******UNITED STATES****SECURITIESAND EXCHANGE COMMISSIONWashington, D.C. 20549**

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**FORM 10-Q**

| **(Mark One)**                                     | ** **                                                                                    |
|----------------------------------------------------|-----------------------------------------------------------------------------------------------|
| **x**                                              | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934.** |
| ** **                                         |                                                                                          |
| **For the  quarterly period ended: June 30, 2006** |
| ** **                                         |
| **OR**                                             |
| ** **                                         |
| **o**                                              | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934** |

** **

**CommissionFile Number:** 333-57201

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

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

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

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

**10022**(Zip Code)

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

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days.  Yes x   Noo

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

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

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

 

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

 

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**PART I FINANCIAL INFORMATION**

**AdvanstarCommunications Inc.Condensed Consolidated Balance Sheets (Unaudited)(In thousands, except share and per share data)**
| ** **                                                                                                                                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **ASSETS**                                                                                                                                  | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                  |       |              |       |                  |       |
| Current assets:                                                                                                                             |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                                                  |       | $                 | 51,781     |                  | $          | 46,609 |   |
| Accounts  receivable, net of allowance of $1,026 and $1,076 at June 30, 2006 and  December 31, 2005                                         |       | 22,861            |       | 24,607                |       |
| Prepaid expenses                                                                                                                            |       | 9,988             |       | 7,871                 |       |
| Other                                                                                                                                       |       | 2,048             |       | 1,965                 |       |
|                                                                                                                                        |       |              |       |                  |       |
| Total current  assets                                                                                                                       |       | 86,678            |       | 81,052                |       |
|                                                                                                                                        |       |              |       |                  |       |
| Due from parent                                                                                                                             |       | 2,400             |       | 2,232                 |       |
|                                                                                                                                        |       |              |       |                  |       |
| Property, plant and  equipment, net                                                                                                         |       | 21,560            |       | 21,306                |       |
|                                                                                                                                        |       |              |       |                  |       |
| Intangible and other  assets:                                                                                                               |       |              |       |                  |       |
| Goodwill                                                                                                                                    |       | 596,268           |       | 594,982               |       |
| Intangibles and  other, net                                                                                                                 |       | 48,844            |       | 62,644                |       |
| Total intangible  and other assets, net                                                                                                     |       | 645,112           |       | 657,626               |       |
| Non-current assets held  for sale                                                                                                           |       | 4,620             |       | 4,620                 |       |
|                                                                                                                                        |       | $                 | 760,370    |                  | $          | 766,836 |   |
|                                                                                                                                        |       |              |       |                  |       |
| **LIABILITIES AND STOCKHOLDER’S  EQUITY**                                                                                              |       |              |       |                  |       |
|                                                                                                                                        |       |              |       |                  |       |
| Current liabilities:                                                                                                                        |       |              |       |                  |       |
| Current  maturities of long-term debt                                                                                                       |       | $                 | 101        |                  | $          | 201 |   |
| Accounts payable                                                                                                                            |       | 13,765            |       | 12,342                |       |
| Accrued  compensation                                                                                                                       |       | 4,490             |       | 7,236                 |       |
| Other accrued  expenses                                                                                                                     |       | 29,871            |       | 30,758                |       |
| Deferred revenue                                                                                                                            |       | 44,067            |       | 46,472                |       |
| Total current  liabilities                                                                                                                  |       | 92,294            |       | 97,009                |       |
|                                                                                                                                        |       |              |       |                  |       |
| Long-term debt, net of  current maturities                                                                                                  |       | 471,663           |       | 461,786               |       |
| Deferred income taxes                                                                                                                       |       | 35,317            |       | 31,500                |       |
| Other long-term  liabilities                                                                                                                |       | 3,221             |       | 4,933                 |       |
|                                                                                                                                        |       |              |       |                  |       |
| Commitments and  contingencies                                                                                                              |       |              |       |                  |       |
|                                                                                                                                        |       |              |       |                  |       |
| Stockholder’s equity:                                                                                                                  |       |              |       |                  |       |
| Common stock,  $.01 par value, 3,500,000 shares authorized; 1,000,000 shares issued and  outstanding at June 30, 2006 and December 31, 2005 |       | 10                |       | 10                    |       |
| Capital in  excess of par value                                                                                                             |       | 434,431           |       | 447,367               |       |
| Accumulated  deficit                                                                                                                        |       | (285,941          | )          | (284,182              | )          |
| Accumulated  other comprehensive income                                                                                                     |       | 9,375             |       | 8,413                 |       |
| Total  stockholder’s equity                                                                                                            |       | 157,875           |       | 171,608               |       |
|                                                                                                                                        |       | $                 | 760,370    |                  | $          | 766,836 |   |

 

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

 

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**AdvanstarCommunications Inc.Condensed Consolidated Statements of Operations (Unaudited)(In thousands)**
| ** **                                                                           | ** ** | **For the**                 | ** ** |
|--------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                           | ** ** | **Three Months Ended** | ** ** |
| ** **                                                                           | ** ** | **June 30,**                | ** ** |
| ** **                                                                           | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| ** **                                                                           |       |                             |       |   |   |
| ** **                                                                           |       |                             |       |   |   |
| Revenue                                                                              |       | $                                | 59,238     |   | $ | 55,990 |   |
|                                                                                 |       |                             |       |   |   |
| Operating expenses:                                                                  |       |                             |       |   |   |
| Cost of production  (excluding depreciation)                                         |       | 11,806                           |       | 11,293 |   |
| Selling,  editorial and circulation (excluding depreciation)                         |       | 27,846                           |       | 26,632 |   |
| General and  administrative (excluding depreciation)                                 |       | 10,479                           |       | 9,816 |   |
| Restructuring  charge                                                                |       | (80                              | )          | 2,015 |   |
| Depreciation and  amortization                                                       |       | 10,030                           |       | 9,519 |   |
|                                                                                 |       |                             |       |   |   |
| Total operating  expenses                                                            |       | 60,081                           |       | 59,275 |   |
|                                                                                 |       |                             |       |   |   |
| Operating loss                                                                       |       | (843                             | )          | (3,285 | ) |
|                                                                                 |       |                             |       |   |   |
| Other income (expense):                                                              |       |                             |       |   |   |
| Interest expense                                                                     |       | (14,054                          | )          | (17,610 | ) |
| Interest income                                                                      |       | 482                              |       | 668 |   |
| Loss on  extinguishment of debt                                                      |       | (497                             | )          | (12,581 | ) |
| Other expense,  net                                                                  |       | (4                               | )          | (38 | ) |
|                                                                                 |       |                             |       |   |   |
| Loss from continuing  operations before income taxes                                 |       | (14,916                          | )          | (32,846 | ) |
| Provision (benefit) for  income taxes                                           |       | 1,871                            |       | (3,680 | ) |
| Loss from continuing  operations                                                     |       | (16,787                          | )          | (29,166 | ) |
| (Loss) income from operations  of discontinued businesses, net of taxes (see Note 4) |       | (48                              | )          | 44,675 |   |
| Net (loss) income                                                                    |       | $                                | (16,835    | ) | $ | 15,509 |   |

 

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

 

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**AdvanstarCommunications Inc.Condensed Consolidated Statements of Operations (Unaudited)(In thousands)**
| ** **                                                                                                | ** ** | **For the**               | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                | ** ** | **Six Months Ended** | ** ** |
| ** **                                                                                                | ** ** | **June 30,**              | ** ** |
| ** **                                                                                                | ** ** | **2006**                       | ** ** | **2005** | ** ** |
|                                                                                                      |       |                           |       |   |   |
| Revenue                                                                                                   |       | $                              | 165,816    |   | $ | 146,562 |   |
| Operating expenses:                                                                                       |       |                           |       |   |   |
| Cost of  production (excluding depreciation)                                                              |       | 33,945                         |       | 27,519 |   |
| Selling,  editorial and circulation (excluding depreciation)                                              |       | 60,541                         |       | 56,666 |   |
| General and  administrative (excluding depreciation)                                                      |       | 20,557                         |       | 22,500 |   |
| Restructuring  charge                                                                                     |       | 2,325                          |       | 2,015 |   |
| Depreciation and  amortization                                                                            |       | 18,692                         |       | 19,477 |   |
| Total operating  expenses                                                                                 |       | 136,060                        |       | 128,177 |   |
|                                                                                                      |       |                           |       |   |   |
| Operating income                                                                                          |       | 29,756                         |       | 18,385 |   |
|                                                                                                      |       |                           |       |   |   |
| Other income (expense):                                                                                   |       |                           |       |   |   |
| Interest expense                                                                                          |       | (27,826                        | )          | (35,274 | ) |
| Interest income                                                                                           |       | 957                            |       | 845 |   |
| Loss on  extinguishment of debt (see Note 6)                                                              |       | (497                           | )          | (12,581 | ) |
| Other income  (expense), net                                                                              |       | (157                           | )          | (21 | ) |
| Income (loss) from  continuing operations before income taxes and cumulative effect of accounting  change |       | 2,233                          |       | (28,646 | ) |
| Provision (benefit) for  income taxes                                                                     |       | 3,870                          |       | (1,885 | ) |
| Loss from continuing  operations before cumulative effect of accounting change                            |       | (1,637                         | )          | (26,761 | ) |
| (Loss) income from  operations of discontinued businesses, net of taxes (see Note 4)                      |       | (122                           | )          | 43,797 |   |
| (Loss) income before  cumulative effect of accounting change                                              |       | (1,759                         | )          | 17,036 |   |
| Cumulative effect of  accounting change (see Note 10)                                                     |       | —                         |       | 4,618 |   |
| Net (loss) income                                                                                         |       | $                              | (1,759     | ) | $ | 21,654 |   |

 

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

 

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**AdvanstarCommunications Inc.Condensed Consolidated Statements of Cash Flows (Unaudited)(In thousands)**
| ** **                                                                         | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                         | ** ** | **June 30,**              | ** ** |
| ** **                                                                         | ** ** | **2006**                       | ** ** | **2005** | ** ** |
|                                                                               |       |                           |       |   |   |
| Operating activities:                                                              |       |                           |       |   |   |
| Net (loss) income                                                                  |       | $                              | (1,759     | ) | $ | 21,654 |   |
| Adjustments to  reconcile net (loss) income to net cash from operating activities: |       |                           |       |   |   |
| Cumulative  effect of accounting change                                            |       | —                         |       | (4,618 | ) |
| Impairment of  intangible assets                                                   |       | —                         |       | 2,272 |   |
| Depreciation and  amortization                                                     |       | 18,692                         |       | 22,431 |   |
| Write-off of  deferred financing costs                                             |       | 497                            |       | 3,517 |   |
| Gain on  derivative financial instruments                                          |       | —                         |       | (52 | ) |
| Loss on asset  disposal                                                            |       | 176                            |       | — |   |
| Gain on sale of  business and other assets                                         |       | —                         |       | (53,053 | ) |
| Losses of  minority interest holders                                               |       | —                         |       | 566 |   |
| Non-cash  interest expense                                                         |       | 1,379                          |       | 1,587 |   |
| Deferred income taxes                                                              |       | 3,816                          |       | 10,940 |   |
| Provision for  bad debts                                                           |       | 374                            |       | 471 |   |
| Changes in  operating assets and liabilities                                       |       | (6,957                         | )          | (19,338 | ) |
| Net cash  provided by (used in) operating activities                          |       | 16,218                         |       | (13,623 | ) |
|                                                                               |       |                           |       |   |   |
| Investing activities:                                                              |       |                           |       |   |   |
| Additions to  property, plant and equipment                                        |       | (6,102                         | )          | (2,740 | ) |
| Acquisitions of  intangible assets and other                                       |       | (50                            | )          | (476 | ) |
| Proceeds from  sale of business and other assets                                   |       | 21                             |       | 166,739 |   |
| Net cash (used  in) provided by investing activities                               |       | (6,131                         | )          | 163,523 |   |
|                                                                               |       |                           |       |   |   |
| Financing activities:                                                              |       |                           |       |   |   |
| Payments of  long-term debt                                                        |       | (150                           | )          | (152,117 | ) |
| Proceeds from  issuance of long-term debt                                          |       | 10,000                         |       | — |   |
| Payment of  deferred finance costs                                                 |       | (1,526                         | )          | (129 | ) |
| Dividends paid  to minority interest holders                                       |       | —                         |       | (900 | ) |
| Dividend paid to  stockholder                                                      |       | (12,936                        | )          | — |   |
| Net cash used in  financing activities                                             |       | (4,612                         | )          | (153,146 | ) |
| Effect of exchange rate  changes on cash                                           |       | (303                           | )          | 384 |   |
| Net increase (decrease)  in cash and cash equivalents                              |       | 5,172                          |       | (2,862 | ) |
| Cash and cash  equivalents, beginning of period                                    |       | 46,609                         |       | 41,223 |   |
| Cash and cash equivalents, end of period                                           |       | $                              | 51,781     |   | $ | 38,361 |   |

 

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

 

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

 

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

The accompanying unaudited condensedconsolidated financial statements have been prepared by AdvanstarCommunications Inc. (“Communications,” or the “Company”) in accordance with theinstructions to Form 10-Q and, therefore, do not include all the informationand footnotes required by generally accepted accounting principles for completefinancial statements.  Management believesthat all adjustments, consisting solely of normal recurring items, considerednecessary for a fair statement of financial position and results of operations,have been included.  These condensedconsolidated financial statements, however, should be read in conjunction withthe audited financial statements and the related notes included in the Company’sannual report on Form 10-K for the year ended December 31, 2005, filed with theSecurities and Exchange Commission on March 30, 2006.  The results of operations for the three andsix months ended June 30, 2006 are not necessarily indicative of the operatingresults that may be expected for the entire year ending December 31, 2006.

