**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-K**

 

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**(MarkOne)**

 
| **ý**                                                                                                                                                   | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**     |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
|                                                                                                                                                         |       |                                                                                                    |
|                                                                                                                                                         |       | **FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005**                                                    |
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|                                                                                                                                                         |       | **or**                                                                                                  |
|                                                                                                                                                         |       |                                                                                                    |
| **o**                                                                                                                                                        | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                         |       |                                                                                                    |
| **FOR THE TRANSITION PERIOD FROM          TO          ** |
|                                                                                                                                                         |       |                                                                                                    |
| **Commission File Number 333-57201**                                                                                                                         |

 

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**Advanstar Communications Inc.**

(Exact name of registrant as specified in its charter)

 
| **New York**  (State or other jurisdiction of  incorporation or organization)           |   | **59-2757389**  (I.R.S. Employer  Identification No.) |
|-----------------------------------------------------------------------------------------|--------|-------------------------------------------------------|
|                                                                                    |   |                                                  |
| **641 Lexington Avenue , New York, New York**  (Address of principal executive offices) |   | **10022**  (Zip Code)                                 |

 

Registrant’s telephone number, including area code: **(212)951-6600**

 

Securitiesregistered pursuant to Section 12(b) of the Act:   **None**

 

Securitiesregistered pursuant to Section 12(g) of the Act:   **None**

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule of theSecurities Act. Yes   oNo   ý.

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes   oNo   ý.

 

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes   ýNo   o.

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.**ý**

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).Yes   oNo   ý.

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes   oNo   ý.

 

As of June 30, 2005, none of theregistrant’s common stock was held by non-affiliates of the registrant.

 

As of March 30, 2006,the registrant had 1,000,000 shares of common stock issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.

 

 

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**PART I**

 

**Item I — *BUSINESS***

 

Unless otherwise noted herein, disclosures in thisAnnual Report on Form 10-K relate only to our continuing operations. Ourdiscontinued operations consist of properties sold and discontinued. See Item 7.“Management’s Discussion and Analysis of Financial Condition and Results ofOperations –Presentation of Financial Information–Acquisitions and Divestitures”for further information on discontinued properties.

 

**FORWARD-LOOKINGFINANCIAL STATEMENTS**

 

THISANNUAL REPORT, OTHER REPORTS, AND COMMUNICATIONS TO SECURITY HOLDERS, AS WELLAS ORAL STATEMENTS MADE BY THE DIRECTORS, OFFICERS OR EMPLOYEES OF ADVANSTAR COMMUNICATIONSINC. (“ADVANSTAR” OR THE “COMPANY”) MAY CONTAIN FORWARD-LOOKING STATEMENTSWITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, ASAMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, ASAMENDED, MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIESLITIGATION REFORM ACT OF 1995. A FORWARD-LOOKING STATEMENT IS USUALLYIDENTIFIED BY OUR USE OF CERTAIN TERMINOLOGY INCLUDING “BELIEVES,” “EXPECTS,” “MAY,”“WILL,” “SHOULD,” “SEEKS,” “PRO FORMA,” “ANTICIPATES” OR “INTENDS” OR BYDISCUSSIONS OF STRATEGY OR INTENTIONS. THESE STATEMENTS MAY RELATE TO,AMONG OTHER THINGS, ADVANSTAR’S FUTURE REVENUE, OPERATING INCOME, EBITDA ANDTHE PLANS AND OBJECTIVES OF MANAGEMENT. ALL FORWARD-LOOKING STATEMENTS INCLUDEDHEREIN ARE MADE AS OF THE DATE HEREOF, BASED ON INFORMATION AVAILABLE TOADVANSTAR AS OF THE DATE THEREOF, AND ADVANSTAR ASSUMES NO OBLIGATION TO UPDATEANY FORWARD-LOOKING STATEMENT OR TO CONFORM ANY FORWARD-LOOKING STATEMENTTO ACTUAL RESULTS. THESE FORWARD-LOOKING STATEMENTS ARE NEITHER PROMISES NORGUARANTEES AND INVOLVE RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS COULD DIFFERMATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THATMAY CAUSE SUCH VARIATION ARE DISCUSSED IN THIS ANNUAL REPORT, PARTICULARLYUNDER THE HEADING “RISK FACTORS,” AND IN ADVANSTAR’S OTHER REPORTS ANDREGISTRATION STATEMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

**INDUSTRY AND MARKET DATA**

 

Industryand market data for the business-to-business (“B-to-B”) media industry and ourmarket share and relative industry positions used throughout this annual reportwere obtained through company research, internal company surveys and studiesconducted by third parties, independent industry publications and other publiclyavailable information. We have not independently verified market and industrydata from third-party sources. In addition, while we believe internal companysurveys are reliable and we believe that we define markets appropriately, noneof such surveys nor such market definitions have been verified by anyindependent sources.

 

Inparticular:

 

•                                          *Industry overview:* Except where otherwise specificallyreferenced, we have based our discussion of the B-to-B communications industryon publications by Veronis Suhler Stevenson and reports and studies by theB-to-B trade association, including Business Information Network (BIN), aninformation source of American Business Media.

 

•                                          *Tradeshows:* We rank our tradeshows against the tradeshows ofour competitors based on an internally conducted analysis of net square footageof exhibition space. This data is typically

 

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reportedby tradeshow organizers and published in the *TradeshowWeek Quarterly Report*, a quarterly publication that lists tradeshowsgrouped by show date. We include both direct and indirect competitors in suchcomparisons. Direct competitors are the tradeshows within the same industrialclassification code and geographic region as our tradeshows, although we onlyinclude tradeshows within the same industrial classification code that arewithin the same subcategory, as defined by us, as our tradeshows. For example,we only include women’s apparel shows in providing data about our women’sapparel tradeshows, although the relevant industrial classification code coversall apparel shows. Direct competitors are also determined in some cases by thetime of the year during which a tradeshow is held. Indirect competitors aresubjectively determined by us on a case-by-case basis. These indirectcompetitors include: (1) broad-based tradeshows we know from priorexperience that display, among other products, products displayed at ourtradeshows and (2) tradeshows identified by our current exhibitors asother tradeshows in which they participate. In determining our market positionin comparison to these broad-based shows, we compare the square footage of ourshow against the estimated square footage of that broad-based show allocated tothe products that are of the same type as those displayed in our tradeshow. Someof our tradeshows have insignificant or no direct competition.

 

•                                          *Trade Publications:* We utilize the industry-standard methodof ranking our publications against competitors’ publications based on thenumber of advertising pages as determined, except where otherwisespecifically referenced, by Inquiry Management Systems Ltd. and PERQ,independent vendors. For purposes of these rankings, we have defined ourmarkets narrowly as the niche of businesses or professionals at which apublication is specifically targeted.

 

#### **General**

#### ** **

We area leading worldwide media company providing integrated marketing solutions forboth business-to-business and business-to-consumer marketing firms. Our productsand services are targeted for specific industry sectors through shows andconferences, and controlled circulation trade, business and professionalmagazines. We also produce a limited number of consumer expositions andpublications. Additionally, we provide a broad range of direct marketingproducts, including classified advertising, direct mail services, reprints,database marketing, directories, guides and reference books. Our electronicbased products include web advertising, classified and recruitment advertising,e-newsletters, web based continuing medical education (“CME”), webinars andothers. In 2005, most of our tradeshows and stand-alone conferences were amongthe leading events in their respective markets based on square footage. For theyear ended December 31, 2005,73% of our 40 magazines andjournals for which competitive data is available ranked either #1 or #2 intheir respective markets, based on number of advertising pages. We hadapproximately 1,000 employees as of December 31, 2005 in 14 U.S. offices and 2 international locationsin the United Kingdom.

 

**IndustryOverview**

 

B-to-Bmedia companies provide marketing solutions for their customers throughtradeshows and conferences, trade publications, ancillary direct marketing services and through electronicapplications. Tradeshows play a key role in B-to-B sales and marketing effortsand are utilized in the global economy as a highly cost-effective sales andmarketing tool. Tradeshows provide an opportunity for industry participants toconduct face-to-face selling efforts, transact business and receive productinformation from exhibits, conferences, workshops and other forums. Tradeshowattendees include executives, manufacturing and operating management, sales andmarketing personnel, industry analysts, middle-level managers, buyers and otherindustry professionals. Trade publications are generally published monthly andprovide information about a specific industry or market segment within anindustry. Advertisers are attracted to B-to-B print media by the highly targetedand controlled circulation of publications. By focusing on targeted audiences,publishers aim to connect advertisers with key purchasing decision-makers. Controlleddistribution assists advertisers in reaching very specific target groups andprovides for more efficient use of advertising dollars. The historical growthin B-to-B publishing has been driven primarily by rising levels of advertisingspending as opposed to growth in subscription revenue.

 

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Accordingto the May 2005 Veronis SuhlerStevenson *Communications Industry Forecast*,total spending on B-to-B marketing, including magazines and tradeshows, wasexpected to increase to $22.1 billion in 2005, a 6% gain over 2004.

 

Totalbusiness-to-business media spending was essentially flat from 1999 to 2004 withthe economic slowdown resulting in spending declines in 2001 and 2002, and aslow recovery in 2003, and more robust growth in 2004. Overallbusiness-to-business media expenditures climbed 5.2% to $20.9 billion in 2004,driven by surging e-media spending, which grew 25.9% to $1.5 billion. Tradeshowexpenditures increased 5.8% to $9.2 billion. The solid growth in e-media andtradeshows was tempered by a more modest 2.2% expansion in business-to-businessmagazine spending, which totaled $10.3 billion in 2004.

 

Totalspending on tradeshows, including expenditures on exhibit space and fees,sponsorships and advertising grew 5.8% to $9.2 billion in 2004, driven byhealthy corporate profits and increased business-related travel. Healthcare-relatedshows were the most profitable due to an upswing in CME. In the first half of2005 many corporations reported that they were increasing funding forbusiness-related travel and Veronis Suhler believes this will drive tradeshowexpenditures up by 6.1% to $9.7 billion in 2005.

 

Spendingon tradeshows is expected to rise 5.8% on a compound annual basis from 2004 to2009, driven by a 6.8% rise in fees, sponsorships and advertising and a 5.4%gain in total exhibit space spending. Overall spending is expected to reach$12.1 billion in 2009. As measured by *Tradeshow Week*,the nine months ended September 30, 2005 saw an increase in two of thethree primary tradeshow indicators: square footage grew by 4.1%, and attendanceby 0.6%. The third indicator, the number of exhibiting companies, declined by2.9%.

 

Totalspending on business-to-business magazines, including advertising and subscriptions,increased 2.2% to $10.3 billion in 2004. Advertising expenditures rose 3.4% to$8.4 billion due to healthy growth among healthcare, banking, automotive, homedesign and furnishing titles. Circulation spending dropped for the fourthconsecutive year driven down by a 3.4% decline in paid circulation. Totalmagazine expenditures are anticipated to grow at a compound annual rate of 3.3%from 2004 to 2009, reaching $12.1 billion in 2009.

 

Accordingto Veronis Suhler Stevenson, overall business-to-business media spending isexpected to accelerate in 2005, fueled by solid gains in tradeshow and adouble-digit increase in e-media spending. Growth in business-to-businessmagazine expenditures will be modest, as falling circulation spending offsetgains in advertising spending. Total business-to-business media spending growthis expected to match GDP expansion in 2005 for the first time since 2000. Totalspending on business-to-business media is expected to grow at a compound annualgrowth rate of 5.8% from 2004 to 2009, reaching $27.7 billion in 2009. Industry-wideadvertising pages, as measured by American Business Media, increased 3.9% in2005 from 2004 levels following a 1.7% increase in 2004 from 2003 levels.

 

**ProductSegments**

 

Ourbusiness is grouped in three broad segments reflecting products and services weprovide to our customers to serve their marketing and their customers’ needs. Weoffer our customers a comprehensive array of marketing products and services toreach their existing and prospective buyers on a cost-effective basis. Ourproduct and service offerings are shows and conferences, publications, anddirect marketing products and other. See Footnote 11 to our ConsolidatedFinancial Statements for information regarding the breakdown of revenue,profit, and assets by segment.

 

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*Shows andConferences*

 

As of December 31,2005, we owned and managed 29 shows and 50 standalone conferences for business,professional and consumer audiences worldwide, most of which were among theleading events in their respective markets based on square footage. Four of ourlargest shows are listed in the April 2005 issue of *TradeshowWeek 200*’s list of the top 200 tradeshows as measured by totalsquare footage. These included MAGIC Spring, MAGIC Fall, InternationalPowersports Dealer Expo and Licensing International. Collectively, these fourshows represented 2.3 million of the 3.9 million total square footage forall of our shows for the year ended December 31, 2005.

 

Our showand conference revenue is derived primarily from the sale of show floor spaceto exhibitors, show-specific advertising, sponsorships and conferences. Showand conference revenue accounted for approximately 42%, 40% and 47% of ourrevenue in 2005, 2004, and 2003, respectively.

 

Showsare a long-established effective forum to conduct business. As new products andservices are introduced, buyers and sellers within specific industries needefficient settings to interact and conduct business. Shows can also includeconference programs, which provide additional learning and presentationopportunities.

 

*Publications*

 

We area leading B-to-B trade publisher in the United States. As of December 31,2005, we published 50 specialized business magazines and professional journals,****7 directories, one consumer magazine, CME products, custom publishing and other projects.Of our 40 magazines and journals for which competitive data is available, 73%ranked either #1 or #2 in their respective markets, based on the number ofadvertising pages in the year ended December 31, 2005.

 

Ourtrade publications are generally distributed free-of-charge to targeted, qualified,professional recipients and generate revenue predominantly from advertising. Publicationsrevenue accounted for approximately 51%, 55% and 47% of our total revenue in2005, 2004 and 2003, respectively. Our largest publications based on ad pages include:*  Medical Economics,Pharmaceutical Technology, LCGC, Dealernews, Dental Products Report,Pharmaceutical Executive, Drug Topics, Motor Age, Auto Body Repair News,*and*Dermatology Times.*Collectively,these 10 magazines represented 47% of publication pages for theyear ended December 31, 2005.

 

Webelieve that our targeted circulation lists for our U.S. and internationalpublications provide our advertising customers with a highly cost-effectivemethod of reaching their target market’s decision-makers. We seek to increaseadvertising revenue by introducing existing advertisers to new titles, byattracting new advertisers who target our readership and by developing newreader and advertising categories.

 

*DirectMarketing Products and Other*

 

Weprovide a comprehensive set of marketing products, services and support gearedto a variety of industries’ marketing customer and communications needs. Theseservices include direct mail and database marketing programs, reprint services,reference books and other services to facilitate our clients’ marketingprograms. These services are incremental to shows and publications and areutilized either independently or to supplement our customer’s show andpublication marketing plans.

 

Inaddition, we provide electronic based products and services to complement ourdelivery of show, publishing and direct marketing products to our customers. Wehave 129 electronic based products including web advertising, e-newsletters, educationand “webinars.”   Direct marketingproducts and other accounted for approximately 7%, 5% and 6% of our revenue in2005, 2004 and 2003.

 

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**IndustrySectors**

 

Wealso approach our business by targeting specific industries in North Americaand Europe and structuring our organization and product portfolio based onthese three “core market” sectors: Fashion and Licensing; Powersports and Automotive;and Life Sciences. We believe that by focusing on market sectors inaddition to product segments, we better identify and service a broad array ofour customers’ marketing needs. This focus allows us to cross-sell our productsand services and captures a larger share of our customers’ marketing budgets. Ineach of the markets we serve many of our customers advertise in ourpublications, exhibit at our shows and use our direct marketing productsto reach their target audience. We have expanded our show, conference andpublication offerings within each market sector through new productintroductions and selective acquisitions, which we believe maximize ourexisting marketing and customer service infrastructure and industry expertise.

 

**BusinessStrategy**

 

Our businessstrategy is to provide products and services to facilitate “Connecting ourCustomers to Theirs.”    Our objective is to concentrate on ourstrategy to achieve sustainable, profitable, long-term growth. We willaccomplish this by (1) focusing on markets where we can leverage ourstrengths, (2) delivering innovative, quality products based on customer andmarket needs and (3) maximizing our operational efficiencies.

 

*Focus On Markets and CustomersWhere We Can Leverage Our Strengths*

 

Wefocus on owning and building leading product position businesses that are the importantsources of information for businesses and professionals in large, dynamic orgrowing markets. The combination of our selected markets, our leading productsand focused industry teams provides strategic and operational clarity alongwith deep insight into well defined customer segments within each selectedmarket.

 

*Deliver Innovative, QualityProducts Based On Customer and Market Needs*

 

We diversifyour revenue streams by developing products that provide solutions along anindustry’s “communications supply chain.” We seek to identify specific gaps in existing markets or opportunitiesin adjacent markets where we can effectively add value. We are able to addressevolving market needs through multiple means, including:

 

•                                          adaptexisting shows and magazines to reflect industry trends and attract newcategories of buyers and sellers;

 

•                                          develop newproduct extensions based on the marketing needs of the industry and key customersin the buying and selling community; and

 

•                                          identifyfill-in acquisition and joint venture opportunities based on continuinginteraction within the market.

 

*Maximize Operating Efficiencies*

 

Weoperate effective back office production and Company support operations. Westrive to continuously improve our effectiveness through the employment ofstate of the art information systems to maximize operating efficiencies andprovide relevant, timely, fact based management information to our operatingteams and senior management. Our operating teams are evaluated based onextensive use of defined operating metrics designed to focus attention andbehavior on key drivers of performance success.

 

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*Selective Acquisitions*

 

As weexpand deeper into our current industry sectors, we explore selectiveacquisitions and joint ventures based on the following criteria:

 

•                                          theacquisition significantly improves our existing product and franchise position;

 

•                                          theacquisition adds new and sustainable types of revenue streams to our existingproduct offerings; and

 

•                                          theacquisition adds to, broadens or deepens existing management talent.

 

In2005, we purchased five tradeshows and consumer event businesses in the fashionand powersports sectors. See “Item 7. –Management’s Discussion and Analysis ofFinancial Condition and Results of Operations-Presentation of FinancialInformation–Acquisitions and Divestitures.” We are engaged in ongoing evaluations of potential acquisitions in linewith our business strategy.

 

**IndustrySectors**

 

Thefollowing is a summary of our products and services by industry sector.

 

*Fashion & Licensing*

 

OurFashion group serves the men’s, women’s, children’s and product sourcing sectionsof the apparel industry. In 2005, we operated in the fashion industry sectorsthrough 9 tradeshows, including our recently acquired POOL and Project groupsof events. Six of these tradeshows are held concurrently in Las Vegas during February andAugust of each year. In 2005 we shut down our East Coast Fashion properties.The tradeshows count and net square footage in the table below do not includeany of the East Coast Fashion events held in 2005. Our Licensing group includesa portfolio of products including two tradeshows, two conferences, and two publications.

 

Keyshows and publications include:

 

•                  MAGIC,the world’s largest and most widely recognized tradeshow for the men’s apparel,accessories, and footwear industry;

 

•                  WWDMAGIC,which we believe is the largest women’s apparel and accessory tradeshow in theUnited States;

 

•                  MAGICKids,which serves the children’s apparel, accessory, and footwear industry;

 

•                  Sourcingat MAGIC, which we believe is the largest industry trade event formanufacturing sourcing within the fashion industry, including full-packagecontractors, fabric and component suppliers;

 

•                  Project,a tradeshow for the premium contemporary market for menswear including premiumsportswear and denim apparel and accessories from around the world;

 

•                  POOL,a tradeshow for the fashion forward designers featuring a range of productsincluding apparel, shoes, books, home furnishings, art and music; and

 

•                  Licensing International, which we believeis the largest tradeshow worldwide for the merchandise licensing industry, BrandLicense, our complementary event for the European licensing industry and *License!*, the #1 publication in the United States for thelicensing industry.

 

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Thefollowing table sets forth information relating to shows, conferences andpublications in our Fashion and Licensing sector in the year ended December 31,2005:

 

**Fashion and Licensing Events and Magazines**

 
| ** **                              | ** ** | **Exhibitions** | ** ** | **Conferences** | ** ** | **Electronic Products** | ** ** | **Magazines (1)** | ** ** |
|-----------------------------------------|------------|-----------------|------------|-----------------|------------|-------------------------|------------|-------------------|------------|
| ** **                              | ** ** | ** **      | ** ** | **2005**        | ** ** | ** **              | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | **Number of** | ** ** |
| ** **                              | ** ** | ** **      | ** ** | **Net Square**  | ** ** | ** **              | ** ** | ** **        | ** ** | ** ** | ** ** | **2005** | ** ** | **our magazines ranked** | ** ** |
| **Sector**                              | ** ** | **Number**      | ** ** | **Footage**     | ** ** | **Number**              | ** ** | **Number**        | ** ** | **Number** | ** ** | **Ad Pages** | ** ** | **#1 or #2 (2)** | ** ** |
|                                    |       |            |       |            |       |                    |       |              |       |   |   |   |   |   |   |
| Mens (includes POOL & Project) |       | 4               |       | 1,451,130       |       | —                  |       | 3                 |       | — |   | — |   | — |   |
| Womens                                  |       | 2               |       | 478,560         |       | —                  |       | —            |       | — |   | — |   | — |   |
| Childrens                               |       | 2               |       | 45,406          |       | —                  |       | —            |       | — |   | — |   | — |   |
| Sourcing                                |       | 1               |       | 67,600          |       | —                  |       | 1                 |       | — |   | — |   | — |   |
| Licensing                               |       | 2               |       | 229,763         |       | 2                       |       | 8                 |       | 2 |   | 720 |   | 2 of 2 |   |

 

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(1)                                  Excludesdirectories.

(2)                                  Rankingbased only on measured magazines for the year ended December 31, 2005.

 

*Powersports and Automotive*

 

We serve the Powersportsand Automotive sector through 17 shows and 7 publications for both trade andconsumer audiences for the year ended December 31, 2005.

 

Keyshows and publications include:

 

•                                          InternationalPowersports Dealer Expo, the largest aftermarket accessories tradeshow in theUnited States targeted at powersports dealers, the 13 city tour of consumerInternational Motorcycle shows and *Dealernews*, the#1 magazine targeted at retailers in the powersports market;

 

•                                          *Motor Age*, the #1 publication for the automotive servicerepair market, and*Aftermarket Business,* the #2aftermarket book in the United States, which provide Advanstar an importantposition in the automotive parts, supplies and services publishing market;

 

•                                          *DIRTsports,* aconsumer magazine covering the off-road racing and motorsports market and *Off-Road Business*, the only publicationexclusively serving the business-to-business component of the off-roadmarketplace; and

 

•                                          Off-RoadExpo, acquired in late 2005, the largest off-road products consumer show in theUnited States, directed to enthusiasts involved in motorsports, rock crawling,dirtbikes, ATVs and other off-road and trail activities.

 

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The following table setsforth information relating to shows, conferences and magazines in ourPowersports and Automotive sector in the year ended December 31, 2005:

 

**Powersports and Automotive Events and Magazines**

#### ** **

| ** **             | ** ** | **Exhibitions** | ** ** | **Conferences** | ** ** | **Electronic Products** | ** ** | **Magazines (1)** | ** ** |
|------------------------|------------|-----------------|------------|-----------------|------------|-------------------------|------------|-------------------|------------|
| ** **             | ** ** | ** **      | ** ** | **2005**        | ** ** | ** **              | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | **Number of** | ** ** |
| ** **             | ** ** | ** **      | ** ** | **Net Square**  | ** ** | ** **              | ** ** | ** **        | ** ** | ** ** | ** ** | **2005** | ** ** | **our magazines ranked** | ** ** |
| **Sector**             | ** ** | **Number**      | ** ** | **Footage**     | ** ** | **Number**              | ** ** | **Number**        | ** ** | **Number** | ** ** | **Ad Pages** | ** ** | **#1 or #2 (2)** | ** ** |
|                   |       |            |       |            |       |                    |       |              |       |   |   |   |   |   |   |
| Automotive Aftermarket |       | —          |       | —          |       | —                  |       | 6                 |       | 3 |   | 2,868 |   | 3 of 3 |   |
| Powersports/Motorcycle |       | 15              |       | 1,373,984       |       | —                  |       | 19                |       | 2 |   | 1,307 |   | 1 of 1 |   |
| Off-Road               |       | 2               |       | 177,600         |       | —                  |       | 4                 |       | 2 |   | 698 |   | 2 of 2 |   |

 

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(1)                                  Excludesdirectories.

(2)                                  Rankingbased only on measured magazines for the year ended December 31, 2005.

 

*Life Sciences*

 

Weserve the Life Sciences sector by dividing our teams and product portfolio intofour sub-groups: Healthcare, Pharmaceutical/Science, Dental and Veterinary,providing one tradeshow, 48 conferences and 42 publications for the year ended December 31,2005. We serve the healthcare group in both the primary and specialized careareas, such as practice management and managed healthcare, pharmacy,pediatrics, geriatrics, dermatology, and ophthalmology; the pharmaceutical andscience group in areas such as spectroscopy, liquid and gas chromatography, andresearch, development, testing, regulatory compliance, manufacturing andmarketing; the dental group in general and specialty dentistry; and theveterinary group in practice management and clinical medicine. We sold our Abilitiestradeshows, previously included in the healthcare sector, to Questex Media Group, Inc.in May 2005. The tradeshows count and net square footage in the tablebelow do not include any of the properties sold to Questex Media Group, Inc.

 

Keyshows, conferences and publications include:

 

•                                          *Medical Economics*, one of the flagship publications servingphysicians in the United States since its launch in 1923, which informsphysicians about the practice management side of medicine;

 

•                                          *Pharmaceutical Technology,* the #1 publication targeted atpharmaceutical scientists, engineers and operation managers, and *Pharmaceutical Executive*, the #1 magazine for pharmaceuticalcompany product managers and marketing professionals;

 

•                                          *LCGC* and *LCGC Europe,*the #1 magazines in the United States and Europe in liquid and gaschromatography;

 

•                                          *Drug Topics,* the #1 magazine forpharmacists;

 

•                                          IVTConferences, a worldwide conference provider of FDA validation and complianceinformation for the pharmaceutical industry;

 

•                                          *Dental Products Report*, the #1 publication serving theinformation needs of dentists since 1967, focusing on new products, techniquesand trends in general, specialty cosmetic and restorative dentistry;

 

•                                          *DVM, Veterinary Medicine, Veterinary Economics,*the #1, #2,and #3 publications in the veterinary market serving all aspects of veterinarypractice including clinical, practice management and industry news; and

 

•                                          Central Veterinary Conference, aconference and tradeshow for veterinary practice management and clinicalmedicine.

 

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Thefollowing table sets forth information relating to shows, conferences andmagazines in our Life Sciences sector in the year ended December 31, 2005:

 

**Life Sciences Events and Magazines**

#### ** **

| ** **                         | ** ** | **Exhibitions** | ** ** | **Conferences** | ** ** | **Electronic Products** | ** ** | **Magazines (1)** | ** ** |
|------------------------------------|------------|-----------------|------------|-----------------|------------|-------------------------|------------|-------------------|------------|
| ** **                         | ** ** | ** **      | ** ** | **2005**        | ** ** | ** **              | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | **Number of** | ** ** |
| ** **                         | ** ** | ** **      | ** ** | **Net Square**  | ** ** | ** **              | ** ** | ** **        | ** ** | ** ** | ** ** | **2005** | ** ** | **our magazines ranked** | ** ** |
| **Sector**                         | ** ** | **Number**      | ** ** | **Footage**     | ** ** | **Number**              | ** ** | **Number**        | ** ** | **Number** | ** ** | **Ad Pages** | ** ** | **#1 or #2 (2)** | ** ** |
|                               |       |            |       |            |       |                    |       |              |       |   |   |   |   |   |   |
| Healthcare                         |       | —          |       | —          |       | —                  |       | 38                |       | 17 |   | 9,461 |   | 9 of 15 |   |
| Pharmaceutical &  Science |       | —          |       | —          |       | 47                      |       | 38                |       | 14 |   | 6,677 |   | 8 of 11 |   |
| Dental                             |       | —          |       | —          |       | 1                       |       | 4                 |       | 5 |   | 2,091 |   | 2 of 3 |   |
| Veterinary                         |       | 1               |       | 45,800          |       | —                  |       | 8                 |       | 6 |   | 1,700 |   | 2 of 3 |   |

 

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(1)                                  Excludesdirectories.

(2)                                  Rankingbased only on measured magazines for the year ended December 31, 2005.

 

**CompanyOperations**

 

*Shows and Conferences*

 

Ourbusiness is seasonal, with revenue typically reaching its highest levels duringthe first and third quarters of each calendar year, largely due to the timingof the MAGIC tradeshows and our other large tradeshows and conferences. Becauseevent revenue is recognized when a particular event is held, we may alsoexperience fluctuations in quarterly revenue based on the movement of showdates from one quarter to another.

 

Thesales cycle for a future show typically begins during the current show. Pricinginformation, preliminary floor plans and exhibitor promotion for the futureshow are made available at the current show so that selling for the future showcan begin at the current show. Typically, this “upfront” selling includes floorspace reservations with exhibitors executing a contract for the future show. Atsome of our shows, reservations for a large portion of exhibit space forthe next event are reserved by the end of the current event. The sales cyclecontinues with selling to new exhibitors and collecting the balance of paymentsdue. In general, we require exhibitor payments in full prior to a show as acondition to participation.

 

Inaddition to the sale of exhibit space, we market a wide range ofpromotional opportunities to exhibitors to raise their visibility at an event. Theseopportunities include directory and preview advertising, banners, sponsorshipsof various functions and a wide variety of other products or services. We alsoproduce related conferences and workshops, which represent the editorialcontent for an event and can play a strategic role in show development. Conferences,workshops and other ancillary forums stimulate interest in the industry anddrive attendance at the show. While show attendance is typically free forqualified attendees at tradeshows, participation in conferences at these showscan be a significant revenue source.

 

Eventpromotion is primarily undertaken through direct mail, trade advertising anddirect contact. In those industry sectors for which we also have complementarypublications, our publications play a key role in event promotion by providinglists from circulation files and editorial coverage for the upcoming show. Otherindustry magazines may also be involved, as the goal of any event is torepresent the entire industry or market. The “show issue” of an industrymagazine for a related event is often the biggest issue of the year, as theadvertisers want to reinforce their show presence.

 

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Inoperating shows and conferences, we function in a capacity similar to a generalcontractor. We select and manage venues, hotels, and vendors for set-up,registration, travel and housing, audio-visual services and other services. Inmany cases, venue and hotel reservations are made several years in advance,particularly for primary markets such as New York, Chicago and Las Vegas. Whilethe production of a show may involve hundreds of workers, most workers areemployees of our subcontractor vendors.

 

*Publications*

 

Weoperate an efficient publishing infrastructure in the United States and theUnited Kingdom. Our publications generally follow the controlled circulationmodel and are distributed free-of-charge to qualified recipients. We build readershipand maintain the quality and quantity of our circulation based on deliveringhigh quality, professional coverage of relevant industry information. Becausewe offer our advertisers access to a highly-targeted, industry-specificsubscriber base with potential buying influence, our advertisers place theirads in our publications to reach their customers. Most of our magazines arepublished monthly, although some titles are published weekly or semi-monthly.

 

Weattract readership and improve the effectiveness of our advertising bymaintaining and continuously improving the quality of the editorial content ofour publications. Recipients of our publications are targeted through marketresearch designed to determine the market coverage and purchasing authoritydesired by prospective advertisers. Based on existing and acquired mail lists,the targeted recipient is then solicited through promotions offering freesubscriptions to the relevant publications. High-quality circulation isachieved when a high percentage of the circulation list is recently qualified,within one or two years, and the publication is delivered at the direct requestof the recipient. Recipients are qualified and re-qualified on a regular basisthrough qualification cards included in the publication, various direct mailmethods and the Internet.

 

Ouradvertising sales and editorial functions are dispersed throughout the UnitedStates and the United Kingdom. Advertising sales are predominantly conducted byour dedicated sales force. Editorial content for our publications is eitherstaff-written; contributed or purchased from freelance writers; or industry orprofessional participants in selected markets.

 

Ouradvertising materials and editorial content are integrated in our Duluth,Minnesota and Chester, England production facilities, where layout, adinsertion and output to film are completed. All printing is outsourced tovendors in various regions, but printing contracts are negotiated and managedcentrally. We purchase paper centrally through a relationship with one of theindustry’s largest paper brokers. Paper is shipped directly from the mills tothe printers at our request. We maintain our own central U.S. fulfillmentoperation in Duluth to generate mailing labels and mailing instructions for theprinters. Our production workforce is highly experienced and is based inrelatively low-cost locations in Duluth and Chester.

 

*DirectMarketing Products and Other*

 

TheDirect Marketing group is centrally managed, allowing our tradeshow and publishingexecutives to dedicate their activities to high value sales. In addition, ourcentral telesales and product management provide professional skills to thesespecialized product offerings. The fulfillment of these sales, including directmail and database marketing programs, reprint services, reference books, andinternet and electronic products is managed through our publishing operationsdiscussed above. We use internet and electronic products and services tocomplement our delivery of show, publishing and direct marketing and otherproducts to our customers. We also use the internet as a cost effective methodof developing qualifying magazine circulation and to register show andconference attendees.

