haveestablished a valuation allowance to offset any related tax benefits due touncertainty about realization of these benefits.

 

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# ***Discontinued operations***

 

In the second quarter of 2005, the last remaining East Coast Fashionevent was closed and a $2.3 million impairment charge for the remainingcarrying value of the intangible assets of this business was recorded.

 

In May and July 2005, Advanstar sold certain businesses toQuestex for net cash of $173.8 million. A gain of $53.0 million on the sale of these assets was recorded in thesecond quarter of 2005.

 

Properties sold in 2004 included Art, Post, SeCA, and DMS for anaggregate of $24.3 million in cash. Total gain on sale of these businesses was$2.1 million, after tax effect. The aggregate goodwill impairment chargerecorded in 2004 relating to these assets was $15.6 million.

 

See further informationregarding discontinued operations in “—Presentation of Financial Information—Acquisitionsand Divestitures.”

 

**Liquidityand Capital Resources**

 

Our principal sources of liquidity have been, and are expected to be,cash flows from operations and borrowings under our credit facility.  Our principal uses of cash have been, and areexpected to be, the debt service requirements of our indebtedness describedbelow, capital expenditures, investments in our publications and tradeshows andstrategic acquisitions.

 

*Sourcesand uses of funds*

 

We generally operate with negative working capital, excluding cash andcurrent maturities of long-term debt, due to the impact of deferred revenuefrom tradeshows, which is billed and collected as deposits up to one year inadvance of the respective tradeshow. Consequently, our existing operations are expected to maintain very lowor negative working capital balances, excluding cash and current maturities oflong-term debt.

 

Operating cash flows may be significantly affected by the workingcapital fluctuations of our business, in particular the tradeshows andconferences business.  Deferred revenueincreases on the balance sheet in the quarters immediately preceding our busyfirst quarter tradeshow season as we collect deposits for booth space severalmonths in advance of the tradeshows. Revenue and contribution margin are recognized in the quarter that theevents are held, releasing the deferred revenue from the balance sheet, whichresults in a reduction to our operating cash flow.

 

We anticipate that our operating cash flow, together with borrowingsunder the credit facility (assuming continued compliance with the covenantscontained therein or a modification thereof) and other future financings andrefinancings, will be sufficient to fund our anticipated future operatingexpenses, capital expenditures, debt service and other obligations as theybecome due.  However, our ability to makescheduled payments of principal, to pay interest on or to refinance ourindebtedness and to satisfy our other debt obligations will depend upon ourfuture operating performance, which will be affected by general economic,financial, competitive, legislative, regulatory, business and other factorsbeyond our control.

 

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As of September 30, 2005, we had cashand cash equivalents of $38.0 million. The following table shows our cash flow activity for the first ninemonths of 2005 and 2004, and should be read in conjunction with the condensedconsolidated statements of cash flows (in thousands):

 
| ** **                                                | ** ** | **Nine Months Ended**  | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|
| ** **                                                | ** ** | **September 30,** | ** ** |
| ** **                                                | ** ** | **2005**               | ** ** | **2004** | ** ** |
|                                                      |       |                   |       |   |   |
| Net cash (used in) provided by  operating activities |       | $                      | (4,004     | ) | $ | 11,813 |   |
| Net cash provided by investing activities                 |       | 153,288                |       | 10,091 |   |
| Net cash used in financing activities                     |       | (153,171               | )          | (11,177 | ) |
| Effect of exchange rate changes on cash                   |       | 660                    |       | 661 |   |
| Net (decrease) increase in cash and cash equivalents      |       | $                      | (3,227     | ) | $ | 11,388 |   |

 

The $15.8 million increase in cash used inoperating activities in the first nine months of 2005 as compared to the firstnine months of 2004 was due primarily to $9.1 million of cash fees and expensesrelated to our repurchase of a portion of our outstanding debt in June 2005and a decline in customer advances received in 2005 compared to 2004, due to adelay in when these advances are received.  Cash provided by operating activities in the first nine months of 2005was negatively impacted by a decline in net income less non-cash expenses.  We paid cash interest of $44.5 million in thefirst nine months of 2005.  Cash providedby operating activities in the first nine months of 2004 was negativelyimpacted by tradeshow timing as cash for events held in the first nine monthsof 2004 was collected in the fourth quarter of 2003.