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

**Interimincome tax expense**

The Company determinesits quarterly income tax provision based upon an estimated annual effectiveincome tax rate and discrete items as they occur.  In determining theeffective income tax rate applicable to interim periods, the Company excludestax jurisdictions where no tax expense or benefit is expected for the entireyear.

**3.**                          Goodwill and OtherIntangible Assets

Thechanges in the carrying amount of goodwill by operating segment are as follows(in thousands):
| ** **                                                    | ** ** | **Fashion &** | ** ** | **Life**     | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|--------------|------------|-----------------|------------|------------|------------|------------|------------|
| ** **                                                    | ** ** | **Licensing**          | ** ** | **Sciences** | ** ** | **Powersports** | ** ** | **Other**  | ** ** | **Total**  | ** ** |
| Balance as of December  31, 2005                              |       | $                      | 316,554    |         | $          | 188,837         |       | $          | 79,674     |       | $          | 9,917 |   | $ | 594,982 |   |
| Goodwill acquired or  completion of purchase price allocation |       | 9                      |       | —       |       | 41              |       | —     |       | 50         |       |
| Foreign currency  translation                                 |       | —                 |       | —       |       | —          |       | 1,236      |       | 1,236      |       |
| Balance as of June 30, 2006                                   |       | $                      | 316,563    |         | $          | 188,837         |       | $          | 79,715     |       | $          | 11,153 |   | $ | 596,268 |   |

 

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Trade exhibitor and advertiserlists are amortized on a double-declining balance method over six years andfive years, respectively, subscriber lists and other intangible assets areamortized on a straight-line basis over three to ten years, and trademarks andtrade names are amortized on a straight-line basis over twenty years.  These intangible assets consist of thefollowing (in thousands):
| ** **                              | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2006**          | ** ** | **2005**              | ** ** |
|                                    |       |              |       |                  |       |
| Trade exhibitor  lists                  |       | $                 | 133,203    |                  | $          | 132,936 |   |
| Advertiser lists                        |       | 29,680            |       | 29,680                |       |
| Subscriber lists                        |       | 6,023             |       | 6,023                 |       |
| Trade names and  trademarks             |       | 19,211            |       | 19,211                |       |
| Other intangible  assets                |       | 20,071            |       | 20,275                |       |
| Deferred  financing costs               |       | 18,356            |       | 18,668                |       |
|                                    |       | 226,544           |       | 226,793               |       |
| Accumulated  amortization               |       | (177,700          | )          | (164,149              | )          |
| Total intangible  and other assets, net |       | $                 | 48,844     |                  | $          | 62,644 |   |

 

Estimatedamortization expense of identified intangible and other assets for theremaining six months of 2006 and for the next five years is as follows (inthousands):

| 2006 |   | $     | 7,754  |   |
|------|--------|-------|--------|--------|
| 2007 |   | 8,372 |   |
| 2008 |   | 5,454 |   |
| 2009 |   | 1,919 |   |
| 2010 |   | 1,570 |   |
| 2011 |   | 1,092 |   |

 

**4.**                          Acquisitions and Divestitures

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

On September 12, 2005,the Company purchased an off-road consumer event business from Petersen EventsCorporation (“Off-Road Expo”) for $2.2 million in cash.  In addition, the Company may pay additionalcontingent cash consideration to the former shareholders based on the 2006

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operating revenue fromthe acquired business.  Any contingentconsideration paid will be recorded as goodwill when earned by the formershareholder.

On August 23, 2005, theCompany purchased a fashion industry tradeshow business and related productsfrom the owner of POOL Tradeshow (‘‘POOL’’) for $3.0 million in cash.  In addition, the Company may pay additionalcontingent cash consideration to the former owner based on the 2007 and 2008operating results from the acquired business and the owner’s continuedemployment with the Company.  Anycontingent consideration paid will be recorded as compensation expense whenearned by the former owner (see Note 13 for subsequent event).

On August 19, 2005, theCompany purchased Project Global Tradeshow, Inc. (‘‘Project”), a producer oftradeshows serving the fashion industry, for $9.9 million in cash, subject to aworking capital adjustment, which will be completed in 2006.  The Company does not believe the finalallocation of purchase price will be materially different from preliminaryestimates. In addition, the Company may pay additional contingent cashconsideration to the former shareholders based on the 2007 and 2008 operatingresults of the acquired business and their continued employment with theCompany.  Any contingent considerationpaid will be recorded as compensation expense when earned by the formershareholders.

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

TheCompany has recognized contingent consideration for the Acquired Businesses ascompensation expense in the condensed consolidated statements of operations asfollows (in thousands):
| ** **                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                    | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                    | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| IVT contingent  consideration |       | $                                | —     |                           | $          | 320 |   | $ | — |   | $ | 620 |   |
|                               |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |

 

The change in the balance of accrued contingentconsideration in the accompanying condensed consolidated balance sheet includedas part of other accrued expenses is as follows (in thousands):
| ** **                              | ** ** | **Total** | ** ** |
|-----------------------------------------|------------|-----------|------------|
| Balance at  December 31, 2005 |       | $         | 1,336      |   |
| Contingent  consideration               |       | —    |       |
| Payments to  former shareholders        |       | (448      | )          |
| Balance at June 30,  2006               |       | $         | 888        |   |

 

The pro forma operatingresults of the Acquired Businesses for thethree and six months ended June 30, 2005 discussed above are immaterialto the Company’s consolidated results of operations.

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**Divestitures**The operatingresults, related income taxes, and any gains or losses of the followingdivestitures (collectively, the “Disposed Businesses”) have been reported indiscontinued operations in the condensed consolidated statements of operationsfor the three and six months ended June 30, 2006 and 2005. ** ******Interest expense wasnot allocated to any of the Company’s discontinued operations.****

*Arenacross*In December 2005, the Company sold its ArenacrossChampionship Series business (“Arenacross”) for a total selling price of $0.2million. The Company recorded a $0.4 million loss on the sale.  Arenacross had no revenue in the three or sixmonths ended June 30, 2005.

*EastCoast Fashion Tradeshow Acquired from Larkin-Pluznik-Larkin, LLC*In the secondquarter of 2005, the Company discontinued the remaining East Coast Fashiontradeshow business acquired in the 1999 Larkin transaction (“East Coast Fashion”)and recognized a $2.3 million impairment, which was the carrying value of therelated intangibles.  East Coast Fashionhad $0.9 million of revenue in the three and six months ended June 30, 2005.

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

Revenue of the Portfolio Group, included indiscontinued operations in the condensed consolidated statements of operations,was $25.5 million and $49.0 million for the three and six months ended June 30,2005.

**Assets Held for Sale**In the second quarter of 2005, the Company committed to aplan to sell its Cleveland office building and land (“the Cleveland Office”).The Company ceased depreciation of these assets, effective second quarter of2005. As of June 30, 2006 and December 31, 2005, the Company reported thisbuilding and land as assets held for sale in the condensed consolidated balancesheet.

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The financial results ofthe Disposed Businesses included in discontinued operations in the accompanyingcondensed consolidated statements of operations are as follows (in thousands):
| ** **                                                | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| (Loss) income  before income taxes                        |       | $                                | (48        | )                              | $          | 57,152 |   | $ | (167 | ) | $ | 58,574 |   |
| Income tax  provision (benefit)                           |       | —                           |       | 12,557                         |       | (45 | ) | 14,211 |   |
| Minority  interests                                       |       | —                           |       | 80                             |       | — |   | (566 | ) |
| (Loss) income from  operations of discontinued businesses |       | $                                | (48        | )                              | $          | 44,675 |   | $ | (122 | ) | $ | 43,797 |   |

 

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

**5.**                          Debt

**Creditfacility**The Company isparty to a credit facility (the “Credit Facility”) with a group of financialinstitutions acting as lenders. On May 24, 2006, the Company amended andrestated its existing credit facility. The amended Credit Facility reduced therevolving loan from $60.0 million to $50.0 million, added a $10.0 million TermLoan, modified or eliminated certain restrictive covenants and extended thematurity date from April 2007 to May 2009 for the entire Credit Facility. TheCredit Facility is guaranteed by the Company’s parent, Advanstar, Inc., itsparent, Advanstar Holdings Corp., and by the Company’s domestic subsidiariesand is collateralized by first priority liens on substantially all of theassets of the Company and the guarantors. As a result of the amendment and restatement of the Credit Facility, theCompany expensed unamortized deferred finance costs of $0.5 million andcapitalized additional deferred finance costs of $1.5 million.

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

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

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**Seniorsecured notes**The Senior Secured Notes initially consisted of $130.0 million of SecondPriority Senior Secured Floating Rate Notes due 2008 (the “floating rate notes”),which require quarterly amortization equal to 0.25% of the principal amountthereof, and $300.0 million of 10.75% Second Priority Senior Secured Notes due2010 (the “fixed rate notes”). Interest on the floating rate notes is payableat a rate equal to three-month LIBOR, which is reset quarterly, plus 7.5%.

The floating rate notesand fixed rate notes prior to the transaction described below were 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.

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

In connection withthe tender offer,the Company and the trustee entered into a supplemental indenture with respectto the floating rate notes that eliminated substantially all of the restrictiveand reporting covenants, certain events of default and certain other provisionsand released the floating rate notes’ lien on the collateral under theindenture.  The fixed rate notes remaincollateralized by the collateral and subject to the restrictive covenants in theindenture.

On June 23, 2006, theCompany issued a notice of redemption to redeem all of its remaining $9.8million of outstanding floating rate notes at par.  The redemption will occur on August 15, 2006.

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

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Long-term debt consistsof the following (in thousands):
| ** **                                                                                                                                                   | ** ** | **June 30,** | ** ** | ** December 31, ** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------------------|------------|
| ** **                                                                                                                                                   | ** ** | **2006**          | ** ** | **2005**                          | ** ** |
| Revolving credit  loan, interest at LIBOR plus 2.5%; due May 2009                                                                                            |       | $                 | —     |                              | $          | — |   |
| Term loan,  interest at LIBOR plus 2.5%; 7.83% at June 30, 2006 due May 2009                                                                                 |       | 10,000            |       | —                            |       |
| Second priority  senior secured floating rate notes, interest at LIBOR plus 7.5%; 12.83% at  June 30, 2006, due 2008                                    |       | 9,822             |       | 9,872                             |       |
| 10.75% Second  priority senior secured notes, due 2010, plus unamortized premium of $606 and  $680 at June 30, 2006 and December 31, 2005, respectively |       | 291,942           |       | 292,015                           |       |
| Senior  subordinated notes, interest at 12.00%, due 2011                                                                                                     |       | 160,000           |       | 160,000                           |       |
| Acquisition note payable, due June 2006                                                                                                                      |       | —            |       | 100                               |       |
|                                                                                                                                                         |       | 471,764           |       | 461,987                           |       |
| Less current  maturities                                                                                                                                     |       | (101              | )          | (201                              | )          |
|                                                                                                                                                         |       | $                 | 471,663    |                              | $          | 461,786 |   |

 

**6.**                          Comprehensive Income

The table belowpresents comprehensive income, defined as changes in the equity of the Companyexcluding changes resulting from investments by and distributions toshareholders (in thousands):
| ** **                                                       | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                       | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                       | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net (loss)  income                                               |       | $                                | (16,835    | )                              | $          | 15,509 |   | $ | (1,759 | ) | $ | 21,654 |   |
| Change in  cumulative translation adjustment                     |       | 768                              |       | 535                            |       | 962 |   | 77 |   |
| Change in  unrealized losses on derivative financial instruments |       | —                           |       | (25                            | )          | — |   | (51 | ) |
| Comprehensive (loss)  income                                     |       | $                                | (16,067    | )                              | $          | 16,019 |   | $ | (797 | ) | $ | 21,680 |   |

 

**7.**                          Segments

The Company follows theprovisions of SFAS No. 131, “Disclosures about Segments of an Enterpriseand Related Information.” During the first quarter of 2006, the Companyundertook a strategic change in the monitoring and management of the businessto better reflect management’s focus and commitment to its threeindustry-focused segments: Fashion & Licensing, Life Sciences, and Powersports.  This change was prompted as a result of asubstantial change in the business organization following the divestiture ofthe Portfolio Group (see Note 4).  TheCompany has included its non reportable operating segments in Other.  In the Company’s most recently filed annualreport on Form 10-K for the year ended December 31, 2005, the Company’sreportable segments were by product type rather than by market sector ascurrently is being reported.  The Companyhas restated its segment information for the three and six months ended June30, 2005 into the new reportable segments.