 

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## **Diverse Customer Base**

 

Ourcustomer base has provided us with stable and diverse sources of revenue andcash flow as well as an established foundation from which to further penetrateexisting markets and to develop new markets. We benefit from:

 

•                  A high level of revenuediversification, primarily as a result of our business presence in 11 differentindustry sectors consisting of approximately 14,000 advertisers and exhibitors,none of which represented more than 2% of our revenue in 2005. This industry diversityhelps to mitigate our exposure to economic volatility in particular industriesor geographic markets;

 

•                  A strong balance of revenue, with 42%of our revenue coming from shows and conferences, 51% from publishing and 7%from direct marketing products and other in 2005; and

 

•                  Modest exposure to currencyfluctuations with 3% of our revenue generated from international markets in2005.

 

**Competition**

 

Themarkets for our products and services are intensely competitive. Thecompetition is highly fragmented by product and/or service offering and bygeography. On a global level, larger international firms operate in manygeographic markets and have broad product offerings in shows, conferences,publications and direct marketing products and other. In several industries,such as healthcare, we compete with large firms with a single-industry focus. Manyof these large international and single-industry firms are better capitalizedthan we are and have substantially greater financial and other resources than wehave.

 

Withineach particular industry sector, we also compete with a large number of smallto medium-sized firms. While most small to medium-sized firms operate in asingle geographic market or industry sector, in some cases, our competitorsoperate in several geographic markets and/or sectors. In the show andconference segment, we compete with trade associations and, in severalinternational markets, with exposition hall owners and operators. Show andconference competition in each market and country occurs on many levels. Thevenues and dates of shows play an important competitive role. Historically,successful shows have been held at desirable locations and on desirable dates. Giventhe availability of alternative venues and the ability to define events forparticular market segments, the range of competition for exhibitor dollars,sponsorships, attendees and conferees is extensive. In the publicationssegment, we typically have between two and five direct competitors, whichtarget the same industry sector, and there are also numerous indirectcompetitors, which define industries differently than we do and thus providealternatives for either readers or advertisers.

 

**IntellectualProperty**

 

Wehave developed strong brand awareness for our principal products and services. Accordingly,we consider our trademarks, trade names, service marks, copyrights, tradesecrets and similar intellectual property important to our success, and we relyon trademark, service mark, copyright and trade secret laws, as well aslicensing and confidentiality agreements, to protect our intellectual propertyrights. We generally register our material trademarks and service marks in theUnited States and in certain other key countries in which these trademarks andservice marks are used. Trademarks and service marks registered in the UnitedStates typically require periodic renewals, and we typically obtain theserenewals as a routine matter so long as the applicable trademark and servicemarks are in use. Effective trademark, service mark and trade secret protectionmay not be available in every country in which our products and servicesare available.

 

**EnvironmentalMatters**

 

We aresubject to various foreign, federal, state and local environmental protectionand health and safety laws and regulations. Accordingly, we incur and willcontinue to incur some costs to comply with these laws and regulations. We ownor lease real property, and some environmental laws hold current or previousowners or

 

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operators of businessesand real property liable for contamination on, under, or from that property,even if they did not know of and were not responsible for the contamination. Inaddition, some environmental laws hold companies liable for the cleanup oflandfills or other sites to which they may have sent waste. Based onavailable information, we do not believe we are responsible or liable for anysuch environmental contamination and we do not currently anticipate that thecosts of complying with environmental laws and regulations will materiallyadversely affect us. However, we cannot ensure that we will not incur materialcosts or liabilities in the future, due to the discovery of new facts orconditions, releases of hazardous materials, or a change in environmental lawsand regulations.

 

**Employees**

 

As of December 31,2005, we had approximately 1,000 full-time equivalent employees. Of thesefull-time employees, approximately 55 employees were located in the UnitedKingdom with the balance based in the United States. None of our U.S. employeesare represented by a labor union. We consider our relationships with ouremployees to be good.

 

**FinancialInformation about Geographic Areas**

 

Financialinformation relating to our operations by geographic area is set forth in Note 11 to our consolidated financialstatements included in this annual report on Form 10-K.

 

**Item 1A.— RISK FACTORS**

 

**Show exhibit spaceand ad pages could decline as a result of an economic slowdown in theUnited States, the threat of future terrorist attacks, or geopolitical concern.**

 

Ourcustomers typically reduce their marketing and advertising budgets during ageneral economic downturn or a recession in the United States or in any othermarket where we conduct a significant amount of business. The longer arecession or economic downturn continues, the more likely it becomes that ourcustomers may significantly reduce their marketing and advertising budgets.Any material decrease in marketing budgets could reduce the demand for exhibitionspace and also reduce attendance at our shows and conferences. In addition, anymaterial decrease in advertising budgets could reduce the demand foradvertising space in our publications. As a result, our revenue and our cashflow from operations could decrease significantly. In addition, our integratedmarketing strategy could be materially adversely affected if advertisingrevenue cannot support one or more of our important publications or if declinesin our customers’ marketing and advertising budgets require us to discontinueone or more of our important shows or conferences.

 

Thethreat of further terrorist attacks and continued geopolitical concern(including conflict in the Middle East) may significantly affect ourfuture results of operations or financial condition, whether as a result of (1) reducedattendance at, or curtailment or cancellation of, shows due to travel fears, (2) furtherreduction in economic activity and a related reduction in marketingexpenditures on publications or shows, or (3) other circumstances thatcould result from these or subsequent attacks.

 

**We dependon securing desirable dates and locations for our shows and conferences, whichwe may not be able to secure.**

 

Thedate and location of a show or a conference can impact its profitability andprospects. The market for desirable dates and locations is highly competitive. Ifwe cannot secure desirable dates and locations for our shows and conferences,their profitability and future prospects would suffer, and our financialcondition and results of operations would be materially adversely affected. Ingeneral, we maintain multi-year reservations for our shows and conferences. Consistentwith industry practice, we do not pay for these reservations, and thesereservations are not binding on the facility owners until we execute a contractwith the owner. We typically sign contracts that guarantee the right to venuesor dates for only one year. Therefore, our multi-year reservations may notlead to binding contracts with facility owners. In addition, because shows andconferences are held on pre-scheduled dates

 

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at specific locations,the success of a particular show or conference depends upon events outside ofour control, such as natural catastrophes, labor strikes and transportationshutdowns.

 

**Asignificant portion of our revenue and contribution before general andadministrative expenses is generated from our MAGIC tradeshows, so any declinein the performance of these shows would reduce our revenue and operatingincome.**

 

For the year ended December 31,2005, our MAGIC tradeshows represented approximately 27.2% of our total revenueand approximately 40.3 % of our contribution margin (defined as revenue lesscost of production and selling, editorial and circulation costs). We expectthat the MAGIC tradeshows will continue to represent a significant portion ofour overall revenue and contribution margin in the future. Therefore, asignificant decline in the performance of one or both of the MAGIC tradeshows,typically held in the first and third quarters, could have a material adverseeffect on our financial condition and results of operations.

 

**We derivesignificant revenue and contribution margin before general and administrativeexpenses from our healthcare and pharmaceutical markets, which are dependentupon pharmaceutical marketing budgets.**

 

Our properties servingthe healthcare and pharmaceutical related markets contributed 26.8% of ourrevenue in 2005 and 19.4% of our contribution margin (defined as revenue lesscost of production and selling, editorial and circulation costs). A substantialportion of the advertising in these markets is from pharmaceutical companies. Asa result, any material reduction in marketing activities from pharmaceuticalcompanies, which could occur due to general economic conditions or factorsspecific to the industry, including a continued reduction in new drugintroductions, a shift in marketing expenditures by pharmaceutical companies tosources other than publications and any future governmental regulation such asprice controls or types of marketing restrictions, could have a materialadverse effect on our results.

 

**Any significant increase in paper or postage costswould cause our expenses to increase significantly.**

 

Becauseof our print products, direct mail solicitations and product distributions, weincur substantial costs for paper and postage. We do not use forward contractsto purchase paper, and therefore are not protected against fluctuations inpaper prices. In general, we use the U.S. Postal Service to distribute ourprint products and mailings. U.S. Postal Service rates increase periodically. Ifwe cannot pass increased paper and postage costs through to our customers, ourfinancial condition and results of operations could be materially adverselyaffected.

 

**The market for our products and services isintensely competitive.**

 

Theintense competition for our products and services is highly fragmented byproduct offering and by geography. On a global level, larger internationalfirms operate in many geographic markets and have broad product offerings inshows, conferences, publications and direct marketing products and other. Inseveral industries, such as healthcare, we compete with large firms with asingle-industry focus. Many of these large international and single-industryfirms are better capitalized than we are and have substantially greaterfinancial and other resources than we do.

 

Withineach particular industry sector, we also compete with a large number of smallto medium-sized firms. While most small to medium-sized firms operate in asingle geographic market or industry sector, in some cases, our competitorsoperate in several geographic markets and/or industry sectors. Our shows andconferences compete with trade associations and, in several internationalmarkets, with exposition hall owners and operators. Our publications typicallyhave between two and five direct competitors that target the same industrysector, and we also have many indirect competitors that define niche marketsdifferently than we do and thus may provide alternatives for readersand/or advertisers.

 

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**We dependin part on new product introductions, and the process of researching,developing, launching and establishing profitability for a new event orpublication is inherently risky and costly.**

 

Our success depends in part upon our ability tomonitor rapidly changing market trends and to adapt our events and publicationsto meet the evolving needs of existing and emerging target audiences. Ourfuture success will depend in part on our ability to continue to adapt ourexisting events and publications and to offer new events and publications byaddressing the needs of specific audience groups within our target markets. Theprocess of researching, developing, launching and establishing profitabilityfor a new event or publication is inherently risky and costly. We generallyincur initial operating losses when we introduce new events and publications. Ourefforts to introduce new events or publications may not ultimately besuccessful or profitable. In addition, costs related to the development of newevents and publications are accounted for as expenses, so our year-to-yearresults may be materially adversely affected by the number and timing ofnew product launches.

 

**Ourgrowth strategy of identifying and consummating acquisitions entailsintegration and financing risk.**

 

Weintend to continue to grow in part through selective acquisitions andjoint ventures. This growth strategy entails risks inherent in identifyingdesirable acquisition candidates, in integrating the operations of acquiredbusinesses into our existing operations and risks relating to potential unknownliabilities associated with acquired businesses. In addition, we may notbe able to finance the acquisition of a desirable candidate or to pay as muchas our competitors because of our leveraged financial condition or generaleconomic conditions. Difficulties that we may encounter in integrating theoperations of acquired businesses could have a material adverse effect on ourresults of operations and financial condition. Moreover, we may notrealize any of the anticipated benefits of an acquisition, and integrationcosts may exceed anticipated amounts.

 

**We dependon our senior management team, and we do not have employment contracts for manyof our senior managers.**

 

Webenefit substantially from the leadership and experience of members of oursenior management team and depend on their continued services to successfullyimplement our business strategy. The loss of any member of our seniormanagement team or other key employee could materially adversely affect ourfinancial condition and results of operations. Although we have entered intoemployment agreements with Mr. Loggia and Mr. Alic, we do not haveemployment contracts with most other members of our senior management team orother key employees. We cannot be certain that we will continue to retain the executives’services, or the services of other key personnel, in the future. Moreover, we may notbe able to attract and retain other qualified personnel in the future. We donot currently maintain key-man life insurance policies on any member of oursenior management team or other key employees.

 

**Ourinternational operations expose us to various risks associated withinternational operations.**

 

We currently maintainoffices in the United Kingdom. International operations accounted forapproximately 3.1% of our total revenue in 2005. International operations andexpansion involve numerous risks, such as:

 

•                                          theuncertainty of product acceptance by different cultures;

 

•                                          divergentbusiness expectations or cultural incompatibility in establishing jointventures with foreign partners;

 

•                                          difficultiesin staffing and managing multinational operations;

 

•                                          currencyfluctuations; and

 

•                                          potentiallyadverse tax consequences.

 

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Theimpact of any of these risks could materially adversely affect our futureinternational operations and our financial condition and results of operations.

 

**Currentgeopolitical conditions and the continuing threat of domestic and internationalterrorist attacks may adversely impact our results.**

 

Internationalgeopolitical conditions, exacerbated by the war in Iraq and the escalatingtensions elsewhere have contributed to an uncertain political and economicclimate, both in the United States and globally, which may affect ourability to generate revenue on a predictable basis. Terrorist attacksinternationally and the threat of future terrorist attacks both domesticallyand internationally have negatively impacted an already weakened worldwideeconomy. Customers have deferred and may continue to defer or reconsiderpurchasing our products and services as a result of these factors. Accordingly,adverse impacts on our business due to these factors could continue or worsenfor an unknown period of time.

 

**We have some exposure to fluctuations in the exchangerates of international currencies.**

 

Ourconsolidated financial statements are prepared in U.S. dollars. However, aportion of our revenue, expenses, assets and liabilities is denominated incurrencies other than the U.S. dollar, including the British Pound Sterling. Consequently,fluctuations in exchange rates could result in exchange losses. Our exposure toany currency gains or losses is not material to us.

 

**Ourbusiness is seasonal due largely to higher show revenue in the first and thirdquarters.**

 

Ourbusiness is seasonal, with revenue typically reaching its highest levels duringthe first and third quarters of each calendar year, largely due to the timingof the MAGIC tradeshows and our other large shows and conferences. In 2005,approximately 31% of our revenue was generated during the first quarter andapproximately 30% during the third quarter. The second quarter accounted forapproximately 19% of revenue and the fourth quarter accounted for approximately20% of revenue in 2005. Because event revenue is recognized when a particularevent is held, we may also experience fluctuations in quarterly revenuebased on the movement of annual show dates from one quarter to another.

 

**We may be required to recognizeadditional impairment charges.**

 

Pursuant to GAAP, we arerequired to periodically assess our goodwill, intangibles and other long-livedassets to determine if they are impaired. Disruptions to our business, endmarket conditions and protracted economic weakness, unexpected significantdeclines in operating results of reporting units and divestitures may resultin additional charges to goodwill and other asset impairments. Futureimpairment charges could substantially affect our reported earnings in theperiod of such charge.

 

**We have asignificant amount of debt, which could limit our ability to remain competitiveor grow our business.**

 

As of December 31,2005, we had (a) total indebtedness of $462.0 million and (b) $58.9 millionof borrowings available under our credit facility, subject to customaryborrowing conditions. In addition, subject to the restrictions in our creditfacility, the indenture and our other debt instruments, we may incursignificant additional indebtedness from time to time. The level of ourindebtedness may have important consequences, including:

 

•                                          limiting cashflow available for general corporate purposes, including capital expendituresand acquisitions, because a substantial portion of our cash flow fromoperations must be dedicated to servicing our debt;

 

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•                                          limiting ourability to obtain additional debt financing in the future for working capital,capital expenditures or acquisitions; and

 

•                                          limiting ourflexibility in reacting to competitive and other changes in our industry andeconomic conditions generally.

 

**We may notbe able to service our debt without the need for additional financing, which wemay not be able to obtain on satisfactory terms, if at all.**

 

Ourability to pay or to refinance our indebtedness will depend upon our futureoperating performance, which will be affected by general economic, financial,competitive, legislative, regulatory, business and other factors beyond ourcontrol. We cannot assure you that our business will generate sufficient cashflow from operations, that currently anticipated revenue growth and operatingimprovements will be realized or that future borrowings will be available to usin amounts sufficient to enable us to pay our indebtedness or to fund our otherliquidity needs. If we are unable to meet our debt service obligations or fundour other liquidity needs, we could attempt to restructure or refinance ourindebtedness or seek additional equity capital. We cannot assure you that wewill be able to accomplish those actions on satisfactory terms, if at all.

 

**Ourparent company will likely need to rely upon distributions from us to serviceits debt and we may not be able to make distributions in amountssufficient to satisfy such debt service.**

 

Inaddition to our debt service needs, our parent company, Advanstar, Inc.,will need to rely upon distributions from us to service its 15% Senior DiscountNotes due 2011, which we refer to as “parent company notes,” including for thepayment of interest which must be paid in cash beginning April 15, 2006. Ourability to generate sufficient cash from operations to make distributions toAdvanstar, Inc. will depend upon our future operating performance, whichwill be affected by general economic, financial, competitive, legislative,regulatory, business and other factors beyond our control. In addition, ourability to make distributions to Advanstar, Inc. is subject torestrictions in our various debt instruments. For example, our second prioritysenior secured notes and our senior subordinated notes limit the amount of “restrictedpayments,” including dividends that we can make. Generally, we can paydividends only if our leverage ratio (as defined) is 6.0 to 1 or better andonly from the amount by which our cumulative EBITDA (as defined) since January 1,2001 exceeds 150% of our cumulative interest expense in that same period. Asdescribed above, our ability to generate EBITDA will depend upon variousfactors that may be beyond our control. We may not generatesufficient cash flow from operations or be permitted by the terms of our debtinstruments to pay dividends or distributions to Advanstar, Inc. inamounts sufficient to allow it to pay cash interest on the parent company notes.If Advanstar, Inc. is unable to meet its debt service obligations, itcould attempt to restructure or refinance its indebtedness or seek additionalequity capital. We cannot assure you that Advanstar, Inc. will be able toaccomplish these actions on satisfactory terms or at all. A default under theparent company notes could result in an acceleration of all outstanding loansunder our credit facility which, in turn, would trigger a cross-default underboth our second priority senior secured notes and our senior subordinated notes.See Item 7. “Management’s Discussion and Analysis of Financial Condition andResults of Operations–Liquidity and Capital Resources.”

 

**Restrictivecovenants in our debt instruments may limit our ability to engage in avariety of transactions and could trigger defaults that would accelerate all ofour debt.**

 

Oursecond priority senior secured notes, senior subordinated notes, the parentcompany notes and our credit facility contain covenants that limit our abilityto engage in a variety of transactions and other more restrictive covenants. Ourcredit facility requires us to maintain a fixed charge coverage ratio (asdefined). Our ability to meet such financial covenants can be affected byevents beyond our control, and we cannot assure you that we will meet thosetests. We have required amendments in the past to relax financial covenantscontained in our credit facility. We are substantially leveraged and ourbusiness remains subject to the same risks that created our historicalliquidity and covenant concerns. A breach of any of these covenants or otherprovisions in the agreement governing the credit facility, our seniorsubordinated notes, the

 

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parent company notesand/or our second priority senior secured notes could result in a default underour credit facility, our senior subordinated notes, the parent company notes,and/or our second priority senior secured notes. Upon the occurrence of anevent of default under our credit facility, the lenders could elect to declareall amounts outstanding under our credit facility to be immediately due andpayable and terminate all commitments to extend further credit. If we wereunable to repay those amounts, the lenders could proceed against the collateralgranted to them to secure that indebtedness. We have pledged substantially allof our assets, other than assets of our foreign subsidiaries, as security underour credit facility on a first-priority basis. If the lenders under our creditfacility accelerate the repayment of borrowings, we cannot assure you that wewill have sufficient assets to repay our credit facility and our otherindebtedness.

 

**We are dependent upon dividends from oursubsidiaries to meet our debt service obligations.**

 

Weconduct a significant portion of our operations through our subsidiaries. Ourability to meet our debt service obligations will be dependent on receipt ofdividends from our direct and indirect subsidiaries. Subject to therestrictions contained in the indentures governing our debt instruments, futureborrowings by our subsidiaries may contain restrictions or prohibitions onthe payment of dividends by our subsidiaries to us. In addition, underapplicable state law, our subsidiaries may be limited in amounts that theyare permitted to pay as dividends to us on their capital stock.

 

**We arecontrolled by principal stockholders whose interests may differ from theinterests of the holders of our debt.**

 

Circumstancesmay occur in which the interests of our principal stockholders could be inconflict with the interests of the holders of our debt. In addition, thesestockholders may have an interest in pursuing transactions that, in theirjudgment, enhance the value of their equity investment in our company, eventhough those transactions may involve risks to the holders of our debt.

 

Substantiallyall of the outstanding shares of common stock of our ultimate parent companyare held by the DLJ Merchant Banking funds. As a result of their stockownership, the DLJ Merchant Banking funds control us and have the power toelect a majority of our directors, appoint new management and approve anyaction requiring the approval of the holders of common stock, includingadopting amendments to our certificate of incorporation and approvingacquisitions or sales of all or substantially all of our assets. The directorselected by the DLJ Merchant Banking funds have the ability to control decisionsaffecting our capital structure, including the issuance of additional capitalstock, the implementation of stock repurchase programs and the declaration ofdividends.

 

Thegeneral partners of each of the DLJ Merchant Banking funds are affiliates oremployees of Credit Suisse Securities (USA) LLC, which is also an affiliate of (1) CreditSuisse Corporation, the arranger, syndication agent and a lender under ourcredit facility, to which we have obtained amendments in the past to avoidfuture potential covenant defaults, and (2) the general partners of eachof the DLJ Investment Partners funds, which own a substantial portion of our parentCompany notes.

 

**You may notbe able to rely on forward-looking statements included in this annual report,as our actual results may be materially different.**

 

Theinformation contained in this annual report includes some forward-lookingstatements that involve a number of risks and uncertainties. A forward-lookingstatement is usually identified by our use of certain terminology including “believes,”“expects,” “may,” “will,” “should,” “seeks,” “pro forma,” “anticipates” or “intends”or by discussions of strategy or intentions. A number of factors could causeour actual results, performance, achievements or industry results to be verydifferent from the results, performance, achievements or industry resultsexpressed or implied by those forward-looking statements. These factorsinclude, but are not limited to:

 

•                                          thecompetitive environment in our industry;

 

•                                          economicconditions in general and in the industry in which we compete;

 

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•                                          changes in orour failure to comply with federal, state, local or foreign laws and governmentregulations;

 

•                                          liability andother claims asserted against our company;

 

•                                          changes inoperating strategy or development plans;

 

•                                          the abilityto attract and retain qualified personnel;

 

•                                          oursignificant indebtedness;

 

•                                          changes inour acquisition and capital expenditure plans; and

 

•                                          other factorswe refer to in this section entitled “Risk Factors” and elsewhere in thisannual report on Form 10-K.

 

Inaddition, forward-looking statements depend upon assumptions, estimates anddates that may not be correct or precise and involve known and unknownrisks, uncertainties and other factors. Accordingly, a forward-lookingstatement is not a prediction of future events or circumstances and thosefuture events or circumstances may not occur. Given these uncertainties,you are cautioned not to place undue reliance on the forward-looking statements.We are not undertaking any obligation to update these factors or to publiclyannounce the results of any changes to our forward-looking statements due tofuture events or developments.

 

**Item 1B. —UNRESOLVED STAFF COMMENTS**

 

Not applicable.

 

**Item 2. —*PROPERTIES***

 

**Properties**

 

Wehave executive, marketing, sales and editorial offices in several cities in theUnited States, including Woodland Hills, Los Angeles and Santa Ana, California;Montvale and Iselin, New Jersey; Ft. Lauderdale, Florida; Northfield, Illinois;Lenexa, Kansas; New York City, New York; Cleveland, Ohio; and Concord,Massachusetts. In addition, we have offices in Chester and London, UnitedKingdom. Our finance, show registration, call center, circulation, fulfillment,production and other necessary operational support facilities in the UnitedStates are located in Duluth, Minnesota.

 

Wegenerally lease our offices from third parties. However, we own our offices inDuluth and Cleveland We have classified our Cleveland office as held for sale,as we are attempting to sell the building and related land. We have grantedmortgages on the Cleveland property to the lenders under our credit facilityand, on a second priority basis, for the benefit of the holders of the secondpriority senior secured notes. We believe that our properties are in goodoperating condition and that suitable additional or alternative space will beavailable on commercially reasonable terms for future expansion.

 

**Item 3. —*LEGAL PROCEEDINGS***

 

We arenot a party to any legal proceedings other than ordinary course, routinelitigation, which is not material to our business, financial condition or resultsof operations.

 

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**Item 4. —*SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS***

 

Nomatters were submitted to a vote of security holders during the fourth quarterof the fiscal year ended December 31, 2005.

 

**PART II**

 

**Item 5. —*MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATEDSTOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES***

 

Thereis no established public trading market for the registrant’s common equity.

 

**Item 6. —*SELECTED FINANCIAL DATA***

 

Thefollowing table presents selected consolidated financial data for Advanstar foreach of the periods indicated. The consolidated balance sheet data as of December 31,2001, 2002 and 2003 and the selected historical consolidated financial data forAdvanstar for the years ended December 31, 2001 and 2002 have been derivedfrom the audited consolidated financial statements and the notes thereto ofAdvanstar which are not included herein. The selected consolidated financialdata for Advanstar for the years ended December 31, 2003, 2004 and 2005have been derived from Advanstar’s audited financial statements and the notesthereto included herein. The selected historical consolidated financial datashould be read in conjunction with Item 7. “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and the consolidatedfinancial statements and notes thereto included elsewhere in this AnnualReport.

 

All historical amounts have been reclassified toreflect the results and any gains or losses of sold and discontinued propertiesas discontinued operations. For further informatino on discontinued properties,see Item 7. “Management’s Discussion and Analysis of Financial Condition andResults of Operations—Presentation of Financial Information—Acquisitions andDivestitures.”

 

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| ** **                                                                                      | ** ** | **Year Ended  December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                      | ** ** | **2005**                          | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                                      | ** ** | **(dollars in thousands)**        | ** ** |
|                                                                                            |       |                              |       |   |   |   |   |   |   |   |   |
| **Income Statement Data:**                                                                      |       |                              |       |   |   |   |   |   |   |   |   |
| Revenue                                                                                         |       | $                                 | 288,913    |   | $ | 270,412 |   | $ | 190,698 |   | $ | 155,579 |   | $ | 162,595 |   |
| Cost of production and selling (excluding  depreciation)                                        |       | 168,699                           |       | 157,630 |   | 104,585 |   | 78,302 |   | 81,171 |   |
| General and administrative expenses (excluding  depreciation)                                   |       | 40,916                            |       | 39,419 |   | 29,654 |   | 29,549 |   | 31,983 |   |
| Restructuring charge (1)                                                                        |       | 4,771                             |       | — |   | 2,692 |   | — |   | — |   |
| Funding of affiliated dot.com company operations                                                |       | —                            |       | 3,283 |   | 1,121 |   | 39,587 |   | — |   |
| Depreciation and amortization (2)                                                               |       | 37,755                            |       | 42,624 |   | 43,530 |   | 50,994 |   | 76,369 |   |
|                                                                                            |       |                              |       |   |   |   |   |   |   |   |   |
| Operating income (loss)                                                                         |       | 36,772                            |       | 27,456 |   | 9,116 |   | (42,853 | ) | (26,928 | ) |
| Other income (expense):                                                                         |       |                              |       |   |   |   |   |   |   |   |   |
| Interest expense                                                                                |       | (63,058                           | )          | (70,974 | ) | (59,086 | ) | (53,147 | ) | (58,171 | ) |
| Interest income                                                                                 |       | 1,476                             |       | 468 |   | 470 |   | 1,455 |   | 2,493 |   |
| Loss on extinguishment of debt                                                                  |       | (12,581                           | )          | — |   | (11,324 | ) | — |   | (4,038 | ) |
| Other income (expense), net                                                                     |       | 80                                |       | 1,251 |   | 918 |   | 1,117 |   | 337 |   |
|                                                                                            |       |                              |       |   |   |   |   |   |   |   |   |
| Loss from continuing operations before income taxes  and cumulative effect of accounting change |       | (37,311                           | )          | (41,799 | ) | (59,906 | ) | (93,428 | ) | (86,307 | ) |
| (Benefit) provision for income taxes                                                            |       | (2,732                            | )          | 6,518 |   | (6,724 | ) | (23,488 | ) | (24,091 | ) |
|                                                                                            |       |                              |       |   |   |   |   |   |   |   |   |
| Loss from continuing operations before cumulative  effect of accounting change                  |       | (34,579                           | )          | (48,317 | ) | (53,182 | ) | (69,940 | ) | (62,216 | ) |
|                                                                                            |       |                              |       |   |   |   |   |   |   |   |   |
| Income (loss) from operations of discontinued businesses,  net of tax                           |       | 38,536                            |       | (2,846 | ) | 3,734 |   | 8,330 |   | 13,006 |   |
|                                                                                            |       |                              |       |   |   |   |   |   |   |   |   |
| Income (loss) before cumulative effect of accounting  change                                    |       | 3,957                             |       | (51,163 | ) | (49,448 | ) | (61,610 | ) | (49,210 | ) |
|                                                                                            |       |                              |       |   |   |   |   |   |   |   |   |
| Cumulative effect of accounting change, net of tax                                              |       | 4,618                             |       | — |   | — |   | (62,729 | ) | (552 | ) |
|                                                                                            |       |                              |       |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                               |       | $                                 | 8,575      |   | $ | (51,163 | ) | $ | (49,448 | ) | $ | (124,339 | ) | $ | (49,762 | ) |
|                                                                                            |       |                              |       |   |   |   |   |   |   |   |   |
| **Cash flows provided by (used in):**                                                           |       |                              |       |   |   |   |   |   |   |   |   |
| Operating activities                                                                            |       | $                                 | 8,308      |   | $ | 18,286 |   | $ | 45,848 |   | $ | 24,275 |   | $ | 41,813 |   |
| Investing activities                                                                            |       | 148,959                           |       | 5,602 |   | (145,333 | ) | (31,155 | ) | (41,733 | ) |
| Financing activities                                                                            |       | (152,635                          | )          | (12,515 | ) | 110,236 |   | (15,388 | ) | 24,774 |   |
|                                                                                            |       |                              |       |   |   |   |   |   |   |   |   |
| **Balance sheet data (at end of period):**                                                      |       |                              |       |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                                                       |       | $                                 | 46,609     |   | $ | 41,223 |   | $ | 29,274 |   | $ | 18,930 |   | $ | 44,636 |   |
| Working capital (3)                                                                             |       | (62,365                           | )          | (70,804 | ) | (78,351 | ) | (69,536 | ) | (79,498 | ) |
| Total assets                                                                                    |       | 766,836                           |       | 912,937 |   | 986,590 |   | 866,026 |   | 1,000,779 |   |
| Total debt                                                                                      |       | 461,987                           |       | 614,219 |   | 626,069 |   | 557,700 |   | 570,000 |   |
| Total stockholder’s equity                                                                 |       | 171,608                           |       | 160,865 |   | 209,296 |   | 186,153 |   | 276,386 |   |
|                                                                                            |       |                              |       |   |   |   |   |   |   |   |   |
| **Other Data:**                                                                                 |       |                              |       |   |   |   |   |   |   |   |   |
| Capital expenditures                                                                            |       | $                                 | 9,564      |   | $ | 8,981 |   | $ | 7,608 |   | $ | 7,216 |   | $ | 7,935 |   |
| Ratio of earnings to fixed charges (4)                                                          |       | —                            |       | — |   | — |   | — |   | — |   |

 

20

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(1)                                  InSeptember 2003, we consolidated our midtown New York leased office spacefrom two floors to one and sublet the excess space. These actions resulted in athird quarter 2003 restructuring charge of approximately $2.1 million. In December 2003,we consolidated our Chester, U.K. leased office space and vacated two of ourfour floors, resulting in a fourth quarter 2003 charge of approximately $0.6million. These activities included a charge for the present value of futurerental payments, net of estimated sublease income, of $2.3 million, andother relocation costs and expenses of $0.4 million. We will continue topay facility lease costs, net of sublease income, associated with thepreviously used facilities through August 2015.

 

In2005, related to the sale of the PortfolioGroup, the Company ceased use of certain leased office space in New York, NY,Milford, CT, and Santa Ana, CA. In the third quarter of 2005, the Companyvacated additional leased office space in Milford, CT and Chicago, IL. These activities resulted in charges tothe Company’s operations during the year ended December 31, 2005. These charges consist of the discountedremaining future minimum lease payments due under non-cancelable leases, net ofestimated future sublease income. These lease commitments expire at variousdates through 2010. These activities resulted in a charge to operations of $2.5million in 2005.

 

In connection with the sale of the Portfolio Group andthe reorganization of the Company’s healthcare and support departmental managementteam restructuring of its operations during 2005, the Company notified 120employees that they would be severed from the Company. The Company took acharge to operations of $2.3 million during the year ended December 31,2005 for severance and other terminationcosts.