 

Net cash provided by investing activities increased $143.2 million to $153.3 million in thefirst nine months of 2005, from $10.1 million in the first nine months of2004.  This increase was principally dueto the proceeds received in the second quarter of 2005 from the sale ofthe Portfolio Group.  In the firstquarter of 2004, we sold our Art Group for $19.5 million in cash, and acquiredIVT for $8.0 million in cash.  Our business strategy includes theconsummation of strategic acquisitions. In 2005, we used $15.5 million in cashfor business acquisitions.  In connectionwith any future acquisitions, we may require additional funding, which may beprovided in the form of additional debt or equity financing or a combinationthereof.  There can be no assurance thatany additional financing will be available to us on acceptable terms or in amanner that complies with the restrictive covenants in our debtinstruments.  Consistent with ourlongstanding strategy, we continue to pursue potential acquisitions of complementarybusinesses.

 

We incurred capital expenditures of $5.1 million and $6.3 million inthe first nine months of 2005 and 2004, respectively.  We anticipate that we will spend less than$8.0 million on capital expenditures in 2005, which will be funded by cashflows from operations.  The majority ofthese expenditures are related to expansions and enhancements to our IT andcommunications infrastructure and management and operating group informationsystems.  We believe that this amount ofcapital expenditure will be adequate to grow our business according to ourbusiness strategy and to maintain the key tradeshows, publications and businessthat remain following the sale of the Portfolio Group.

 

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Cash used in financing activities in the first nine months of 2005 was $153.2 million compared to$11.2 million in the first nine months of 2004.  In the first quarter of 2005, we repaid $4.6million of our outstanding Term Loan B with the proceeds from the sale in thefirst quarter of 2004 of the Art Group. In the second quarter of 2005, we repaid our outstanding $20.4 millionof Term Loan B and repurchased $126.5 million of our floating and fixed ratenotes, using the proceeds from the sale of the Portfolio Group.  During the first nine months of 2004, we paid$10.8 million of outstanding principal, including $8.0 million on our revolvingcredit facility.

 

*Debtservice*

 

As of September 30, 2005, we had total indebtedness of $462.1 million and$58.8 million of borrowings available under our revolving creditfacility.  Our principal debt obligationsare described below.

 

*Creditfacility*

 

Our credit facility consists of a $60.0 million revolving creditfacility, which will terminate in April 2007.  Borrowings under the credit facilitygenerally bear interest based on a margin over, at our option, the base rate orLIBOR.  The applicable margin forrevolving credit loans varies based upon our ratio of consolidated debt toEBITDA (as defined) and is currently 3.75% over LIBOR and 2.50% over the baserate.  Our obligations under the creditfacility are guaranteed by Advanstar Holdings Corp. (“Advanstar Holdings”), ourultimate parent company, Advanstar, Inc., our direct parent company, andall of our existing and future domestic subsidiaries.  Our obligations under the credit facility arecollateralized by substantially all of the assets of our company and thesubsidiary guarantors, including a pledge of the capital stock of all ourexisting and future domestic subsidiaries, a pledge of no more than 65% of thevoting stock of any foreign subsidiary directly owned by our company or anydomestic subsidiary, a pledge of all intercompany indebtedness in favor of ourcompany and our domestic subsidiaries, a pledge of our Company’s and AdvanstarIH, Inc.’s capital stock held by our direct parent company, and a pledgeof our direct parent company’s capital stock held by Advanstar Holdings.  Our credit facility contains restrictivecovenants, which require us to, among other things, maintain a minimum fixedcharge coverage ratio.

 

*Secondpriority senior secured notes*

 

Our $9.9 million of floating rate notes mature in 2008.  The floating rate notes bear interest at anannual rate equal to the three-month LIBOR, which is reset quarterly, plus7.50%.  Interest on the floating ratenotes, along with amortization of 0.25% of the principal of such floating ratenotes, is payable quarterly in cash.  In June 2005, holders of $117,801,750aggregate outstanding principal amount of the floating rate notes tenderedtheir notes for purchase, and we purchased all such notes at a price equal to107.3% (including a 3% consent fee) of principal plus accrued interest.  In connection with the tender offer,we and the trustee entered into a supplemental indenture that eliminatedsubstantially all of the restrictive and reporting covenants, certain events ofdefault and certain other provisions with respect to the floating rate notesand released the floating rate notes’ lien on the collateral under theindenture.  The fixed rate notes remain securedby the collateral and subject to the restrictive covenants in theindenture.  See “–Recent Developments”for additional information.