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The Companyevaluates the performance of, and allocates resources to, its segments based oncontribution margin — defined as revenue less cost ofproduction; selling, editorial and circulation; and certain allocated generaland administrative costs,which is a non-GAAP measure.   Theaccounting policies of the reportable segments are the same as those describedin the summary of significant accounting policies.  There are no inter-segment sales ortransfers.  Assets are not allocated tosegments and therefore have not been presented. Revenue and contribution margins of the Company’s reportable segmentsare as follows (in thousands):
| ** **              | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **              | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **              | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenue                 |       |                             |       |                           |       |   |   |   |   |
| Fashion & Licensing |       | $                                | 10,952     |                           | $          | 10,074 |   | $ | 59,046 |   | $ | 46,970 |   |
| Life Sciences           |       | 40,002                           |       | 38,977                         |       | 75,122 |   | 71,679 |   |
| Powersports             |       | 5,514                            |       | 4,435                          |       | 26,660 |   | 23,060 |   |
| Other                   |       | 2,770                            |       | 2,504                          |       | 4,988 |   | 4,853 |   |
| Total                   |       | $                                | 59,238     |                           | $          | 55,990 |   | $ | 165,816 |   | $ | 146,562 |   |
|                    |       |                             |       |                           |       |   |   |   |   |
| Contribution  margin    |       |                             |       |                           |       |   |   |   |   |
| Fashion & Licensing |       | $                                | 4,999      |                           | $          | 4,286 |   | $ | 33,917 |   | $ | 27,872 |   |
| Life Sciences           |       | 13,428                           |       | 12,488                         |       | 23,580 |   | 21,660 |   |
| Powersports             |       | (115                             | )          | (1,043                         | )          | 10,410 |   | 8,114 |   |
| Other                   |       | 173                              |       | 1,199                          |       | 1,170 |   | 2,458 |   |

 

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** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                                                                | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Total segment  contribution margin                                                                        |       | $                                | 18,485     |                           | $          | 16,930 |   | $ | 69,077 |   | $ | 60,104 |   |
| General and  administrative expense not allocated to segment operations                              |       | (9,378                           | )          | (8,681                         | )          | (18,304 | ) | (20,227 | ) |
| Restructuring  charge                                                                                     |       | 80                               |       | (2,015                         | )          | (2,325 | ) | (2,015 | ) |
| Depreciation and  amortization                                                                            |       | (10,030                          | )          | (9,519                         | )          | (18,692 | ) | (19,477 | ) |
| Other expense  (primarily interest)                                                                       |       | (14,073                          | )          | (29,561                        | )          | (27,523 | ) | (47,031 | ) |
| (Loss) income  from continuing operations before income taxes and cumulative effect of  accounting change |       | $                                | (14,916    | )                              | $          | (32,846 | ) | $ | 2,233 |   | $ | (28,646 | ) |

 

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**8.**                          RestructuringActivity

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

EffectiveJune 2006, the Company entered into a lease modification and surrenderagreement for approximately 60% of its vacated office space in New York,NY.  Under the terms of the agreement,the Company will pay the landlord $2.8 million in cash, the lease covering thesurrendered space will be terminated and it will have no further future leaseobligations for the portion of the space surrendered.  In June 2006 the Company adjusted its accrualfor this space based upon the terms of the agreement and recorded a gain of$0.1 million.

During2005 the Company notified 120 employees that they would be severed from theCompany in connection with the sale of the Portfolio Group and thereorganization of the Company’s operating and support department management team. As of June 30, 2006, 117 of these employees have been terminated.  Severance payments are expected to continuethrough 2007.

Restructuring charges incurred are as follows (in thousands):
| ** **                                      | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                      | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                      | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Facility exit costs                             |       | $                                | (82        | )                              | $          | 794 |   | $ | 2,339 |   | $ | 794 |   |
| Employee severance and  other termination costs |       | 2                                |       | 1,221                          |       | (14 | ) | 1,221 |   |
| Restructuring charge                            |       | $                                | (80        | )                              | $          | 2,015 |   | $ | 2,325 |   | $ | 2,015 |   |

 

The summary of the Company’s change in restructuringaccruals is as follows (in thousands):
| ** **                              | ** ** | **Facility Exit  Costs** | ** ** | **Employee  Severance** | ** ** | **Total** | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|-------------------------|------------|-----------|------------|
| Balance at  December 31, 2005 |       | $                             | 3,412      |                    | $          | 807       |       | $ | 4,219 |   |
| Restructuring charge                    |       | 2,339                         |       | (14                     | )          | 2,325     |       |
| Utilized-cash                           |       | (1,299                        | )          | (687                    | )          | (1,986    | )          |
| Utilized-non-cash                       |       | —                        |       | —                  |       | —    |       |
| Balance at June 30,  2006               |       | $                             | 4,452      |                    | $          | 106       |       | $ | 4,558 |   |

 

Therestructuring accrual balance in the accompanying condensed consolidatedbalance sheet is $4.6 million and $4.2 million at June 30, 2006 and December31, 2005, of which $3.7 million and 

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$2.1million is in other accrued expenses at June 30, 2006 and December 31, 2005,and $0.9 million and $2.1 million is in other long term liabilities at June 30,2006 and December 31, 2005.

**9.**                          Stock Based Compensation

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

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

On October 12, 2000,Advanstar Holdings Inc. (“Holdings”), the parent company of Advanstar, Inc.,adopted the 2000 Management Incentive Plan (“the Plan”).  A maximum of 4,072,789 shares of Holdings areauthorized for grant to participants under the Plan.  Options are granted by Holdings’ board ofdirectors at an exercise price of not less than the fair value of Holdingscommon stock at the date of grant and vest over a maximum of nine years.   Shares available for grant under the Plantotaled 297,789 at June 30, 2006.

A summary of stockoption activity under the Plan is as follows:
| ** **                             | ** ** | ** **      | ** ** | **Weighted** | ** ** |
|----------------------------------------|------------|-----------------|------------|--------------|------------|
| ** **                             | ** ** | ** **      | ** ** | **Average**  | ** ** |
| ** **                             | ** ** | **Options**     | ** ** | **Exercise** | ** ** |
| ** **                             | ** ** | **Outstanding** | ** ** | **Price**    | ** ** |
| Outstanding at  December 31, 2005 |       | 3,965,000       |       | $            | 10.00      |   |
| Cancelled                              |       | (190,000        | )          | 10.00        |       |
| Outstanding at June 30,  2006          |       | 3,775,000       |       | $            | 10.00      |   |

 

At June 30, 2006, theoutstanding stock options had a weighted average remaining contractual life of4.8 years and an exercise price of $10.00 per option.  Of the options outstanding at June 30, 2006,2,661,040 were exercisable.

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**10.**                   Related-PartyTransactions

**Financial advisory fees and agreements**

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

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

**Advanstar, Inc. notes**

InFebruary 2001, Advanstar, Inc. issued discount notes bearing interest at 15%(the “Discount Notes”) with an aggregate principal amount due October 2011 of$171.8 million.  These notes require cashinterest payments starting in April 2006. Neither the Company nor any of its subsidiaries guarantee the DiscountNotes.

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

The restricted paymentscovenants in the Company’s Senior Secured Notes indenture and SeniorSubordinated Notes indenture provide that it can pay dividends only if itsleverage ratio (as defined) is 6.0 to 1.0 or better and only from “a basket” asdefined as the amount by which its cumulative EBITDA (as defined) since January1, 2001 exceeds 150% of the Company’s cumulative interest expense in thatperiod plus other items including proceeds from equity offerings. The Companycannot assure you its results will in fact improve to a point to allow it tomake future distributions in light of these restrictions.  Failure to pay the interest on these noteswill be a default under the notes and also resultin a default 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.  Notwithstandingthe leverage ratio limitation on restricted payments, the Company can makerestricted payments in an aggregate amount of up to $20 million toAdvanstar, Inc., none of which has been used as of June 30, 2006.  On March14, 2006, the Company declared and paid a dividend of $12.9 million toAdvanstar, Inc. to be used for its April 2006 interest payment on its DiscountNotes.  Debt service on thediscount notes will be $38.7 million during the next 18 months ending December31, 2007.  The Company expects itsresults will allow it to continue to make dividend payments to Advanstar, Inc.,for purposes of debt service.

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

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

Effective January 1,2005, the Company began consolidating the operations of Advanstar.com with itsoperations upon the adoption of Financial Accounting Standards Board (“FASB”)Interpretation 

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No. 46R**(“FIN 46R”), *Consolidation of VariableInterest Entities*.  As aresult of the adoption of FIN 46R, the Company recorded a $4.6 million gain,which was recorded as a cumulative effect of accounting change in the firstquarter of 2005.

**12.**                   Recently Issued Accounting Pronouncements

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

**13.**                   Subsequent Events

*Dividend Payment*

In July 2006, the Company’sultimate parent, Advanstar Holdings Corp., entered into a stock purchaseagreement with the Company’s former Chief Executive Officer, Robert L.Krakoff.  Pursuant to the agreement,Advanstar Holdings Corp. agreed to repurchase all of the shares of its commonstock held by Mr. Krakoff for $9.00 per share. Simultaneously with the execution of the stock purchase agreement,Advanstar Holdings Corp. entered into a cancellation of stock options agreementwhereby Mr. Krakoff surrendered all of his stock options.  The Company declared and paid a $3.3 milliondividend to its parent, Advanstar, Inc. for purposes of funding thistransaction.

*Termination Agreement*

InJuly 2006, the Company and the former owner of POOL entered into an agreementto terminate the former owner’s employment with the Company and settle alltheir respective rights and obligations under the POOL asset purchase agreementand an employment agreement entered into in connection with the POOLacquisition.  The agreement provides foran initial payment of $1.5 million to the former owner in July 2006 and anadditional payment of $0.5 million in 2007 as final payment under theagreement.  This consideration will be recorded as compensation expense inthe third quarter of 2006.  The POOL purchase agreement originallyprovided for additional contingent cash consideration to be paid to the formerowner based on the 2007 and 2008 operating results of POOL and required theowner’s continued employment with the Company.  These future contingentpurchase price and employment-related payments were canceled as part of theagreement.