 

(2)                                  Uponadoption of Statement of Financial Accounting Standards No. 142, “Goodwilland Other Intangible Assets,” we discontinued the amortization of goodwillbeginning January 1, 2002. The following table reflects a reconciliationof loss from continuing operations adjusted for the exclusion of goodwillamortization, net of tax for all periods:

 
| ** **                                                            | ** ** | **Year Ended  December 31,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                            | ** ** | **2005**                          | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                            | ** ** | **(unaudited)**                   | ** ** |
| ** **                                                            | ** ** | **(dollars in thousands)**        | ** ** |
|                                                                  |       |                              |       |   |   |   |   |   |   |   |   |
| Reported income (loss) before cumulative effect of  accounting change |       | $                                 | 3,957      |   | $ | (51,163 | ) | $ | (49,448 | ) | $ | (61,610 | ) | $ | (49,210 | ) |
| Add: goodwill amortization, net of tax                                |       | —                            |       | — |   | — |   | — |   | 22,738 |   |
|                                                                  |       |                              |       |   |   |   |   |   |   |   |   |
| Adjusted income (loss) before cumulative effect of  accounting change |       | $                                 | 3,957      |   | $ | (51,163 | ) | $ | (49,448 | ) | $ | (61,610 | ) | $ | (26,472 | ) |
|                                                                  |       |                              |       |   |   |   |   |   |   |   |   |
| Reported net income (loss)                                            |       | $                                 | 8,575      |   | $ | (51,163 | ) | $ | (49,448 | ) | $ | (124,339 | ) | $ | (49,762 | ) |
| Add: goodwill amortization, net of tax                                |       | —                            |       | — |   | — |   | — |   | 22,738 |   |
|                                                                  |       |                              |       |   |   |   |   |   |   |   |   |
| Adjusted net income (loss)                                            |       | $                                 | 8,575      |   | $ | (51,163 | ) | $ | (49,448 | ) | $ | (124,339 | ) | $ | (27,024 | ) |

 

21

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(3)                                  Workingcapital is defined as current assets, excluding cash, of $35.9 million,$34.0 million, $46.8 million, $38.2 million, $34.4 million in each periodending December 31, 2001, 2002, 2003, 2004 and 2005 less current liabilities,excluding the current portion of long-term debt, of $115.4 million,$103.5 million, $125.2 million, $109.0 million and $96.8 million ineach period ending December 31, 2001, 2002, 2003, 2004, and 2005.

 

(4)                                  Forpurposes of determining the ratio of earnings to fixed charges, earnings aredefined as pretax income from continuing operations plus fixed charges. Fixedcharges consist of interest expense and one-third of rental expense, which isconsidered by management to be representative of the interest component ofrental expense. Earnings were insufficient to cover fixed charges in the yearsended December 31, 2001, 2002, 2003, 2004, and 2005 by $86.3 million,$93.4 million, $59.9 million, $41.8 million, and $37.3 million.

 

22

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**Item 7. —*MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS***

 

*The following discussion should beread in conjunction with our consolidated financial statements, including thenotes to those statements, included elsewhere in this annual report.*

* *

*Thisdiscussion contains forward-looking statements, which are neither promises norguarantees and involve risks and uncertainties. Our actual results may differsignificantly from the results discussed in the forward-looking statements. Factorsthat might cause those differences include, but are not limited to, thosediscussed in Item 1A. “Risk Factors.”*

 

**Overview**

 

We area worldwide media company providing integrated marketing for both business-to-businessand business-to-consumer marketing firms. Our products and services are targetedto specific industry sectors through shows and conferences and controlledcirculation trade, business, professional and consumer magazines. We alsoprovide a broad range of other direct marketing products, including classifiedadvertising, direct mail services, reprints, database marketing, guides, referencebooks and electronic based products. Our electronic based products include webadvertising, e-newsletters, education, and webinars.

 

Wereport our business in three segments:

 

•                                          shows andconferences, which consists primarily of the management of trade and consumer showsand trade conferences held in convention and conference centers;

 

•                                          publications,which consists primarily of the creation and distribution of controlledcirculation trade, business, professional and consumer magazines, CME products,custom publishing and other projects; and

 

•                                          directmarketing products and other, which consists of sales of a variety of direct mailand database products, magazine editorial reprints, classified advertising andelectronic media products.

 

Unlessotherwise noted, disclosures herein relate only to our continuing operations.All historical amounts have been reclassified to exclude results and gains orlosses of discontinuing operations, unless noted otherwise. For furtherinformation on discontinued properties, see “Presentation of FinancialInformation–Acquisitions and Divestitures.”

 

Showsand conferences accounted for 42%, 40% and 47% of total revenue in 2005, 2004and 2003, respectively. Publications accounted for 51%, 55% and 47% of totalrevenue in 2005, 2004 and 2003, respectively, while direct marketing productsand other accounted for 7%, 5% and 6% of total revenue in 2005, 2004 and 2003,respectively. Show and conference revenue increased as a percentage of thetotal revenue in 2005 primarily as a result of our current year acquisitionsand new product launches. Publication revenue increased as a percentage oftotal revenue in 2004 primarily as a result of our acquisition of a group ofhealthcare publications in October 2003. Our revenue reaches its highestlevels during the first and third quarters of each year due to the timing ofour MAGIC tradeshows and our other large tradeshows and conferences. Becauseshow and conference revenue is recognized when a particular event is held, we may experiencefluctuations in quarterly revenue based on the movement of show dates from onequarter to another.

 

**Trendsand Developments**

 

Wecompleted a significant part of our strategy to realign and refocus ourproduct portfolio with the saleof certain assets (the “Portfolio Group”) to Questex Media Group in the secondquarter of 2005. Net income in 2005 includes approximately five months of results from the Portfolio Groupbefore the sale to Questex Media Group in May 2005, a $52.9 million gainon the sale of these assets and a $2.3 million intangible asset

 

23

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impairmentcharge related to the closing of our East Coast Fashion events. All of theseare reported as discontinued operations.

 

Thesale of the Portfolio Group allows us to concentrate our resources on threemarkets in which we have our strongest product and market positions, which arethe fashion and licensing, life sciences, and the motorcycle and automotiveaftermarket markets. In 2005 we invested in these core markets through thedevelopment and expansion of existing products, as well as through launchingnew events, publications, and electronic media.

 

Ourtradeshows and conferences continued to perform well in 2005. Revenue for ourfour largest events, MAGIC Marketplace Spring and Fall, Dealer Expo andLicensing International, increased $11.0 million, or 13.3%, compared to 2004. Wealso launched the Off-Road Impact tradeshow and conference, complementing our2004 launches of *DIRTsports* and *Off-Road Business* magazines, 18 new IVTand pharmaceutical conferences, a dental conference and a licensing conference.

 

The slightdecline in revenue in our publishing segment in 2005 is the result of acontraction in advertising and subscriptions in our nursing publications and a declinein sales of our healthcare custom projects. Projects have a significantlead-time from proposal to completion; as a result, we saw an impact in 2005from marketing and execution problems we experienced in 2004 and therestructuring of our healthcare group in early 2005. However, we saw asignificant pick up in healthcare projects in the fourth quarter of 2005, andare optimistic about 2006 based on the current pipeline of contracted projects.

 

We identified several newopportunities and initiatives in 2005 that we will continue to develop into2006. Opportunities include expanding customer relationships and our market positionin our MAGIC events and the development of a stand alone continuing medicaleducation business and other diversified customer offerings in our healthcaresector. We also will continue developing the off-road market by expanding ourOff-Road Impact tradeshow launch and building on our 2005 acquisition of theOff-Road Expo consumer event.

 

## **Presentation of Financial Information**

## ** **

*Acquisitions and Divestitures*

 

Consistentwith the Company’s strategy of building significant product positions intargeted markets, we continued to realign and refocus our product portfoliothrough both the acquisition and sale of identified assets through a series oftransactions from 2005 through 2003. For all properties sold in 2005, werecognized an aggregate pre-tax gain of $52.5 million. The detail on theindividual divestitures and acquisitions are as follows:

 

On December 31, 2005, we sold our Arenacross Championship Series (“Arenacross”)for a total selling price of $0.2 million. The loss on the sale of $0.4 millionwas recorded in December 2005. Arenacross 2005 revenue and contributionloss was $0.9 million and $1.6 million. Arenacross had no revenue or contributionmargin in 2004 and 2003.

 

In the second quarter of 2005, we closed the last remaining East CoastFashion event (the “East Coast Fashion Group”) as part of our new strategy.We recorded a $2.3 million impairment charge for the remaining intangibleassets of this business in 2005. Revenue and contribution margin through the secondquarter of 2005 for East Coast Fashion Group was $0.9 million and $0.1 million.East Coast Fashion Group revenue for 2004 and 2003 was $6.1 million and $10.9million. 2004 contribution loss was $0.3 million and 2003 contribution marginwas $1.7 million.

 

On  May 23, 2005, we, ourparent company and certain affiliates (Advanstar Expositions Canada Limited andAdvanstar.com) completed the sale of business assets and liabilities associatedwith our tradeshows and conferences, trade publications and direct marketingproducts in our: Information Technology & Telecommunications,Travel/Hospitality, Beauty, Home Entertainment, Abilities and Portfolio groups,including

 

24

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theshares of our Hong Kong subsidiaries. The shares of our Brazilian subsidiarywere sold in July 2005 after receipt of final regulatory approval.Collectively, these assets and shares are referred to as the “Portfolio Group.”The sale price for the Portfolio Group was $185.0 million less $11.2 million inworking capital adjustments and expenses. We recorded a gain on the sale of $52.9million. Revenue and contribution margin from January 1, 2005 to May 23,2005 was $49.0 million and $14.9 million. Revenue in 2004 and 2003 was $100.8million and $103.5 million and contribution margin in 2004 and 2003 was $26.8million and $28.4 million.

 

In thethird quarter of 2004, we sold our *Post*business trade publication (“Post”) for $1.0 million in cash. We recorded aloss after taxes on the sale of $1.3 million. Post revenue and contributionmargin from January 1, 2004 to July 2, 2004 was $0.7 million and $0.1million. Revenue and contribution margin for Post in 2003 was $1.7 million and$0.3 million. We also sold our 65% ownership in our French joint venture (“SeCA”),which consisted of one tradeshow, for $3.1 million in cash. In conjunction withour sale of SeCA we recorded a goodwill impairment charge of $9.4 million, netof minority interest in 2004. Total revenue and contribution margin for SeCA,net of minority interest, was $2.9 million and $1.4 million in 2004, and was$4.1 million and $1.7 million in 2003. Also in the third quarter of 2004, we sold ourGerman tradeshow business (“DMS”) for $1.7 million in cash. As a result of thesale of DMS we recorded a goodwill impairment charge of $6.2 million. Totalrevenue and contribution loss in 2004 was $0.1 million and $0.3 million,respectively. Total revenue and contribution margin in 2003 was $2.0 millionand $0.5 million, respectively.

 

In thefirst quarter of 2004, we sold our art industry tradeshows and magazines for a total sales price of $19.6 million incash (“Art Group”). We recorded a gain after taxes on the sale of $3.4million. Art Group revenue and contribution margin from January 1, 2004 toMarch 12, 2004 was $8.5 million and $3.4 million. Revenue and contribution margin for the Art Group in 2003 was $10.9million and $3.1 million.

 

On December 31,2003, we sold a portfolio of automotive and technology industry tradeshows andmagazines operated by ourU.K. subsidiary for a total sales price of $2.2 million in cash. Total revenueand contribution margin for these properties in 2003 was $5.8 million and $0.2million.

 

The financial results of the businesses included in discontinuedoperations in the accompanying consolidated statements of operations for theyears ended December 31 are as follows:

 
| **(in thousands of dollars)**                                               | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                       |       |     |       |     |       |     |       |
| Income (loss)  before income taxes (including goodwill impairment charge and gain on sale) |       | $        | 55,961     |     | $          | (1,664   | )          | $ | 17,810 |   |
| Income tax  provision                                                                      |       | 16,859   |       | 5,446    |       | 13,449   |       |
| Minority  interests                                                                        |       | (566     | )          | 4,264    |       | (627     | )          |
|                                                                                       |       |     |       |     |       |     |       |
| Income (loss)  from discontinued businesses                                                |       | $        | 38,536     |     | $          | (2,846   | )          | $ | 3,734 |   |

 

BetweenJanuary 1, 2003 and December 31, 2005, we completed 7 acquisitions;five of which were completed in 2005, one in 2004, and one in 2003.

 

•                  On September 12, 2005, we purchased an off-road consumer eventbusiness from Petersen Events Corporation (“Off-Road Expo”) for $2.2 million incash. In addition, we may pay additional contingent cash consideration tothe former shareholders based on the 2006 operating revenue from the acquiredassets.

 

•                  On August 23, 2005, we purchased two fashion industry tradeshows andrelated products from the owner of POOL Tradeshow (“POOL”) for $3.0 million incash, subject to a working capital adjustment, which will be completed in 2006.In addition, we may pay additional contingent cash consideration to theformer owner

 

25

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based on the 2007 and 2008 operating results from theacquired assets and the owner’s continued employment with us. The purchaseprice working capital adjustment has yet to be finalized. We do not believe thefinal allocation of purchase price will be materially different from preliminaryestimates.

 

•                  On August 19, 2005, we purchased Project Global Tradeshow, Inc.(“Project”), a producer of tradeshows for the premium contemporary sector ofthe fashion industry, for $9.9 million in cash, subject to a working capitaladjustment, which will be completed in 2006. In addition, we may payadditional contingent cash consideration to the former shareholders based onthe 2007 and 2008 operating results of the acquired assets and their continuedemployment with us. The purchase price working capital adjustment has yet to befinalized. We do not believe the final allocation of purchase price will bematerially different from preliminary estimates.

 

•                  From January 1, 2005 through September 30, 2005, we completedtwo other acquisitions of consumer shows with an aggregate purchase price of$0.5 million in cash.

 

•                  On March 8, 2004, we purchased a portfolio of pharmaceutical industryspecific magazines and conferences from the Institute of Validation Technology, Inc.(“IVT”) for $7.9 million in cash. In addition, we will pay additionalcontingent cash consideration to the prior owners based upon 2004 and 2005operating results generated from the acquired assets and their continuedemployment with us. Operating results for 2005 and 2004 include $0.7 millionand $1.5 million in compensation expense to reflect the accrual of the 2005 and2004 components of the expected contingent payment.

 

•                  On October 1, 2003, we purchased a portfolio of healthcare industrymagazines and related custom services projects from The Thomson Corporation andits subsidiaries for $136.5 million in cash (including $1 million ofrelated fees and expenses) (“Thomson”).

 

Wehave accounted for our acquisitions under the purchase method of accounting. Accordingly,our results of operations include the effect of these acquisitions from thedate of purchase.

 

*CreditFacility Amendment and Credit Facility and Second Priority Secured and FloatingRate Notes Repayment*

 

In connection, with the sale of the Portfolio Group,we repaid the remaining $25 million outstanding term debt under our creditfacility. We also amended the credit facility to retain the revolving loan facilityat $60 million while allowing for repayment of second lien and junior debt witha portion of the proceeds from the sale of the Portfolio Group.

 

The sale of the Portfolio Group constitutes an assetsale as defined under our 10.75% Second Priority Senior Secured Notes indenture(“the fixed rate notes”). The indenture requires that we use the remaining netproceeds (after repayment of the Credit Facility borrowings) to invest in ourbusiness within one year of the sale or alternatively to offer to purchase thefixed rate notes at par plus accrued interest. In June 2005, we offered topurchase up to $140 million of the second lien notes. Holders of $8.7 millionprincipal amount of the fixed rate notes tendered their notes for purchase, andwe purchased all such notes.

 

Also in June 2005, we completed a cash tenderoffer for any and all of our outstanding Second Priority Senior SecuredFloating Rate Notes due 2008 (the “floating rate notes”). Holders of $117.8million aggregate outstanding principal amount of the floating rate notestendered their notes for purchase, and we purchased all such notes at a priceequal to 107.3% (including a 3% consent fee) of outstanding principal plusaccrued interest. In connection with the tender offer, we received consents toproposed amendments to the indenture governing the notes, resulting in theelimination of substantially all of the restrictive covenants and certaindefault provisions with respect to the floating rate notes.

 

26

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Any net proceeds from the sale of the PortfolioGroup not used to reinvest in the business or to purchase second lien noteswithin one year after closing of the sale will be required to be used to offerto repurchase the subordinated notes and then the discount notes pursuant tothose indentures. After the net sale proceeds were used to repay the CreditFacility borrowings and purchase the fixed rate and floating rate notes underthe offer to purchase and tender offers, we had net proceeds of approximately$13.4 million remaining, all of which was used in 2005 for acquisitions.

 

*Private Placement of Second Priority Senior SecuredNotes and Refinancing of Credit Facility*

 

In August 2003,we amended our Credit Facility to permit the issuance of $360.0 million ofsecond priority senior secured notes and the use of the proceeds thereof,eliminate the leverage ratio covenant, amend certain other covenants containedin the Credit Facility and reduce the revolving loan commitments thereunderfrom $80 million to $60 million. We recorded an expense of $11.3 millionin the third quarter of 2003 to reflect the write-off of deferred financingcosts related to the term loans, which were repaid with the proceeds of theoffering. Our interest expense and cash interest is higher as a result of thisrefinancing. In addition, we reclassified $1.8 million of deferred lossesrelated to our interest rate collar and swap agreements previously reported asa component of accumulated other comprehensive income into other expenses in thethird quarter of 2003.

 

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

 

**Sourcesof Revenue**

 

###### ***Shows and Conferences***

###### *** ***

Theshows and conferences segment derives revenue principally from the sale of exhibit spaceand conference attendance fees generated at our events. In 2005, 80% of our shows and conferences revenuewas from the sale of exhibit space. Events are generally held in majormetropolitan or convention areas such as New York City and Las Vegas. The saleof exhibit space is generally impacted by the ongoing quality and quantityof attendance, venue selection and availability, industry cycle and generalmarket conditions. Revenue and related direct event expenses are recognized inthe month in which the event is held. An event is billed and cash is collectedin advance and is recorded on our consolidated balance sheet as deferredrevenue until the event has been held.

 

*Publications*

 

Thepublications segment derives revenue principally from the sale of advertisingin our trade magazines. Additionally, certain publications derive revenue frompaid subscriptions and custom publishing and projects. Paid subscriptionscomprise approximately 6% oftotal publishing revenue in 2005. Most of our publications are produced monthlywith advertising sold on either a scheduled or single insertion basis. The saleof advertising is generally impacted by new product releases, circulationquality, readership, and general market conditions. Advertising revenue isrecognized on the publication issue date, and subscription revenue, if any, isrecognized over the subscription period. Custom project contract revenue withboth conference and print elements are deferred and not recognized until allelements are delivered. Customer advances are recorded when cash is received inanticipation of future advertising unrelated to a specific publication issue.

 

27

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###### ***Direct Marketing Products and Other***

 

Thedirect marketing products and other segment derives its revenue from the saleof value-added marketing products such as print and internet based classifiedadvertising, direct mail services, reprints, database marketing, directories,guides, reference books and electronic based products. These productscomplement and utilize the content or databases generated by our shows,conferences and publications. The sale of these products is generally impactedby the success of the event or publication from which these products arederived, the quality of the sales team and general market conditions. Revenueis generally recognized when the applicable product is shipped or otherwisedelivered.

 

**Components of Expenses**

 

*Showsand Conferences*

 

Costsincurred by the shows and conferences segment include facility rent, attendeeand exhibitor sales and marketing and on-site services such as registration,security and set-up. Exhibitors generally contract directly with third partiesfor on-site services such as electrical services and booth set-up. Staffsalaries and related payroll expenses are treated as monthly period expenses. Allother direct costs are expensed when the event occurs.

 

###### ***Publications***

###### *** ***

Costsincurred by the publications segment include printing, paper and postage;selling and promotion; editorial and prepress; and circulation acquisition andfulfillment. Additionally, publisher and sales staff costs, and production,editorial and circulation staff costs, with related payroll taxes and benefits,are charged to the publications segment. We outsource the actual printing ofour publications. Printing, paper and postage costs are charged to operationsat the time of publication issuance. All other direct costs are charged tooperations when incurred.

 

###### ***Direct Marketing Products and Other***

###### *** ***

Costsof the direct marketing products and other segment include printing anddistribution costs, database administration fees and selling and product developmentstaff costs. All direct costs are expensed when incurred.

 

**SignificantAccounting Policies and Estimates**

 

Thediscussion and analysis of our financial condition and results of operationsare based upon our consolidated financial statements, which have been preparedin accordance with accounting principles generally accepted in the UnitedStates of America. The preparation of these financial statements requiresmanagement to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenue and expenses. On an ongoing basis, we evaluatethese estimates, including those related to bad debts, restructuring andmedical claims accruals, realizability of intangible assets and recoverabilityof deferred income tax assets. We base these estimates on historical experienceand on various other assumptions that are believed to be reasonable under thecircumstances, the results of which form the basis for making judgmentsabout the carrying values of assets and liabilities that are not readilyapparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions.

 

Weapply the following critical accounting policies in the preparation of ourconsolidated financial statements:

 

*RevenueRecognition*

 

Revenueis recognized as discussed in the “Sources of Revenue” section above. Thebalance of deferred revenue at December 31, 2005 was $35.7 million forshows and $10.7 million for publications. On a relative basis, ourdeferred revenue reaches its highest levels during the second and fourthquarters of the year largely due to the timing of the MAGIC tradeshows and our other large shows and conferences.

 

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*Allowancefor Doubtful Accounts*

 

Wemaintain an allowance for doubtful accounts for estimated losses resulting fromthe inability of our customers to make required payments. The balance of theallowance for doubtful accounts at December 31, 2005 and 2004 was $1.1million and $0.8 million. If the financial condition of our customers were todeteriorate, resulting in an impairment of their ability to make payments,additional allowances may be required.

 

Theallowance for doubtful accounts is an estimate based on specifically identifiedaccounts as well as non-specific identification reserves based on our historical experience. Weevaluate specific accounts where we have information that the customer may havean inability to meet its financial obligations. In these cases, management usesjudgment, based on the best available facts and circumstances, to determine ifa specific reserve for that customer’s receivable is warranted. These specificreserves are reevaluated and adjusted as additional information is receivedthat impacts the amount reserved. We also establish a non-specificidentification reserve for all customers based on historical percentagesapplied to customer balances depending on the age of the amount due. Thispercentage is based on historical collection and write-off experience and variesby geographic region. If circumstances change, our estimates of therecoverability of amounts due us could be reduced or increased by a materialamount. Such a change in estimated recoverability would be accounted for in theperiod in which the facts that give rise to the change become known.

 

*DeferredTaxes*

 

 Pursuant to the requirements of SFAS No. 109,we record a valuation allowance to reduce our deferred tax assets to the amountthat we determine is more likely than not to be realized. At December 31,2005, we have recorded a valuation allowance to offset the deferred tax benefitassociated with all of our U.S. and foreign net operating loss carryforwardsbecause the realization of these benefits is not considered likely based uponour history of not generating taxable income to utilize these tax benefits. Wehave considered future taxable income and ongoing prudent and feasible taxplanning strategies in assessing the need for the valuation allowance. In theevent we were to subsequently determine that we would be able to realize ourdeferred tax assets in excess of our net recorded amount, a reduction in thevaluation allowance would result in an income tax benefit and would increasenet income or reduce net loss in the period such determination was made. Inaddition to the deferred tax assets, which are fully reserved, we haveestablished a deferred tax liability based upon the excess of the carryingvalue of our goodwill for financial reporting purposes over the tax basis ofthis goodwill. We establish this liability because we do not amortize goodwillfor financial reporting purposes but we do amortize goodwill for tax reportingpurposes.

 

*Amortizationof Intangible Assets*

 

Intangibleassets related to trade exhibitor and advertiser lists are amortized using adouble-declining balance method over 6 years and 5 years,respectively. Intangible assets related to trade names and trademarks areamortized using a straight-line method over 20 years. Intangible assets relatedto subscriber lists and other intangible assets are amortized using astraight-line method over 3 to 10 years. We amortize intangible assets ona basis which corresponds to our projections of future cash flows directlyrelated to these intangible assets. A change in circumstances could result in adetermination that asset lives should be changed or that the related assets areimpaired and impairment charges to reduce the carrying value of intangibleassets may be necessary. The effect of any changes in useful lives or adetermination that the carrying value of an intangible asset is impaired wouldbe accounted for in the period that such determination was made.

 

*Impairmentof Long-Lived Assets*

 

Weevaluate the carrying value of long-lived assets, including identifiableintangibles, for impairment when events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. If impairmentindicators are present and the estimated future undiscounted cash flows areless than the carrying value

 

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of the assets, thecarrying value is reduced to the estimated fair value as measured by theassociated discounted cash flows.

 

Inaccordance with the provisions of SFAS No. 142, we evaluate goodwill forimpairment using a two-step test based upon a fair value approach. The firststep is used to identify a potential impairment by comparing the carrying valueof the net assets of each reporting unit to an estimate of the fair value ofeach of our reporting units (as defined by SFAS No. 142), while the secondstep calculates the amount of impairment, if any. Additionally, goodwill willbe tested for impairment between annual tests if an event occurs orcircumstances change that would more likely than not reduce the fair value ofan entity below its carrying value. We determine the fair value of ourreporting units by application of a discounted cash flow analysis. Ifcircumstances change, our estimates of fair value will also change and couldresult in a determination that additional impairment charges to reduce thecarrying value of goodwill are necessary. We completed our annual goodwillimpairment test for each of our three reporting units as of July 1, 2005. Basedon this first step test, there was no impairment of goodwill indicated.

 

**Resultsof Operations**

 

2005 COMPARED TO 2004

 

# ***Revenue***

# ** **

Totalrevenue increased $18.5 million, or 6.8%, to $288.9 million in 2005 from $270.4million in 2004.

 

Revenuefrom shows and conferences increased $15.2 million, or 14.1%, to $122.2 millionin 2005 from $107.1 million in 2004. Our MAGIC Marketplace events increased revenueby **$**9.6 million or 13.9% and square footage increased by 7.1% over 2004 due to development of new trendareas, the continued expansion of our Sourcing Zone initiative, and theacquisitions of POOL and Project in 2005. Our licensing events in the U.S andU.K. increased revenue by $0.9 million or****11.4% over 2004 due to increase in square footageand price per square foot. Revenue from the powersports sector increased $2.4 million or****12.5% over 2004 dueto new category initiatives, product launches and selected acquisitions. Wedeveloped new initiatives for American Made motorcycle products in our IMSmotorcycle consumer events and the Big Twin West tradeshow, expanding sales inthis category significantly. Dealer Expo increased revenue through priceincreases and expansion of international exhibitors. The launch of the Off-RoadImpact tradeshow and conferences, which complemented the 2004 launches of *DIRTsports* and *Off-Road Business* magazines and the acquisition of theOff-Road Expo, generated $1.3 million of revenue in 2005. Revenue from our IVTconferences increased $1.6 million or 32.1% over 2004 due to the launch of 18new conference tracks to address emerging topics of interest in the FDA drugvalidation process. We also launched a new dental conference, DigitalRadiography Congress, in 2005 and stopped holding three small shows and conferences in the powersportsand pharmaceutical markets in 2005 compared to 2004.

 

Revenuefrom publications was essentially even with 2004, declining $0.2 million, or 0.1%,to $148.2 million in 2005 from $148.4 million in 2004 due largely to a $4.3 million decline in healthcare customprojects. Projects have a significant lead time from proposal to completion. Therevenue decline reflects the impact on the 2005 sales cycle of marketing andfulfillment problems we experienced in 2004 and the restructuring of our operations,including healthcare properties and management, in the first half of 2005. Revenuefrom our remaining publishing products increased 3.2% over 2004, with the paceof growth increasing significantly in the fourth quarter. This was driven bystrong revenue gains in specialty care healthcare, dental and powersports/automotivepublications, offset by a decline in our veterinary, licensing and nursingpublications. We launched or continued to develop eight new publications,including *DIRTsports,**Off-Road Business*,and*American Big Twin*in the powersports/automotive**sector and *Locum Life*, *Firstline*, *Modern Hygienist*,*Ophthalmology Times Europe* and *Contract Services Europe*in life sciences. These launches generated$2.8 million in revenue in 2005. Overalladvertising pages increased 2.9% for the year due to gains in our dental,pharmaceutical, science, specialty healthcare, powersports and automotivepublications and the eight launch

 

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publications.Offsetting these gains were declines in our license, veterinary and certainprimary healthcare publications revenue.

 

Revenue from direct marketing products and otherincreased $3.5 million, or 23.8%, to $18.4 million in 2005 from $14.9 millionin 2004. This increase is primarily due to the adoption of FASB Interpretation No. 46R,“Consolidation of Variable Interest Entities,” which required us to consolidatethe results of our affiliate, Advanstar.com.

 

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

# ** **

Cost of production and selling expense increased $11.1million, or 7.0%, to $168.7 million in 2005 from $157.6 million in 2004.

 

Expensesof shows and conferences increased $10.5 million, or 23.6%, to $55.0 million in2005 from $44.5 million in 2004. Staffing and other direct costs to support ourlaunch of the Off-Road Impact tradeshow and conference, our newly launched IVTand dental conferences and our acquisitions of POOL and Project contributedapproximately $5.7 million of this increase. Expenses also increased due togrowth of square footage from our fashion, license, and powersports markets andstrategic investments made across our market sectors and product lines. Weinvested in new product areas in the MAGIC Marketplace events, IMS and DealerExpo and in a significant expansion of the IVT conferences. There were nosignificant increases in venue pricing during the year.

 

Expensesof publications declined $0.9 million, or 0.9%, to $101.6 million in 2005 from$102.5 million in 2004. This decrease is primarily attributable to cost savingsassociated with the restructuring of certain aspects of our operations, includinghealthcare publications, and decline in healthcare custom projects. These costreductions were partially offset by investments in the eight properties launchedin 2005 as described above, as well as investments to actively develop our CME,special projects and electronic offerings in the healthcare sector. Paperprices are expected to increase 5% to 10% in 2006. We expect our postage coststo decrease in 2006 as we begin utilizing co-mailing strategies to takeadvantage of additional postal discounts.

 

Expenses of direct marketing products and otherincreased $1.5 million, or 14.0%, to $12.1 million in 2005 from $10.6 millionin 2004 due to the consolidation of the results of Advanstar.com as discussedabove.

 

# ***General and administrative***

# ** **

General and administrative expenses increased $1.5million, or 3.8%, to $40.9 million in 2005 from $39.4 million in 2004. The increase is due to various factorsincluding an increase in earned incentives of $3.7 million, foreign currencyfluctuations of $0.9 million, and increased costs due to the consolidation ofthe results of Advanstar.com as discussed above. These increases were partiallyoffset by a reduction in IVT contingent compensation accrual in 2005 overamounts in 2004 by $0.9 million and a reduction in costs due to restructuringactivities as discussed below.

 

# ***Restructuring charge***

# ** **

In May 2005, we ceased useof certain leased office space in New York, NY, Milford, CT, Santa Ana, CA, andChicago, IL related to the sale of the Portfolio Group (see –”Recent Developments”).These office consolidation activities resulted in restructuring charges of $2.5 million in 2005 consisting of the discounted future minimum leasepayments, net of estimated future sublease income from these offices. Theselease commitments expire at various dates through 2010.

 

During 2005, we notified 120employees that they would be severed from the Company in connection with thesale of the Portfolio Group and the reorganization of our healthcare andsupport department management team restructuring of our operations. As aresult, we took a $2.3 million charge to operations during the year ended December 31, 2005. As of December 31, 2005, 116 employeeshave been terminated. Severance payments will continue into 2006.

 

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In September 2003, we consolidated our midtownNew York leased office space from two floors to one and sublet the excess space.These actions resulted in a third quarter 2003 restructuring charge ofapproximately $2.1 million. In December 2003, we consolidated ourChester, U.K. leased office space and vacated two of our four floors, resultingin a fourth quarter 2003 charge of approximately $0.6 million. These activitiesincluded a charge for the present value of future rental payments, net ofsublease income, of $2.3 million, and other relocation costs and expensesof $0.4 million. We will continue to pay facility lease costs, net ofsublease income, associated with the previously used facilities through August 2015.

 

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

 
| **(in thousands of dollars)**                   | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Facility exit  costs                            |       | $          | 2,499      |       | $          | —     |       | $ | 2,692 |   |
| Employee  severance and other termination costs |       | 2,272      |       | —     |       | —     |       |
| Restructuring  charge                           |       | $          | 4,771      |       | $          | —     |       | $ | 2,692 |   |

 

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

 
| **(in thousands of dollars)**               | ** ** | **Facility Exit  Costs** | ** ** | **Employee  Severance** | ** ** | **Total**  | ** ** |
|---------------------------------------------|------------|--------------------------|------------|-------------------------|------------|------------|------------|
| ** **                                  | ** ** | ** **               | ** ** | ** **              | ** ** | ** ** | ** ** |
| **Balance  at December 31, 2003** |       | $                        | 2,375      |                    | $          | —     |       | $ | 2,375 |   |
| Restructuring  charge                       |       | —                   |       | —                  |       | -          |       |
| Utilized-cash                               |       | (548                     | )          | —                  |       | (548       | )          |
| Utilized-non-cash                           |       | —                   |       | —                  |       | —     |       |
| **Balance  at December 31, 2004** |       | $                        | 1,827      |                    | $          | —     |       | $ | 1,827 |   |
| Restructuring  charge                       |       | 2,499                    |       | 2,272                   |       | 4,771      |       |
| Utilized-cash                               |       | (914                     | )          | (1,465                  | )          | (2,379     | )          |
| Utilized-non-cash                           |       | —                   |       | —                  |       | —     |       |
| **Balance  at December 31, 2005** |       | $                        | 3,412      |                    | $          | 807        |       | $ | 4,219 |   |

 

We expect an additional $1.8 million charge to be takenin 2006 as we vacate additional office space pursuant to our officeconsolidation and restructuring plan.