 

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Our $292.1 million of fixed rate notes mature in 2010.  The notes are guaranteed by each of ourexisting and future domestic restricted subsidiaries and collateralized bysecond-priority liens on the assets collateralizing our credit facility (otherthan certain subsidiary stock and assets of our parent companies).  The fixed rate notes bear interest at anannual rate of 10.75%, which is payable semi-annually in cash.  The notes contain restrictive covenants that,among other things, limit our ability to incur debt, pay dividends and makeinvestments.  In June 2005, holders of $8,665,000principal amount of the fixed rate notes tendered their notes for purchase, andwe purchased all such notes.  See “–RecentDevelopments” for additional information.

 

*Seniorsubordinated notes*

 

Our $160 million 12% senior subordinated notes mature in 2011 andare guaranteed by each of our existing and future domestic restrictedsubsidiaries.  Interest on the notes ispayable semi-annually in cash.  The notescontain restrictive covenants that, among other things, limit our ability toincur debt, pay dividends and make investments.

 

*Parentcompany notes*

 

Our parent, Advanstar, Inc., issued 15% senior discount notes due October 2011with a principal amount at 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 makeinvestments.  Neither we nor any of oursubsidiaries have guaranteed the discount notes.  Advanstar, Inc., however, is a holdingcompany and its ability to pay interest on these discount notes will bedependent upon the receipt of dividends from its direct and indirectsubsidiaries, principally dividends from us. However, the terms of our borrowing arrangements significantly restrictour ability to pay dividends to Advanstar, Inc. and Advanstar, Inc.’sfailure to pay these notes would be a default under our credit facility.

 

The restricted payments covenants in our senior secured notes indentureand our senior subordinated notes indenture provide that we can pay dividendsonly if our leverage ratio (as defined) is 6.0 to 1 or better and only from abasket equal to the amount by which our cumulative EBITDA (as defined) since January 1,2001 exceeds 150% of our cumulative interest expense in that same period plusother items, including proceeds from equity offerings. As of September 30,2005 our leverage ratio under the most restrictive of theseindentures was 6.1 to 1.0.   Weanticipate improvements in our operating results that would improve our ratioprior to the time that the discount notes require payment of interest incash.  However, our results are subjectto a variety of factors, including general economic conditions and conditionsin our markets, and we cannot assure you our results will in fact improve to apoint where we can make distributions under these restrictions.  In that case, unless we wereto repay additional indebtedness or invest in a business that generatesadditional EBITDA (as defined), our leverage ratio would not meet therequirements for us to be permitted to pay dividends, which could have amaterial adverse effect on our financial position, results of operations, andcash flows and/or could impact our ability to continue to operate without anamendment or restructuring of its credit facility and the notes.Notwithstanding the leverage ratio limitation on restricted payments, we canmake restricted payments in an aggregate amount of up to $20 millionto Advanstar, Inc.

 

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*Contractualand contingent obligations*

 

Our contractual obligations (excluding accounts payable and accruedexpenses), as of September 30, 2005 are as set forth below (in millions):

 
| ** **                         | ** ** | **Payments Due By Period** | ** ** |
|------------------------------------|------------|----------------------------|------------|
| ** **                         | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **After** | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **2005 (1)**               | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2010** | ** ** | **Total** | ** ** |
|                               |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Indebtedness                       |       | $                          | —     |   | $ | 0.2 |   | $ | 0.1 |   | $ | 9.7 |   | $ | — |   | $ | 292.1 |   | $ | 160.0 |   | $ | 462.1 |   |
| Interest on   indebtedness (2)     |       | 16.2                       |       | 52.5 |   | 52.5 |   | 51.6 |   | 50.6 |   | 53.0 |   | 28.8 |   | 305.2 |   |
| Operating lease obligations        |       | 1.6                        |       | 6.6 |   | 5.7 |   | 5.4 |   | 3.8 |   | 1.9 |   | 4.9 |   | 29.9 |   |
|                               |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total contractual cash obligations |       | $                          | 17.8       |   | $ | 59.3 |   | $ | 58.3 |   | $ | 66.7 |   | $ | 54.4 |   | $ | 347.0 |   | $ | 193.7 |   | $ | 797.2 |   |

 

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(1)                                  Forthe period from October 1, 2005 through December 31, 2005.