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

**Basis of presentation**

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

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**Advanstar Communications Inc.**

**Condensed ConsolidatingBalance Sheets (Unaudited)**

**At June 30, 2006(In thousands)**

 
| ** **                                             | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Non Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------------|------------|------------------|------------|------------------|------------|
| **ASSETS**                                             | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**       | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| Current assets:                                        |       |               |       |             |       |                   |       |             |       |             |       |
| Cash and cash  equivalents                             |       | $                  | 48,692     |             | $          | 1,798                  |       | $                | 1,291      |             | $          | — |   | $ | 51,781 |   |
| Accounts  receivable, net                              |       | 20,597             |       | 826              |       | 1,438                  |       | —           |       | 22,861           |       |
| Prepaid expenses                                       |       | 6,380              |       | 3,074            |       | 534                    |       | —           |       | 9,988            |       |
| Other                                                  |       | 2,002              |       | —           |       | 46                     |       | —           |       | 2,048            |       |
|                                                   |       |               |       |             |       |                   |       |             |       |             |       |
| Total current  assets                                  |       | 77,671             |       | 5,698            |       | 3,309                  |       | —           |       | 86,678           |       |
|                                                   |       |               |       |             |       |                   |       |             |       |             |       |
| Non-current assets:                                    |       |               |       |             |       |                   |       |             |       |             |       |
| Due from parent                                        |       | 2,400              |       | —           |       | —                 |       | —           |       | 2,400            |       |
| Property, plant  and equipment, net                    |       | 18,476             |       | 2,907            |       | 177                    |       | —           |       | 21,560           |       |
| Deferred tax  asset                                    |       | 3,481              |       | 502              |       | —                 |       | (3,983           | )          | —           |       |
| Intangible and  other assets, net                      |       | 362,548            |       | 258,907          |       | 23,657                 |       | —           |       | 645,112          |       |
| Investments in  subsidiaries                           |       | 527,103            |       | —           |       | —                 |       | (527,103         | )          | —           |       |
| Intercompany  receivable                               |       | —             |       | 279,800          |       | (5,949                 | )          | (273,851         | )          | —           |       |
| Non-current  assets held for sale                      |       | 4,620              |       | —           |       | —                 |       | —           |       | 4,620            |       |
|                                                   |       | $                  | 996,299    |             | $          | 547,814                |       | $                | 21,194     |             | $          | (804,937 | ) | $ | 760,370 |   |
|                                                   |       |               |       |             |       |                   |       |             |       |             |       |
| **LIABILITIES  AND  STOCKHOLDER’S EQUITY**        |       |               |       |             |       |                   |       |             |       |             |       |
| ** **                                             |       |               |       |             |       |                   |       |             |       |             |       |
| Current liabilities:                                   |       |               |       |             |       |                   |       |             |       |             |       |
| Current  maturities of long-term debt                  |       | $                  | 101        |             | $          | —                 |       | $                | —     |             | $          | — |   | $ | 101 |   |
| Accounts payable                                       |       | 10,966             |       | 1,692            |       | 1,107                  |       | —           |       | 13,765           |       |
| Accrued  liabilities                                   |       | 27,425             |       | 6,550            |       | 386                    |       | —           |       | 34,361           |       |
| Deferred revenue                                       |       | 15,880             |       | 27,005           |       | 1,182                  |       | —           |       | 44,067           |       |
| Total current  liabilities                             |       | 54,372             |       | 35,247           |       | 2,675                  |       | —           |       | 92,294           |       |
| Long-term debt, net of  current maturities             |       | 471,663            |       | —           |       | —                 |       | —           |       | 471,663          |       |
| Deferred income taxes  and other long-term liabilities |       | 38,538             |       | 3,798            |       | 185                    |       | (3,983           | )          | 38,538           |       |
| Intercompany payable                                   |       | 273,851            |       | —           |       | —                 |       | (273,851         | )          | —           |       |
| Stockholder’s equity:                             |       |               |       |             |       |                   |       |             |       |             |       |
| Common stock                                           |       | 10                 |       | 8                |       | 353                    |       | (361             | )          | 10               |       |
| Capital in  excess of par value                        |       | 434,431            |       | 448,112          |       | 48,704                 |       | (496,816         | )          | 434,431          |       |
| (Accumulated  deficit) retained earnings               |       | (285,941           | )          | 60,649           |       | (40,098                | )          | (20,551          | )          | (285,941         | )          |
| Accumulated  other comprehensive income                |       | 9,375              |       | —           |       | 9,375                  |       | (9,375           | )          | 9,375            |       |
| Total  stockholder’s equity                       |       | 157,875            |       | 508,769          |       | 18,334                 |       | (527,103         | )          | 157,875          |       |
|                                                   |       | $                  | 996,299    |             | $          | 547,814                |       | $                | 21,194     |             | $          | (804,937 | ) | $ | 760,370 |   |

 

19

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**Advanstar Communications Inc.Condensed Consolidating Statements of Operations (Unaudited)For the three months ended June 30, 2006(in thousands)**
| ** **                                                              | ** ** | **Communications** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  Total** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|--------------------------------------|------------|------------------|------------|-------------------------|------------|
| Revenue                                                                 |       | $                  | 55,550     |                        | $          | 1,481                                |       | $                | 2,207      |                    | $          | — |   | $ | 59,238 |   |
| Operating  expenses:                                                    |       |               |       |                        |       |                                 |       |             |       |                    |       |
| Cost of production, selling, editorial, and  circulation                |       | 35,308             |       | 2,586                       |       | 1,758                                |       | —           |       | 39,652                  |       |
| General and administrative                                              |       | 9,536              |       | 666                         |       | 277                                  |       | —           |       | 10,479                  |       |
| Restructuring charge                                                    |       | (80                | )          | —                      |       | —                               |       | —           |       | (80                     | )          |
| Depreciation and amortization                                           |       | 5,825              |       | 4,041                       |       | 164                                  |       | —           |       | 10,030                  |       |
| Total operating expenses                                                |       | 50,589             |       | 7,293                       |       | 2,199                                |       | —           |       | 60,081                  |       |
| Operating income (loss)                                                 |       | 4,961              |       | (5,812                      | )          | 8                                    |       | —           |       | (843                    | )          |
| Other income  (expense):                                                |       |               |       |                        |       |                                 |       |             |       |                    |       |
| Interest expense, net                                                   |       | (13,579            | )          | —                      |       | 7                                    |       | —           |       | (13,572                 | )          |
| Loss on extinguishment  of debt                                         |       | (497               | )          | —                      |       | —                               |       | —           |       | (497                    | )          |
| Other income (expense), net                                             |       | 134                |       | —                      |       | (138                                 | )          | —           |       | (4                      | )          |
| Loss from continuing operations before income taxes                     |       | (8,981             | )          | (5,812                      | )          | (123                                 | )          | —           |       | (14,916                 | )          |
| Provision (benefit) for income taxes                                    |       | 3,944              |       | (2,073                      | )          | —                               |       | —           |       | 1,871                   |       |
| Equity in earnings of subsidiaries                                      |       | (3,862             | )          | —                      |       | —                               |       | 3,862            |       | —                  |       |
| (Loss) income from continuing operations                                |       | (16,787            | )          | (3,739                      | )          | (123                                 | )          | 3,862            |       | (16,787                 | )          |
| (Loss) income from operations of discontinued  businesses, net of taxes |       | (48                | )          | —                      |       | 13                                   |       | (13              | )          | (48                     | )          |
| Net (loss)  income                                                      |       | $                  | (16,835    | )                           | $          | (3,739                               | )          | $                | (110       | )                       | $          | 3,849 |   | $ | (16,835 | ) |

 

 

20

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**AdvanstarCommunications Inc.Condensed Consolidating Statements of Operations (Unaudited)For the six months ended June 30, 2006(In thousands)**
| ** **                                                              | ** ** | **Communications** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  Total** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
| ** **                                                              | ** ** | ** **         | ** ** | ** **                  | ** ** | ** **                     | ** ** | ** **       | ** ** | ** **              | ** ** |
| Revenue                                                                 |       | $                  | 113,760    |                        | $          | 48,109                         |       | $                | 3,947      |                    | $          | — |   | $ | 165,816 |   |
| Operating  expenses:                                                    |       |               |       |                        |       |                           |       |             |       |                    |       |
| Cost of  production and selling, editorial and circulation              |       | 70,581             |       | 20,512                      |       | 3,393                          |       | —           |       | 94,486                  |       |
| General and  administrative                                             |       | 18,791             |       | 1,156                       |       | 610                            |       | —           |       | 20,557                  |       |
| Restructuring  charge                                                   |       | 2,325              |       | —                      |       | —                         |       | —           |       | 2,325                   |       |
| Depreciation and  amortization                                          |       | 10,389             |       | 7,980                       |       | 323                            |       | —           |       | 18,692                  |       |
| Total operating  expenses                                               |       | 102,086            |       | 29,648                      |       | 4,326                          |       | —           |       | 136,060                 |       |
| Operating income  (loss)                                                |       | 11,674             |       | 18,461                      |       | (379                           | )          | —           |       | 29,756                  |       |
| Other income  (expense):                                                |       |               |       |                        |       |                           |       |             |       |                    |       |
| Interest (expense)  income, net                                         |       | (26,876            | )          | —                      |       | 7                              |       | —           |       | (26,869                 | )          |
| Loss on  extinguishment of debt                                         |       | (497               | )          | —                      |       | —                         |       | —           |       | (497                    | )          |
| Other income  (expense), net                                            |       | 100                |       | (2                          | )          | (255                           | )          | —           |       | (157                    | )          |
| (Loss) income  from continuing operations before income taxes           |       | (15,599            | )          | 18,459                      |       | (627                           | )          | —           |       | 2,233                   |       |
| (Benefit)  provision for income taxes                              |       | (3,319             | )          | 7,189                       |       | —                         |       | —           |       | 3,870                   |       |
| Equity in  earnings of subsidiaries                                     |       | 10,643             |       | —                      |       | —                         |       | (10,643          | )          | —                  |       |
| (Loss) income  from continuing operations                               |       | (1,637             | )          | 11,270                      |       | (627                           | )          | (10,643          | )          | (1,637                  | )          |
| Discontinued  operations:                                               |       |               |       |                        |       |                           |       |             |       |                    |       |
| (Loss) income  from operations of discontinued businesses, net of taxes |       | (122               | )          | —                      |       | 19                             |       | (19              | )          | (122                    | )          |
| Net (loss) income                                                       |       | $                  | (1,759     | )                           | $          | 11,270                         |       | $                | (608       | )                       | $          | (10,662 | ) | $ | (1,759 | ) |

 

21

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**AdvanstarCommunications Inc.Condensed Consolidating Statements of Cash Flows (Unaudited)For the six months ended June 30, 2006(In thousands)**

 
| ** **                                                                         | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Non Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                         | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**       | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| Operating activities:                                                              |       |               |       |             |       |                   |       |             |       |             |       |
| Net (loss) income                                                                  |       | $                  | (1,759     | )                | $          | 11,270                 |       | $                | (608       | )                | $          | (10,662 | ) | $ | (1,759 | ) |
| Adjustments to  reconcile net (loss) income to net cash from operating activities: |       |               |       |             |       |                   |       |             |       |             |       |
| Equity in  earnings of subsidiaries                                                |       | (10,662            | )          | —           |       | —                 |       | 10,662           |       | —           |       |
| Depreciation and  amortization                                                     |       | 10,389             |       | 7,980            |       | 323                    |       | —           |       | 18,692           |       |
| Other non-cash  items                                                              |       | 6,183              |       | 115              |       | (56                    | )          | —           |       | 6,242            |       |
| Change in  working capital items                                                   |       | 10,336             |       | (18,490          | )          | 1,197                  |       | —           |       | (6,957           | )          |
| Net cash  provided by operating activities                                         |       | 14,487             |       | 875              |       | 856                    |       | —           |       | 16,218           |       |
| Investing  activities:                                                             |       |               |       |             |       |                   |       |             |       |             |       |
| Additions to  property, plant and equipment                                        |       | (5,261             | )          | (803             | )          | (38                    | )          | —           |       | (6,102           | )          |
| Acquisitions of  intangible assets and other                                       |       | (30                | )          | 1                |       | —                 |       | —           |       | (29              | )          |
| Net cash used in  investing activities                                             |       | (5,291             | )          | (802             | )          | (38                    | )          | —           |       | (6,131           | )          |
| Financing  activities:                                                             |       |               |       |             |       |                   |       |             |       |             |       |
| Payments of  long-term debt                                                        |       | (150               | )          | —           |       | —                 |       | —           |       | (150             | )          |
| Proceeds from  issuance of long-term debt                                          |       | 10,000             |       | —           |       | —                 |       | —           |       | 10,000           |       |
| Deferred finance  costs                                                            |       | (1,526             | )          | —           |       | —                 |       | —           |       | (1,526           | )          |
| Dividend paid to  stockholder                                                      |       | (12,936            | )          | —           |       | —                 |       | —           |       | (12,936          | )          |
| Net cash used in  financing activities                                             |       | (4,612             | )          | —           |       | —                 |       | —           |       | (4,612           | )          |
| Effect of  exchange rate changes on cash                                           |       | —             |       | —           |       | (303                   | )          | —           |       | (303             | )          |
| Net increase in  cash and cash equivalents                                         |       | 4,584              |       | 73               |       | 515                    |       | —           |       | 5,172            |       |
| Cash and cash  equivalents, beginning of year                                      |       | 44,108             |       | 1,725            |       | 776                    |       | —           |       | 46,609           |       |
| Cash and cash equivalents, end of year                                             |       | $                  | 48,692     |             | $          | 1,798                  |       | $                | 1,291      |             | $          | — |   | $ | 51,781 |   |

 