 

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

# ** **

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

 

As described above, on January 1, 2005, we began consolidating theoperations of Advanstar.com with our operations upon adoption of FASBInterpretation No. 46R and therefore we are no longer recording a separateoperating expense related to our funding of Advanstar.com. Expenses associatedwith our funding of Advanstar.com were $3.3 million in 2004 and $1.1 million in2003. In the second quarter of 2004, we provided

 

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$1.9million in cash to Advanstar.com to allow it to buy out its outstanding NewYork lease obligation. The buyout saved approximately $5.0 million in futurelease payments through June 2010.

 

# ***Depreciation and amortization***

# ** **

Depreciationand amortization expense declined $4.9 million to $37.8 million in 2005 from $42.6million in 2004 primarily due to the effect of the double declining balancemethod of accelerated amortization on our exhibitor and advertiser listspartially offset by additional amortization expense related to the businessesacquired in 2005.

 

# ***Interest expense***

# ** **

Interestexpense decreased $7.9 million, or 11.2%, to $63.1 million in 2005 from $71.0million in 2004 primarily due to a decrease of $92.5 million in ourweighted-average debt outstanding during the year. We repaid $20.4 million ofour 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 “–Presentation of Financial Information-Credit Facility Amendment and Credit Facility and Second Priority Secured andFloating Rate Notes Repayment” for furtherinformation.

 

At December 31,2005, $451.4 million, or 98% of our total debt is at a fixed rate with thebalance of our debt subject to interest rate fluctuations. We currently have no plans to hedge our interestexpense related to our remaining floating or fixed rate debt.

 

# ***Interest income***

# ** **

Interestincome increased to $1.5 million in 2005 from $0.5 million in 2004 due to anincrease in our average cash balance in 2005 compared to 2004.

 

*Loss on extinguishmentof debt*

 

Weincurred $12.6 million in costs related to the repurchase of our fixed ratenotes and floating rate notes in June 2005. These costs include $8.6million in tender offer premium and consent fees, the write off of $3.5 millionin unamortized deferred financing costs, and $0.5 million in legal fees andexpenses. See “Presentation of Financial Information– Credit Facility Amendmentand Credit Facility and Second Priority Secured and Floating Rate NotesRepayment.”

 

*Otherincome (expense), net*

 

Otherincome decreased $1.2 million to $0.1 million in 2005 from $1.3 million in 2004.This decrease is attributable to gains associated with our interest rateprotection agreement, which expired in February 2004.

 

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

# ** **

The benefitfor income taxes was $2.7 million in 2005 compared to a $6.5 million provision in2004. The 2005 and 2004 tax benefit/provision  includes a tax benefit representing the taxbenefit provided by losses from continuing operations to the extent that suchlosses offset the income from discontinued operations. This tax benefit isoffset by a tax provision included in discontinued operations. This tax benefitin continuing operations is offset by a basis difference resulting fromgoodwill for tax purposes being less than the carrying value of goodwill forfinancial reporting purposes and income taxes in certain foreign jurisdictions.We recorded no income tax benefit related to the net operating losses wegenerated during 2005 and 2004 because we have established a valuation allowanceto offset any related tax benefits, due to uncertainty about realization ofthese benefits.

 

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# ***Discontinued operations***

# ** **

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

 

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

 

In May and July 2005, Advanstar sold certain businesses toQuestex for net cash of $173.8 million. A gain of $52.9 million on the sale ofthese assets was recorded in the second quarter of 2005.

 

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

 

See further information regarding divestituresincluded in dscontinued operations in “–Presentation of Financial Information–Acquisitionsand Divestitures.”

 

2004 COMPARED TO 2003

 

# ***Revenue***

# ** **

Totalrevenue increased $79.7 million, or 41.8%, to $270.4 million in 2004 from $190.7million in 2003.

 

Revenue from shows and conferences increased $16.9 million, or 18.7%, to$107.1 million in 2004 from $90.2 million in 2003. Our MAGIC event grew by morethan 138,000 square feet or 8.4% over 2003 and revenue increased approximately8.2% over 2003. The MAGIC events were successfully combined into a singlevenue, the Las Vegas Convention Center, beginning with the August 2004event. The concentration and proximity of the various fashion sectorscontributed to increased attendance and exhibitor interest and participation inMAGIC. Powersports events’ revenue increased approximately 14.7% over 2003 withthe 15th year of growth in Dealer Expo, solid performance from theIMS Tour series of consumer events and the launch of a west coast eventfor the v-twin market segment. Revenue also increased approximately $7.3million due to acquisitions of the Central Veterinary Conference in October 2003,and the IVT pharmaceutical conferences in March 2004. Strong performancesalso came from our shows serving the licensing markets. Additionally, welaunched three new events in the pharmaceutical and licensing sectors. Theincrease in revenue was partially offset by the sale of certain U.K. events in December 2003.

 

Revenuefrom publications increased $59.1 million, or 66.2%, to $148.4 million in 2004from $89.3 million in 2003. Approximately$55.0 million, or 94%, of the increase is due to the acquisitions of healthcareproperties from Thomson and pharmaceutical publications from IVT. Revenuegrowth also reflects strong results from Advanstar’s specialty healthcare andpharmaceutical publications, *DVM*, and *Motor Age*, as well as the introduction of several newproducts. Revenue increases for the year were partially offset by the sale ofselect U.K. publications. Advanstar’s advertising pages increased 36.9%for the year, primarily due to the properties acquired from Thomson. Advertisingpages remained stable from 2003 to 2004 for all publications other thanthose acquired or sold.

 

Revenue from direct marketing products and otherincreased $3.8 million, or 33.7%, to $14.9 million in 2004 from $11.2 millionin 2003 primarily due to higher levels of classified and recruitmentadvertising and strong list sales and reprints, primarily from the acquisition of properties from Thomson.

 

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*Cost ofproduction and selling*

 

Cost of production and selling expenses increased $53.0million, or 50.7%, to $157.6 million in 2004 from $104.6 million in 2003.

 

Expensesof shows and conferences increased $7.4 million, or 19.9%, to $44.5 million in2004 from $37.1 million in 2003. Expenses increased $6.5 million due to theacquired healthcare conferences, the IVT acquisition, and product launches. Theseincreases were partially offset by the sale of certain U.K. events in December 2003,as discussed above. There were no significant increases in venue pricing duringthe year.

 

Expensesof publications increased $44.3 million, or 76.2%, to $102.5 million in 2004from $58.2 million in 2003. This increase is primarily attributable toadditional costs of $41.6 million associated with our acquisition of theThomson healthcare properties. The increase in expenses was partially offset bythe cost savings from the sale of certain U.K. properties in December 2003. Printingprices increased slightly from 2003.

 

Expenses of direct marketing products and other increased$1.3 million, or 14.3%, to $10.6 million in 2004 from $9.3 million in 2003 dueto related growth in revenue.

 

# ***General and administrative expenses***

# ** **

General and administrative expenses increased $9.8million, or 32.9%, to $39.4 million in 2004 from $29.7 million in 2003. The increase reflects higher administrativecosts relating to the acquisition of properties from Thomson and relatedinvestments in the management team in the healthcare group, as well as a $1.5million employee compensation payment related to the IVT acquisition, increasedemployee healthcare costs, expenses relating to Sarbanes-Oxley compliance andimplementation and consulting costs related to strategic management andmarketing initiatives.

 

# ***Restructuring charge***

# ** **

See information regarding restructuringactivities in “—Results of Operations—2005 Compared to 2004—Restructure charge.”

 

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

# ** **

See information regarding funding of dot.com companyoperations in “—Results of Operations—2005 Compared to 2004—Funding of affiliated dot.comcompany operations.”

 

# ***Depreciation and amortization***

# ** **

Depreciationand amortization expense declined approximately $0.9 million to $42.6 millionin 2004 from $43.5 million in 2003 primarily due to the effect of the doubledeclining balance method of accelerated amortization on our exhibitor andadvertiser lists partially offset by additional amortization expense related tothe assets acquired in the acquisitions of the healthcare properties fromThomson and the pharmaceutical publications from IVT.

 

# ***Interest expense***

# ** **

Interest expense increased $11.9 million, or 20.1%,to $71.0 million in 2004 from $59.1 million in 2003 due to an increase in ourweighted-average debt outstanding of approximately $46.1 million as a result ofour issuance of $360 million of Senior Secured Notes in August 2003 and$70 million Senior Secured Notes in September 2003. The increase wasoffset by a decrease in our debt outstanding under the Credit Facility due tothe repayment in August 2003 of all but $25 million of the outstandingterm B loans and a portion of our revolving credit borrowings under our CreditFacility. See “Presentation of Financial Information—Private Placement of Second Priority Senior Secured Notes andRefinancing of Credit Facility.”

 

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*Write-offof deferred financing costs*

 

Werecorded an expense of $11.3 million in the third quarter of 2003 to reflectthe write-off of deferred financing costs related to the term loans which wererepaid with the proceeds of the August Senior Secured Notes offering andthe reduction in the revolving loan commitment. See “Presentation of FinancialInformation–Private Placement of Second Priority Senior Secured Notes andRefinancing of Credit Facility.”

 

*Otherincome (expense), net*

 

Otherincome increased $0.3 million to $1.3 million in 2004 from $0.9 million in 2003.This increase is attributable to gains associated with our interest rateprotection agreement, which expired in February 2004, and foreign currencytranslation gains.

 

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

# ** **

Theprovision for income taxes was $6.5 million in 2004 compared to a benefit of $6.7million in 2003. The 2004 and 2003 tax benefit/provision includes a tax benefitrepresenting the tax benefit provided by losses from continuing operations tothe extent that such losses offset the income from discontinued operations.This tax benefit is offset by a tax provision included in discontinuedoperations. This tax benefit in continuing operations is offset by a basisdifference resulting from goodwill for tax purposes being less than thecarrying value of goodwill for financial reporting purposes and income taxes incertain foreign jurisdictions. We recorded no income tax benefit related to thenet operating losses we generated during 2004 and 2003 because we haveestablished a valuation allowance to offset any related tax benefits, due touncertainty about realization of these benefits.

 

# ***Discontinued operations***

# ** **

See informationregarding discontinued operations in “—Presentation of Financial Information—Acquisitions,and Divestitures.”

 

**Liquidityand Capital Resources**

 

Ourprincipal sources of liquidity have been, and are expected to be, cash flowfrom operations and borrowings under our credit facility. Our principal uses ofcash have 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 ourpublications and shows and selective acquisitions.

 

*Sourcesand uses of funds*

 

Wegenerally operate with negative working capital, excluding cash and currentmaturities of long-term debt, due to the impact of deferred revenue from shows,which is billed and collected as deposits up to one year in advance of therespective show.

 

Operatingcash flows may be significantly affected by the working capitalcharacteristics of our business, in particular the shows and conferencesbusiness. Deferred revenue increases on the balance sheet in the quartersimmediately preceding our busy first quarter show season as we collect depositsfor booth space several months in advance of the shows. Revenue andcontribution margin are recognized in the quarter as the events are held,releasing the deferred revenue from the balance sheet, which results in areduction to our operating cash flow.

 

Weanticipate that our operating cash flow, together with borrowings under thecredit facility (assuming continued compliance with the covenants containedtherein or a modification thereof and that it is extended or replaced prior to April 2007,when it matures) and other future financings and refinancings, will besufficient to fund our anticipated future operating expenses, capitalexpenditures, debt service and other obligations as they

 

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become due. However, ourability to make scheduled payments of principal, to pay interest on or torefinance our indebtedness and to satisfy our other debt obligations willdepend upon our future operating performance, which will be affected by generaleconomic, financial, competitive, legislative, regulatory, business and otherfactors beyond our control. We expect to be in compliance with our debtcovenants during 2006.

 

Historically,our financing requirements have been funded primarily through cash generated byoperating activities and borrowings under our revolving credit facility. Fromtime to time, we have also raised additional funds through sales of commonstock, high yield offerings and term borrowings under our credit facility forpurposes of completing selective acquisitions.

 

As of December 31,2005, we had cash and cash equivalents of $46.6 million and also had $58.9million in availability under our revolving credit facility. The followingtable shows our cash flow activity for 2005, 2004 and 2003, and should be readin conjunction with the consolidated statements of cash flows:

 
| **(in thousands of dollars)**                       | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                |       |     |       |     |       |     |       |
| Net cash provided by operating activities      |       | $        | 8,308      |     | $          | 18,286   |       | $ | 45,848 |   |
| Net cash provided by (used in) investing activities |       | 148,959  |       | 5,602    |       | (145,333 | )          |
| Net cash (used in) provided by financing activities |       | (152,635 | )          | (12,515  | )          | 110,236  |       |
| Effect of exchange rate changes on cash             |       | 754      |       | 576      |       | (407     | )          |
| Net increase in cash and cash equivalents           |       | $        | 5,386      |     | $          | 11,949   |       | $ | 10,344 |   |

 

*Cashflows from operating activities*

 

Netcash provided by operations decreased $10.0 million to $8.3 millionin 2005 compared to $18.3 million in 2004. This decline was due primarily to$9.1 million of cash fees and expenses related to our repurchase of a portionof our outstanding debt in June 2005, severance payments of $1.5 million associated with restructuringactivities, and the reduction in cash flow attributable to discontinuedoperations. During 2005, net cash provided by discontinued operationswas $1.7 million, which represents approximately 20.4% of total n et cashprovided by operations. The declines discussed above were partially offset by a$6.8 million reduction in cash interest payments and a $9.3 million increase inoperating income in 2005 compared to 2004.

 

Netcash provided by operations decreased $27.6 million to $18.3 millionin 2004 compared to $45.9 million in 2003. This decline was principally due toan increase in interest expense of $16.1 million and a reduction in our negativeworking capital due to the sale of our art industry tradeshow and publicationsin the first quarter of 2004. In addition, we collected less cash in the fourthquarter of 2004, which was collected subsequently in 2005, related totradeshows held in the first five months of 2005. The decline was alsoattributable to changes in the timing of our payments of accounts payable in2004. These declines were partially offset by an increase in operating incomeof $18.2 million in 2004 compared to 2003.

 

*Cashflows from investing activities*

 

Netcash provided by investing activities increased $143.4 million to $149.0 million in 2005, from $5.6 million in2004 due primarily to the sale of the Portfolio Group in 2005 for $185million less $11.2 million in working capital adjustments and expenses. Thisincrease was partially offset by the use of $15.6 million in cash for acquisitionsof Off-Road Expo, POOL, Project and two other small acquisitions in 2005,partially offset by $7.9 million in cash used for the acquisition of IVT in2004. Our business strategyincludes the consummation of selective acquisitions. In connection with anyfuture acquisitions, we may require additional funding, which may beprovided in the form of additional debt or equity financing or a combinationthereof. There can be no assurance that any additional financing will beavailable to us on acceptable terms or in a manner that complies with therestrictive covenants in our debt instruments. Consistent with our longstandingstrategy, we continue to pursue potential acquisitions of complementarybusinesses.

 

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Netcash used in investing activities decreased$150.9 million to $5.6 million provided by investing activities in 2004,from $145.3 million used in 2003. This decrease was principally due to theacquisitions of the healthcare properties from Thomson for $136.5 million in2003, the sale in 2004 of our art shows and magazines and our European callcenter and document management shows for a total sales price of $24.4 millionin cash proceeds, partially offset by $7.9 million in cash used for theacquisition of IVT in 2004.

 

Weincurred capital expenses of $9.6 million, $9.0 million, and $7.6 million in2005, 2004 and 2003, respectively. We anticipate that we will spendapproximately $9.8 million on capital expenditures in 2006, which will befunded by cash flows from operations. The majority of these expenditures arerelated to expansions and enhancements to our IT and communicationsinfrastructure, management and operating group information systems and officebuild-outs arising from our recent office consolidations. We believe that thisamount of capital expenditure will be adequate to grow our business accordingto our business strategy and to maintain the key shows, publications andbusiness of our continuing operations.

 

*Cashflows from financing activities*

 

Netcash flows used in financing activities was $152.6 million in 2005 compared to $12.5million in 2004. In 2005, we repaid $20.4 million of our term loans, $8.7million of our fixed rate notes, and $117.8 million of our floating rate notesin the second quarter of 2005 with the proceeds from the sale of the PortfolioGroup. We incurred $12.6 million in costs related to the repayment. These costsinclude $8.6 million in tender offer premium and consent fees, the write off of$3.5 million in unamortized deferred financing costs, and $0.5 million in legalfees and expenses. We repaid $11.7 million of debt in 2004, including $8.0million on our revolving credit facility.

 

Netcash flows used in financing activities were $12.5 million in 2004 compared tocash provided by financing activities in 2003 of $110.2 million. We repaid$11.7 million of debt in 2004, including $8.0 million on our revolving creditfacility. In 2003, we issued $430.0 million of the Senior Secured Notes andreceived $60.0 million in equity contributions from our parent company. We usedthe proceeds from these issuances to repay and terminate all outstanding term Aloans and $12.0 million of outstanding borrowings under our revolving creditfacility, and paid fees of $12.3 million in connection with the offering. Wealso paid fees of $3.9 million to our senior lenders for an amendment to ourcredit facility in April 2003.

 

*Debt service*

 

As of December 31, 2005, we had total indebtedness of$462.0 million and approximately $58.9 million of borrowingsavailable under our revolving credit facility. Our principal debt obligationsare described below.

 

*Creditfacility*

 

Ourcredit facility consists of a $60.0 million revolving credit facility whichwill terminate in April 2007. Borrowings under the credit facilitygenerally bear interest based on a margin over, at our option, the base rate orLIBOR. The applicable margin for revolving credit loans varies based upon ourratio of consolidated debt to EBITDA, as defined in the credit facility, and iscurrently 3.75% over LIBOR and 2.50% over the base rate. Our obligations underthe credit facility are guaranteed by Advanstar Holdings Corp. (“AdvanstarHoldings” or “Holdings”), our ultimate parent company, Advanstar, Inc.,our direct parent company, and all of our existing and future domesticsubsidiaries. Our obligations under the credit facility are collateralized bysubstantially all of the assets of our company and the subsidiary guarantors,including a pledge of the capital stock of all our existing and future domesticsubsidiaries, a pledge of no more than 65% of the voting stock of any foreignsubsidiary directly owned by our company or any domestic subsidiary, a pledgeof all intercompany indebtedness in favor of our company and our domesticsubsidiaries, a pledge of our Company’s and Advanstar IH, Inc.’s capitalstock held by our direct parent company, and a pledge of our direct parent company’scapital stock held by Advanstar Holdings. Our credit facility containsrestrictive covenants, which require us to, among other things, maintain aminimum fixed charge coverage ratio (as defined in the credit facilitydocuments) as of the end of each fiscal quarter.

 

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Although there can be noassurance, we believe, based on our anticipated performance and expectedeconomic conditions, that we will be able to comply with the fixed chargecoverage ratio covenant contained in the credit facility in 2006.

 

*Secondpriority senior secured notes*

 

Our$9.9 million of floating rate notes mature in 2008. The floating ratenotes bear interest at an annual rate equal to the three-month LIBOR, which isreset quarterly, plus 7.50%. Interest on the floating rate notes, along withamortization of 0.25% of the principal of such floating rate notes, is payablequarterly in cash. In June 2005,holders of $117.8 million aggregate outstanding principal amount of the floatingrate notes tendered their notes for purchase, and we purchased all such notesat a price equal to 107.3% (including a 3% consent fee) of principal plusaccrued interest. In connection with the tender offer, we and the trusteeentered into a supplemental indenture that eliminated substantially all of therestrictive and reporting covenants, certain events of default and certainother provisions with respect to the floating rate notes and released thefloating rate notes’ lien on the collateral under the indenture. The fixed ratenotes remain secured by the collateral and subject to the restrictive covenantsin the indenture. See “Presentation of Financial Information– Private Placement of Second Priority SeniorSecured Notes and Refinancing of Credit Facility.”

 

Our$292.0 million of fixed rate notes mature in 2010. The notes areguaranteed by each of our existing and future domestic restricted subsidiariesand collateralized by second-priority liens on the assets collateralizing ourcredit facility (other than certain subsidiary stock and assets of our parentcompanies). The fixed rate notes bear interest at an annual rate of 10.75%,which is payable semi-annually in cash. The notes contain restrictive covenantsthat, among other things, limit our ability to incur debt, pay dividends andmake investments. In June 2005,holders of $8.7 million principal amount of the fixed rate notes tendered theirnotes for purchase, and we purchased all such notes. See “Presentationof Financial Information—PrivatePlacement of Second Priority Senior Secured Notes and Refinancing of CreditFacility.”

 

*Seniorsubordinated notes*

 

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

 

*Parentcompany notes*

 

Ourparent, Advanstar, Inc., issued 15% senior discount notes (“the discountnotes”) due October 2011 with a principal amount at maturity of$171.8 million. Interest on the discount notes is payable in cashbeginning in April 2006. These discount notes contain restrictivecovenants that, among other things, limit the ability of Advanstar, Inc.and its subsidiaries (including us) to incur debt, pay dividends and makeinvestments. Neither we nor any of our subsidiaries have guaranteed thediscount notes. Advanstar, Inc., however, is a holding company and itsability to pay interest on these discount notes will be dependent upon thereceipt of dividends from its direct and indirect subsidiaries, principallydividends from us. However, the terms of our borrowing arrangementssignificantly restrict our ability to pay dividends to Advanstar, Inc. andAdvanstar, Inc.’s failure to pay these notes would be a default under ourcredit facility.

 

Therestricted 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 basketequal 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 suchbasket 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 leverage ratio under the most restrictive of theseindentures was 5.96 to 1.0. In March

 

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2006, we declared andpaid a dividend of $12.9 million to Advanstar, Inc. to be used forservicing  its debt obligations.

 

Weexpect our results will allow us to continue to make dividend payments to Advanstar, Inc.for purposes of debt service. However, our results are subject to a variety offactors, including general economic conditions and conditions in its market. Wemay not generate sufficient cash flow from operations or be permitted by theterms of our debt instruments to pay dividends or distributions to Advanstar, Inc.in amounts sufficient to allow it to pay cash interest on the parent companynotes. If Advanstar, Inc. is unable to meet its debt service obligations,it could attempt to restructure or refinance its indebtedness or seekadditional equity capital. We cannot assure you that Advanstar, Inc. willbe able to accomplish these actions on satisfactory terms or at all. A defaultunder the parent company notes could result in an acceleration of alloutstanding loans under our credit facility which, in turn, would trigger across-default under both our second priority senior secured notes and oursenior subordinated notes.

 

*Contractualand contingent obligations*

 

Ourcontractual obligations (excluding accounts payable and accrued expenses), asof December 31, 2005 are as set forth below (in millions):

 
| ** **                         | ** ** | **Payments Due By Period** | ** ** |
|------------------------------------|------------|----------------------------|------------|
| ** **                         | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **After** | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **2006**                   | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2010** | ** ** | **Total** | ** ** |
|                               |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Indebtedness                       |       | $                          | 0.2        |   | $ | 0.1 |   | $ | 9.7 |   | $ | — |   | $ | 291.3 |   | $ | 160.0 |   | $ | 461.3 |   |
| Interest on  indebtedness (1)      |       | 51.1                       |       | 51.1 |   | 50.8 |   | 50.5 |   | 42.7 |   | 9.6 |   | 255.8 |   |
| Operating lease  obligations       |       | 7.7                        |       | 6.7 |   | 6.5 |   | 4.8 |   | 2.2 |   | 4.9 |   | 32.8 |   |
| Total Contractual Cash Obligations |       | $                          | 59.0       |   | $ | 57.9 |   | $ | 67.0 |   | $ | 55.3 |   | $ | 336.2 |   | $ | 174.5 |   | $ | 749.9 |   |
|                                    |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)                                  Intereston our variable rate debt is calculated using LIBOR of 4.4%, the rate in effecton December 31, 2005. Because our variable rate debt bears interest at avariable rate, actual payments could differ.

 

We have no materialcapital lease obligations or purchase obligations. We have contingentobligations composed of $1.1 million of letters of credit securing our leasefacilities. Additionally, as a result of acquisitions discussed above, we may havefuture cash consideration payable to the former selling shareholders based on theacquired businesses’ future periods operating results.

 

*Off-balance sheet arrangements.*

 

We have no materialoff-balance sheet arrangements.

 

**RecentlyIssued Accounting Standards**

 

In December 2004, the Financial Accounting Standards Board issuedSFAS No. 123R, “Share-Based Payment” which revises SFAS 123 and supersedesAPB 25. This statement establishes standards relating to accounting fortransactions in which equity instruments are exchanged for goods or services. TheCompany is required to adopt the provisions of this standard effective January 1,2006. This statement requires companies to classify their awards as either anequity award or liability award. In accordance with this standard, the Companywill classify the vested portion of the awards as a liability valued at theirintrinsic value at each reporting date. Using the intrinsic method to valueliability awards, compensation expense amounts is recorded only if the value

 

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of theCompany’s shares is greater than the option exercise as of the reporting date. Asof January 1, 2006, we believe the intrinsic value of vested options iszero thus no liability or expense will be recorded upon adoption.

 

# ***Item 7A. — QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT****MARKETRISK*

# ** **

We areexposed to various market risks, which are the potential losses arising fromadverse changes in market rates and prices, such as foreign currency exchangeand interest rates. We do not enter into derivatives or other financialinstruments for trading or speculative purposes. We enter into financialinstruments to manage and reduce the impact of changes in interest rates andforeign currency exchange rates.

 

#### **InterestRates**

#### ** **

At December 31,2005, we had fixed rate debt of $451.4 million and variable rate debt of $9.9 million.A change in interest rates of 1% would not be material to us.

 

#### **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 us.

 

**Item 8. —*FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA***

 

Pleaserefer to Item 15. —Exhibits and Financial Statement Schedules.

 

**Item 9. —*CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE***

 

Noevents have occurred which would require disclosure under this Item.

 

**Item 9A.— *CONTROLS AND PROCEDURES***

 

#### **Evaluation of DisclosureControls and Procedures**

#### ** **

Advanstar’sChief Executive Officer and Chief Financial Officer, after evaluating theeffectiveness of the Company’s disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of theperiod covered by this report (the “Evaluation Date”), have concluded that asof the Evaluation Date, our disclosure controls and procedures were effective.

 

#### **Changes in InternalControls**

#### ** **

Therewere no significant changes during the Company’s fourth fiscal quarter in ourinternal controls over financial reporting that have materially affected or arereasonably likely to materially affect the Company’s internal controls overfinancial reporting.

 

**Item 9B.— OTHER INFORMATION**

 

None.

 

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**PART III**

 

**Item 10.— *DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT***

 

Thefollowing table sets forth the name, age and position of each of our executiveofficers, directors and other key employees.

 
| **Name**            | ** ** | **Age** | ** ** | **Position**                                                          |
|---------------------|------------|---------|------------|-----------------------------------------------------------------------|
|                |       |    |       |                                                                  |
| Joseph Loggia       |       | 46      |       | Chief Executive  Officer and Director                                 |
| James M. Alic       |       | 63      |       | Vice President,  Chairman of the Board and Director                   |
| David W. Montgomery |       | 48      |       | Vice President –  Finance, Chief Financial Officer and Secretary |
| R. Steven Morris    |       | 54      |       | Executive Vice  President                                             |
| Daniel M. Phillips  |       | 43      |       | Executive Vice  President                                             |
| Alexander S. DeBarr |       | 45      |       | Executive Vice  President                                             |
| Eric I. Lisman      |       | 48      |       | Executive Vice  President Corporate Development                       |
| Ward D. Hewins      |       | 45      |       | Vice President  and General Counsel                                   |
| Rick Treese         |       | 35      |       | Vice President –  Chief Technical Officer                        |
| Georgiann DeCenzo   |       | 48      |       | Vice President                                                        |
| OhSang Kwon         |       | 37      |       | Director                                                              |
| Douglas B. Fox      |       | 58      |       | Director                                                              |
| Charles Pieper      |       | 59      |       | Director                                                              |
| James Finkelstein   |       | 57      |       | Director                                                              |

 

**Executive Officers**

 

*JosephLoggia* has served as Chief Executive Officer since January 1,2004, and has served as our President and Director since May 2002. Priorto May 2002, he served as President and Chief Executive Officer of MAGIC(our subsidiary), President from August 1996, and Chief Operating Officerbeginning in 1995. Prior to our acquisition of MAGIC, from January 1993 toAugust 1996 he served as MAGIC’s President and Chief Executive Officer. Priorto joining MAGIC, Mr. Loggia was a manager at the accounting firm ofCoopers & Lybrand responsible for Fraud & FinancialInvestigations.

 

*James M.Alic* has served as Chairman of the Board since August 2004.He previously served as our Vice Chairman and Vice President from July 1996to July 2004. From June 1995 to June 1996, he was Vice Presidentand Controller of IBM Corporation. From September 1994 to May 1995,he was Chairman of Reed Exhibition Companies. From August 1991 to August 1994,he was President of Reed Exhibitions North America.

 

*David W.Montgomery* has served as our Vice President-Finance and ChiefFinancial Officer since January 1994. From July 1989 to December 1993,he was our Director of Corporate Finance. In July 1992, he became our Secretary.From January 1981 to June 1989, he was a practicing CPA withMcGladrey & Pullen in Minneapolis, Minnesota.

 

*Eric I.Lisman* has served as our Executive Vice President CorporateDevelopment since November 2001. He previously served as our General Counselfrom September 1998 to February 2005. From November 1997 to August 1998,he engaged in a private legal practice. From August 1996 to July 1997,he was a Senior Vice President and General Counsel of Cahners PublishingCompany. From July 1993 to July 1996, he was a Vice President andGeneral Counsel of Reed Publishing USA.

 

*Ward D. Hewins* has served as our VicePresident and Chief Counsel since February 2005. From July 2000 to February 2005,Mr. Hewins was our Deputy General Counsel. From March 1998 to July 2000,Mr. Hewins served as Assistant General Counsel for Interactive Data Corporation. From October 1993 to March 1998Mr. Hewins was a corporateassociate and then a partner in the Boston office of Eckert Seamans Cherin & Mellott.

 

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*Rick Treese* has served as our VicePresident and Chief Technology Officer since March of 2002, a role hemoved to after two years as the CTO of Advanstar.com. Prior to Advanstar, Mr. Treesewas Vice President of Technology at Goldman, Sachs & Company where heled the software development effort for the Equity Research Division.

 

**Key Employees**

 

*R.**Steven Morris*currently serves as Executive Vice President responsible for the Healthcare,Science and Pharmaceutical markets. Prior to June 2005, he was VicePresident of the Market Development Group. Mr. Morris joined Advanstar in2004. Prior to joining Advanstar, Mr. Morris was Chief OperatingOfficer for Metro International Newspapers for the Americas and Asia.

 

*Daniel M. Phillips* has served as Executive Vice President of our Powersports andAutomotive markets since 2003. Prior to that, he was Vice President and GeneralManager of Advanstar’s Technology groups. Mr. Phillips joined Advanstar in1996 as a group publisher of America’s Network, Telecom Asia and Comunicacionesmagazines, and in 1998 was promoted to Vice President and General Manager. Priorto joining Advanstar, Mr. Phillips was responsible for publications andevents for EMAP (U.K.) in the area of IT & Telecommunications.

 

*AlexanderS. DeBarr* has served as our Executive Vice President since June 1997and is responsible for the Dental and Veterinary markets, and the MarketDevelopment group. From February 1995 to May 1997, he was a GroupVice President of Advanstar. Mr. DeBarr also served as a Group Publisherof Advanstar from February 1993 until January 1995.

 

*GeorgiannDeCenzo* currently serves as Vice President responsible forthe License and Market Development groups. From July 2005 to February 2006,she served as Vice President, Marketing & Communications and wasresponsible for our corporate communications, marketing and research. Prior to July 2005,Ms. DeCenzo served as Corporate Marketing Director. Before joiningAdvanstar in 1998, Ms. DeCenzo served as Marketing Director of PentonMedia’s IndustryWeek.

 

**Directors**

 

*JosephLoggia.*See “Executive Officers.”

 

*James M.Alic.*See “Executive Officers.”

 

*OhSangKwon* has served as a director since October 2000. Since July 2005,Mr. Kwon has been a partner of Avista Capital Holdings, LP, a privateequity firm and also a Partner of MB Advisory Partners, LLC, which has beenengaged by Credit Suisse Securities (USA), LLC to provide consulting serviceswith respect to DLJ Merchant Banking portfolio companies. From February 2000to June 2005, he served as a Partner, Principal, and Vice President of DLJMerchant Banking, Inc. From May 1997 to February 2000, he was anAssociate with DLJ Securities Corporation, and he became a Vice President ofDLJ Securities Corporation in February 2000. From October 1996 to May 1997,he was an Associate at Davis Polk & Wardwell. Prior to that, he was alaw clerk for the Hon. William C. Conner in the United States District Courtfor the Southern District of New York. Mr. Kwon currently serves on the boardof directors of UAE Holdings Corp., MSW Energy Holdings II LLC and AmericanRef-Fuel Company LLC.