 

(2)                                  Intereston our variable rate debt is calculated using LIBOR of 3.86%, the rate in effect on October 1, 2005.  Because our variable rate debt bears interestat a variable rate, actual payments could differ.

 

We have no material capital lease obligations or purchaseobligations.  Our contingent obligationsare primarily composed of $1.2 million of letters of credit.

 

*Off-balance sheet arrangements*

 

We have no material off-balance sheet arrangements.

 

**Recently Issued Accounting Standards**

 

In December 2004,the Financial Accounting Standards Board issued SFAS No. 123R, “Share-BasedPayment” which revises SFAS 123 and supersedes APB 25.  This statement establishes standards relatingto accounting for transactions in which equity instruments are exchanged forgoods or services.  Under this statement,we must measure the cost of employee services received in exchange for an awardof equity instruments based upon the fair value of the award on the date ofgrant.  This cost must be recognized overthe period during which an employee is required to provide the service (usuallythe vesting period).  We are required toadopt the provisions of this standard effective January 1, 2006.  The adoption of this standard will result inan increase in compensation expense.

 

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# **Item 3.*  Quantitative and QualitativeDisclosures about******Market Risk*

 

We are exposed to various market risks, which is the potential lossarising from adverse changes in market rates and prices, such as foreigncurrency exchange and interest rates.  Wedo not enter into derivatives or other financial instruments for trading orspeculative purposes.  However, we doenter into financial instruments to manage and reduce the impact of changes ininterest rates and foreign currency exchange rates.

 

# **Interest Rates**

 

At September 30, 2005, we had fixed rate debt of$452.2 million and variable rate debt of $9.9 million.  A change in interest rates of 1% would not bematerial to us.

 

# **Currencies**

 

Outside of the United States, we maintain assets and operations inEurope.  These assets and operations, andour exposure to any currency gains or losses, are not material to us.

 

# **Item**4.  *Controlsand Procedures*

 

*Evaluation of disclosure controlsand procedures*.  Advanstar’s Chief Executive Officer andChief Financial Officer, after evaluating the effectiveness of the Company’sdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)) as of the end of the period covered by this report (the “Evaluation Date”),have concluded that as of the Evaluation Date, our disclosure controls andprocedures were effective and designed to ensure that information required tobe disclosed by us in the reports that we file or submit under the Exchange Actis recorded, processed, summarized and reported within the time periodsspecified in the Securities and Exchange Commission’s rules and forms.

 

*Changes in internal controls*.   There were no changes during the third fiscalquarter in our internal controls over financial reporting that have materiallyaffected or are reasonably likely to materially affect the Company’s internalcontrols over financial reporting.

 

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**PART II****                       OTHERINFORMATION**

 

# **Item 6.**                                 Exhibits

 
| 10.3.5 |   | Fifth amendment  to Credit Agreement, dated as of August, 19 2005                                                         |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                      |
| 31.1   |   | Certification of principal executive officer  required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act  |
|   |   |                                                                                                                      |
| 31.2   |   | Certification of  principal financial officer required by Rule 13a-14(a) or 15d-14(a) of  the Exchange Act |
|   |   |                                                                                                                      |
| 32.1   |   | Certification of  principal executive officer required by Rule 13a-14(b) or 15d-14(b) of  the Exchange Act |
|   |   |                                                                                                                      |
| 32.2   |   | Certification of  principal financial officer required by Rule 13a-14(b) or 15d-14(b) of  the Exchange Act |

 

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**SIGNATURES**

 

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

 

 
|   | ADVANSTAR COMMUNICATIONS INC. |
|--------|-------------------------------|
|   | ** **                    |
|   | ** **                    |
|   | November 14, 2005        | /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**                                                                                                               |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                       |
| 10.3.5               |       | Fifth amendment to Credit Agreement, dated as of  August, 19 2005                                                          |
|                 |       |                                                                                                                       |
| 31.1                 |       | Certification of principal executive officer  required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act   |
|                 |       |                                                                                                                       |
| 31.2                 |       | Certification of  principal financial officer required by Rule 13a-14(a) or 15d- 14(a) of  the Exchange Act |
|                 |       |                                                                                                                       |
| 32.1                 |       | Certification of  principal executive officer required by Rule 13a-14(b) or 15d-14(b) of  the Exchange Act  |
|                 |       |                                                                                                                       |
| 32.2                 |       | Certification of  principal financial officer required by Rule 13a-14(b) or 15d-14(b) of  the Exchange Act  |

 

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