22

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**AdvanstarCommunications Inc.Condensed Consolidating Balance SheetsAt December 31, 2005(In thousands)**
| ** **                                             | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Non Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**       | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| **Assets**                                             | ** ** | ** **         | ** ** | ** **       | ** ** | ** **             | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current assets                                         |       |               |       |             |       |                   |       |             |       |             |       |
| Cash and cash  equivalents                             |       | $                  | 44,108     |             | $          | 1,725                  |       | $                | 776        |             | $          | — |   | $ | 46,609 |   |
| Accounts  receivable, net                              |       | 23,140             |       | 446              |       | 1,021                  |       | —           |       | 24,607           |       |
| Prepaid expenses                                       |       | 6,539              |       | 1,136            |       | 196                    |       | —           |       | 7,871            |       |
| Other                                                  |       | 1,929              |       | —           |       | 36                     |       | —           |       | 1,965            |       |
| Total current  assets                                  |       | 75,716             |       | 3,307            |       | 2,029                  |       | —           |       | 81,052           |       |
| Non-current  assets                                    |       |               |       |             |       |                   |       |             |       |             |       |
| Due from parent                                        |       | 2,232              |       | —           |       | —                 |       | —           |       | 2,232            |       |
| Property, plant  and equipment, net                    |       | 18,360             |       | 2,778            |       | 168                    |       | —           |       | 21,306           |       |
| Deferred tax  asset                                    |       | 3,217              |       | 502              |       | —                 |       | (3,719           | )          | —           |       |
| Intangible and  other assets, net                      |       | 368,693            |       | 266,246          |       | 22,687                 |       | —           |       | 657,626          |       |
| Investments in  subsidiaries                           |       | 515,479            |       | —           |       | —                 |       | (515,479         | )          | —           |       |
| Intercompany  receivable                               |       | —             |       | 259,760          |       | (5,423                 | )          | (254,337         | )          | —           |       |
| Non-current  assets held for sale                      |       | 4,620              |       | —           |       | —                 |       | —           |       | 4,620            |       |
|                                                   |       | $                  | 988,317    |             | $          | 532,593                |       | $                | 19,461     |             | $          | (773,535 | ) | $ | 766,836 |   |
| **Liabilities  and Stockholder’s Equity**         |       |               |       |             |       |                   |       |             |       |             |       |
| Current liabilities                                    |       |               |       |             |       |                   |       |             |       |             |       |
| Current  maturities of long-term debt                  |       | $                  | 201        |             | $          | —                 |       | $                | —     |             | $          | — |   | $ | 201 |   |
| Accounts payable                                       |       | 10,948             |       | 449              |       | 945                    |       | —           |       | 12,342           |       |
| Accrued  liabilities                                   |       | 29,625             |       | 8,086            |       | 283                    |       | —           |       | 37,994           |       |
| Deferred revenue                                       |       | 23,585             |       | 22,840           |       | 47                     |       | —           |       | 46,472           |       |
| Total current  liabilities                             |       | 64,359             |       | 31,375           |       | 1,275                  |       | —           |       | 97,009           |       |
| Long-term debt, net of  current maturities             |       | 461,786            |       | —           |       | —                 |       | —           |       | 461,786          |       |
| Deferred income taxes  and other long-term liabilities |       | 36,227             |       | 3,719            |       | 206                    |       | (3,719           | )          | 36,433           |       |
| Intercompany payable                                   |       | 254,337            |       | —           |       | —                 |       | (254,337         | )          | —           |       |
| Stockholder’s equity                              |       |               |       |             |       |                   |       |             |       |             |       |
| Common stock                                           |       | 10                 |       | 8                |       | 353                    |       | (361             | )          | 10               |       |
| Capital in  excess of par value                        |       | 447,367            |       | 448,112          |       | 48,704                 |       | (496,816         | )          | 447,367          |       |
| (Accumulated  deficit) retained earnings               |       | (284,182           | )          | 49,379           |       | (39,490                | )          | (9,889           | )          | (284,182         | )          |
| Accumulated  other comprehensive income (loss)         |       | 8,413              |       | —           |       | 8,413                  |       | (8,413           | )          | 8,413            |       |
| Total  stockholder’s equity                       |       | 171,608            |       | 497,499          |       | 17,980                 |       | (515,479         | )          | 171,608          |       |
|                                                   |       | $                  | 988,317    |             | $          | 532,593                |       | $                | 19,461     |             | $          | (773,535 | ) | $ | 766,836 |   |

 

23

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**AdvanstarCommunications Inc.**

**CondensedConsolidating Statements of Cash Flows (Unaudited)**

**For thethree months ended June 30, 2005**

**(inthousands)**
| ** **                                               | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Non Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**       | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| ** **                                               | ** ** | ** **         | ** ** | ** **       | ** ** | ** **             | ** ** | ** **       | ** ** | ** **       | ** ** |
| Revenue                                                  |       | $                  | 54,478     |             | $          | (188                   | )          | $                | 1,700      |             | $          | — |   | $ | 55,990 |   |
| Operating expenses                                       |       |               |       |             |       |                   |       |             |       |             |       |
| Cost of production,  selling, editorial, and circulation |       | 35,329             |       | 1,233            |       | 1,363                  |       | —           |       | 37,925           |       |
| General and  administrative                              |       | 8,816              |       | 376              |       | 624                    |       |             |       | 9,816            |       |
| Restructure charge                                       |       | 2,015              |       | -                |       | —                 |       | —           |       | 2,015            |       |
| Depreciation and  amortization                           |       | 5,722              |       | 3,617            |       | 180                    |       | —           |       | 9,519            |       |
| Total operating  expenses                                |       | 51,882             |       | 5,226            |       | 2,167                  |       | —           |       | 59,275           |       |
| Operating income  (expense)                              |       | 2,596              |       | (5,414           | )          | (467                   | )          | —           |       | (3,285           | )          |
| Other income (expense)                                   |       |               |       |             |       |                   |       |             |       |             |       |
| Interest (expense)  income, net                          |       | (16,949            | )          | —           |       | 7                      |       | —           |       | (16,942          | )          |
| Loss on extingishment  of debt                           |       | (12,581            | )          | —           |       | —                 |       | —           |       | (12,581          | )          |
| Other income (expense),  net                             |       | 141                |       | (38              | )          | (141                   | )          | —           |       | (38              | )          |
| Loss from continuing  operations before income taxes     |       | (26,793            | )          | (5,452           | )          | (601                   | )          | —           |       | (32,846          | )          |
|                                                     |       |               |       |             |       |                   |       |             |       |             |       |
| (Benefit) provision for  income taxes               |       | (1,795             | )          | (1,886           | )          | 1                      |       | —           |       | (3,680           | )          |
| Equity in earnings of  subsidiaries                      |       | (4,168             | )          | —           |       | —                 |       | 4,168            |       | —           |       |
| (Loss) income  from continuing operations                |       | (29,166            | )          | (3,566           | )          | (602                   | )          | 4,168            |       | (29,166          | )          |
|                                                     |       |               |       |             |       |                   |       |             |       |             |       |
| Income (loss) from  operations of discontinued           |       | 44,675             |       | —           |       | (902                   | )          | 902              |       | 44,675           |       |
|                                                     |       |               |       |             |       |                   |       |             |       |             |       |
| Net income (loss)                                        |       | $                  | 15,509     |             | $          | (3,566                 | )          | $                | (1,504     | )                | $          | 5,070 |   | $ | 15,509 |   |

 

24

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**AdvanstarCommunications Inc.Condensed Consolidating Statements of Operations (Unaudited)For the six months ended June 30, 2005(in thousands)**
| ** **                                                                                                | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Nonguarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                                | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| ** **                                                                                                | ** ** | ** **         | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Revenue                                                                                                   |       | $                  | 107,182    |             | $          | 36,475           |       | $                | 2,905      |             | $          | — |   | $ | 146,562 |   |
|                                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| Operating expenses:                                                                                       |       |               |       |             |       |             |       |             |       |             |       |
| Cost of  production and selling, editorial and circulation                                                |       | 67,833             |       | 13,692           |       | 2,660            |       | —           |       | 84,185           |       |
| General and  administrative                                                                               |       | 20,515             |       | 716              |       | 1,269            |       | —           |       | 22,500           |       |
| Funding of  affiliated company operations                                                                 |       | 2,015              |       | —           |       | —           |       | —           |       | 2,015            |       |
| Depreciation and  amortization                                                                            |       | 11,890             |       | 7,220            |       | 367              |       | —           |       | 19,477           |       |
| Total operating  expenses                                                                                 |       | 102,253            |       | 21,628           |       | 4,296            |       | —           |       | 128,177          |       |
| Operating income (loss)                                                                                   |       | 4,929              |       | 14,847           |       | (1,391           | )          | —           |       | 18,385           |       |
|                                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| Other income (expense):                                                                                   |       |               |       |             |       |             |       |             |       |             |       |
| Interest  expense, net                                                                                    |       | (34,445            | )          | —           |       | 16               |       | —           |       | (34,429          | )          |
| Loss on early  extinguishment of debt                                                                     |       | (12,581            | )          | —           |       | —           |       | —           |       | (12,581          | )          |
| Other income  (expense), net                                                                              |       | 271                |       | (38              | )          | (254             | )          | —           |       | (21              | )          |
| (Loss) income from  continuing operations before income taxes and cumulative effect of accounting  change |       | (41,826            | )          | 14,809           |       | (1,629           | )          | —           |       | (28,646          | )          |
| (Benefit) provision for  income taxes                                                                     |       | (7,592             | )          | 5,698            |       | 9                |       | —           |       | (1,885           | )          |
| Equity in earnings of  subsidiaries                                                                       |       | 7,473              |       | —           |       | —           |       | (7,473           | )          | —           |       |
| Net (loss) income from  continuing operations before cumulative effect of accounting change               |       | (26,761            | )          | 9,111            |       | (1,638           | )          | (7,473           | )          | (26,761          | )          |
|                                                                                                      |       |               |       |             |       |             |       |             |       |             |       |
| Income (loss) from  operations of discontinued businesses, net of tax                                     |       | 43,797             |       | —           |       | 14,051           |       | (14,051          | )          | 43,797           |       |
| Income (loss)  before cumulative effect of accounting change                                              |       | 17,036             |       | 9,111            |       | 12,413           |       | (21,524          | )          | 17,036           |       |
| Cumulative effect of  accounting change                                                                   |       | 4,618              |       | —           |       | —           |       | —           |       | 4,618            |       |
| Net income (loss)                                                                                         |       | $                  | 21,654     |             | $          | 9,111            |       | $                | 12,413     |             | $          | (21,524 | ) | $ | 21,654 |   |

 

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**AdvanstarCommunications Inc**

**CondensedConsolidating Statements of Operations (Unaudited)**

**For thethree months ended June 30, 2005 (in thousands)**

 
| ** **                                                                         | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Non Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                         | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**       | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| Operating activities:                                                              |       |               |       |             |       |                   |       |             |       |             |       |
| Net income  (loss)                                                                 |       | $                  | 21,654     |             | $          | 9,111                  |       | $                | 12,413     |             | $          | (21,524 | ) | $ | 21,654 |   |
| Adjustments to  reconcile net income (loss) to net cash from operating activities: |       |               |       |             |       |                   |       |             |       |             |       |
| Equity in  earnings of subsidiaries                                                |       | (21,524            | )          | —           |       | —                 |       | 21,524           |       | —           |       |
| Gain on  derivative financial instruments                                          |       | (52                | )          | —           |       | —                 |       | —           |       | (52              | )          |
| Depreciation and  amortization                                                     |       | 14,572             |       | 7,220            |       | 639                    |       | —           |       | 22,431           |       |
| Other non-cash  items                                                              |       | (25,871            | )          | 24               |       | (12,471                | )          | —           |       | (38,318          | )          |
| Change in  working capital items                                                   |       | (2,332             | )          | (15,665          | )          | (1,341                 | )          | —           |       | (19,338          | )          |
| Net cash (used  in) provided by operating activities                               |       | (13,553            | )          | 690              |       | (760                   | )          | —           |       | (13,623          | )          |
| Investing activities:                                                              |       |               |       |             |       |                   |       |             |       |             |       |
| Additions to  property, plant and equipment                                        |       | (2,033             | )          | (690             | )          | (17                    | )          | —           |       | (2,740           | )          |
| Acquisitions of  publications and tradeshows, net of proceeds                      |       | (476               | )          | —           |       | —                 |       | —           |       | (476             | )          |
| Proceeds from  sale of business and other assets                                   |       | 165,639            |       | —           |       | 1,100                  |       | —           |       | 166,739          |       |
| Net cash provided  by (used in) investing activities                               |       | 163,130            |       | (690             | )          | 1,083                  |       | —           |       | 163,523          |       |
| Financing activities:                                                              |       |               |       |             |       |                   |       |             |       |             |       |
| Payments of  long-term debt                                                        |       | (152,117           | )          | —           |       | —                 |       | —           |       | (152,117         | )          |
| Deferred  financing costs                                                          |       | (129               | )          | —           |       | —                 |       | —           |       | (129             | )          |
| Dividends paid  to minority interest holders                                       |       | (900               | )          | —           |       | —                 |       | —           |       | (900             | )          |
| Net cash used in  financing activities                                             |       | (153,146           | )          | —           |       | —                 |       | —           |       | (153,146         | )          |
| Effect of exchange rate  changes on cash                                           |       | —             |       | —           |       | 384                    |       | —           |       | 384              |       |
| Net (decrease) increase  in cash and cash equivalents                              |       | (3,569             | )          | —           |       | 707                    |       | —           |       | (2,862           | )          |
| Cash and cash  equivalents, beginning of year                                      |       | 33,956             |       | —           |       | 7,267                  |       | —           |       | 41,223           |       |
| Cash and cash equivalents, end of year                                             |       | $                  | 30,387     |             | $          | —                 |       | $                | 7,974      |             | $          | — |   | $ | 38,361 |   |

 

26

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

**Overview**

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

We report our business in thesethree industry focused segments:

| · |   | Fashion &  Licensing, which serves the men’s, women’s, children’s and product sourcing  sectors of the apparel industry as well as the merchandise licensing industry  through industry tradeshows, conferences and on-line showrooms; publishing  targeted magazines and directories; and offering a broad range of marketing  support services;         |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · |   | Life Sciences, which  serves the healthcare, dental, veterinary, pharmaceutical, and science fields  through publishing primary and specialty care magazines and professional  journals; organizing conferences and other events; developing continuing medical education  (“CME”) products; and the creation of a wide variety of custom marketing  projects; and |
| · |   | Powersports, which  serves the motorcycle, off-road and automotive aftermarket industries through  publishing trade and consumer magazines  and shows and electronic products.                                                                                                                                                                                               |

 

In addition to our three segments described above,we combine our European, market development and e-media operations into “Other.”