 

*DouglasB. Fox* has served as a director and chairman of the auditcommittee since September 2002. Mr. Fox is a private investor andconsultant. Prior to his current activities, he served as Senior Vice Presidentof Marketing and Strategy at Compaq Computer Company from 2000 to 2001 andSenior Vice President of Marketing at International Paper Inc. from 1997to 2000. He served as President of Landmark Communications Inc. from 1994to 1996 and prior to that from 1987 to 1994 he served as President and Chief

 

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Operating Officer atNewsday in New York. Mr. Fox currently serves on the Board of Directors ofThe Vitamin Shoppe, Microban International, Ltd., and VitaQuest, Inc.

 

**CharlesPieper** has served as a Director since August 2004.Mr. Pieper joined DLJMB and Credit Suisse Securities (USA), LLC’s AlternativeCapital Division in 2004 as an Operating Partner and is currently a ManagingDirector and a member of the Firm’s Management Council. Prior to joining DLJMB,he served as President and Chief Executive Officer of GE Japan, Korea, Taiwan;GE Medical Systems Asia; Yokogawa Medical Systems; GE Lighting Europe and GETrading Co; and an Operating Partner with Clayton, Dubilier & Rice. Mr. Pieperpreviously served as Chairman and Acting CEO of Alliant Foodservice, Inc.and U.S. Office Products, Chairman of the Board of Fairchild DornierCorporation, Italtel Holding S.p.A., North American Van Lines, and ViceChairman of Dynatech.

 

*JamesFinkelstein* hasserved as a Director since October 2004. Mr. Finkelstein has beenExecutive Chairman of Thompson Publishing Holding Co., Inc. since May 2004.He is presently President of Marquis Who’s Who, LLC, and CEO of NewsCommunications, Inc., publisher of The Hill, the publication for Congress,and Dan’s Publications. He is a partner at Avista Capital Partners since July 2005.He has served as Chairman of Global Media Partners at Credit Suisse FirstBoston from January 2004 to July 2005. Previously he served as mediapartner to DB Capital Partners. From 1979 to 1998 he served as CEO of theNational Law Publishing Company. Mr. Finkelstein has served on the Boardof Directors of the Legal Aid Society, and New York University’s Faculty ofArts and Sciences Board of Overseers, and was awarded an Honorary Doctor ofLaws degree from Hofstra University.

 

All ofour directors also serve on the board of directors of Advanstar, Inc.

 

**Audit Committee Financial Expert**

** **

Our Audit Committee is comprised of two non-managementdirectors who are appointed by the Board of Directors:  Mr. Douglas B. Fox, and Mr. OhSangKwon. Our Board of Directors has carefully considered the definition of “auditcommittee financial expert” adopted by the United States Securities andExchange Commission and has determined that Mr. Fox is an audit committeefinancial expert. Our Board of Directors has determined that Mr. Fox isnot independent under Rule 10A-3 of the Exchange Act.

 

**Code of Ethics**

** **

We have adopted a Code of Ethics applicable to ourChief Executive Officer and Chief Financial Officer, which is compliant withItem 406 of Regulation S-K. Our Code of Ethics is posted on our website at http://www.advanstar.com.Any waivers or amendments to our Code of Ethics that apply to our ChiefExecutive Officer or our Chief Financial Officer that are required to bedisclosed by SEC rules will be disclosed on our website within fivebusiness days following such waiver.

 

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**Item 11.— *EXECUTIVE COMPENSATION***

 

**SummaryCompensation Table**

 

Thefollowing table presents compensation paid to our chief executive officer andthe four other most highly paid executive officers in the last three fiscalyears.

 
| **Name and Principal Position**  | ** ** | **Year** | ** ** | **Salary** | ** ** | **Bonus (1)** | ** ** | **Other Annual  Compensation (2)** | ** ** | **Long-Term  Compensation  Awards  Securities  Underlying  Options/SARs** | ** ** | **All Other  Compensation (3)** | ** ** |
|----------------------------------|------------|----------|------------|------------|------------|---------------|------------|------------------------------------|------------|---------------------------------------------------------------------------|------------|---------------------------------|------------|
| Joseph Loggia                    |       | 2005     |       | $          | 625,000    |          | $          | 937,500                            |       | $                                                                         | 1,800      |                            | —     |   | $ | 8,010 |   |
| Chief Executive Officer and      |       | 2004     |       | 625,000    |       | 339,016       |       | 990                                |       | —                                                                    |       | 7,860                           |       |
| Director (4)                     |       | 2003     |       | 500,000    |       | 146,046       |       | —                             |       | 600,000                                                                   |       | 7,140                           |       |
|                             |       |     |       |       |       |          |       |                               |       |                                                                      |       |                            |       |
| James M. Alic                    |       | 2005     |       | 150,000    |       | 150,000       |       | —                             |       | —                                                                    |       | 9,369                           |       |
| Chairman of the Board            |       | 2004     |       | 150,000    |       | 75,000        |       | —                             |       | 106,250                                                                   |       | 8,632                           |       |
|                             |       | 2003     |       | 150,000    |       | 50,000        |       | —                             |       | —                                                                    |       | 6,427                           |       |
|                             |       |     |       |       |       |          |       |                               |       |                                                                      |       |                            |       |
| David W. Montgomery              |       | 2005     |       | 300,000    |       | 125,766       |       | —                             |       | —                                                                    |       | 7,682                           |       |
| Vice President-Finance, Chief    |       | 2004     |       | 298,462    |       | 120,000       |       | —                             |       | —                                                                    |       | 7,388                           |       |
| Financial Officer and Secretary  |       | 2003     |       | 259,615    |       | 75,000        |       | —                             |       | —                                                                    |       | 7,015                           |       |
|                             |       |     |       |       |       |          |       |                               |       |                                                                      |       |                            |       |
| Eric I. Lisman                   |       | 2005     |       | 362,000    |       | 151,814       |       | —                             |       | —                                                                    |       | 7,924                           |       |
| Executive Vice President -       |       | 2004     |       | 362,000    |       | 144,800       |       | —                             |       | —                                                                    |       | 7,597                           |       |
| Corporate Development            |       | 2003     |       | 361,539    |       | 65,639        |       | —                             |       | —                                                                    |       | 7,379                           |       |
|                             |       |     |       |       |       |          |       |                               |       |                                                                      |       |                            |       |
| Rick Treese                      |       | 2005     |       | 249,615    |       | 88,117        |       | —                             |       | —                                                                    |       | 6,941                           |       |
| Vice President - Chief Technical |       | 2004     |       | 239,731    |       | 84,000        |       | —                             |       | —                                                                    |       | 6,638                           |       |
| Officer                          |       | 2003     |       | 232,692    |       | 38,165        |       | —                             |       | —                                                                    |       | 6,559                           |       |
|                                  |            |          |            |            |            |               |            |                                    |            |                                                                           |            |                                 |            |  |  |  |  |

 

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(1)                                  Bonusesare reported in the year earned, even though they were actually paid in thesubsequent year.

 

(2)                                  Includesthe incremental cost of perquisites and personal benefits provided for by ourcompany.

 

(3)                                  Includesvalue of group term life insurance premiums paid for by our company for thebenefit of the officer.

 

(4)                                  See“Employment Agreements and Arrangements” for a discussion of Mr. Loggia’s amendedemployment agreement.

 

**OptionGrants in Last Fiscal Year**

 

Thefollowing table sets forth each grant of stock options made by Advanstar(consisting of options to purchase stock of Holdings) during the year ended December 31,2005 pursuant to the 2000 Management Incentive Plan described below to each ofthe named executive officers. We have not granted any stock appreciationrights.

 

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**Option Grants in Last Fiscal Year**

 
| **Name**    | ** ** | **Number of  Securities  Underlying  Options  Granted** | ** **  | **% of Total  Options  Granted  to  Employees  in Fiscal  Year** | ** ** | **Exercise  Price  ($/share)** | ** ** | **Expiration  Date** | ** ** | **Potential Realizable  Value at Assumed  Annual Rates of  Stock Price  Appreciation  for Option Term** | ** ** |
|-------------|------------|---------------------------------------------------------|-------------|------------------------------------------------------------------|------------|--------------------------------|------------|----------------------|------------|---------------------------------------------------------------------------------------------------------|------------|
| ** **  | **5% ($)** | ** **                                              | **10% ($)** | ** **                                                       |
| Rick Treese |       | 50,000                                                  |        | 11.8                                                             | %          | $                              | 10.00      |                 | 2015       |                                                                                                    | $          | 314,447 |   | $ | 796,871 |   |
|             |            |                                                         |             |                                                                  |            |                                |            |                      |            |                                                                                                         |            |  |  |  |  |  |

 

**OptionExercises and Holdings**

 

Thefollowing table sets forth, for each of the officers named in the SummaryCompensation Table, certain information concerning the number of shares subjectto both exercisable and unexercisable stock options as of December 31, 2005.None of the unexercised options were “in the money” at December 31, 2005based on a good faith estimate of the fair market value of the stock price byour Board of Directors.

 

**Aggregated Option Exercises in 2005 and December 31,2005 Option Values**

 
| **Name**            | ** ** | **Number of  Shares  Acquired  on  Exercise** | ** ** | **Value  Realized** | ** ** | **Number of Securities  Underlying  Unexercised Options  at Fiscal  Year End** | ** ** | **Value of Unexercised  In-the-Money Options  at Fiscal Year End** | ** ** |
|---------------------|------------|-----------------------------------------------|------------|---------------------|------------|--------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| **Exercisable**     | ** ** | **Unexercisable**                             | ** ** | **Exercisable**     | ** ** | **Unexercisable**                                                              |
| James M. Alic       |       | —                                        |       | —              |       | 223,440                                                                        |       | 51,560                                                             |       | — |   | — |   |
| Joseph Loggia       |       | —                                        |       | —              |       | 674,167                                                                        |       | 425,833                                                            |       | — |   | — |   |
| David W. Montgomery |       | —                                        |       | —              |       | 196,875                                                                        |       | 53,125                                                             |       | — |   | — |   |
| Eric I. Lisman      |       | —                                        |       | —              |       | 153,124                                                                        |       | 46,876                                                             |       | — |   | — |   |
| Rick Treese         |       | —                                        |       | —              |       | 30,312                                                                         |       | 54,688                                                             |       | — |   | — |   |

 

The following table setsforth the shares issued and issuable and exercise price for our equitycompensation plan as of December 31, 2005.

 

**Equity Compensation Plan Information**

 
| ** **                                             | ** ** | **Number of Shares  To Be Issued Upon  Exercise of Outstanding  Options, Warrants and Rights** | ** ** | **Weighted Average  Exercise Price of  Outstanding Options,  Warrants and Rights** | ** ** | **Number of Securities  Remaining Available  for Future Issuance  Under Equity Compensation  Plans (Excluding Outstanding  Securities)** | ** ** |
|--------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plan approved by security  holders |       | 3,965,000                                                                                      |       | $                                                                                  | 10.00      |                                                                                                                                     | 107,789    |   |
|                                                        |            |                                                                                                |            |                                                                                    |            |                                                                                                                                          |            |  |

 

We donot have any equity compensation plans that were not approved by shareholders.

 

**StockOption and Incentive Plans**

 

*2000 Management Incentive Plan*

 

The2000 Management Incentive Plan was adopted by the board of Advanstar Holdings (“Holdings”)on October 11, 2000 and amended by the board of Holdings as of September 17,2002, December 10, 2002, and April 19, 2005. The followingdescription of the plan is intended to be a summary and does not describe allprovisions of the plan.

 

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*Purposeof the Plan.*The purpose of the plan is to attract andretain the best available key employees, non-employee directors and consultantsfor Holdings and its subsidiaries and affiliates and to encourage the highestlevel of performance by those individuals, thereby enhancing Holdings’ valuefor the benefit of its stockholders. The plan is also intended to motivate suchindividuals by means of performance-related incentives to achieve longer-rangeperformance goals and enable such individuals to participate in the long-termgrowth and financial success of Holdings.

 

*Administrationof the Plan.*The plan will be administered by thecompensation committee or the board as a whole, if no committee is constituted.The compensation committee has the power, in its discretion, to select theparticipants who will participate in the plan, to grant awards under the plan,to determine the terms of these awards, to interpret the provisions of the planand to take any action that it deems necessary or advisable for theadministration of the plan.

 

*Eligibilityand Participation.*Eligibility to participate in the planis limited to key employees of Holdings, its subsidiaries and affiliates. Participationin the plan is at the discretion of the compensation committee and will bebased upon the individual’s present and potential contributions to Holdings’success and such other factors as the compensation committee deems relevant. Noindividual may be granted in any calendar year awards covering more than900,000 shares of Holdings common stock.

 

*Type ofAwards Under the Plan.*The plan provides that thecompensation committee may grant non-statutory stock options to eligibleparticipants subject to such terms, conditions and provisions as thecompensation committee may determine to be necessary or desirable.

 

*Number ofAuthorized Shares.*Holdings has authorized a maximum of 4,072,789shares of its common stock for participants under the plan during the term ofthe plan, of which 3,965,000 have been granted and remain outstanding as of December 31,2005. In addition, the number of shares available will be increased to theextent that shares are not purchased on a leveraged basis under Holdings’Direct Investment Program. The compensation committee may adjust thenumber and class of shares available under the plan to prevent dilution orenlargement of rights in the event of various changes in Holdings’capitalization.

 

*Put andCall Rights.*Holdings has certain rights to repurchase,or “call,” shares purchased pursuant to the plan if a plan participant isterminated by Holdings or one of its subsidiaries for cause or without cause,or if the participant terminates employment for good reason, without goodreason, or due to death, disability or “qualified retirement.”  A plan participant has the right to sell, or “put,”shares purchased pursuant to the plan to Holdings if a participant’s employmentis terminated due to disability, “qualified retirement” or death. “Qualifiedretirement” means retirement at age 62 or with board approval.

 

*Change inControl.*If there is a change in control of Holdings, allunvested time-vesting options granted pursuant to the plan will vest and becomeimmediately exercisable and, if the change in control constitutes a liquidityevent (as defined in the award agreements), all performance vesting optionswill vest. A change in control generally means the acquisition by any person orgroup of persons, other than an affiliate or affiliates of the DLJ MerchantBanking funds, of more than 51% of the outstanding voting securities ofHoldings or a sale of all or substantially all of Holdings’ assets.

 

*Amendmentand Termination.*Holdings’ board may amend, alter,suspend, discontinue or terminate the plan at any time, provided that no suchamendment, alteration, suspension, discontinuation or termination will be madewithout stockholder approval if such approval is necessary to qualify for orcomply with any tax or regulatory status or requirement with which the boarddeems it necessary or desirable to qualify or comply.

 

# **Direct Investment Plan**

# ** **

TheDirect Investment Plan was adopted by the board of Holdings on October 11,2000 to promote the interests of Holdings and its stockholders by retainingexceptional executive personnel and aligning the interests of

 

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such employees with thoseof Holdings’ equity investors. Upon the closing of the DLJ Acquisition,1,100,000 million shares of common stock of Holdings were purchased by executivesof the Company pursuant to the plan, and participation in the plan was closedat that level as of December 31, 2000. Pursuant to the plan, one-half ofthe shares were purchased through non-recourse loans granted by Holdings. Theprincipal and accrued interest on the non-recourse loans were settled in fullin 2004.

 

Holdingshas certain rights to repurchase, or “call,” shares purchased pursuant to theplan if a plan participant is terminated by Holdings or one of its subsidiariesfor cause or without cause, or if the participant terminates employment forgood reason, without good reason, or due to death, disability or “qualifiedretirement.”  A plan participant has theright to sell, or “put,” shares purchased pursuant to the plan to Holdings if aparticipant’s employment is terminated due to disability, “qualified retirement”or death. “Qualified retirement” means retirement at age 62 or with boardapproval.

 

**401(k) Plan**

 

Advanstar, Inc.has an Employees’ 401(k) Plan and Trust. All current and future domestic employeesof Advanstar, Inc. or any other domestic subsidiary who are at least21 years-of-age are eligible to participate in the 401(k) Plan. Participantsin the 401(k) Plan may not contribute more than the lesser of a specifiedstatutory amount or 100% of his or her pre-tax total compensation. Advanstar, Inc.is required to make a matching contribution to the 401(k) Plan after theemployee has completed one year of service, which vests in equal installmentsover five years, in accordance with the following schedule:

 

•                  with respect to the employee’selective contribution in an amount up to 2% of the employee’s grosscompensation, the matching contribution is required to be equal to 100% of theemployee’s contribution;

 

•                  with respect to the employee’selective contribution in excess of 2% and not in excess of 6% of grosscompensation, the matching contribution is required to be equal to 25% of suchemployee’s contribution; and

 

•                  with respect to the employee’selective contribution in excess of 6% of gross compensation, there shall be nomatching contribution.

 

**EmploymentAgreements and Arrangements**

 

Mr. Loggiaentered into an employment agreement with Advanstar, Inc. dated as of November 21,2003, which was amended and restated effective June 22, 2005. Pursuant tothe agreement, Mr. Loggia will continue to act as chief executive officer ofAdvanstar, Inc. and Advanstar Communications Inc. through December 31,2007, followed by successive three year employment terms unless terminated byeither party in accordance with the agreement. Mr. Loggia is entitled toan annual base salary of $625,000 and an annual bonus based on Advanstar, Inc.’sEBITDA for any year, up to a maximum bonus in any one year of 150% of basesalary. The agreement provides for indemnification to the maximum extentpermitted by law. If Mr. Loggia is terminated by Advanstar, Inc.without “cause” or terminates his employment for “good reason,” each as definedin the agreement, he will be entitled to the continuation of his base salaryfor a period of two years following his termination, and the greater of hisbonus that would have been payable to him had he remained employed through theend of the fiscal year or the annual bonus received by Mr. Loggia in 2004.Mr. Loggia’s agreement also includes provisions triggered by a qualifyingchange in control, as defined in the agreement, including accelerated vestingof his stock options, and change in control bonus, calculated based upon theeffective purchase price per share, and not to exceed $4,000,000. Mr. Loggiaalso has entered into a new non-compete and confidentiality agreement with Advanstar, Inc..The non-compete period is one year, during which time Mr. Loggia willcontinue to receive his base salary unless he was terminated for cause or as aresult of his death or disability.

 

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Mr. Alicentered into an employment agreement with Advanstar, Inc., which wasamended effective March 1, 2002, September 15, 2004 and February 1,2006. The amended agreement provides for a fixed term through December 31,2007, and continuation thereafter upon agreement mutual agreement of theparties. Pursuant to the amended agreement, Mr. Alic will serve asChairman and will be entitled to an annual base salary of $150,000 and up to amaximum bonus in 2005, 2006 and 2007 of 100% of his base salary. The amendedagreement does not provide for a bonus payment or severance upon termination. Theagreement provides for indemnification of the executive to the extent permissibleunder New York law. Mr. Alic also entered into a non-competition andconfidentiality agreement with Advanstar, Inc.. The non-compete period isone year after termination of employment unless employment is terminated by uswithout cause or by the executive for good reason, in which case thenon-competition period is six months. During the non-compete period, Mr. Alicmay not hire any employee or solicit any tradeshow or publishing businessfrom a third party that has a relationship or contract with us.

 

Advanstar, Inc.currently has a severance arrangement with David W. Montgomery, our andAdvanstar, Inc’s Vice President-Finance, Chief Financial Officer and Secretary.In the event that Mr. Montgomery’s employment is involuntarily terminatedfor any reason other than for cause, the arrangement provides that Mr. Montgomerywill receive a termination payment equal to six months of salary.

 

Advanstar, Inc.currently has a severance arrangement with Eric I. Lisman, its Executive VicePresident - Corporate Development. In the event that Mr. Lisman’semployment is terminated for any reason other than for cause or if Mr. Lisman’sprincipal office location is relocated outside the greater Boston area, thearrangement provides that Mr. Lisman will receive twelve months ofseverance based on his then current salary, his target bonus and healthbenefits.

 

AdvanstarCommunications, Inc. currently has a severance arrangement with Ward D. Hewins,its Vice President and General Counsel. In the event that Mr. Hewins’ employment is terminated for anyreason other than for cause or if Mr. Hewins’ principal office location isrelocated outside the greater Boston area, the arrangement provides that Mr.Hewins will receive twelve months of severance based on his then current salary,his target bonus and health benefits.

 

We donot have employment agreements with our other named executive officers.

 

**DirectorCompensation**

 

## ***Standard Arrangements***

## ** **

Wecurrently have no standard arrangements pursuant to which our directors wouldbe compensated for their services as a director.

 

## ***Other Arrangements***

## ** **

On October 1,2004, Mr. James Finkelstein was appointed as a member of the board ofdirectors. Mr. Finkelstein receives an annual retention fee of $50,000. Healso was granted options to purchase 25,000 shares of the common stock ofHoldings at an exercise price of $10.00 per share, pursuant to Holdings’ 2000Management Incentive Plan. These options will vest over a four-year period,with 20% vesting upon the grant date and an additional 20% vesting on eachanniversary of the grant. Mr. Finkelstein is also reimbursed for allreasonable out-of-pocket expenses incurred in connection with his service as adirector of the Company.

 

On September 17,2002, Mr. Douglas B. Fox was appointed as a member of the board ofdirectors. Mr. Fox receives an annual retention fee of $40,000 and,through Renaissance Brands, LTD, a company wholly owned by Mr. Fox, aseparate annual advisory fee of $40,000, both payable in equal quarterlyinstallments. Mr. Fox is also reimbursed for all reasonable out-of-pocketexpenses incurred in connection with his service as a director of the Company.

 

As ofthe date of his appointment, Mr. Fox was granted options to purchase25,000 shares of the common stock of Holdings at an exercise price of $10.00per share, pursuant to Holdings’ 2000 Management Incentive Plan. These optionswill vest over a four-year period, with 20% vesting upon the grant date and anadditional 20% vesting on each anniversary of the grant. Mr. Fox was alsogranted the right, expiring December

 

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31, 2002, to purchase upto 50,000 shares of the common stock of Holdings at a price of $10.00 pershare, which he did not exercise.

 

**CompensationCommittee Interlocks and Insider Participation**

 

Duringthe periods up to and including 2005, we did not have a compensation committee.During the fiscal year ended December 31, 2005, Messrs. Loggia and Alicparticipated in deliberations of our board of directors concerning executiveofficer compensation.

 

**Item 12.— *SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT***

 

All ofour common stock is owned by our parent company, Advanstar, Inc., which iswholly-owned by Advanstar Holdings. The following table sets forth informationwith respect to the beneficial ownership of Holdings’ common stock as of March 30,2006 by (a) any person or group who beneficially owns more than fivepercent of Holdings common stock, (b) each of our directors and executiveofficers and (c) all directors and officers as a group.

 

Inaccordance with the rules of the SEC, beneficial ownership includes votingor investment power with respect to securities and includes shares issuablepursuant to warrants that are exercisable within 60 days of March 30,2006. Shares issuable pursuant to warrants are deemed outstanding in computingthe percentage held by the person holding the warrants but are not deemedoutstanding in computing the percentage held by any other person.

 
| **Name of Beneficial Owner:**                                                             | ** ** | **Number of  Shares of  Common  Stock  Beneficially  Owned** | ** ** | **Percentage of  Outstanding  Common Stock** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|----------------------------------------------|------------|
|                                                                                      |       |                                                         |       |                                         |       |
| DLJ Merchant Banking Partners III, L.P. and related  investors                            |       | 35,966,117                                                   | (1)        | 97.2                                         | %          |
| Joseph Loggia                                                                             |       | 674,167                                                      | (2)        | 1.8                                          | %          |
| James M. Alic                                                                             |       | 366,743                                                      | (3)        | 1.0                                          | %          |
| David W. Montgomery                                                                       |       | 200,000                                                      | (4)        |                                         | *          |
| Eric I. Lisman                                                                            |       | 156,250                                                      | (5)        |                                         | *          |
| Rick Treese                                                                               |       | 32,500                                                       | (6)        |                                         | *          |
| Douglas B. Fox   223 Wall Street, Box 318   Huntington New York, 11743                    |       | 20,000                                                       | (7)        |                                         | *          |
| James  Finkelstein (9)   2 Park Avenue, Suite 1405   New York, New York 10019   |       | 10,000                                                       | (8)        |                                         | *          |
| OhSang Kwon(9)  65 East 55th St, 18th Floor  New York, NY 10022                           |       | —                                                       |       | —                                       |       |
|                                                                                      |       |                                                         |       |                                         |       |
| Charles Pieper(9)  DLJ Merchant Banking Inc.  11 Madison Avenue  New York, New York 10010 |       | —                                                       |       | —                                       |       |
|                                                                                      |       |                                                         |       |                                         |       |
| All directors  and officers as a group (9 persons)                                        |       | 1,459,660                                                    |       | 3.7                                          | %          |

 

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* Representsless than 1% of the outstanding shares of common stock

 

(1)                                  Consistsof 35,100,000 shares held directly by DLJ Merchant Banking Partners III, L.P.and the following related investors: DLJ ESC II, L.P., DLJMB Funding III, Inc.,DLJ Offshore Partners III, C.V., DLJ Offshore Partners III-1, C.V., DLJOffshore Partners III-2, C.V., DLJMB Funding III, Inc. and DLJ PartnersIII GmbH & Co. KG and warrants to purchase 866,117 shares of commonstock issued to DLJ Investment Partners, II, L.P. and the followingrelated investors: DLJ ESC II, L.P., DLJ Investment Funding II, Inc. andDLJ Investment Partners, L.P. See “Item 13. —Certain Relationships and RelatedParty Transactions.”  The address of eachof these investors is 11 Madison Avenue, New York, New York 10010, except thatthe address of Offshore Partners is John B. Gorsiraweg 14, Willemstad, Curacao,Netherlands Antilles.

 

(2)                                  Consistsof 674,167 shares issuable pursuant to stock options exercisable within 60days.

 

(3)                                  Consistsof 108,516 shares, warrants to purchase 34,787 shares and 223,440 sharesissuable pursuant to stock options exercisable within 60 days.

 

(4)                                  Consistsof 200,000 shares issuable pursuant to stock options exercisable within 60days.

 

(5)                                  Consistsof 156,250 shares issuable pursuant to stock options exercisable within 60days.

 

(6)                                  Consistsof 32,500 shares issuable pursuant to stock options exercisable within 60 days.

 

(7)                                  Consistsof 20,000 shares issuable pursuant to stock options exercisable within 60 days.

 

(8)                                  Consistsof 10,000 shares issuable pursuant to stock options exercisable within 60 days.

 

(9)                                  Sharesshown for Messrs. Kwon, Finkelstein and Pieper exclude shares shown asheld by the DLJ Merchant Banking fundsand the DLJ Investment Partners funds, as to which they disclaim beneficialownership. Messrs. Finkelstein and Kwon are partners of Avista CapitalPartners, a private equity firm that has been engaged by an affiliate of CreditSuisse Securities (USA) LLC to serve as a consultant to assist in themonitoring of certain DLJ Merchant Banking Partners portfolio companies. Mr. Pieper isan employee at Credit Suisse Securities (USA) LLC where he is a ManagingDirector with DLJ Merchant Banking Partners.

 

Advanstarhas no securities authorized for issuance under equity compensation plans; allequity issued as compensation consists of equity of Holdings.

 

**Item 13. — *CERTAIN RELATIONSHIPS ANDRELATED PARTY TRANSACTIONS***

 

**FinancialAdvisory Fees and Agreements**

 

Advanstar Holdings was acquired by the DLJ MerchantBanking Partners III, L.P. and related funds in October 2000 (“TheAcquisition”).

 

Credit Suisse Securities(USA), LLC (“CSS (USA)”), an affiliate of the DLJ Merchant Banking funds, hasreceived customary fees and reimbursement of expenses in connection with thearrangement and syndication of the credit facility and as a lender thereunder. CSS(USA) acts as our financial advisor and acted as our financial advisor inconnection with the Thomson acquisition, was one of the initial purchasers ofthe second priority senior secured notes issued in August and September of2003 and was an initial purchaser of our senior subordinated notes and theparent company discount notes. We paid fees of $10.4 million in 2003, plusout-of-pocket expenses for these services. No fees were paid in 2004 related tofinancings.

 

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In May 2005, theCompany paid a consulting fee of $1.5 million to CSS (USA), an affiliate,related to the sale of the Portfolio Group.In June 2005, the Company repurchased $7.1 million of its fixedrate notes at par, and $4.6 million of its floating rate notes at a price equalto 107.3% of principal, from CSS (USA) pursuant to our tender offer.

 

In connection with the Acquisition, Advanstar Holdings agreed to payCSS (USA) an annual advisory fee of $0.5 million beginning October 11,2000 when the acquisition of Advanstar by DLJ Merchant Banking Partners III,L.P. and related funds occurred (“The Acquisition”) until the earlier to occurof:

 

(1)                                  an initial publicoffering of Advanstar Holdings;

 

(2)                                  thedate when the DLJ Merchant Banking funds own less than 162/3% of the shares ofAdvanstar Holdings’ common stock held by them on the closing date of theAcquisition; and

 

(3)                                  October 11,2005.

 

Subsequently, CSS (USA) assigned its rights under this agreement to DLJMerchant Banking Funds.

 

Advanstar Holdings is a holding company and has no direct materialoperations or source of cash to pay this obligation other than by distributionsfrom its subsidiaries including Advanstar Communications Inc.

 

Advanstar and its subsidiaries may fromtime to time enter into other investment banking relationships with CSS (USA) orone of its affiliates pursuant to which CSS (USA) or its affiliates willreceive customary fees and will be entitled to reimbursement for all relateddisbursements and out-of-pocket expenses. We expect that any arrangement willinclude provisions for the indemnification of CSS (USA) against a variety ofliabilities, including liabilities under the federal securities laws.

 

#### **Stockholders Agreement**

#### ** **

Advanstar Holdings, the DLJ Merchant Bankingfunds, the DLJ Investment Partners funds and the other stockholders ofAdvanstar Holdings (collectively, including Mr. Alic, the “AdvanstarHoldings Stockholders”) entered into a stockholders’ agreement at the closingof the DLJMB acquisition. The stockholders’ agreement provides that any personacquiring shares of common stock of Advanstar Holdings who is required by thestockholders’ agreement or by any other agreement or plan of Advanstar Holdingsto become a party to the stockholders’ agreement will execute an agreement tobe bound by the stockholders’ agreement.

 

The terms of the stockholders’ agreementrestrict transfers of shares of Advanstar Holdings capital stock by theAdvanstar Holdings Stockholders, except to permit transferees and subject tovarious exceptions. The agreement will permit:

 

•                  the other stockholdersto participate in specified sales of shares of Advanstar Holdings capital stockby the DLJ Merchant Banking funds,

 

•                  theDLJ Merchant Banking funds to require the other stockholders to sell shares ofAdvanstar Holdings capital stock in specified circumstances should the DLJMerchant Banking funds choose to sell any shares owned by them, and

 

•                  thestockholders to purchase equity securities proposed to be issued by AdvanstarHoldings to the DLJ Merchant Banking funds on a preemptive basis to maintaintheir percentage ownership interest.

 

The stockholders’ agreement also providesthat the DLJ Merchant Banking funds have the right to select three of the sixmembers of the board of directors of Advanstar Holdings, the DLJ InvestmentPartners funds will

 

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have the rightto select three of the six members of the board of directors of AdvanstarHoldings, the DLJ Investment Partners funds will have the right to select onemember so long as they maintain ownership of at least 50% of their initialownership of senior discount notes of Advanstar, Inc. (and thereafter will haverights to an observer). In addition, the DLJ Merchant Banking funds arepermitted to expand Advanstar Holdings’ board and select all of the additionaldirectors. Messrs. Finkelstein, Kwon and Pieper are the directors selectedby the DLJ Merchant Banking funds. As of December 31, 2005, DLJ InvestmentPartners no longer owns Advanstar, Inc.’s senior discount notes, so they can nolonger select a member of the board.

 

Under the stockholders’ agreement, the Advanstar Holdings Stockholdersentered into a registration rights agreement with Advanstar Holdings. Underthat agreement, the DLJ Merchant Banking funds will have the right to sixdemand registrations (or five if the holders of the warrants issued with theparent company notes have exercised a demand), and the holders of the warrantsissued with the parent company notes will have the right to one demandregistration of common stock after an initial public offering. In addition, allof the holders will be entitled to piggyback registration rights, subject tocustomary cutback and deferral provisions. The agreement also provides thatAdvanstar Holdings will indemnify the parties against specified liabilities,including liabilities under the Securities Act.

 

**Relationship with Advanstar.com**

 

Our affiliate, Advanstar.com, has developed vertical community websites to serve industry sectors that we target and operates our event andpublication-related web sites. We provide Advanstar.com with limitedadministrative support services in accounting, finance, legal, human resourcemanagement, information technology and business development. These services arecharged to Advanstar.com based on level of activity. In addition, selectedstaff in editorial and other functions at Advanstar will be shared withAdvanstar.com. To the extent the percentage of time devoted by our employees toAdvanstar.com activities is significant, appropriate allocations of staff costare made to Advanstar.com.

 

Effective January 1, 2005, we began consolidating the operations ofAdvanstar.com, Inc. (Advanstar.com) with our operations upon the adoption ofFASB Interpretation No. 46R, “Consolidation of Variable Interest Entities.” Asa result of the adoption of FASB Interpretation No. 46R, we recorded a $4.6million gain, which was recorded as a cumulative effect of accounting change inthe first quarter of 2005.