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

Fashion & Licensing accounted for 36% and 32% oftotal revenue for the six months ended June 30, 2006 and 2005. Life Sciences accounted for 45% and 49% of total revenue for the sixmonths ended June 30, 2006 and2005.  Powersports accounted for 16% oftotal revenue for the six months ended June 30, 2006 and 2005, while Other operations accounted for 3%of total revenue for the six months ended June 30, 2006

27

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and 2005.  Ourrevenue reaches its highest levels during the first and third quarters of theyear due to the timing of the MAGIC Marketplace tradeshows and our other largetradeshows and conferences.  Because showand conference revenue is recognized when a particular event is held, we mayexperience fluctuations in quarterly revenue based on the movement of showdates from one quarter to another.

**Trends and Developments**

Results for thefirst half of 2006 reflect the impact of our strategy put in place in 2005 tofocus our portfolio on industry sectors where we can leverage our strong marketpositions, customer relationships and management teams.  We continue to develop new revenue streamsthrough a variety of growth initiatives across all segments and are constantlystriving to improve operating efficiency.

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

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

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

In the first quarter of 2006 we established a dedicated electronicmedia group to focus on developing opportunities for electronic products tomeet our customers’ evolving marketing and information requirements.  We anticipate accelerating our growth inelectronic media as we move through the balance of the year.

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

28

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**Presentationof Financial Information**

*Acquisitionsand divestitures*

We continue to look for opportunities to execute ourstrategy of building significant product positions in targeted markets, throughboth the acquisition and sale of identified assets.  Dispositions completed in 2005 are asfollows:

·                  On December 31, 2005, we sold ourArenacross Championship Series (“Arenacross”) for a total selling price of $0.2million. We recorded a loss on the sale of $0.4 million in December 2005.** **Arenacross had norevenue in the three or six months ended June 30, 2005.****Arenacrosshad a $0.1 million contribution loss in the three and six months ended June 30,2005.

·                  In the second quarter of 2005, wediscontinued the remaining East Coast Fashion tradeshow business acquired in1999 from Larin-Pluznik-Larkin, LLC. (the “East Coast Fashion Group”) as partof our new strategy.  We recorded a $2.3million impairment charge for the remaining intangible assets of this businessin 2005. East Coast Fashion Group had $0.9 million of revenue in the three andsix months ended June 30, 2005. Contribution margin for the three and six months ended June 30, 2005 was$0.2 million and $0.1 million.

·                  On May 23, 2005, we, our parent companyand certain affiliates (Advanstar Expositions Canada Limited and Advanstar.com)completed the sale of our business assets and liabilities associated with ourtradeshows and conferences, trade publications and direct marketing productsservicing the information, technology, telecommunications, travel, beauty, homeentertainment, and portfolio markets, including the shares of our Hong Kongsubsidiaries.  The shares of ourBrazilian subsidiary were sold in July 2005 after receipt of final regulatoryapproval. Collectively, these assets and shares are referred to as the “PortfolioGroup.” The sale price for the Portfolio Group was $185.0 million less $11.2million in working capital adjustments and expenses.  We recorded a gain on the sale of $52.9million.  Revenue for the three and sixmonths ended June 30, 2005 was $25.5 million and $49.0 million.  Contribution margin for the three and sixmonths ended June 30, 2005 was $10.3 million and $14.9 million.

The financial results of the businesses included in discontinuedoperations in the accompanying condensed consolidated statements of operationsare as follows (in thousands):
| ** **                                                | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                | ** ** | **June 30,**                | ** ** | **June 30**               | ** ** |
| ** **                                                | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| (Loss) income  before income taxes                        |       | $                                | (48        | )                              | $          | 57,152 |   | $ | (167 | ) | $ | 58,574 |   |
| Income tax  provision (benefit)                           |       | —                           |       | 12,557                         |       | (45 | ) | 14,211 |   |
| Minority interests                                        |       | —                           |       | 80                             |       | — |   | (566 | ) |
|                                                      |       |                             |       |                           |       |   |   |   |   |
| (Loss) income from  operations of discontinued businesses |       | $                                | (48        | )                              | $          | 44,675 |   | $ | (122 | ) | $ | 43,797 |   |

 

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In 2005, we completed fiveacquisitions.

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

·                  OnAugust 23, 2005, the Company purchased two fashion industry tradeshows andrelated products from the owner of the POOL Tradeshow (“POOL”) for $3.0 millionin cash.  In July 2006, we and the former owner of POOLentered into an agreement to terminate the former owner’s employment with usand settle all their respective rights and obligations under the POOL assetpurchase agreement and an employment agreement entered into in connection withthe POOL acquisition.  The agreementprovides for an initial payment of $1.5 million to the former owner in July2006 and an additional payment of $0.5 million in 2007 as final payment underthe agreement.  This consideration will be recorded as compensationexpense in the third quarter of 2006.  The POOL purchase agreementoriginally provided for additional contingent cash consideration to be paid tothe former owner based on the 2007 and 2008 operating results of POOL andrequired the owner’s continued employment with us.  These futurecontingent purchase price and employment-related payments were canceled as partof the agreement.

·                  On August 19, 2005, we purchased ProjectGlobal Tradeshow, Inc. (“Project”), a producer of tradeshows for the fashionindustry, for $9.9 million in cash, subject to a working capital adjustment,which will be completed in 2006.  Inaddition, we may pay additional contingent cash consideration to the formershareholders based on the 2007 and 2008 operating results of the acquiredbusiness and their continued employment with us.  The purchase price working capital adjustmenthas yet to be finalized. We do not believe the final allocation of purchaseprice will be materially different from preliminary estimates.

·                  In 2005, we completed two otheracquisitions of consumer shows with an aggregate purchase price of $0.5 millionin cash.

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

 

30

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**SelectedFinancial Data**

The following table sets forth selected statements ofoperations and other financial data.
| ** **                                                                                                | ** ** | **For the**                 | ** ** | **For the**               | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
| ** **                                                                                                | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                                                                | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                                | ** ** | **(in thousands)**          | ** ** | **(in thousands)**        | ** ** |
| ** **                                                                                                |       |                             |       |                           |       |   |   |   |   |
| **Income Statement Data:**                                                                                |       |                             |       |                           |       |   |   |   |   |
| Revenue                                                                                                   |       |                             |       |                           |       |   |   |   |   |
| Fashion &  Licensing                                                                                  |       | $                                | 10,952     |                           | $          | 10,074 |   | $ | 59,046 |   | $ | 46,970 |   |
| Life Sciences                                                                                             |       | 40,002                           |       | 38,977                         |       | 75,122 |   | 71,679 |   |
| Powersports                                                                                               |       | 5,514                            |       | 4,435                          |       | 26,660 |   | 23,060 |   |
| Other                                                                                                     |       | 2,770                            |       | 2,504                          |       | 4,988 |   | 4,853 |   |
| Total revenue                                                                                             |       | 59,238                           |       | 55,990                         |       | 165,816 |   | 146,562 |   |
| Cost of  production and selling, editoral and circulation                                                 |       |                             |       |                           |       |   |   |   |   |
| Fashion &  Licensing                                                                                  |       | 5,877                            |       | 5,735                          |       | 24,969 |   | 18,991 |   |
| Life Sciences                                                                                             |       | 25,888                           |       | 25,656                         |       | 50,076 |   | 48,346 |   |
| Powersports                                                                                               |       | 5,290                            |       | 5,229                          |       | 15,623 |   | 14,453 |   |
| Other                                                                                                     |       | 2,597                            |       | 1,305                          |       | 3,818 |   | 2,395 |   |
| Total cost of  production and selling                                                                     |       | 39,652                           |       | 37,925                         |       | 94,486 |   | 84,185 |   |
| General and  administrative expenses                                                                      |       | 10,479                           |       | 9,816                          |       | 20,557 |   | 22,500 |   |
| Restructuring charge                                                                                      |       | (80                              | )          | 2,015                          |       | 2,325 |   | 2,015 |   |
| Depreciation and amortization                                                                             |       | 10,030                           |       | 9,519                          |       | 18,692 |   | 19,477 |   |
| Operating (loss) income                                                                                   |       | (843                             | )          | (3,285                         | )          | 29,756 |   | 18,385 |   |
| Other income (expense):                                                                                   |       |                             |       |                           |       |   |   |   |   |
| Interest expense                                                                                          |       | (14,054                          | )          | (17,610                        | )          | (27,826 | ) | (35,274 | ) |
| Interest income                                                                                           |       | 482                              |       | 668                            |       | 957 |   | 845 |   |
| Loss on  extinguishment of debt                                                                           |       | (497                             | )          | (12,581                        | )          | (497 | ) | (12,581 | ) |
| Other expense,  net                                                                                       |       | (4                               | )          | (38                            | )          | (157 | ) | (21 | ) |
| (Loss) income from  continuing operations before income taxes and cumulative effect of accounting  change |       | (14,916                          | )          | (32,846                        | )          | 2,233 |   | (28,646 | ) |
| Provision (benefit) for  income taxes                                                                     |       | 1,871                            |       | (3,680                         | )          | 3,870 |   | (1,885 | ) |
| Loss from continuing  operations before cumulative effect of accounting change                            |       | (16,787                          | )          | (29,166                        | )          | (1,637 | ) | (26,761 | ) |
| (Loss) income from  operations of discontinued businesses, net of taxes                                   |       | (48                              | )          | 44,675                         |       | (122 | ) | 43,797 |   |
| (Loss) income before  cumulative effect of accounting change                                              |       | (16,835                          | )          | 15,509                         |       | (1,759 | ) | 17,036 |   |
| Cumulative effect of  accounting change                                                                   |       | —                           |       | —                         |       | — |   | 4,618 |   |
| Net (loss) income                                                                                         |       | $                                | (16,835    | )                              | $          | 15,509 |   | $ | (1,759 | ) | $ | 21,654 |   |

 

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**Resultsof Operations**

# THREE MONTHS ENDED JUNE 30,2006 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2005

# *Revenue*

Revenue in the secondquarter of 2006 increased 5.8% to $59.2 million from $56.0 million in thesecond quarter of 2005.

Revenue from Fashion andLicensing of $11.0 million increased 8.7% or $0.9 million from $10.1 million inthe second quarter of 2005.  Revenue fromthe Licensing International show grew 6% or $0.5 million from a 5% increase insquare feet, while *License!*magazine revenue increased 18% or $0.3 million due largely to a 15% increase inadvertising pages.

Revenue from LifeSciences of $40.0 million increased 2.6% or $1.0 million from $39.0 million inthe second quarterof 2005.  Ad page growth in the LifeScience markets in the second quarter of 2006 was flat compared with the samequarter last year and our titles reflected this softness.  The increase in revenue was due to strongperformances of several publications including *DVMNewsmagazine*, *Dental Lab Products*,*Formulary*, *ContemporaryPediatrics* and the launches of new conferences andpublications.  These revenuegains were partially offset by a decline in revenue from our IVT pharmaceuticalconferences, the effect of the sale of *Pharmaceutical Discovery*late in 2005 and softness in some of our primary care and nursing publications.

Revenue from Powersportsof $5.5 million increased 24.3% or $1.1 million from $4.4 million in the secondquarter of 2005.  This increase was driven primarily by strong growth in ouroff-road properties including the launch of Off-Road Expo in Salt LakeCity.  Ad pages in the Powersportspublications increased 26.0% and revenue grew $0.9 million or 20.1% due togrowth in our off-road publications, *DIRTsports*and *Off-Road Business*, now in the second year of their launchcycle, along with strong performances from *Dealernews* and *Motor Age.*

Revenue from our Other operations in thesecond quarter of 2006 was $2.8 million compared to $2.5 million reported insecond quarter of 2005.

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

Cost of production,selling, editorial and circulation expenses in the second quarter of 2006increased 4.6% to $39.7 million from $37.9 million in the second quarter of2005.

Fashion & Licensingexpenses in the second quarter of 2006 increased by 2.5%, or $0.2 million, to$5.9 million from $5.7 million in the second quarter of 2005, primarily relatedto costs required to support the increased size of our Licensing Internationalshow.

Life Sciences expenses inthe second quarter of 2006 increased by 0.9%, or $0.2 million, to $25.9 millionfrom $25.7 million in the second quarter of 2005.  Launch costs for new conferences andpublications were $1.4 million in the quarter, offset by reductions of $0.3million in costs related to the sold publication *PharmaceuticalDiscovery* and $1.1 million in costs due to improved operatingefficiencies from the restructuring program implemented at the end of thesecond quarter of 2005.

32

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Powersports expenses inthe second quarter of 2006 increased by 1.2%, or $0.1 million, to $5.3 millionfrom $5.2 million in the second quarter of 2005 due primarily to increaseddirect costs for the automotive and off-road publications in support of theirincreased revenue and development.

Expenses of Otheroperations in the second quarter of 2006 were $2.6 million, compared to $1.3million in the second quarter of 2005. This increase is primarily due to therenegotiation of certain tradeshow vendor agreements, investments in thedevelopment of our e-media product offerings and launch costs for *Ophthalmology Times Europe*.

# *General and administrative expenses*

General andadministrative costs increased 6.8% to $10.5 million in the second quarter of2006 from $9.8 million in the second quarter of 2005 due principally toincreases in legal costs related to outstanding legal claims.  These costs were partially offset by $0.2million of cost savings related to office restructuring actions taken in 2005,a decline of $0.2 million in Sarbanes-Oxley consulting services and a $0.3million employee compensation accrual related to the IVT acquisition recordedin 2005 which did not recur in 2006.

# *Restructuring charge*

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

Effective June 2006, we entered into a leasemodification and surrender agreement for approximately 60% of our vacatedoffice space in New York, NY.  Under theterms of the agreement, we will pay the landlord $2.8 million in cash, thelease covering the surrendered space will be terminated and we will have nofurther future lease obligations for the portion of the space surrendered.  In June 2006 we adjusted our accrual for thisspace based upon the terms of the agreement and recorded a gain of $0.1million.

During 2005 the Company notified 120 employeesthat they would be severed from the Company in connection with the sale of thePortfolio Group and the reorganization of the Company’s operating and supportdepartment management team.  As of June30, 2006, 117 of these employees have been terminated.  Severance payments are expected to continuethrough 2007.

33

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Pre-tax restructuring charges incurred are asfollows (in thousands):
| ** **                                      | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                      | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                      | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Facility exit  costs                            |       | $                                | (82        | )                              | $          | 794 |   | $ | 2,339 |   | $ | 794 |   |
| Employee  severance and other termination costs |       | 2                                |       | 1,221                          |       | (14 | ) | 1,221 |   |
| Restructuring charge                            |       | $                                | (80        | )                              | $          | 2,015 |   | $ | 2,325 |   | $ | 2,015 |   |

 

# *Depreciation and amortizationexpense*

Depreciation andamortization expense increased $0.5 million to $10.0 million in the secondquarter of 2006 from $9.5 million in the second quarter of 2005 primarily dueto additional amortization expense related to the businesses acquired in 2005and accelerated depreciation for leaseholds in leased office space vacated in2006, partially offset by the reduction in amortization attributable to theeffect of the double declining balance method of accelerated amortization onour exhibitor and advertiser lists.

# *Interest expense*

Interest expense in the second quarter of 2006 declined $3.5 million,or 20.2%, to $14.1 million from $17.6 million in the second quarter of2005.  The reduction is primarily due tothe 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. See “—Liquidity and Capital Resources-*“Second Priority Secured and Floating Rate Notes Repayment*.”

At June 30, 2006, $451.9 million, or 96%, of our total debt is at afixed rate with the remaining 4% of our debt subject to interest ratefluctuations.

# *Provision (benefit) for income taxes*

The provision for incometaxes before discontinued operations was a provision of $1.9 million in thesecond quarter of 2006 compared to a benefit of $3.7 million in the secondquarter of 2005.  For both 2006 and 2005,the provision/benefit includes income taxes in certain foreign jurisdictionsand a deferred tax provision related to the basis of goodwill for tax purposesbeing less than the carrying value of goodwill for financial reportingpurposes.  The second quarter 2005 taxbenefit reflects the tax benefit provided by losses from continuing operationsto the extent that such losses offset the income from discontinued operations.This tax benefit is offset by a tax provision included in discontinuedoperations resulting from the operating income and gain attributable to thesale of the Portfolio Group business. We recorded no income tax benefit relatedto the net operating losses we generated during 2006 or 2005 because we haveestablished a valuation allowance to offset any related tax benefits due touncertainty about realization of these benefits.

# *Discontinued operations*

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

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In the second quarter of 2005, the Company discontinued the remainingEast Coast Fashion tradeshow business acquired in the 1999 Larkin transactionand recognized a $2.3 million impairment charge for the remaining carryingvalue of the intangible assets of this business.

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

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

# SIX MONTHS ENDED JUNE 30,2006 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2005

# *Revenue*

Revenue in the first sixmonths of 2006 increased 13.1% to $165.8 million from $146.6 million in thefirst six months of 2005.

Fashion and Licensingrevenue of $59.0 million increased 25.7% or $12.0 million from $47.0 million inthe first six months of 2005.  Revenuefrom our spring 2006 MAGIC Marketplace increased $8.2 million or 22.6% over2005. Total exhibit space increased by 17.2% to 1,051,000 square feet.Additional growth came from increases in yields as well as growth insponsorship and turnkey booth package programs. The August 2005 acquisitions of POOL and Project expanded our presencein the contemporary and boutique fashion markets.  The POOL and Project events, which wereintegrated into MAGIC Marketplace in Las Vegas, along with the Project New Yorkevent, contributed $9.2 million of revenue and 192,000 of square feet in thefirst quarter of 2006.  Revenue in thefirst six months of 2006 also benefited from a successful LicensingInternational event held in New York and 11.2% growth in revenue in *License!* magazine.

Life Sciencesrevenue of $75.1 million increased 4.8% or $3.4 million from $71.7 million inthe first six months of 2005.  Revenuefrom healthcare custom projects increased $1.8 million or 32.4% from the firstsix months of 2005 primarily due to more focused selling efforts and ourability to meet the new pharmaceutical regulatory rules governing themanagement and delivery of many of these projects. Revenue also increased $2.2million due to five new publication and conference launches. These revenue gains were partially offset by a decline of $0.7million or 21.5% from our IVT Pharmaceutical manufacturing conferences.   Ad pages and revenue across our Life Sciencepublications were essentially flat in the first six months of 2006 comparedwith the same period last year with strong performance in our specialtyhealthcare, pharmaceutical and dental publications offset by softness in someof our primary healthcare and veterinary publications.

Powersports revenue of$26.7 million increased 15.6% or $3.6 million from $23.1 million in the firstsix months of 2005.  The International Motorcycle Show events andDealer Expo experienced an increase in square feet of 6% and revenue of 10% in2006.  In the off-road market we held astrong second year Off-Road Impact Expo trade event and launched Off-RoadExpo-Salt Lake City, a consumer off-road event. Ad pages and ad revenue for Powersports publications grew 26% and 24%,respectively, due to new products and increased advertising from Asianaftermarket parts manufacturers and the continued development of our off-roadpublications, *DIRTsports* and *Off-Road Business*.

Revenue from our Other operations in the firstsix months of 2006 was $5.0 million, compared to $4.9 million reported in firstsix months of 2005.

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

Cost of production,selling, editorial and circulation expenses in the first six months of 2006increased 12.2% to $94.5 million from $84.2 million in the first sixmonths of 2005 due to acquisitions and growth in revenue across segments.

Expenses of Fashion &Licensing in the first six months of 2006 increased by 31.5%, or $6.0 million,to $25.0 million from $19.0 million in the first six months of 2005,primarily due to $5.2 million in costs related to the POOL and Projectshows.

Expenses of Life Sciencesin the first six months of 2006 increased by 3.6%, or $1.8 million, to$50.1 million from $48.3 million in the first six months of2005.  The increase is due to $1.9 millionin product launch costs for five new conferences and publications, a $1.5 millionincrease in healthcare special projects costs related to the growth in thenumber and revenue of delivered projects, offset by reductions of $0.6 millionin costs related to the sold publication *Pharmaceutical Discovery*and $1.9 million in costs due to improved operating efficiencies from therestructuring program implemented at the end of the second quarter of 2005.

Expenses of Powersportsin the first six months of 2006 increased by 8.1%, or $1.1 million, to$15.6 million from $14.5 million in the first six months of2005.  Expenses increased primarily dueto increased direct costs for the automotive and off-road publications insupport of their increased revenue and development and from the launch of ourOff-Road Expo—Salt Lake event, partially offset by lower operating costs at ourDealer Expo event in Indianapolis.

Expenses of our Otheroperations in thefirst six months of 2006 was $3.8 million, compared to $2.4 millionin first six months of 2005. This increase is primarily due to therenegotiation of certain tradeshow vendor agreements, investments in thedevelopment of our e-media product offerings and launch costs for *Ophthalmology Times Europe*.

# *General and administrative expenses*

General andadministrative costs decreased 8.6% to $20.6 million in the first sixmonths of 2006 from $22.5 million in the first six months of 2005.  Costs declined primarily due to $0.8 millionof cost savings related to office restructuring actions taken in 2005 and adecline of $0.6 million in audit, tax and Sarbanes-Oxley consultingservices.  Expense reductions alsoconsisted of certain first half 2005 costs which did not recur in 2006,including $0.6 million of strategic consulting fees for the Life Sciencessegment and a $0.6 million employee compensation accrual related to theIVT acquisition.  These savings werepartially offset by increases in legal costs related to outstanding legalclaims.

# *Restructuring charge*

See information regardingrestructuring activities in “—Results of Operations-Three Months Ended June 30,2006 compared to the three months ended June 30, 2005-Restructuringcharge.”

# *Depreciation and amortizationexpense*

Depreciation andamortization expense declined $0.8 million to $18.7 million in thefirst six months of 2006 from $19.5 million in the first six months of2005 primarily due to the effect of the double declining balance method ofaccelerated amortization on our exhibitor and advertiser lists, partiallyoffset by accelerated depreciation for leaseholds in leased office spacevacated in 2006 and additional amortization expense related to the businessesacquired in 2005.

 

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# *Interest expense*

Interest expense in the first six months of 2006 declined $7.5 million,or 21.1%, to $27.8 million from $35.3 million in the first six monthsof 2005 primarily due to the repayment of $20.4 million of our term loans,$8.7 million of our fixed rate notes, and $117.8 million of ourfloating rate notes in the second quarter of 2005 with the proceeds from thesale of the Portfolio Group. See “—Liquidity andCapital Resources—*“Second Priority Securedand Floating Rate Notes Repayment*.”

We incurred $12.6 millionin costs related to the repurchase of a part of our fixed and floating ratesenior secured debt in the first half of 2005 discussed above.  These costs include $8.6 million intender offer premium and consent fees, $3.5 million in unamortizeddeferred financing costs, and $0.5 million in legal fees and expenses.

# *Provision (benefit) for income taxes*

The provision for incometaxes before discontinued operations was a provision of $3.9 million inthe first six months of 2006 compared to a benefit of $1.9 million in thefirst six months of 2005.  For both 2006and 2005, the provision/benefit includes income taxes in certain foreign jurisdictionsand a deferred tax provision related to the basis of goodwill for tax purposesbeing less than the carrying value of goodwill for financial reportingpurposes.  The second quarter 2005 taxbenefit reflects the tax benefit provided by losses from continuing operationsto the extent that such losses offset the income from discontinued operations.This tax benefit is offset by a tax provision included in discontinuedoperations resulting from the operating income and gain attributable to thesale of the Portfolio Group business. We recorded no income tax benefit relatedto the 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.

# *Discontinued operations*

See information regardingdiscontinued operations in “—Results of Operations—Three Months EndedJune 30, 2006 compared to the three months ended June 30,2005-Discontinued operations.”