 

Prior to January 1, 2005, we recorded advances and notes issued insupport of Advanstar.com operations as an operating expense in our consolidatedstatement of operations. Net advances and notes charged to our operationsduring the years ended December 31, 2004 and 2003 were $3.3 million and $1.1million. In May 2004, the Company made a $1.9 million advance to Advanstar.comto fund the settlement of Advanstar.com’s outstanding New York leaseobligations.

 

**Item 14. — *PRINCIPALACCOUNTING FEES AND SERVICES.***

 

**Principal Accounting Fees and Services**

 

The Audit Committee engagedPricewaterhouseCoopers LLP (“PwC”) to perform an annual audit of Advanstar’sfinancial statements in 2004 and 2005. The following table presents informationconcerning fees paid to PwC in each of those years.

 
| ** **            | ** ** | **2004**   | ** ** | **2005**   | ** ** |
|-----------------------|------------|------------|------------|------------|------------|
| ** **            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Audit fees(1)         |       | $          | 532,404    |       | $          | 737,844 |   |
| Audit-related fees(2) |       | 19,856     |       | 120,517    |       |
| Tax fees(3)           |       | 452,980    |       | 701,191    |       |
| All other fees        |       | —     |       | —     |       |
|                       |            |            |            |            |            |  |  |

 

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(1)          These are feesfor professional services performed by PwC for (1) the annual audit andquarterly reviews of Advanstar’s consolidated financial statements, (2)statutory audits for subsidiaries outside of the United States, and (3) feesrelated to the audit of the financial statements of the Portfolio Group ofwhich approximately $292 thousand of the 2005 fees were reimbursed by QuestexMedia Group, Inc.

 

(2)          These are feesfor assurance and related services performed by PwC that are reasonably relatedto the performance of the audit or review of Advanstar’s financial statementsbut not described in item (1) above, primarily attributable to audits of ouremployee benefit plan, third-party workpaper reviews, and post effectiveamendment (S-1) filings.

 

(3)          These are feesfor professional services performed by PwC with respect to tax compliance, taxadvice and tax planning. This includes tax preparation and review servicesperformed in connection with our federal, state and foreign tax returns and taxadvice and assistance regarding statutory, regulatory or administrativedevelopments.

 

***Pre-approval Policies and Procedures***

 

The Audit Committee has adopted policies and procedures forpre-approving all work performed by PwC. Specifically, the policies andprocedures prohibit PwC from performing any services for Advanstar or itssubsidiaries without the prior specific approval of the audit committee, exceptthat the audit committee pre-approved the use of PwC for the following servicecategories of non-audit service for 2005: audit related services in aggregate not to exceed $120,000; U.S.tax planning and compliance in aggregate not to exceed $385,000; other taxservices in aggregate not to exceed $145,000; other non-audit services inaggregate not to exceed $50,000. Services in excess of these limits must haveprior specific approval by the audit committee.

 

Allservices provided by PwC in 2005 were pre-approved by the audit committeepursuant to the approval policies described above. None of such services wereapproved pursuant to the procedures described in Rule 2-01(c)(7)(i)(C) ofRegulation S-X, which waives the general requirement for pre-approval incertain circumstances.

 

 

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**PART IV**

 

**Item 15. — *EXHIBITS ANDFINANCIAL STATEMENT SCHEDULES***

 

**A.****            Documents Filed asPart of this Report:**

 
| **1.  Financial Statements:**                                                                              | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                       |       |
| Report of Independent Registered Public Accounting Firm                                                    |       |
| Consolidated Balance Sheets as of December 31, 2005 and 2004                                               |       |
| Consolidated Statements of Operations for the years ended December  31, 2005, 2004 and 2003                |       |
| Consolidated Statements of Stockholder’s Equity for the years ended  December 31, 2005, 2004 and 2003 |       |
| Consolidated Statements of Cash Flows for the years ended December  31, 2005, 2004 and 2003                |       |
| Notes to Consolidated Financial Statements                                                                 |       |
| ** **                                                                                                 |       |
| **2. Financial Statement Schedule:**                                                                       |       |
|                                                                                                       |       |
| The following schedule is included in this  Annual Report on the page indicated:                           |       |
|                                                                                                       |       |
| Schedule II—Valuation and Qualifying  Accounts                                                        |       |
|                                                                                                       |       |
| All other schedules have been omitted  because they are not applicable.                                    |       |

 

 

55

----

 

 

**Report of Independent Registered Public Accounting Firm**

 

To the Stockholder and Board ofDirectors

of Advanstar CommunicationsInc.

 

Inour opinion, the consolidated financial statements listed in the indexappearing under Item 15(a)(1) present fairly, in all material respects, thefinancial position of Advanstar Communications Inc., a wholly owned subsidiaryof Advanstar, Inc., and its subsidiaries at December 31, 2005 and 2004, and theresults of their operations and their cash flows for each of the three years inthe period ended December 31, 2005, in conformity with accounting principlesgenerally accepted in the United States of America.  In addition, in our opinion, the financialstatement schedule listed in the index appearing under Item 15(a)(2) presentsfairly, in all material respects, the information set forth therein when readin conjunction with the related consolidated financial statements.  These financial statements and financialstatement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements and financial statement schedule based on ouraudits.  We conducted our audits of thesestatements in accordance with the standards of the Public Company AccountingOversight Board (United States).  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

Asdiscussed in Note 13 to the consolidated financial statements, the Companyadopted Financial Accounting Standards Board Interpretation No. 46R, *Consolidation of Variable Interest Entities*, on January 1,2005.

 

 
| **/s/ PricewaterhouseCoopers LLP** | ** ** |
|------------------------------------|------------|

#### ** **

#### **Minneapolis, Minnesota**

March 1,2006, except as tothe seventh paragraph

of Note 14, for which the date is March 14,2006

 

 

F-1

----

 

 

**Advanstar Communications Inc.**

**Consolidated Balance Sheets**

**December 31, 2005 and 2004**

 
| **(in thousands of dollars, except share and per share data)**                             | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Assets**                                                                                                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current  assets                                                                                                                         |       |       |       |       |       |
| Cash and cash equivalents                                                                                                               |       | $          | 46,609     |       | $          | 41,223 |   |
| Accounts receivable, net of allowance of  $1,076 and $785 at December 31, 2005 and 2004                                                 |       | 24,607     |       | 26,699     |       |
| Prepaid expenses                                                                                                                        |       | 7,871      |       | 6,406      |       |
| Other                                                                                                                                   |       | 1,965      |       | 2,450      |       |
| Current assets of discontinued operations                                                                                               |       | —     |       | 2,690      |       |
| Total current assets                                                                                                                    |       | 81,052     |       | 79,468     |       |
| Due from  parent                                                                                                                        |       | 2,232      |       | —     |       |
| Property,  plant and equipment, net                                                                                                     |       | 21,306     |       | 18,717     |       |
| Intangible  and other assets                                                                                                            |       |       |       |       |       |
| Goodwill                                                                                                                                |       | 594,982    |       | 586,967    |       |
| Intangibles and other, net                                                                                                              |       | 62,644     |       | 91,948     |       |
| Total intangible and other assets, net                                                                                                  |       | 657,626    |       | 678,915    |       |
| Non-current  assets of discontinued operations and assets held for sale                                                                 |       | 4,620      |       | 135,837    |       |
|                                                                                                                                    |       | $          | 766,836    |       | $          | 912,937 |   |
| **Liabilities  and Stockholder’s Equity**                                                                                          |       |       |       |       |       |
| Current  liabilities                                                                                                                    |       |       |       |       |       |
| Current maturities of long-term debt                                                                                                    |       | $          | 201        |       | $          | 1,300 |   |
| Accounts payable                                                                                                                        |       | 12,342     |       | 13,451     |       |
| Accrued compensation                                                                                                                    |       | 7,236      |       | 7,451      |       |
| Other accrued expenses                                                                                                                  |       | 30,758     |       | 32,979     |       |
| Deferred revenue                                                                                                                        |       | 46,472     |       | 39,282     |       |
| Current liabilities of discontinued  operations                                                                                         |       | —     |       | 15,886     |       |
| Total current liabilities                                                                                                               |       | 97,009     |       | 110,349    |       |
| Long-term  debt, net of current maturities                                                                                              |       | 461,786    |       | 612,919    |       |
| Deferred  income taxes                                                                                                                  |       | 31,500     |       | 18,250     |       |
| Other  long-term liabilities                                                                                                            |       | 4,933      |       | 4,229      |       |
| Due to  parent                                                                                                                          |       | —     |       | 2,698      |       |
| Long-term  liabilities of discontinued operations                                                                                       |       | —     |       | 3,627      |       |
| Commitments  and contingencies (Note 10)                                                                                           |       |       |       |       |       |
| Stockholder’s  equity                                                                                                              |       |       |       |       |       |
| Common stock, $.01 par value, 3,500,000  shares authorized; 1,000,000 shares issued and outstanding at  December 31, 2005 and 2004 |       | 10         |       | 10         |       |
| Capital in excess of par value                                                                                                          |       | 447,367    |       | 447,367    |       |
| Accumulated deficit                                                                                                                     |       | (284,182   | )          | (292,757   | )          |
| Accumulated other comprehensive income                                                                                                  |       | 8,413      |       | 6,245      |       |
| Total stockholder’s equity                                                                                                         |       | 171,608    |       | 160,865    |       |
|                                                                                                                                    |       | $          | 766,836    |       | $          | 912,937 |   |
|                                                                                                                                         |            |            |            |            |            |  |  |  |  |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

 

F-2

----

 

 

**Advanstar Communications Inc.**

**Consolidated Statements of Operations**

**Years Ended December31, 2005, 2004 and 2003**

 
| **(in thousands of dollars)**                                                    | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                                                                         |       | $          | 288,913    |       | $          | 270,412    |       | $ | 190,698 |   |
| Operating expenses                                                                              |       |       |       |       |       |       |       |
| Cost of production (excluding depreciation)                                                     |       | 56,326     |       | 50,859     |       | 35,292     |       |
| Selling, editorial and circulation  (excluding depreciation)                                    |       | 112,373    |       | 106,771    |       | 69,293     |       |
| General and administrative (excluding  depreciation)                                            |       | 40,916     |       | 39,419     |       | 29,654     |       |
| Restructuring charge                                                                            |       | 4,771      |       | —     |       | 2,692      |       |
| Funding of affiliated dot.com company  operations (Note 13)                                     |       | —     |       | 3,283      |       | 1,121      |       |
| Amortization of intangibles                                                                     |       | 29,750     |       | 34,809     |       | 35,841     |       |
| Depreciation                                                                                    |       | 8,005      |       | 7,815      |       | 7,689      |       |
| Total operating expenses                                                                        |       | 252,141    |       | 242,956    |       | 181,582    |       |
| Operating income                                                                                |       | 36,772     |       | 27,456     |       | 9,116      |       |
| Other income  (expense)                                                                         |       |       |       |       |       |       |       |
| Interest expense                                                                                |       | (63,058    | )          | (70,974    | )          | (59,086    | )          |
| Interest income                                                                                 |       | 1,476      |       | 468        |       | 470        |       |
| Loss on extinguishment of debt (Note 6)                                                         |       | (12,581    | )          | —     |       | (11,324    | )          |
| Other income, net                                                                               |       | 80         |       | 1,251      |       | 918        |       |
| Loss from continuing operations before  income taxes and cumulative effect of accounting change |       | (37,311    | )     | (41,799    | )     | (59,906    | )     |
| Income tax  (benefit) provision                                                                 |       | (2,732     | )          | 6,518      |       | (6,724     | )          |
| Loss from continuing operations before  cumulative effect of accounting change                  |       | (34,579    | )     | (48,317    | )     | (53,182    | )     |
|                                                                                            |       |       |       |       |       |       |       |
| Income (loss) from operations of  discontinued businesses, net of tax   (Note 4)                |       | 38,536     |       | (2,846     | )          | 3,734      |       |
| Income (loss) before cumulative effect of  accounting change                                    |       | 3,957      |       | (51,163    | )     | (49,448    | )     |
|                                                                                            |       |       |       |       |       |       |       |
| Cumulative  effect of accounting change (Note 13)                                               |       | 4,618      |       | —     |       | —     |       |
| Net income (loss)                                                                               |       | $          | 8,575      |       | $          | (51,163    | )          | $ | (49,448 | ) |
|                                                                                                 |            |            |            |            |            |            |            |  |  |  |  |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

 

F-3

----

 

 

**Advanstar Communications Inc.**

**Consolidated Statements of Stockholder’s Equity**

**Years Ended December31, 2005, 2004 and 2003**

 
| ** **                                                     | ** ** | **Common Stock** | ** ** | **Capital in  Excess of** | ** ** | **Accumulated**    | ** ** | **Accumulated  Other  Comprehensive** | ** ** | ** **             | ** ** |
|----------------------------------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|--------------------|------------|---------------------------------------|------------|------------------------|------------|
| **(in thousands of dollars)**                   | ** ** | **Shares**            | ** ** | **Amount**                          | ** ** | **Par Value** | ** ** | **Deficit**                           | ** ** | **Income (Loss)** | ** ** | **Total** | ** ** |
| ** **                                                     |       |                  |       |                                |       | ** **         | ** ** | ** **                            | ** ** | ** **             | ** ** | ** ** |   |
| **Balances at December 31, 2002**                    |       | 1,000,000             |       | $                                   | 10         |               | $          | 387,367                               |       | $                      | (192,146   | ) | $ | (9,078 | ) | $ | 186,153 |   |
| Comprehensive loss                                             |       |                  |       |                                |       |               |       |                                  |       |                   |       |   |   |
| Net loss                                                       |       | —                |       | —                              |       | —             |       | (49,448                               | )          | —                 |       | — |   |
| Translation  adjustment                                        |       | —                |       | —                              |       | —             |       | —                                |       | 8,283                  |       | — |   |
| Change in  unrealized gain on derivative financial instruments |       | —                |       | —                              |       | —             |       | —                                |       | 4,308                  |       | — |   |
| Total  comprehensive loss                                      |       | —                |       | —                              |       | —             |       | —                                |       | —                 |       | (36,857 | ) |
| Contribution of capital from parent                            |       | —                |       | —                              |       | 60,000             |       | —                                |       | —                 |       | 60,000 |   |
| **Balances at December 31, 2003**                    |       | 1,000,000             |       | 10                                  |       | 447,367            |       | (241,594                              | )          | 3,513                  |       | 209,296 |   |
| Comprehensive loss                                             |       |                  |       |                                |       |               |       |                                  |       |                   |       |   |   |
| Net loss                                                       |       | —                |       | —                              |       | —             |       | (51,163                               | )          | —                 |       | — |   |
| Translation  adjustment                                        |       | —                |       | —                              |       | —             |       | —                                |       | 2,587                  |       | — |   |
| Change in  unrealized gain on derivative financial instruments |       | —                |       | —                              |       | —             |       | —                                |       | 145                    |       | — |   |
| Total  comprehensive loss                                      |       | —                |       | —                              |       | —             |       | —                                |       | —                 |       | (48,431 | ) |
| **Balances at December 31, 2004**                    |       | 1,000,000             |       | 10                                  |       | 447,367            |       | (292,757                              | )          | 6,245                  |       | 160,865 |   |
| Comprehensive income                                           |       |                  |       |                                |       |               |       |                                  |       |                   |       |   |   |
| Net income                                                     |       | —                |       | —                              |       | —             |       | 8,575                                 |       | —                 |       | — |   |
| Translation  adjustment                                        |       | —                |       | —                              |       | —             |       | —                                |       | 2,271                  |       | — |   |
| Change in unrealized  gain on derivative financial instruments |       | —                |       | —                              |       | —             |       | —                                |       | (103                   | )          | — |   |
| Total  comprehensive income                                    |       | —                |       | —                              |       | —             |       | —                                |       | —                 |       | 10,743 |   |
| **Balances at December 31, 2005**                    |       | 1,000,000             |       | $                                   | 10         |               | $          | 447,367                               |       | $                      | (284,182   | ) | $ | 8,413 |   | $ | 171,608 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

 

F-4

----

 

 

**Advanstar Communications Inc.**

**Consolidated Statements of Cash Flows**

**Years Ended December31, 2005, 2004 and 2003**

 
| **(in thousands of dollars)**                                    | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash  flows from operating activities**                                       |       |       |       |       |       |       |       |
| Net income  (loss)                                                              |       | $          | 8,575      |       | $          | (51,163    | )          | $ | (49,448 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities |       |       |       |       |       |       |       |
| Cumulative effect of accounting change                                          |       | (4,618     | )          | —     |       | —     |       |
| Impairment of goodwill                                                          |       | —     |       | 15,570     |       | —     |       |
| Impairment of intangible assets                                                 |       | 2,272      |       | —     |       | —     |       |
| Write-off of deferred financing costs                                           |       | 3,517      |       | —     |       | 11,324     |       |
| Depreciation and amortization                                                   |       | 40,718     |       | 49,968     |       | 56,603     |       |
| Gain on derivative financial instruments                                        |       | (103       | )          | (1,391     | )          | (772       | )          |
| Losses of minority interest holders                                             |       | 566        |       | 562        |       | 627        |       |
| Non-cash interest expense                                                       |       | 2,843      |       | 3,264      |       | 3,363      |       |
| (Gain) loss on disposition of business and  other                               |       | (52,710    | )          | (1,179     | )          | 661        |       |
| Provision for bad debts                                                         |       | 1,417      |       | 872        |       | 578        |       |
| Deferred income taxes                                                           |       | 13,250     |       | 11,260     |       | 6,990      |       |
| Changes in operating assets and liabilities                                     |       |       |       |       |       |       |       |
| Accounts receivable                                                             |       | (224       | )          | 6,190      |       | (365       | )          |
| Inventories                                                                     |       | 507        |       | (708       | )          | 188        |       |
| Prepaid expenses                                                                |       | 24         |       | (583       | )          | 844        |       |
| Accounts payable and accrued expenses                                      |       | (1,958     | )          | (8,165     | )          | 16,167     |       |
| Deferred revenue                                                                |       | (3,926     | )          | (6,860     | )          | 1,525      |       |
| Other                                                                           |       | (1,842     | )          | 649        |       | (2,437     | )          |
| Net cash provided by  operating activities                                 |       | 8,308      |       | 18,286     |       | 45,848     |       |
| **Cash  flows from investing activities**                                       |       |       |       |       |       |       |       |
| Additions to  property, plant and equipment                                     |       | (9,564     | )          | (8,981     | )          | (7,608     | )          |
| Acquisitions  of publications and shows, net of cash acquired                   |       | (15,561    | )          | (7,915     | )          | (137,728   | )          |
| Proceeds  from sale of assets                                                   |       | 174,067    |       | 24,418     |       | —     |       |
| Acquisitions  of intangibles, contingent payments, and other                    |       | 17         |       | (1,920     | )          | 3          |       |
| Net cash provided by (used in) investing  activities                            |       | 148,959    |       | 5,602      |       | (145,333   | )          |
| **Cash  flows from financing activities**                                       |       |       |       |       |       |       |       |
| Proceeds  from revolving credit loan                                            |       | —     |       | 6,000      |       | 21,000     |       |
| Payments on  revolving credit loan                                              |       | —     |       | (14,000    | )          | (50,100    | )          |
| Proceeds  from long-term debt                                                   |       | —     |       | —     |       | 431,050    |       |
| Payments of  long-term debt                                                     |       | (152,167   | )          | (3,700     | )          | (333,525   | )          |
| Capital  contribution from parent                                               |       | —     |       | —     |       | 60,000     |       |
| Deferred  financing costs                                                       |       | (168       | )          | (315       | )          | (16,962    | )          |
| Project  grant refunds received                                                 |       | 600        |       | —     |       | —     |       |
| Dividends  paid to minority interest holders                                    |       | (900       | )          | (500       | )          | (1,227     | )          |
| Net cash (used in) provided by financing  activities                            |       | (152,635   | )          | (12,515    | )          | 110,236    |       |
| Effect of  exchange rate changes on cash                                        |       | 754        |       | 576        |       | (407       | )          |
| Net increase in cash and cash equivalents                                       |       | 5,386      |       | 11,949     |       | 10,344     |       |
| **Cash and  cash equivalents**                                                  |       |       |       |       |       |       |       |
| Beginning of  year                                                              |       | 41,223     |       | 29,274     |       | 18,930     |       |
| End of year                                                                     |       | $          | 46,609     |       | $          | 41,223     |       | $ | 29,274 |   |
|                                                                                 |            |            |            |            |            |            |            |  |  |  |  |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

 

F-5

----

 

 

**Advanstar Communications Inc.**

**Notes to Consolidated Financial Statements**

**December 31, 2005, 2004 and 2003**

 

**1.         Nature of Business**

 

The accompanying consolidated financial statements include the accountsof Advanstar Communications Inc., a wholly owned subsidiary of Advanstar, Inc.,and its majority owned subsidiaries (collectively, “Advanstar” or the “Company”).All intercompany accounts and transactions between consolidated entities havebeen eliminated.

 

The Company operates and manages shows and conferences; publishescontrolled and paid circulation trade, professional and consumer periodicals;and markets a broad range of marketing, direct mail and database products andservices. The Company’s Magic tradeshows and Healthcare/ Pharmaceutical productsector each generated approximately 27% of total revenue in 2005.

 

**2.         Summary of SignificantAccounting Policies**

 

**Cash and Cash Equivalents**

Cash and cash equivalents include cash on deposit and highly liquidinvestments with original maturities of three months or less. Cash equivalentsare stated at cost, which approximates fair market value.

 

**Prepaid Expenses and Other Current Assets**

Prepaid expenses consist primarily of prepaid show and conferenceexpenses, prepaid publication production costs and miscellaneous deposits. Eventand publication expenses are charged to operations at the time of the relatedevent and at the time of publication issuance. Other current assets consistprimarily of paper inventories.

 

**Property, Plant and Equipment**

Property, plant and equipment consisted of the following atDecember 31:

 
| **(in thousands of dollars)** | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|----------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land and  improvements                       |       | $          | 481        |       | $          | 481 |   |
| Buildings                                    |       | 3,850      |       | 3,093      |       |
| Furniture,  machinery and equipment          |       | 43,519     |       | 39,307     |       |
| Leasehold  improvements                      |       | 7,997      |       | 6,083      |       |
|                                         |       | 55,847     |       | 48,964     |       |
| Accumulated  depreciation                    |       | (34,541    | )          | (30,247    | )          |
| Property, plant and equipment, net           |       | $          | 21,306     |       | $          | 18,717 |   |

 

Property, plant and equipment is stated at its original cost and isdepreciated on the straight-line basis over the following estimated usefullives:

 
| Land improvements                  |   | 10–15 years                               |
|------------------------------------|--------|------------------------------------------------|
| Buildings                          |   | 20–40 years                               |
| Furniture, machinery and equipment |   | 3–10 years                                |
| Leasehold improvements             |   | Shorter of  useful life or original lease term |

 

 

F-6

----

 

 

Maintenance and repairs are charged to expense as incurred. Majorbetterments and improvements, which extend the useful life of the item, arecapitalized and depreciated. The cost and accumulated depreciation of property,plant and equipment retired or otherwise disposed of are removed from therelated accounts, and any residual values are charged or credited tooperations.

 

**Intangible and Other Assets**

Trade exhibitor and advertiser lists are amortized on adouble-declining balance method over six years and five years, respectively. Subscriberlists and other intangible assets are amortized on a straight-line basis overthree to ten years. Trademarks and trade names are amortized on a straight-linebasis over twenty years.

 

**Impairment of Long-Lived Assets and Goodwill**

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

 

The Company evaluates goodwill for impairment annually using a two-steptest based upon a fair value approach. The first step is used to identify apotential impairment, while the second step calculates the amount ofimpairment, if any. Additionally, goodwill is tested for impairment betweenannual tests if an event occurs or circumstances change that would more likelythan not reduce the fair value of a reporting unit below its carrying value.

 

**Accrued Expenses**

Accrued expenses consisted of the following at December 31:

 
| **(in thousands of dollars)** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
|                                         |       |     |       |     |       |
| Interest                                     |       | $        | 11,261     |     | $          | 13,084 |   |
| Deposits and  customer advances              |       | 10,292   |       | 11,537   |       |
| Benefits and  severance                      |       | 2,018    |       | 2,300    |       |
| Income, real  estate, and other taxes        |       | 3,953    |       | 4,369    |       |
| Other                                        |       | 3,234    |       | 1,689    |       |
|                                         |       | $        | 30,758     |     | $          | 32,979 |   |

 

 

F-7

----

 

 

**Revenue Recognition**

Shows and conferences revenue is recognized in the period in which theevent is conducted. Subscription revenue is recognized on a pro rata basis aspublications are issued to fulfill the subscription obligations. Advertisingrevenue is recognized when the publication with the respective advertisement isissued. Custom project contract revenue with both conference and print elementsare deferred and not recognized until all elements are delivered. Deferredrevenue is recorded when cash is received in advance of when an event is held,the publication is issued, or project is completed. Customer advances arerecorded when cash is received in anticipation of future advertising unrelatedto a specific publication issue.

 

Deferred revenue consisted of the following at December 31:

 
| **(in thousands of dollars)**           | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                   |       |     |       |     |       |
| Deferred  shows and conferences revenue                |       | $        | 35,732     |     | $          | 30,176 |   |
| Deferred  advertising subscription and project revenue |       | 10,740   |       | 9,106    |       |
| Total deferred revenue                                 |       | $        | 46,472     |     | $          | 39,282 |   |

 

**Foreign Currency Translation**

The Company accounts for translation adjustments related to itsinvestments in foreign entities in accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 52, *Foreign CurrencyTranslation*. Local currencies are considered the functionalcurrencies outside of the U.S. Income and expense items are translated ataverage rates of exchange prevailing during the year. For operations in localcurrency environments, assets and liabilities are translated at year-endexchange rates with cumulative translation adjustments included as a componentof stockholder’s equity.

 

**Financial Derivative Instruments**

The Company accounts for derivative instruments on the balance sheet atfair value in accordance with SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities*. Changes in thefair value of derivative financial instruments are recognized currently inearnings unless specific hedge accounting criteria are met. For thoseinstruments, which meet the hedging criteria, gains and losses will berecognized in other comprehensive income rather than in earnings.

 

**Stock-Based Compensation**

As permitted by SFAS No. 123, *Accounting for Stock-BasedCompensation*, the Company has elected to account for stock optionsand awards to employees using the intrinsic value method under the provisionsof Accounting Principles Board (“APB”) Opinion No. 25, *Accounting for Stock Issued to Employees*, and relatedinterpretations.

 

 

F-8

----

 

 

The following table presents unaudited pro forma net income (loss) asif the Company had elected to recognize compensation cost based on the fairvalue of the options granted as prescribed by SFAS No. 123, for the yearsended December 31:

 
| **(in thousands of dollars - unaudited)** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                               |       |     |       |     |       |     |       |
| Net income  (loss)—as reported                                |       | $        | 8,575      |     | $          | (51,163  | )          | $ | (49,448 | ) |
| Less: Pro  forma stock-based employee compensation cost            |       | (5,740   | )          | (2,550   | )          | (2,400   | )          |
| Net income  (loss)—pro forma                                  |       | $        | 2,835      |     | $          | (53,713  | )          | $ | (51,848 | ) |
|                                                                    |            |          |            |          |            |          |            |  |  |  |  |

 

See Note 7 for further discussion of the Company’s stockcompensation plans.

 

**Comprehensive Income (Loss)**

The Company follows the provisions of SFAS No. 130, *Reporting Comprehensive Income*. This statement establishedrules for the reporting of comprehensive income (loss) and its components. Comprehensiveincome (loss) reflects the change in equity of a business enterprise during aperiod from transactions and other events and circumstances from nonownersources. Comprehensive income (loss) consists of net income (loss), foreigncurrency translation adjustments and changes in unrealized loss on derivativefinancial instruments, and is presented in the accompanying consolidatedstatements of stockholder’s equity.

 

**Use of Estimates**

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenue andexpenses during the reporting periods. Ultimate results could differ from theseestimates. On an ongoing basis, management reviews its estimates, includingthose affecting doubtful accounts, recovery of goodwill and intangible assets,restructuring and medical claims accruals and income taxes. Changes in factsand circumstances may result in revised estimates.

 

**New Accounting Pronouncements**

In December 2004, the Financial Accounting Standards Board issuedSFAS No. 123R, *Share-Based Payment*which revises SFAS 123 and supersedes APB 25. This statement establishesstandards relating to accounting for transactions in which equity instrumentsare exchanged for goods or services. The Company is required to adopt theprovisions of this standard effective January 1, 2006. This statement requirescompanies to classify their awards as either an equity award or liabilityaward. In accordance with this standard, the Company will classify the vestedportion of the awards as a liability valued at their intrinsic value at eachreporting date. Using the intrinsic method to value liability awards,compensation expense is recorded only if the value of the Company’s shares aregreater than the option exercise amounts as of the reporting date. As ofJanuary 1, 2006, management believes the intrinsic value of vested options iszero thus no liability or expense will be recorded upon adoption.

 

**3.**                          Goodwill and OtherIntangible Assets

 

The Company is required to test acquiredgoodwill on an annual basis based upon a fair value approach. Additionally,goodwill shall be tested for impairment between annual tests if an event

 

 

F-9

----

 

 

occurs or circumstances change that wouldmore likely than not reduce the fair value of a reporting unit below itscarrying value.

 

On July 1, 2005 and 2004, the Company completed its annual goodwillimpairment test of each of its three reporting units. Based on this valuation,which utilized a discounted cash flowmethod, there was no impairment of goodwill indicated.

 

The changes in the carrying amount ofgoodwill for the year ended December 31, by operating segment, are as follows:

 
| **(in thousands of dollars)**                  | ** ** | **Shows  and  Conferences** | ** ** | **Publications** | ** ** | **Direct  Marketing  Products  and Other** | ** ** | **Totals** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------|------------|------------------|------------|--------------------------------------------|------------|------------|------------|
|                                                          |       |                        |       |             |       |                                       |       |       |       |
| Balances at  December 31, 2003                                |       | $                           | 396,061    |             | $          | 156,683                                    |       | $          | 24,788     |   | $ | 577,532 |   |
| Goodwill acquired or completion of purchase  price allocation |       | 247                         |       | 6,272            |       | —                                     |       | 6,519      |       |
| Foreign currency translation                                  |       | 2,274                       |       | 640              |       | 2                                          |       | 2,916      |       |
| Balances at December 31, 2004                                 |       | 398,582                     |       | 163,595          |       | 24,790                                     |       | 586,967    |       |
| Goodwill acquired or completion of purchase  price allocation |       | 10,685                      |       | —           |       | —                                     |       | 10,685     |       |
| Foreign currency translation                                  |       | (956                        | )          | (1,650           | )          | (64                                        | )          | (2,670     | )          |
| Balances at December 31, 2005                                 |       | $                           | 408,311    |             | $          | 161,945                                    |       | $          | 24,726     |   | $ | 594,982 |   |
|                                                               |            |                             |            |                  |            |                                            |            |            |            |  |  |  |  |  |  |

 

Intangible and other assets consist of the following atDecember 31:

 
| **(in thousands of dollars)** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
|                                         |       |     |       |     |       |
| Trade  exhibitor lists                       |       | $        | 132,936    |     | $          | 129,691 |   |
| Advertiser  lists                            |       | 29,680   |       | 46,712   |       |
| Subscriber  lists                            |       | 6,023    |       | 15,238   |       |
| Trade names  and trademarks                  |       | 19,211   |       | 17,982   |       |
| Other  intangible assets                     |       | 20,275   |       | 19,928   |       |
| Deferred  financing costs                    |       | 18,668   |       | 22,258   |       |
|                                         |       | 226,793  |       | 251,809  |       |
| Accumulated amortization                     |       | (164,149 | )          | (159,861 | )          |
| Total intangible and other assets, net       |       | $        | 62,644     |     | $          | 91,948 |   |
|                                              |            |          |            |          |            |  |  |  |  |

 

 

F-10

----

 

The allocated fair value of intangible assets acquired during the yearended December 31 was as follows:

 
| **(in thousands of dollars)** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|
|                          |       |     |       |     |       |
| Trade  exhibitor lists        |       | $        | 3,820      |     | $          | — |   |
| Advertiser  lists             |       | 103      |       | —   |       |
| Subscriber  lists             |       | —   |       | 789      |       |
| Trade names  and trademarks   |       | 1,230    |       | 97       |       |
| Other  intangible assets      |       | 1,730    |       | 1,566    |       |
|                          |       | $        | 6,883      |     | $          | 2,452 |   |

 

Estimated amortization expense of intangible assets for the next fiveyears is as follows:

 
| **(in thousands of dollars)** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|
|                                         |       |       |       |
| 2006                                         |       | $          | 21,129     |   |
| 2007                                         |       | 8,372      |       |
| 2008                                         |       | 5,454      |       |
| 2009                                         |       | 1,919      |       |
| 2010                                         |       | 1,570      |       |
|                                              |            |            |            |  |

 

**4.**                          Acquisitions, Divestitures and AssetsHeld for Sale

 

**Acquisitions**

All acquisitions have been accounted for using the purchase method ofaccounting and, accordingly, the assets acquired and liabilities assumed havebeen recorded at their fair values as of the dates of the acquisitions. Theexcess of the purchase price over the fair value of the assets acquired andliabilities assumed has been recorded as goodwill. Results of operations forthese acquisitions have been included in the accompanying consolidatedfinancial statements since their respective dates of acquisition. Allacquisitions have been consummated to expand the Company’s show and publicationpresence within its existing market sector and to maximize marketing andcustomer service infrastructure and expertise.

 

On September 12, 2005, the Company purchased an off-road consumer eventbusiness from Petersen Events Corporation (“Off-Road Expo”) for $2.2 million incash. In addition, the Company may pay additional contingent cash considerationto the former shareholders based on the 2006 operating revenue from theacquired assets. Any contingent consideration paid will be recorded asgoodwill.

 

On August 23, 2005, the Company purchased a fashion industry tradeshowbusiness and related products from the owner of POOL Tradeshow (‘‘Pool’’) for$3.0 million in cash, subject to a working capital adjustment which will becompleted in 2006. In addition, the Company may pay additional contingent cashconsideration to the former owner based on the 2007 and 2008 operating resultsfrom the acquired assets and the owner’s continued employment with the Company.Any contingent consideration paid will be recorded as compensation expense inthe consolidated statement of operations.

 

F-11

----

 

The purchase price working capital adjustment has yet to be finalized.The Company does not believe the final allocation of purchase price will bematerially different from preliminary estimates.

 

On August 19, 2005, the Company purchased Project Global Tradeshow,Inc. (‘‘Project”), a producer of tradeshows serving the premium contemporarysector of the fashion industry, for $9.9 million in cash, subject to a workingcapital adjustment, which will be completed in 2006. In addition, the Companymay pay additional contingent cash consideration to the former shareholdersbased on the 2007 and 2008 operating results of the acquired assets and theircontinued employment with the Company. Any contingent consideration paid willbe recorded as compensation expense in the consolidated statement of operations.The purchase price working capital adjustment has yet to be finalized. TheCompany does not believe the final allocation of purchase price will bematerially different from preliminary estimates.

 

In 2005, the Company completed two other acquisitions of consumertradeshow businesses with an aggregate purchase price of $0.5 million in cash.

 

On March 8, 2004, the Company purchased a portfolio of pharmaceuticalindustry conferences and magazines from the Institute of Validation Technology,Inc. (‘‘IVT’’) for $7.9 million in cash. The Company is required to payadditional contingent cash consideration to the former shareholders based on2004 and 2005 operating results of the acquired assets and their continuedemployment with the Company. For the year ended December 31, 2005 and 2004, theCompany recorded $0.7 million and $1.5 million of contingent consideration. Thesecharges were recorded as compensation expense in the consolidated statement ofoperations in the periods indicated. As of December 31, 2004, $1.0 million ofthe contingent consideration accrual is included in other accrued liabilitiesand $0.5 million is included in other long-term liabilities. In 2005, theCompany paid $0.9 million of contingent consideration to the formershareholders. As of December 31, 2005, the balance of the remaining contingentconsideration accrual is $1.3 million and is included in other accruedliabilities in the accompanying consolidated balance sheet.

 

On October 1, 2003, the Company purchased a portfolio of healthcareindustry magazines and related custom service projects from the ThomsonCorporation and its subsidiaries (“Thomson”) for $150.7 million, including$136.5 million in cash (including related fees and expenses) and $14.1 millionof liabilities assumed.

 

During 2003, the Company acquired intangibleassets, primarily customer relationships, for $0.7 million in cash. The Companyalso paid an additional $0.5 million of contingent purchase price related toits 2002 acquisition of *HT—the Magazine forHealthcare Travel Professionals*.

 

The following are the Company’s unaudited pro forma operating resultsas if the Thomson acquisition had taken place at January 1, 2003. The unauditedpro forma operating results related to all other acquisitions discussed abovewere immaterial.

 
| **(in thousands of dollars - unaudited)**                                      | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------------------|------------|----------|------------|
|                                                                           |       |     |       |
| Revenue                                                                        |       | $        | 254,097    |   |
| Loss from  continuing operations before cumulative effect of accounting change |       | (66,535  | )          |
| Net loss                                                                       |       | (62,801  | )          |
|                                                                                |            |          |            |  |

 

F-12

----

 

The unaudited pro forma operating results do not purport to representwhat the Company’s results of operations actually would have been if theacquisition had occurred as of the date indicated or what such results will befor any future periods.

 

**Divestitures**

The operating results, related income taxes and any gains or losses ofthe following divestitures (collectively, the “Disposed Businesses”) have beenreported in discontinued operations in the consolidated statements ofoperations for the years ended December 31, 2005, 2004 and 2003. ****Interest expense wasnot allocated to any of the Company’s discontinued operations.****

 

The assets and liabilities of the following Disposed Businesses arereported as assets and liabilities of discontinued operations, where appropriate,in the consolidated balance sheet as of December 31, 2005 and 2004.

 

*Arenacross*

In December 2005, the Company closed on the sale of its ArenacrossChampionship Series business (“Arenacross”) for a total selling price of $0.2million. The Company recorded a $0.4 million loss on the sale.

 

Revenue of Arenacross included in discontinued operations in theconsolidated statements of operations was $0.9 million for the year endedDecember 31, 2005. Arenacross had no revenue for the years ended December 31,2004 and 2003.

 

*East Coast Fashion*

In the second quarter of 2005, the Company discontinued its East CoastFashion group business (“East Coast Fashion”) and recognized a $2.3 millionimpairment, which was the carrying value of the related intangibles.

 

Revenue of East Coast Fashion included in discontinued operations inthe consolidated statements of operations was $0.9 million, $6.1 million and$10.9 million for the years ended December 31, 2005, 2004, and 2003.

 

*Portfolio Group*

On May 23, 2005, the Company, Advanstar, Inc. and certain affiliates(Advanstar Expositions Canada Limited and Advanstar.com) completed the sale ofvirtually all business assets and liabilities associated with its tradeshowsand conferences, trade publications and direct marketing products in thefollowing primary industries: Information Technology & Communications,Travel/Hospitality, Beauty, Home Entertainment, Abilities and Portfolio,including the shares of the Company’s Hong Kong subsidiaries. The shares of theCompany’s Brazilian subsidiary were sold to the same buyer in July 2005 afterfinal regulatory approval. Collectively, all of the above properties arereferred to as “the Portfolio Group.” The sale price for these assets andshares was $173.8 million in cash, net of selling expenses. The Company recorded a gain onthe sale of $52.9 million.

 

Revenue of the Portfolio Group, included in discontinued operations inthe consolidated statements of operations, was $49.0 million for the periodfrom January 1, 2005 to May 23, 2005, and $100.8 million and $103.5 million forthe years ended December 31, 2004 and 2003.

 

F-13

----

 

*DMS*

On September 8, 2004, the Company sold its German tradeshow business (“DMS”)for $1.7 million in cash. In connection with the sale, the Company recorded agoodwill impairment charge of $6.2 million in the third quarter of 2004. Theamount of the impairment charge was determined based upon the excess of thecarrying value of DMS over the selling price, less the costs incurred by theCompany to sell DMS. The Company is continuing to incur accounting and legalfees in connection with the closure of its DMS office. These costs will bereported in income (loss) from discontinued operations.

 

Revenue of DMS, included in discontinued operations in the consolidatedstatements of operations, was $0.1 million for the period from January 1, 2004to September 8, 2004, and $2.0 million for the year ended December 31, 2003.

 

*SeCA*

On August 5, 2004, the Company completed the sale of its 65% ownershipin its French joint venture (“SeCA”) for a total selling price of $3.1 millionin cash. In connection with the sale, the Company recorded a goodwillimpairment charge of $9.4 million, net of minority interest effect of $5.1million in the second quarter of 2004. The impairment charge relates to theCompany’s tradeshow reporting segment and was determined based upon the excessof the carrying value of the Company’s interest in SeCA over the selling price,less the costs incurred by the Company to sell SeCA.

 

Revenue of SeCA, included in discontinued operations in theconsolidated statements of operations, was $2.9 million for the period fromJanuary 1, 2004 to August 5, 2004, and $4.1 million for the year ended December31, 2003.

 

*Post*

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

 

Revenue of Post, included in discontinued operations in the consolidatedstatements of operations, was $0.7 million for the period from January 1, 2004to July 2, 2004 and $1.7 million for the year ended December 31, 2003.

 

*Art Group*

On March 12, 2004, the Company completed the sale of its art industrytradeshows and magazines business (the “Art Group”) for a total selling priceof $19.6 million in cash. The Company recorded a gain after taxes on the saleof $3.4 million.

 

Revenue of the Art Group, included in discontinued operations in theconsolidated statements of operations, was $8.5 million for the period fromJanuary 1, 2004 to March 12, 2004, and $10.9 million for the year endedDecember 31, 2003.

 

**Assets Held for Sale**

 

In the second quarter of 2005, the Company committed to a plan to sellits Cleveland office building and land (“the Cleveland Office”) as a result ofthe sale of the Portfolio Group. As of December 31, 2005, the Company reportedthis building and land as assets held for sale and ceased depreciation of theseassets, effective second quarter of 2005. The Cleveland Office is reported asassets held for sale in the consolidated balance sheet as of December 31, 2005and 2004.

 

F-14

----

 

The financial results of the Disposed Businesses included in thediscontinued operations in the accompanying consolidated statements ofoperations for the years ended December 31, 2005, 2004 and 2003 are as follows:

 
| **(in thousands of dollars)**                                               | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                       |       |     |       |     |       |     |       |
| Income (loss) before income taxes  (including goodwill impairment charge and gain on sale) |       | $        | 55,961     |     | $          | (1,664   | )          | $ | 17,810 |   |
| Income tax provision                                                                       |       | 16,859   |       | 5,446    |       | 13,449   |       |
| Minority  interests                                                                        |       | (566     | )          | 4,264    |       | (627     | )          |
| Income  (loss) from discontinued businesses                                                |       | $        | 38,536     |     | $          | (2,846   | )          | $ | 3,734 |   |
|                                                                                            |            |          |            |          |            |          |            |  |  |  |  |

 

The Company allocated goodwill to the Disposed Businesses and includedthe allocated goodwill in its determined gain or loss on disposal. Goodwillallocated to Art, Post, and the Portfolio Group is based on the relative fairvalues of the Disposed Business to the entire reporting unit prior to disposal. SeCA and DMS were never integrated into the Company’s broader reporting units.Thus, the carrying amount of acquired goodwill for those businesses wasincluded in the calculation of any gain or loss on disposal.

 

Goodwill allocated to the businesses disposed of and used in thecalculation of the gain or loss on sale of the Disposed Businesses by reportingsegment was included in discontinued operations in the Company’s reportablesegments for the years ended December 31, 2005 and 2004 are as follows:

 
| **(in thousands of dollars)** | ** ** | **Shows  and  Conferences** | ** ** | **Publications** | ** ** | **Direct  Marketing  Products  and Other** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
|----------------------------------------------|------------|-----------------------------|------------|------------------|------------|-------------------------------------------------|------------|---------------|------------|-----------|------------|
| Year ended  December 31, 2005                |       | $                           | 62,857     |             | $          | 52,873                                          |       | $             | 6,082      |      | $          | — |   | $ | 121,812 |   |
|                                         |       |                        |       |             |       |                                            |       |          |       |      |       |
| Year ended  December 31, 2004                |       | 19,287                      |       | 4,246            |       | —                                          |       | —        |       | 23,533    |       |
|                                              |            |                             |            |                  |            |                                                 |            |               |            |           |            |  |  |  |  |  |

 

F-15

----

 

The assets held for sale and discontinued operations of the PortfolioGroup, East Coast Fashion and the Cleveland Office included in the consolidatedbalance sheets as of December 31, 2005 and 2004 are as follows:

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

 

The Portfolio Group, East Coast Fashion and the Cleveland Office assetsincluded in assets held for sale and discontinued operations in the Company’sreportable segments as of December 31, 2005 and 2004 are as follows:

 
| **(in thousands of dollars)** | ** ** | **Shows  and  Conferences** | ** ** | **Publications** | ** ** | **Direct  Marketing  Products  and Other** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
|----------------------------------------------|------------|-----------------------------|------------|------------------|------------|-------------------------------------------------|------------|---------------|------------|-----------|------------|
| Segment  assets at December 31, 2005         |       | $                           | —     |             | $          | —                                          |       | $             | —     |      | $          | 4,620 |   | $ | 4,620 |   |
|                                         |       |                        |       |             |       |                                            |       |          |       |      |       |
| Segment  assets at December 31, 2004         |       | $                           | 71,997     |             | $          | 54,626                                          |       | $             | 6,082      |      | $          | 5,822 |   | $ | 138,527 |   |
|                                              |            |                             |            |                  |            |                                                 |            |               |            |           |            |  |  |  |  |  |  |

 

 

F-16

----

 

**5.**                          Financial Derivative Instruments

 

The Company periodically uses derivative instruments to manage exposureto interest rate and foreign currency risks. The Company’s objectives forholding derivatives are to minimize the risks using what management believesare the most effective methods to eliminate or reduce the impact of theseexposures.

 

**Interest Rate Risk**

Variable rate debt instruments are subject to interest rate risk. TheCompany periodically enters into interest rate collar and swap agreements tomanage its exposure to interest rate movements on its variable rate debtobligations. The effective portion of the cumulative gain or loss on theseagreements are reported as a component of accumulated other comprehensiveincome in stockholder’s equity and recognized in earnings as the underlyinginterest expense is incurred. The ineffective portion of these agreements arerecognized in current earnings. Gains and losses on the undesignated portion ofthese agreements at the end of each fiscal quarter (which are calculated as thenet amount payable upon termination at the date of determination) are recognizedin current earnings until expired.

 

In 2001 the Company entered into an interest rate collar agreementwhich expired in February 2004 to manage its exposure to interest ratemovements on a portion of its variable rate debt obligations.

 

In May 2003 the Company entered into an interest rate swap agreementexpiring November 2005, and subsequently terminated the agreement in December2003. The net gain at termination of approximately $0.2 million was reported inaccumulated other comprehensive income and was amortized into earnings over theoriginal contract term.

 

In connection with the Company’s private placement of $360 million ofsecond priority senior secured notes in August 2003 and the use of proceeds therefromto repay and terminate all outstanding term A loans under the credit facilityand all but $25.0 million of the outstanding term B loans under its creditfacility (Note 6), the Company reclassified approximately $1.8 million ofdeferred losses previously reported as a component of accumulated othercomprehensive income into other expense in 2003.

 

**Foreign Currency Risk**

The Company periodically uses forward contracts to manage its exposureassociated with forecasted international revenue and expense transactionsdenominated in euro and British Pound Sterling for up to 15 months in thefuture. Changes in the fair value of these instruments are reported as acomponent of accumulated other comprehensive income in stockholder’s equity andare recognized in earnings as the underlying revenue or expense is recognized. Forwardcontracts not designated as hedging instruments under SFAS No. 133 arealso used to manage the impact of the variability in exchange rates. Changes inthe fair value of these foreign exchange contracts are recognized in current earnings.

 

At December 31, 2005, the Company had no foreign exchange derivativecontracts.

 

F-17

----

 

**Accumulated Other Comprehensive Income (Loss)**

The following table summarizes the effects of SFAS No. 133 on the Company’saccumulated other comprehensive income at December 31, 2005 and 2004:

 
| **(in thousands of dollars)**                           | ** ** | **Interest Rate  Collar  Agreements** | ** ** | **Foreign  Exchange  Contracts** | ** ** | **Total**  | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------|------------|----------------------------------|------------|------------|------------|
| ** **                                                             | ** ** | ** **                                 | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Accumulated  other comprehensive loss balance at December 31, 2003     |       | $                                          | (42        | )                                | $          | —     |       | $ | (42 | ) |
| Unwound from accumulated other  comprehensive income during the period |       | (99                                        | )          | —                           |       | (99        | )          |
| Mark to market hedge contracts                                         |       | 244                                        |       | —                           |       | 244        |       |
| Accumulated other comprehensive income balance  at December 31, 2004   |       | 103                                        |       | —                           |       | 103        |       |
| Unwound from accumulated other  comprehensive income during the period |       | (103                                       | )          | —                           |       | (103       | )          |
| Accumulated other comprehensive income  balance at December 31, 2005   |       | $                                          | —     |                             | $          | —     |       | $ | — |   |

 

The Company had no outstanding derivatives as of December 31, 2005 and2004.

 

**Statement of Operations**

The following tables summarize the effects of SFAS No. 133 on theCompany’s statement of operations related to the ineffective portion of theCompany’s interest rate collar agreements and changes in the fair value offoreign exchange contracts not designated as hedging instruments for the yearsended December 31, 2005 and 2004:

 
| **(in thousands of dollars)**       | ** ** | **Interest Rate  Collar  Agreements** | ** ** | **Foreign  Exchange  Contracts** | ** ** | **Total**  | ** ** |
|----------------------------------------------------|------------|--------------------------------------------|------------|----------------------------------|------------|------------|------------|
| ** **                                         | ** ** | ** **                                 | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Year ended  December 31, 2005                      |       |                                       |       |                             |       |       |       |   |   |   |
| Other income                                       |       | $                                          | 103        |                             | $          | —     |       | $ | 103 |   |
| Total  statement of operations impact before taxes |       | $                                          | 103        |                             | $          | —     |       | $ | 103 |   |
|                                               |       |                                       |       |                             |       |       |       |   |   |   |
| Year ended  December 31, 2004                      |       |                                       |       |                             |       |       |       |   |   |   |
| Other income                                       |       | $                                          | 1,319      |                             | $          | 71         |       | $ | 1,390 |   |
| Total  statement of operations impact before taxes |       | $                                          | 1,319      |                             | $          | 71         |       | $ | 1,390 |   |
|                                                    |            |                                            |            |                                  |            |            |            |  |  |  |  |

 

F-18

----

 

**6.**                          Debt

 

**Credit Facility**

The Company is party to a credit facility (the “Credit Facility”) witha group of financial institutions acting as lenders. The Credit Facility isguaranteed by the Company’s domestic subsidiaries and is collateralized byfirst priority liens on substantially all of the assets of the Company and theguarantors. The Credit Facility contains restrictive covenants, includinglimitations on certain asset dispositions, dividends, investments and otherrestricted payments. In addition, the Credit Facility requires a minimum quarterly fixed charge coverage ratio(as defined). Failure to comply withthe covenants could cause an event of default under the Credit Facility.

 

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

 

InJune 2005, the Company repaid the outstanding term B loans with proceeds fromthe sale of the Portfolio Group (see Note 4) and amended the Credit Facility toallow the Company to retain its revolving loan availability at $60.0 millionwhile allowing for repayment of second lien and junior debt with proceeds fromthe sale of the Portfolio Group. At December 31, 2005, the Company had $1.1million of unused letters of credit, which reduce borrowings available underthe Credit Facility to $58.9 million.

 

**Senior Secured Notes**

The Senior Secured Notesconsist of $130.0 million of Second Priority Senior Secured Floating Rate Notesdue 2008 (the “floating rate notes”), which require quarterly amortizationequal to 0.25% of the principal amount thereof, and $300.0 million of 10.75%Second Priority Senior Secured Notes due 2010 (the “fixed rate notes”).Interest on the floating rate notes is payable at a rate equal to three-monthLIBOR, which is reset quarterly, plus 7.5%.

 

The Company was required underthe Senior Secured Notes indenture to use a portion of the proceeds from thePortfolio Group sale to offer to purchase Senior Secured Notes at a price equalto 100% of the principal amount plus accrued interest. In June 2005, theCompany consummated that offer and repurchased $8.7 million of the fixed ratenotes.

 

Separately, the Company alsoconsummated a tender offer in June 2005 for the floating rate notes andrepurchased $117.8 million of the floating rate notes at a price equal to$1,043 plus a consent payment of $30 per $1,000 principal amount tendered, andaccrued and unpaid interest to the date of settlement. In connection with thetender offer, the Company and the trustee enteredinto a supplemental indenture that eliminated substantially all of therestrictive and reporting covenants, certain events of default and certainother provisions with respect to the floating rate notes and released thefloating rate notes’ lien on the collateral under the indenture. The floatingrate notes and fixed rate notes were initially fully and unconditionally guaranteedon a senior basis, jointly and severally, by the Company’s wholly owneddomestic subsidiaries and collateralized by second priority liens on substantiallyall the collateral pledged against borrowings under the Company’s CreditFacility (other than the capital stock of certain of its subsidiaries andassets of its parent companies, including Advanstar). Thecovenants under the notes include limitations on certain asset dispositions,liens, debt incurrence, dividends, investments and other restricted payments. Thefixed rate notes remain collateralized by the collateral and subject to therestrictive covenants in the indenture.

 

F-19

----

 

In 2005, the Companyrecognized a $12.6 million loss onextinguishment of debt related to the repurchase, including $8.6 millionin tender offer premium and consent fees, a write-off of $3.5 million inunamortized deferred financing costs, and $0.5 million in legal fees andexpenses.

 

**Senior Subordinated Notes**

The Company’s $160.0 million unsecured, 12% senior subordinatednotes due 2011 (the “Senior Subordinated Notes”) bear interest payablesemiannually on February 15 and August 15 of each year. The SeniorSubordinated Notes are fully and unconditionally guaranteed on a seniorsubordinated basis, jointly and severally, by the Company’s wholly owneddomestic subsidiaries. The covenants under the Senior Subordinated Notesinclude limitations on certain asset dispositions, liens, debt incurrence,dividends, investments and other restricted payments.

 

Long-term debt consists of the following at December 31:

 
| **(in thousands of dollars)**                                                                                                                  | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Term loan B, interest at LIBOR plus 4.50%                                                                                                      |       | $          | —     |       | $          | 25,000 |   |
| Revolving credit loan, interest at LIBOR  plus 3.75%; due April 11, 2007                                                                       |       | —     |       | —     |       |
| Second priority senior secured floating  rate notes, interest at LIBOR plus 7.5%, 11.89% at December 31, 2005, due  2008                       |       | 9,872      |       | 128,375    |       |
| 10.75% Second priority senior secured  notes, due 2010, plus unamortized premium of $680 and $844 at December 31,  2005 and 2004, respectively |       | 292,015    |       | 300,844    |       |
| 12% Senior subordinated notes, due 2011                                                                                                        |       | 160,000    |       | 160,000    |       |
| Non-interest bearing acquisition note  payable, June 2006                                                                                      |       | 100        |       | —     |       |
|                                                                                                                                           |       | 461,987    |       | 614,219    |       |
| Less: Current maturities                                                                                                                       |       | (201       | )          | (1,300     | )          |
|                                                                                                                                           |       | $          | 461,786    |       | $          | 612,919 |   |
|                                                                                                                                                |            |            |            |            |            |  |  |  |  |

 

Based on the borrowing rates currently available to the Company fordebt instruments with similar terms and average maturities, the fair value oflong-term debt exceeded its carrying value by $35.3 million and $49.5 millionat December 31, 2005 and 2004.

 

Cash paid for interest for the years ended December 31, 2005, 2004and 2003, was approximately $60.4 million, $67.2 million and $51.1 million,respectively.

 

Annual maturities of long-term debt for the next five years (excludingamortization of premium) are as follows:

 
| **(in thousands of dollars)** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|
|                                         |       |       |       |
| 2006                                         |       | $          | 201        |   |
| 2007                                         |       | 101        |       |
| 2008                                         |       | 9,670      |       |
| 2009                                         |       | —     |       |
| 2010                                         |       | 291,335    |       |
| Thereafter                                   |       | 160,000    |       |
|                                         |       | $          | 461,307    |   |

 

F-20

----

 

**7.**                          Stockholder’s Equity

 

**2000 Management Incentive Plan**

On October 12, 2000, Advanstar Holdings Inc. (“Holdings”), theparent company of Advanstar, Inc., adopted the 2000 Management Incentive Plan (“thePlan”). A maximum of 4,072,789 shares of Holdings are authorized for grant toparticipants 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. In2005, Holdings amended and restated the Plan to accelerate the vesting ofcertain options granted under the Plan. Although this modification resulted ina new measurement date for all modified options, the intrinsic value on thedate of modification was zero and accordingly resulted in no compensationexpense. Shares available for grant under the Plan totaled 107,789 atDecember 31, 2005.

 

For purposes of computing pro-forma compensation cost of stock optionsgranted, as summarized in Note 2, the fair value of each stock option grant wasestimated on the date of grant using the Black-Scholes option pricing modelwith the following weighted average assumptions for each if the years endedDecember 31:

 
| ** **                       | ** ** | **2005**  | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|----------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
|                             |       |      |       |      |       |      |       |
| Expected  dividend yield         |       | —    |       | —    |       | —    |       |
| Expected  stock price volatility |       | 26.8      | %          | 42.3      | %          | 36.0      | %          |
| Risk-free  interest rate         |       | 4.3       | %          | 3.6       | %          | 3.8       | %          |
| Expected  life of options        |       | 3.5 years |       | 5.0 years |       | 7.0 years |       |

 

Holdings uses comparable public companies in its industry forestimating its expected stock price volatility. Holdings has not declared orpaid any cash dividends in the past.

 

A summary of stock option activity under the Plan is as follows:

 
| ** **                             | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|----------------------------------------|------------|--------------------------|------------|----------------------------------------|------------|
|                                   |       |                     |       |                                   |       |
| Outstanding  at December 31, 2002 |       | 3,243,750                |       | $                                      | 10.00      |   |
| Granted                                |       | 600,000                  |       | 10.00                                  |       |
| Outstanding  at December 31, 2003 |       | 3,843,750                |       | 10.00                                  |       |
| Granted                                |       | 256,250                  |       | 10.00                                  |       |
| Cancelled                              |       | (275,000                 | )          | 10.00                                  |       |
| Outstanding  at December 31, 2004 |       | 3,825,000                |       | 10.00                                  |       |
| Granted                                |       | 425,000                  |       | 10.00                                  |       |
| Cancelled                              |       | (285,000                 | )          | 10.00                                  |       |
| Outstanding  at December 31, 2005 |       | 3,965,000                |       | $                                      | 10.00      |   |

 

At December 31, 2005 and 2004, the outstanding stock options had aweighted average remaining contractual life of 5.2 years and 6.8 years and anexercise price of $10.00 per option. Of the 

 

F-21

----

 

options outstanding at December 31, 2005 and 2004, 2,762,915 and2,230,798 were exercisable. The weighted average fair value of grants, asestimated using the Black-Scholes option pricing model, for the years endedDecember 31, 2005, 2004 and 2003, was $4.76, $5.24 and $5.34 per option.

 

**8.**                          401(k) Plan

 

The Company has a 401(k) savings plan and trust (the “401(k) Plan”)available to employees of the Company and its domestic subsidiaries. Alldomestic employees who are at least 21 years of age are eligible to participatein the 401(k) Plan. The Company is required to make a matching contribution,after the employee completes one year of service, to the 401(k) Plan and maymake discretionary contributions to the 401(k) Plan. Eligible employees arevested 100% in their own contributions. Contributions made by the Company vestin equal installments over five years. Total contribution expense was $1.4million, $1.6 million, and $1.2 million for the year ended December 31, 2005,2004 and 2003.

** **

**9.**                          Income Taxes

 

The Company’s taxable income or loss is included in the consolidatedfederal income tax return of Holdings. Federal income taxes are paid orrefunded pursuant to the terms of a tax-sharing agreement under which taxesapproximate the amount that would have been computed on a separate companybasis. Taxes payable to Advanstar, Inc. of $2.7 million and $6.6 million atDecember 31, 2005, and 2004 are included in Due to/from parent in theaccompanying consolidated balance sheet.

 

Cash paid for income taxes during the years ended December 31,2005, 2004 and 2003, was $0.9 million, $0.2 million and $0.3 million.

 

The summary of loss from continuing operations before (benefit)provision for income taxes and cumulative effect of accounting change was asfollows for the years ended December 31:

 
| **(in thousands of dollars)** | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|----------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Domestic                                     |       | $          | (35,460    | )          | $          | (41,550    | )          | $ | (54,881 | ) |
| Foreign                                      |       | (1,851     | )          | (249       | )          | (5,025     | )          |
|                                         |       | $          | (37,311    | )          | $          | (41,799    | )          | $ | (59,906 | ) |
|                                              |            |            |            |            |            |            |            |  |  |  |  |  |

 

The (benefit) provision for income taxes is comprised of the followingfor the years ended December 31:

 
| **(in thousands of dollars)** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                         |       |     |       |     |       |     |       |
| Current                                      |       |     |       |     |       |     |       |
| Federal                                      |       | $        | —     |     | $          | —   |       | $ | — |   |
| State                                        |       | 14       |       | 7        |       | —   |       |
| Foreign                                      |       | (675     | )          | 20       |       | 4        |       |
| Deferred                                     |       | (2,071   | )          | 6,491    |       | (6,728   | )          |
| Total (benefit) provision                    |       | $        | (2,732     | )        | $          | 6,518    |       | $ | (6,724 | ) |

 

F-22

----

 

The Company accounts for income taxes following the provisions of SFASNo. 109, *Accounting for Income Taxes*,which requires recognition of deferred tax assets and liabilities for theexpected future tax consequences of differing amounts that have been includedin the financial statements or tax returns. Under this method, deferred taxassets and liabilities are determined based on the difference between thefinancial statement and tax bases of assets and liabilities using currentlyenacted tax rates at which the differences are expected to reverse.

 

Significant components of the Company’s deferred income taxes were asfollows at December 31:

 
| **(in thousands of dollars)**           | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net current  deferred tax asset                        |       |       |       |       |       |
| Accounts receivable                                    |       | $          | 467        |       | $          | 16,864 |   |
| Accrued expenses and other                             |       | 5,204      |       | 6,707      |       |
| Prepaid and other                                      |       | (1,037     | )          | (372       | )          |
| Total net current deferred tax asset                   |       | 4,634      |       | 23,199     |       |
| Net  noncurrent deferred tax asset                     |       |       |       |       |       |
| Property, plant and equipment                          |       | 1,246      |       | 710        |       |
| Identifiable intangible assets                         |       | 17,575     |       | 15,996     |       |
| Goodwill                                               |       | (31,500    | )          | (18,250    | )          |
| U.S. net operating loss carryforwards                  |       | 39,252     |       | 34,222     |       |
| Foreign jurisdiction net operating loss  carryforwards |       | 8,600      |       | 10,744     |       |
| Financial derivatives                                  |       | —     |       | (419       | )          |
| AMT credit carryforwards                               |       | 453        |       | 453        |       |
| Total net noncurrent deferred tax asset                |       | 35,626     |       | 43,456     |       |
| Valuation  allowance                                   |       | (71,760    | )          | (84,905    | )          |
| Net deferred  income tax liabilities                   |       | $          | (31,500    | )          | $          | (18,250 | ) |
|                                                        |            |            |            |            |            |  |  |  |

 

The Company has established a valuation allowance to offset all of thenet deferred tax assets. The amortization of goodwill for income tax purposesresulted in the tax basis of goodwill being less than the carrying value forfinancial reporting purposes. Because goodwill is not amortized for financialreporting purposes, the Company has established a deferred tax liability equalto this tax effected basis difference of $31.5 million and $18.3 million atDecember 31, 2005 and 2004 and has increased the valuation allowance by thesame amount. All goodwill resulting from acquisitions during 2005 is expected tobe deductible for tax purposes.

 

At December 31, 2005 and 2004, the Company had net operating losscarryforwards of $105.5 million and $114.4 million. Of these losses,$21.5 million and $26.9 million are related to losses generated bythe Company’s operations in foreign tax jurisdictions whose use are subject tothe tax laws of such foreign jurisdictions and will be limited by the abilityof such foreign entities to generate taxable income. Of the total operatingloss carryforwards at December 31, 2005, $21.5 million have no expiration dateand $84.0 million expire at various dates beginning in 2021. The Companyhas recorded a valuation allowance to offset the potential tax benefits of theloss carryforwards and all other deferred tax assets because their realizationis uncertain based on the Company’s operating history.

 

F-23

----

 

A reconciliation of the Company’s (benefit) provision for income taxesat the federal statutory rate to the reported income tax (benefit) provision isas follows:

 
| **(in thousands of dollars)**                                            | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                     |       |     |       |     |       |     |       |
| Income tax  benefit at statutory rates                                   |       | $        | (13,059    | )        | $          | (14,630  | )          | $ | (20,967 | ) |
| Change in  valuation allowance                                           |       | 3,352    |       | 24,155   |       | 22,901   |       |
| State taxes,  net of federal benefit                                     |       | (933     | )          | (1,045   | )          | (1,498   | )          |
| Foreign rate  differential                                               |       | 345      |       | 213      |       | (526     | )          |
| Permanent  difference due to sale of Portfolio Group                     |       | 7,382    |       | —   |       | —   |       |
| Permanent difference due to discontinuation  of East Coast Fashion Group |       | 852      |       | —   |       | —   |       |
| Other  permanent differences                                             |       | 280      |       | 1,006    |       | 258      |       |
| Other, net                                                               |       | (951     | )          | (3,181   | )          | (6,892   | )          |
| (Benefit)  provision for income taxes                                    |       | $        | (2,732     | )        | $          | 6,518    |       | $ | (6,724 | ) |

 

The change in valuation allowance for the year ended December 31, 2005 includesa $16.5 million valuation allowance offsetting the elimination of a notereceivable with Advanstar.com, Inc., due to consolidation of operations withthe Company (see Note 13).