**Liquidity and Capital Resources**

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

*Sources and uses of funds*

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

 

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We anticipate that our operating cash flow, together withborrowings under the credit facility and other future financings and refinancings,will be sufficient to fund our anticipated future operating expenses, capitalexpenditures, debt service and other obligations as they become due.  However, our ability to make scheduledpayments of principal, to pay interest on or to refinance our indebtedness andto satisfy our other debt obligations will depend upon our future operatingperformance.  Our future performance andcontinued compliance with the covenants contained in our credit facility willbe affected by general economic, financial, competitive, legislative,regulatory, business and other factors beyond our control.  We expect to be in compliance with our debtcovenants during 2006 and 2007.

As of June 30, 2006, we had cash and cashequivalents of $51.8 million and also had $47.9 million inavailability under our revolving credit facility. During the first half of 2006we paid a $12.9 million dividend to Advanstar, Inc. to pay interest on itsdiscount notes in April 2006. The following table shows our cash flow activityfor the six months ended June 30, 2006 and 2005, and includes the results ofdiscontinued operations, and should be read in conjunction with theconsolidated statements of cash flows(in thousands):

|                                                           | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                | ** ** | **June 30,**              | ** ** |
| ** **                                                | ** ** | **2006**                       | ** ** | **2005** | ** ** |
|                                                      |       |                           | ** ** | ** ** | ** ** |
| Net cash  provided by (used in) operating activities |       | $                              | 16,218     |   | $ | (13,623 | ) |
| Net cash (used  in) provided by investing activities      |       | (6,131                         | )          | 163,523 |   |
| Net cash used in  financing activities                    |       | (4,612                         | )          | (153,146 | ) |
| Effect of  exchange rate changes on cash                  |       | (303                           | )          | 384 |   |
| Net increase (decrease) in cash and cash equivalents      |       | $                              | 5,172      |   | $ | (2,862 | ) |

 

The $29.8 millionincrease in cash provided by operating activities as compared to the first sixmonths of 2005 was due principally to $10.6 million in improved operatingresults, an increase in cash collected in advance of our third quarter eventsof $6.8 million, a reduction in cash interest payments of $5.6 millionand a reduction in outstanding accounts receivable of $4.7 million.

Net cash used in investing activities increased $169.7 million to $6.1 million inthe first six months of 2006, from $163.5 million provided by investingactivities in the first six months of 2005. This increase was principally due to the proceeds received in the secondquarter of 2005 from the sale of the Portfolio Group.  We also increased capitalexpenditures in 2006 for computer upgrades, applications development and forbuild-outs and furnishing of our new downsized office in New York.  Weincurred capital expenditures of $6.1 million and $2.7 million in thefirst six months of 2006 and 2005, respectively.  We anticipate that we will spendapproximately $10.0 million on capital expenditures in 2006, which will befunded by cash flows from operations. The majority of these expenditures are related to expansions andenhancements to our IT and communications infrastructure and management andoperating group information systems, and office build-outs arising from ourrecent office consolidations.  We believethat this amount of capital expenditure will be adequate to grow our businessaccording to our business strategy and to maintain the key tradeshows,publications and business of our continuing operations.

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

 

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Cash used in financing activities in the first six monthsof 2006 was $4.6 millioncompared to $153.1 million in the first six months of 2005.  In the first half of 2006, we paid $12.9 millionin dividends to our stockholder, Advanstar, Inc., to be used for cash interestpayments in April 2006 relating to its 15% senior discount notes.  We also borrowed an additional $10.0 millionand incurred financing costs of $1.5 million in connection with theamendment and restatement of our credit facility (see “—Credit facilityamendment and restatement”).  In thefirst six months of 2005, we repaid $4.6 million of our outstanding TermLoan B with the proceeds from the sale of a tradeshow business in the firstquarter of 2004.  In the second quarterof 2005, we repaid our outstanding Term Loan B of $20.4 million andrepurchased $126.5 million of our floating and fixed rate notes, using theproceeds from the sale of the Portfolio Group.

*Debt service*

As of June 30, 2006, we had total indebtedness of $471.8 millionand $47.9 million of borrowings available under our revolving creditfacility.  Our principal debt obligationsare described below.

*Credit facility amendment and restatement*

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

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

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

Alsoin June 2005, we completed a cash tender offer for any and all of ouroutstanding Second Priority Senior Secured Floating Rate Notes due 2008 (the “floatingrate notes”).  Holders of the $117.8 millionaggregate 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 outstanding principal plus accruedinterest.  In connection with the tenderoffer, we received consents to proposed amendments to the indenture governingthe notes, resulting in the elimination of substantially all of the restrictivecovenants and certain default provisions with respect to the floating ratenotes.

*Credit facility*

Our Credit Facility consists of a $50.0 millionrevolving credit facility which terminates in May 2009, and a $10.0 millionterm loan which matures in May 2009. Borrowings under the Credit Facility generally bear interest based on amargin over, at our option, the base rate or LIBOR.  The applicable margin for revolving creditloans varies based upon our ratio of consolidated debt to EBITDA, as defined inthe credit facility, and is currently 2.50% over LIBOR or 2.50% over the baserate.  Our obligations under the creditfacility are guaranteed by Advanstar Holdings Corp. (“Advanstar Holdings” or “Holdings”),our ultimate parent company, Advanstar, Inc., our direct parent company,and all 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 

 

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future domestic subsidiaries, a pledge of no more than65% of the voting stock of any foreign subsidiary directly owned by our companyor any domestic subsidiary, a pledge of all intercompany indebtedness in favorof our company and our domestic subsidiaries, a pledge of our Company’s andAdvanstar IH, Inc.’s capital stock held by our direct parent company, anda pledge of our direct parent company’s capital stock held by AdvanstarHoldings.  The Credit Facilitycontains restrictive covenants, including limitations on certain assetdispositions, dividends, investments and other restricted payments.  Failureto comply with the covenants could cause an event of default under the CreditFacility.

*Second priority senior securednotes*

Our$9.8 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,plus 7.50%.  Interest on the floatingrate notes, along with amortization of 0.25% of the principal of such floatingrate notes, is payable quarterly in cash. Inconnection with the tender offer described above, we and thetrustee entered into a supplemental indenture that eliminated substantially allof the restrictive and reporting covenants, certain events of default andcertain other provisions with respect to the floating rate notes and releasedthe floating rate notes’ lien on the collateral under the indenture.  The fixed rate notes remain collateralizedand subject to the restrictive covenants in the indenture.

In June 2006, we notified the trustee of ourintention to redeem all of the remaining outstanding floating rate notes.  The redemption date for all $9.8 millionof the floating rate notes will be August 15, 2006, and such redemption will beat par value.

Our $292.0 million of fixed rate notes mature in2010.  The notes are guaranteed by eachof our existing and future domestic restricted subsidiaries and collateralizedby second-priority liens on the assets collateralizing our creditfacility (other than certain subsidiary stock and assets of our parentcompanies).  The fixed rate notes bearinterest at an annual rate of 10.75%, which is payable semi-annually incash.  The notes contain restrictivecovenants that, among other things, limit our ability to incur debt, paydividends and make investments.

*Senior subordinated notes*

Our $160 million 12% senior subordinated notesmature in 2011 and are guaranteed by each of our existing and future domesticrestricted subsidiaries. Interest on the notes is payable semi-annually incash.  The notes contain restrictive covenantsthat, among other things, limit our ability to incur debt, pay dividends andmake investments.

*Parent company notes*

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

 

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Therestrictive covenants in our senior secured notes indenture and seniorsubordinated notes indenture provide that we can pay dividends only if ourleverage ratio (as defined) is 6.0 to 1.0 or better and only from “a basket”equal to the amount by which our cumulative EBITDA (as defined) since January 1,2001 exceeds 150% of our cumulative interest expense in that same period plusother items, including proceeds from equity offerings. In addition to thebasket and notwithstanding the leverage ratio limitation on restrictedpayments, we can make additional restricted payments in an aggregateamount of up to $20 million to Advanstar, Inc. As of December 31, 2005, our leverageratio under the most restrictive of these indentures was 5.96 to 1.0. In March 2006, we declared and paid adividend of $12.9 million to Advanstar, Inc. to be used for servicing itsdebt obligations.  As ofJune 30, 2006, our leverage ratio under the most restrictive of theseindentures was 5.50 to 1.0.

Debtservice on the discount notes will be $38.7 million during the next 18months ending December 31, 2007.  Weexpect our results will allow us to continue to make dividend payments toAdvanstar, Inc. for purposes of servicing this debt.  However, our results are subject to a varietyof factors, including general economic conditions and conditions in ourmarkets.   We may not generate sufficient cash flow from operations or be permittedby the terms of our debt instruments to pay dividends or distributions toAdvanstar, Inc. in amounts sufficient to allow it to pay cash interest on theparent company notes.   If Advanstar,Inc. is unable to meet its debt service obligations, it could attempt torestructure or refinance its indebtedness or seek additional equity capital.  We cannot assure you that Advanstar, Inc. willbe able to accomplish these actions on satisfactory terms or at all.  A default under the parent company notescould result in an acceleration of all outstanding loans under our creditfacility which, in turn, would trigger a cross-default under both oursecond priority senior secured notes and our senior subordinated notes.

*Contractual and contingentobligations*

Ourcontractual obligations (excluding accounts payable and accrued expenses), asof June 30, 2006 are as set forth below(in millions):

|                                     | ** ** | **Payments Due By Period** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|
| ** **                          | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **After** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **2006(1)**                               | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2011** | ** ** | **Total** | ** ** |
| ** **                          | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Indebtedness                        |       | $                                         | 0.1        |   | $ | 0.1 |   | $ | 9.7 |   | $ | 10.0 |   | $ | 291.9 |   | $ | 160.0 |   | $ | — |   | $ | 471.8 |   |
| Interest on indebtedness(2)         |       | 26.0                                      |       | 52.0 |   | 51.9 |   | 51.2 |   | 42.7 |   | 9.6 |   | — |   | 233.4 |   |
| Operating lease  obligations        |       | 3.2                                       |       | 5.6 |   | 5.3 |   | 3.9 |   | 2.0 |   | 1.0 |   | 4.0 |   | 25.0 |   |
| Total  contractual cash obligations |       | $                                         | 29.3       |   | $ | 57.7 |   | $ | 66.9 |   | $ | 65.1 |   | $ | 336.6 |   | $ | 170.6 |   | $ | 4.0 |   | $ | 730.2 |   |

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

(2)             Intereston our variable rate debt is calculated using LIBOR of 5.33%, the rate ineffect on June 30, 2006.  Because ourvariable rate debt bears interest at a variable rate, actual payments coulddiffer.

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

 

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*Off-balancesheet arrangements*

We haveno material off-balance sheet arrangements.

*Recentlyissued accounting pronouncements*

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

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

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

# **Interest Rates**

At June30, 2006, we had fixed rate debt of $451.9 million and variable rate debtof $19.8 million.   A change ininterest rates of 1% would not be material to our operating results.

# **Currencies**

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

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

*Evaluationof disclosure controls and procedures*.

Advanstar’s ChiefExecutive Officer and Chief Financial Officer, after evaluating theeffectiveness of the Company’s disclosure controls and procedures (as definedin Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of1934, as amended (the “Exchange Act”)) as of the end of the period covered bythis report (the “Evaluation Date”), have concluded that as of the EvaluationDate, our disclosure controls and procedures were effective.

*Changesin internal controls*.

There were no significantchanges during the Company’s second fiscal quarter in our internal controlsover financial reporting that have materially affected or are reasonably likelyto materially affect the Company’s internal controls over financial reporting.

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**PART II**                   Other Information

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

Item 6.         Exhibits

 
|        |   | 31.1   | Certification of 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 requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

|                 |   | ADVANSTAR COMMUNICATIONS INC.                                                |
|-----------------|--------|------------------------------------------------------------------------------|
|            |   |                                                                         |
|            |   |                                                                         |
| August 14, 2006 |   | /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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**ExhibitIndex**
| Exhibit No. | ** ** | **Document**                                                                                               |
|-------------|------------|------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                       |
| 31.1        |       | Certification of principal executive officer  required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act  |
|        |       |                                                                                                       |
| 31.2        |       | Certification of principal financial officer  required by Rule 13a-14(a) or 15d- 14(a) of the Exchange Act |
|        |       |                                                                                                       |
| 32.1        |       | Certification of principal executive officer  required by Rule 13a-14(b) or 15d-14(b) of the Exchange Act  |
|        |       |                                                                                                       |
| 32.2        |       | Certification of principal financial officer  required by Rule 13a-14(b) or 15d-14(b) of the Exchange Act  |

 

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