 

**10.**                   Commitments and Contingencies

 

**Leases**

The Company has long-term operating leases for office space and officeequipment. The leases generally require the Company to pay maintenance,insurance, taxes and other expenses in addition to minimum annual rentals. Buildingand equipment rent expense, including an allocation of certain facilityoperating expenses net of sublease rent income of $2.7 million, $0.2 million,and $0.2 million, was $7.0 million, $9.1 million and $7.3 million for the yearsended December 31, 2005, 2004 and 2003, respectively. Future minimum rentcommitments under operating leases with initial terms of one year or more areas follows:

 
| **(in thousands of dollars)** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|
|                                         |       |       |       |
| 2006                                         |       | $          | 7,681      |   |
| 2007                                         |       | 6,695      |       |
| 2008                                         |       | 6,451      |       |
| 2009                                         |       | 4,835      |       |
| 2010                                         |       | 2,174      |       |
| Thereafter                                   |       | 4,919      |       |
|                                              |            |            |            |  |

 

**Litigation**

The Company is a defendant in legal proceedings arising in the ordinarycourse of business. Based on information presently available, management hasdetermined that the accruals for these routine actions and claims are adequate.Although recorded accruals include management’s best estimates of probableoutcome, the resolution of these matters cannot be predicted with certainty. Managementbelieves, however, that it is unlikely that any identified matters, eitherindividually or in the aggregate, will have a material adverse effect on theCompany’s results of operations, financial position or cash flows.

 

F-24

----

 

**11.**                   Segments

 

The Company follows the provisions of SFAS No. 131, *Disclosures about Segments of an Enterprise and Related Information*,and has three reportable segments: shows and conferences, publications anddirect marketing products and other. The shows and conferences segment allowsexhibitors a cost-effective means to showcase and sell products and serviceswhile developing business relationships with potential customers. The Company’spublications segment provides new product and educational information toreaders and allows advertisers to reach highly targeted and select businessaudiences. The direct marketing products and other segment offers customersmailing lists from the Company’s subscriber and attendee databases; editorialand advertising reprints; direct mail postcards; and classified, recruitmentand industry directory advertising.

 

The Company evaluates the performance of, and allocates resources to,its segments based on contribution margin – defined as net revenue lesscost of production and selling, editorial, and circulation costs (excludingdepreciation), which is a non-GAAP measure. The accounting policies of thereportable segments are the same as those described in the summary ofsignificant accounting policies. There are no intersegment sales or transfers. Segmentassets are primarily intangible assets, prepaid expenses and accountsreceivable. Revenue, contribution margins and segment assets of the Company’sreportable segments are as follows:

 
| **(in thousands of dollars)** | ** ** | **Shows  and  Conferences** | ** ** | **Publications** | ** ** | **Direct Marketing  Products  and Other** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
|----------------------------------------------|------------|-----------------------------|------------|------------------|------------|-----------------------------------------------------|------------|---------------|------------|-----------|------------|
| Year ended  December 31, 2005           |       |                        |       |             |       |                                                |       |          |       |      |       |
| Revenue                                      |       | $                           | 122,239    |             | $          | 148,214                                             |       | $             | 18,460     |      | $          | — |   | $ | 288,913 |   |
| Contribution margin (loss)                   |       | 67,270                      |       | 46,619           |       | 11,920                                              |       | (5,595        | )          |      |       |
| Segment assets                               |       | 431,761                     |       | 224,929          |       | 26,694                                              |       | 83,452        |       | 766,836   |       |
| Year ended December 31, 2004            |       |                        |       |             |       |                                                |       |          |       |      |       |
| Revenue                                      |       | $                           | 107,089    |             | $          | 148,408                                             |       | $             | 14,915     |      | $          | — |   | $ | 270,412 |   |
| Contribution margin (loss)                   |       | 62,598                      |       | 45,912           |       | 8,496                                               |       | (4,224        | )          |      |       |
| Segment assets                               |       | 502,663                     |       | 293,399          |       | 33,489                                              |       | 83,386        |       | 912,937   |       |
| Year ended December 31, 2003            |       |                        |       |             |       |                                                |       |          |       |      |       |
| Revenue                                      |       | $                           | 90,232     |             | $          | 89,310                                              |       | $             | 11,156     |      | $          | — |   | $ | 190,698 |   |
| Contribution margin (loss)                   |       | 53,135                      |       | 31,137           |       | 5,218                                               |       | (3,377        | )          |      |       |
| Segmen assets                                |       | 563,055                     |       | 279,792          |       | 33,349                                              |       | 110,394       |       | 986,590   |       |
|                                              |            |                             |            |                  |            |                                                     |            |               |            |           |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

The reconciliation of total segment contribution margin to consolidatedloss from continuing operations before taxes and cumulative effect ofaccounting change is as follows for the years ended December 31:

 
| ***(in thousands of dollars)***                                                   | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                              |       |     |       |     |       |     |       |
| Total  segment contribution margin                                                |       | $        | 120,214    |     | $          | 112,782  |       | $ | 86,113 |   |
| General and  administrative expense                                          |       | (40,916  | )          | (39,419  | )          | (29,654  | )          |
| Restructuring  charge                                                             |       | (4,771   | )          | —   |       | (2,692   | )          |
| Funding of  affiliated dot.com company operations                                 |       | —   |       | (3,283   | )          | (1,121   | )          |
| Depreciation  and amortization                                                    |       | (37,755  | )          | (42,624  | )          | (43,530  | )          |
| Other  expense (primarily interest)                                               |       | (74,083  | )          | (69,255  | )          | (69,022  | )          |
| Consolidated loss before income taxes and  cumulative effect of accounting change |       | $        | (37,311    | )        | $          | (41,799  | )          | $ | (59,906 | ) |

 

F-25

----

 

Financial information relating to the Company’s continuing operationsby geographic area is as follows for the years ended December 31:

 
| **(in thousands of dollars)** | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|----------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenue**                                  |       |       |       |       |       |       |       |
| United  States                               |       | $          | 280,059    |       | $          | 261,964    |       | $ | 177,710 |   |
| International                                |       | 8,854      |       | 8,448      |       | 12,988     |       |
|                                         |       | $          | 288,913    |       | $          | 270,412    |       | $ | 190,698 |   |
|                                              |            |            |            |            |            |            |            |  |  |  |  |  |

 
| **(in thousands of dollars)** | ** ** | ** ** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
|                                         |       |       |       |     |       |     | ** ** |
| **Long-Lived  Assets**                       |       |       |       |     |       |     | ** ** |
| United  States                               |       |       |       | $        | 656,077    |     | $          | 671,337 | ** ** |
| International                                |       |       |       | 22,855   |       | 26,295   | ** ** |
|                                         |       |       |       | $        | 678,932    |     | $          | 697,632 | ** ** |
|                                              |            |            |            |          |            |          |            |  |  |  |

 

**12.**                   Restructuring Activities

 

Related to the sale of the Portfolio Group(see Note 4), in May 2005, the Company ceased use of certain leased officespace in New York, NY, Milford, CT, and Santa Ana, CA. In the third quarterof 2005, the Company vacated additional leased office space in Milford, CT andChicago, IL. These activitiesresulted in charges to the Company’s operations during the year endedDecember 31, 2005. These charges consist ofthe discounted remaining future minimum lease payments due under non-cancelableleases, net of estimated future sublease income. These lease commitments expireat various dates through 2010.

 

In connection with the sale of the PortfolioGroup and the reorganization of the Company’s healthcare and support departmentmanagement team restructuring of its operations during 2005, the Companynotified 120 employees that they would be severed from the Company. The Companytook a charge to operations during the year ended December 31,2005 for severance and other terminationcosts. As of December 31, 2005, 116 employees have been terminated. Severancepayments will continue into 2006.

 

In September 2003, the Company consolidated its midtown New York leasedoffice space from two floors to one. In December 2003, the Company consolidatedits Chester, U.K. leased office space. These actions resulted in a charge tothe Company’s operations during the year ended December 31, 2003. Theseactivities included a charge for the present value of future facility rentalpayments, net of sublease income. The Company will continue to pay facilitylease costs, net of sublease income, associated with the previously usedfacilities through August 2015.

 

F-26

----

 

Restructuring charges incurred are as followsfor the years ended December 31:

 
| **(in thousands of dollars)**    | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Facility  exit costs                            |       | $          | 2,499      |       | $          | —     |       | $ | 2,692 |   |
| Employee  severance and other termination costs |       | 2,272      |       | —     |       | —     |       |
| Restructuring  charge                           |       | $          | 4,771      |       | $          | —     |       | $ | 2,692 |   |

 

The change in restructuring accruals is asfollows (in thousands):

 
| **(in thousands of dollars)** | ** ** | **Facility Exit  Costs** | ** ** | **Employee  Severance** | ** ** | **Total**  | ** ** |
|----------------------------------------------|------------|-------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                                   | ** ** | ** **                    | ** ** | ** **              | ** ** | ** ** | ** ** |
| **Balance  at December 31, 2003**  |       | $                             | 2,375      |                    | $          | —     |       | $ | 2,375 |   |
| Restructuring  charge                        |       | —                        |       | —                  |       | —     |       |
| Utilized-cash                                |       | (548                          | )          | —                  |       | (548       | )          |
| Utilized-non-cash                            |       | —                        |       | —                  |       | —     |       |
| **Balance  at December 31, 2004**  |       | $                             | 1,827      |                    | $          | —     |       | $ | 1,827 |   |
| Restructuring  charge                        |       | 2,499                         |       | 2,272                   |       | 4,771      |       |
| Utilized-cash                                |       | (914                          | )          | (1,465                  | )          | (2,379     | )          |
| Utilized-non-cash                            |       | —                        |       | —                  |       | —     |       |
| **Balance  at December 31, 2005**  |       | $                             | 3,412      |                    | $          | 807        |       | $ | 4,219 |   |

 

The restructuring accrual balance in theaccompanying consolidated balance sheet is $4.2 million and $1.8 million atDecember 31, 2005 and 2004, of which $2.1 million and $0.5 million is in otheraccrued expenses at December 31, 2005 and 2004, and $2.1 million and $1.3million is in other long term liabilities at December 31, 2005 and 2004.

 

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

 

Advanstar.com, Inc. (“Advanstar.com”), an affiliate of the Company,operates the Company’s event and publication-related web sites and developscertain enhanced web opportunities to serve the Company’s customers in selectedindustries. The Company provides Advanstar.com with certain administrativesupport services and charges for these services based on a general overheadcharge. In addition, selected sales, editorial, marketing and production staffof the Company are shared with Advanstar.com. The Company also providesAdvanstar.com with marketing and promotional support through advertising pagesin its trade publications and exhibit space in its tradeshows. In return,Advanstar.com provides support on its web sites for the Company’s tradepublications and tradeshows.

 

Effective January 1, 2005, the Company began consolidating theoperations of Advanstar.com with its operations upon the adoption of FinancialAccounting Standards Board (“FASB”) Interpretation No. 46R, *Consolidation of Variable Interest Entities*. As a result ofthe adoption of FASB Interpretation No. 46R, the Company recorded a $4.6million gain, which was recorded as a cumulative effect of accounting change inthe first quarter of 2005.

 

F-27

----

 

Prior to January 1, 2005, the Company recorded advances and notesissued in support of Advanstar.com operations as an operating expense in theCompany’s consolidated statement of operations. Net advances and notes chargedto the Company’s operations during the years ended December 31, 2004 and 2003were $3.3 million and $1.1 million. In May 2004, the Company made a $1.9million advance to Advanstar.com to fund the settlement of Advanstar.com’soutstanding New York lease obligations.

** **

**14.**                   Related-Party Transactions

 

**Financial Advisory Fees and Agreements**

In 2003, Credit Suisse Corporation (“CS Corp.”), an affiliate of theDLJ Merchant Banking funds, provided services to the Company in connection withthe arrangement and syndication of the Credit Facility and as a lenderthereunder.  CS Corp. was an initial purchaser of the Senior SecuredNotes.  The Company paid customary financing fees to CS Corp. for thoseservices. The aggregate amount of all fees paid to the CS Corp. entities inconnection with these financings during 2003 was approximately $10.4 million,including out-of-pocket expenses.  This amount has been capitalized asdeferred financing costs and is being amortized over the remaining term of theSenior Secured Notes.

 

In May 2005, the Company paid a consulting fee of $1.5 million toCredit Suisse Securities (USA), LLC (“CSS (USA)”), affiliate of CS Corp.related to the sale of the Portfolio Group (see Note 4).

 

In June 2005, the Companyrepurchased $7.1 million of its fixed rate notes at par, and $4.6 million ofits floating rate notes at a price equal to 107.3% of principal, from CSS (USA)pursuant to the Company’s tender offer (see Note 6).

 

The Company has agreed to pay CSS (USA) an annual advisory fee of$0.5 million until the earlier of (i) an initial public offering ofHoldings, (ii) the date when the DLJ Merchant Banking funds own less than16-2/3% of the shares of Holdings’ common stock held by them on the closingdate of the DLJ Acquisition or (iii) October 11, 2005. This amount wasexpensed as incurred.

 

**Advanstar, Inc. Notes**

As a part of the financing for the acquisition ofthe Company by the DLJ Merchant Banking Funds in October 2000 and concurrentlywith the closing of the offering of the Senior Subordinated Notes in February2001, Advanstar, Inc. issued discount notes bearing interest at 15% (the “DiscountNotes”) with an aggregate principal amount at maturity of $171.8 million. Thesenotes do not require cash interest payments until 2006. Neither the Company norany of its subsidiaries guarantee the Discount Notes.

 

Advanstar, Inc. is a holding company and itsability to pay interest on the Discount Notes will be dependent upon thereceipt of dividends from its subsidiaries, including the Company. TheCredit Facility, Senior Secured Notes and the Senior Subordinated Notes imposesubstantial restrictions on the Company’s and its subsidiaries’ ability to paydividends.

** **

The restricted payments covenants in the Company’s Senior Secured Notesindenture and Senior Subordinated Notes indenture provide that it can paydividends only if its leverage ratio (as defined) is 6.0 to 1.0 or better andonly from “a basket” as defined as the amount by which its cumulative EBITDA(as defined) since January 1, 2001 exceeds 150% of the Company’s cumulativeinterest expense in that period plus other items including proceeds from equityofferings. The Company’s 

 

F-28

----

 

results are subject to a variety of factors, including general economicconditions and conditions in its markets. Although management believes that as ofDecember 31, 2005, the Company would be permitted to pay dividends, theCompany cannot assure you its results will in fact improve to a point to allowit to make distributions in light of these restrictions. Failure to pay theinterest on these notes will be a default under the notes and also result in adefault under the Company’s Credit Facility, which could have a materialadverse effect on the Company’s financial position, results of operations, andcash flows and/or could impact the Company’s ability to continue to operatewithout an amendment or restructuring of its Credit Facility and the notes. Notwithstandingthe leverage ratio limitation on restricted payments, the Company can makerestricted payments in an aggregate amount of up to $20 million toAdvanstar, Inc.  On March 14, 2006, the Company declared and paid adividend of $12.9 million to Advanstar, Inc. to be used for servicing its debtobligations.

 

**15.**                   Supplemental Guarantor Condensed ConsolidatingFinancial Statements

 

**Basis of Presentation**

The Company’s Senior Subordinated Notes andSenior Secured Notes are fully and unconditionally guaranteed on a seniorsubordinated basis and senior basis, respectively, jointly and severally, bythe Company’s wholly owned domestic subsidiaries. The subsidiary guarantors areMen’s Apparel Guild in California, Inc., Applied Business teleCommunications, CME2,Inc. and Project Global Tradeshow, Inc. The condensed consolidating financialstatements of the guarantors are presented below and should be read inconjunction with the consolidated financial statements of the Company. Separatefinancial statements of the guarantors are not presented because the guarantorsare jointly, severally, fully and unconditionally liable under the guaranteesand the Company believes the condensed consolidating financial statementspresented are sufficiently meaningful in understanding the financial position,operating results and cash flows of the guarantors. There are no significantrestrictions on the ability of the subsidiary guarantors to make distributionsto the Company.

 

F-29

----

** **

**Advanstar Communications Inc.**

**Condensed Consolidating Balance Sheets**

**December31, 2005**

 
| **(in thousands of dollars)**           | ** ** | **Communications** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  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                  |       |
| Noncurrent  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 of 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 |   |
|                                                        |            |                    |            |                             |            |                                |            |                  |            |                         |            |  |  |  |  |  |  |  |  |  |  |

 

F-30

----

 

**Advanstar Communications Inc.**

**Condensed Consolidating Statements of Operations**

**YearEnded December 31, 2005**

 
| **(in thousands of dollars)**                                                            | ** ** | **Communications** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  Total** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
| ** **                                                                                              | ** ** | ** **         | ** ** | ** **                  | ** ** | ** **                     | ** ** | ** **       | ** ** | ** **              | ** ** |
| Revenue                                                                                                 |       | $                  | 202,463    |                        | $          | 77,596                         |       | $                | 8,854      |                    | $          | — |   | $ | 288,913 |   |
| Operating expenses                                                                                      |       |               |       |                        |       |                           |       |             |       |                    |       |
| Cost of production and selling, editorial and  circulation                                              |       | 131,223            |       | 30,855                      |       | 6,621                          |       | —           |       | 168,699                 |       |
| General and administrative                                                                              |       | 36,771             |       | 1,733                       |       | 2,412                          |       |             |       | 40,916                  |       |
| Restructuring charge                                                                                    |       | 4,771              |       | —                      |       | —                         |       | —           |       | 4,771                   |       |
| Depreciation and amortization                                                                           |       | 22,100             |       | 14,967                      |       | 688                            |       | —           |       | 37,755                  |       |
| Total operating expenses                                                                                |       | 194,865            |       | 47,555                      |       | 9,721                          |       | —           |       | 252,141                 |       |
| Operating income                                                                                        |       | 7,598              |       | 30,041                      |       | (867                           | )          | —           |       | 36,772                  |       |
| Other income (expense)                                                                                  |       |               |       |                        |       |                           |       |             |       |                    |       |
| Interest income (expense), net                                                                          |       | (61,611            | )          | 1                           |       | 28                             |       | —           |       | (61,582                 | )          |
| Other expense, net                                                                                      |       | (11,412            | )          | (76                         | )          | (1,013                         | )          | —           |       | (12,501                 | )          |
| (Loss) income from continuing operations  before income taxes andcumulative effect of accounting change |       | (65,425            | )          | 29,966                      |       | (1,852                         | )          | —           |       | (37,311                 | )          |
| (Benefit) provision for income taxes                                                               |       | (14,410            | )          | 11,669                      |       | 9                              |       | —           |       | (2,732                  | )          |
| Equity in earnings of subsidiaries                                                                      |       | 16,436             |       | —                      |       | —                         |       | (16,436          | )          | —                  |       |
| (Loss) income from continuing operations  before cumulative effect of accounting change                 |       | (34,579            | )          | 18,297                      |       | (1,861                         | )          | (16,436          | )          | (34,579                 | )          |
| Discontinued operations                                                                                 |       |               |       |                        |       |                           |       |             |       |                    |       |
| Income (loss) from operations of  discontinued business, net of taxes                                   |       | 38,536             |       | —                      |       | 1,795                          |       | (1,795           | )          | 38,536                  |       |
| Income (loss) before cumulative effect of accounting  change                                            |       | 3,957              |       | 18,297                      |       | (66                            | )          | (18,231          | )          | 3,957                   |       |
| Cumulative effect of accounting change                                                                  |       | 4,618              |       | —                      |       | —                         |       | —           |       | 4,618                   |       |
| Net income (loss)                                                                                       |       | $                  | 8,575      |                        | $          | 18,297                         |       | $                | (66        | )                       | $          | (18,231 | ) | $ | 8,575 |   |
|                                                                                                         |            |                    |            |                             |            |                                |            |                  |            |                         |            |  |  |  |  |  |  |  |  |  |

 

 

F-31

----

 

**Advanstar Communications Inc.**

**Condensed Consolidating Statements of Cash Flows**

**Year Ended December 31, 2005**

 
| **(in thousands of dollars)**                                                       | ** ** | **Communications** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  Total** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
| ** **                                                                                         | ** ** | ** **         | ** ** | ** **                  | ** ** | ** **                     | ** ** | ** **       | ** ** | ** **              | ** ** |
| **Cash  flows from operating activities**                                                          |       |               |       |                        |       |                           |       |             |       |                    |       |
| Net income  (loss)                                                                                 |       | $                  | 8,575      |                        | $          | 18,297                         |       | $                | (66        | )                       | $          | (18,231 | ) | $ | 8,575 |   |
| Adjustments to reconcile net income (loss)  to net cash provided by (used in) operating activities |       |               |       |                        |       |                           |       |             |       |                    |       |
| Equity in earnings of subsidiaries                                                                 |       | (18,231            | )          | —                      |       | —                         |       | 18,231           |       | —                  |       |
| Gain on derivative financial instruments                                                           |       | (103               | )          | —                      |       | —                         |       | —           |       | (103                    | )          |
| Write-off of deferred financing costs                                                              |       | 3,517              |       |                        |       |                           |       |             |       | 3,517                   |       |
| Impairment of intangible assets                                                                    |       | 2,272              |       | —                      |       | —                         |       | —           |       | 2,272                   |       |
| Deferred income taxes                                                                              |       | 18,261             |       | (5,011                      | )          | —                         |       | —           |       | 13,250                  |       |
| Depreciation and amortization                                                                      |       | 24,791             |       | 14,967                      |       | 960                            |       | —           |       | 40,718                  |       |
| Other non-cash items                                                                               |       | (72,100            | )          | 321                         |       | 19,277                         |       | —           |       | (52,502                 | )          |
| Change in working capital items                                                                    |       | 35,583             |       | (14,517                     | )          | (28,485                        | )          | —           |       | (7,419                  | )          |
| Net cash provided by (used in)  operating activities                                          |       | 2,565              |       | 14,057                      |       | (8,314                         | )          | —           |       | 8,308                   |       |
| **Cash flows from investing activities**                                                           |       |               |       |                        |       |                           |       |             |       |                    |       |
| Additions to property, plant and equipment                                                         |       | (7,485             | )          | (2,048                      | )          | (31                            | )          | —           |       | (9,564                  | )          |
| Acquisitions of publications and shows                                                             |       | (4,677             | )          | (10,884                     | )          | —                         |       | —           |       | (15,561                 | )          |
| Proceeds from sale of assets and other                                                             |       | 172,984            |       | —                      |       | 1,100                          |       | —           |       | 174,084                 |       |
| Net cash provided by (used in) investing  activities                                               |       | 160,822            |       | (12,932                     | )          | 1,069                          |       | —           |       | 148,959                 |       |
| **Cash flows from financing activities**                                                           |       |               |       |                        |       |                           |       |             |       |                    |       |
| Payments of long-term debt                                                                         |       | (152,167           | )          | —                      |       | —                         |       | —           |       | (152,167                | )          |
| Dividends paid to minority interest holders                                                        |       | (900               | )          | —                      |       | —                         |       | —           |       | (900                    | )          |
| Project grant refunds received                                                                     |       | —             |       | 600                         |       | —                         |       | —           |       | 600                     |       |
| Deferred financing costs                                                                           |       | (168               | )          | —                      |       | —                         |       | —           |       | (168                    | )          |
| Net cash used in financing activities                                                              |       | (153,235           | )          | 600                         |       | —                         |       | —           |       | (152,635                | )          |
| Effect of exchange rate changes on cash                                                            |       | —             |       | —                      |       | 754                            |       | —           |       | 754                     |       |
| Net increase (decrease) in cash and cash  equivalents                                              |       | 10,152             |       | 1,725                       |       | (6,491                         | )          | —           |       | 5,386                   |       |
| **Cash and cash equivalents**                                                                      |       |               |       |                        |       |                           |       |             |       |                    |       |
| Beginning of year                                                                                  |       | 33,956             |       | —                      |       | 7,267                          |       | —           |       | 41,223                  |       |
| End of year                                                                                        |       | $                  | 44,108     |                        | $          | 1,725                          |       | $                | 776        |                    | $          | — |   | $ | 46,609 |   |

 

F-32

----

 

**Advanstar Communications Inc.**

**Condensed Consolidating Balance Sheets**

**December 31, 2004**

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

 

F-33

----

 

**Advanstar Communications Inc.**

**Condensed Consolidating Statements of Operations**

**December 31, 2004**

 
| **(in thousands of dollars)**                          | ** ** | **Communications** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  Total** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
| ** **                                                            | ** ** | ** **         | ** ** | ** **                  | ** ** | ** **                     | ** ** | ** **       | ** ** | ** **              | ** ** |
| Revenue                                                               |       | $                  | 193,608    |                        | $          | 68,356                         |       | $                | 8,448      |                    | $          | — |   | $ | 270,412 |   |
|                                                                  |       |               |       |                        |       |                           |       |             |       |                    |       |
| Operating  expenses                                                   |       |               |       |                        |       |                           |       |             |       |                    |       |
| Cost of  production and selling, editorial and circulation            |       | 126,542            |       | 25,318                      |       | 5,770                          |       | —           |       | 157,630                 |       |
| General and  administrative                                           |       | 36,292             |       | 1,750                       |       | 1,377                          |       | —           |       | 39,419                  |       |
| Funding of  affiliated company operations                             |       | 3,283              |       | —                      |       | —                         |       | —           |       | 3,283                   |       |
| Depreciation  and amortization                                        |       | 27,900             |       | 13,967                      |       | 757                            |       | —           |       | 42,624                  |       |
| Total  operating expenses                                             |       | 194,017            |       | 41,035                      |       | 7,904                          |       | —           |       | 242,956                 |       |
| Operating  (loss) income                                              |       | (409               | )          | 27,321                      |       | 544                            |       | —           |       | 27,456                  |       |
|                                                                  |       |               |       |                        |       |                           |       |             |       |                    |       |
| Other income  (expense)                                               |       |               |       |                        |       |                           |       |             |       |                    |       |
| Interest  expense, net                                                |       | (70,510            | )          | —                      |       | 4                              |       | —           |       | (70,506                 | )          |
| Other income  (expense), net                                          |       | 2,096              |       | (49                         | )          | (796                           | )          | —           |       | 1,251                   |       |
| (Loss)  income from continuing operations before income taxes         |       | (68,823            | )          | 27,272                      |       | (248                           | )          | —           |       | (41,799                 | )          |
|                                                                  |       |               |       |                        |       |                           |       |             |       |                    |       |
| (Benefit)  provision for income taxes                            |       | (3,688             | )          | 10,206                      |       | —                         |       | —           |       | 6,518                   |       |
| Equity in  earnings of subsidiaries                                   |       | 16,818             |       | —                      |       | —                         |       | (16,818          | )          | —                  |       |
| (Loss)  income from continuing operations                             |       | (48,317            | )          | 17,066                      |       | (248                           | )          | (16,818          | )          | (48,317                 | )          |
|                                                                  |       |               |       |                        |       |                           |       |             |       |                    |       |
| Discontinued  operations                                              |       |               |       |                        |       |                           |       |             |       |                    |       |
| (Loss)  income from operations of discontinued business, net of taxes |       | (2,846             | )          | —                      |       | (15,197                        | )          | 15,197           |       | (2,846                  | )          |
| Net (loss)  income                                                    |       | $                  | (51,163    | )                           | $          | 17,066                         |       | $                | (15,445    | )                       | $          | (1,621 | ) | $ | (51,163 | ) |

 

F-34

----

 

**AdvanstarCommunications Inc.**

**CondensedConsolidating Statements of Cash Flows**

**Year EndedDecember 31, 2004**

 
| **(in thousands of dollars)**                                                        | ** ** | **Communications** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  Total** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
| ** **                                                                                          | ** ** | ** **         | ** ** | ** **                  | ** ** | ** **                     | ** ** | ** **       | ** ** | ** **              | ** ** |
| **Cash  flows from operating activities**                                                           |       |               |       |                        |       |                           |       |             |       |                    |       |
| Net (loss)  income                                                                                  |       | $                  | (51,163    | )                           | $          | 17,066                         |       | $                | (15,447    | )                       | $          | (1,619 | ) | $ | (51,163 | ) |
|                                                                                                |       |               |       |                        |       |                           |       |             |       |                    |       |
| Adjustments  to reconcile net (loss) income to net cash provided by (used in) operating  activities |       |               |       |                        |       |                           |       |             |       |                    |       |
| Equity in  earnings of subsidiaries                                                                 |       | (1,619             | )          | —                      |       | —                         |       | 1,619            |       | —                  |       |
| Gain on  derivative financial instruments                                                           |       | (1,391             | )          | —                      |       | —                         |       | —           |       | (1,391                  | )          |
| Impairment  of goodwill                                                                             |       | —             |       | —                      |       | 15,570                         |       | —           |       | 15,570                  |       |
| Deferred  income taxes                                                                              |       | 16,346             |       | (5,086                      | )          | —                         |       | —           |       | 11,260                  |       |
| Depreciation  and amortization                                                                      |       | 34,131             |       | 13,967                      |       | 1,870                          |       | —           |       | 49,968                  |       |
| Other  non-cash items                                                                               |       | 3,331              |       | 113                         |       | 75                             |       | —           |       | 3,519                   |       |
| Change in  working capital items                                                                    |       | 20,140             |       | (23,151                     | )          | (6,466                         | )          | —           |       | (9,477                  | )          |
| Net cash provided  by (used in)operating activities                                            |       | 19,775             |       | 2,909                       |       | (4,398                         | )          | —           |       | 18,286                  |       |
| **Cash  flows from investing activities**                                                           |       |               |       |                        |       |                           |       |             |       |                    |       |
| Additions to  property, plant and equipment                                                         |       | (7,418             | )          | (1,309                      | )          | (254                           | )          | —           |       | (8,981                  | )          |
| Acquisitions  of publications and shows, net                                                        |       | (7,915             | )          | —                      |       | —                         |       | —           |       | (7,915                  | )          |
| Proceeds  from sale of assets and other                                                             |       | 20,343             |       | (1,600                      | )          | 3,755                          |       | —           |       | 22,498                  |       |
| Net cash  provided by (used in) investing activities                                                |       | 5,010              |       | (2,909                      | )          | 3,501                          |       | —           |       | 5,602                   |       |
| **Cash  flows from financing activities**                                                           |       |               |       |                        |       |                           |       |             |       |                    |       |
| Payments of  long-term debt, net                                                                    |       | (11,700            | )          | —                      |       | —                         |       | —           |       | (11,700                 | )          |
| Dividends  paid to minority interest holders                                                        |       | (500               | )          | —                      |       | —                         |       | —           |       | (500                    | )          |
| Deferred  financing costs                                                                           |       | (315               | )          | —                      |       | —                         |       | —           |       | (315                    | )          |
| Net cash  used in financing activities                                                              |       | (12,515            | )          | —                      |       | —                         |       | —           |       | (12,515                 | )          |
| Effect of  exchange rate changes on cash                                                            |       | 118                |       | —                      |       | 458                            |       | —           |       | 576                     |       |
| Net increase  (decrease) in cash and cash equivalents                                               |       | 12,388             |       | —                      |       | (439                           | )          | —           |       | 11,949                  |       |
| **Cash and  cash equivalents**                                                                      |       |               |       |                        |       |                           |       |             |       |                    |       |
| Beginning of  year                                                                                  |       | 21,568             |       | —                      |       | 7,706                          |       | —           |       | 29,274                  |       |
| End of year                                                                                         |       | $                  | 33,956     |                        | $          | —                         |       | $                | 7,267      |                    | $          | — |   | $ | 41,223 |   |

 

F-35

----

 

**AdvanstarCommunications Inc.**

**CondensedConsolidating Statements of Operations**

**Year EndedDecember 31, 2003**

 
| ** **                                                            | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Nonguarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| **(in thousands of dollars)**                          | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| ** **                                                            | ** ** | ** **         | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Revenue                                                               |       | $                  | 114,129    |             | $          | 63,581           |       | $                | 12,988     |             | $          | — |   | $ | 190,698 |   |
|                                                                  |       |               |       |             |       |             |       |             |       |             |       |
| Operating  expenses                                                   |       |               |       |             |       |             |       |             |       |             |       |
| Cost of production  and selling, editorial and circulation            |       | 68,622             |       | 23,967           |       | 11,996           |       | —           |       | 104,585          |       |
| General and  administrative                                           |       | 26,400             |       | 1,313            |       | 1,941            |       | —           |       | 29,654           |       |
| Restructuring  charge                                                 |       | 2,692              |       | —           |       | —           |       | —           |       | 2,692            |       |
| Funding of  affiliated company operations                             |       | 1,121              |       | —           |       | —           |       | —           |       | 1,121            |       |
| Depreciation  and amortization                                        |       | 21,845             |       | 20,490           |       | 1,195            |       | —           |       | 43,530           |       |
| Total  operating expenses                                             |       | 120,680            |       | 45,770           |       | 15,132           |       | —           |       | 181,582          |       |
| Operating  (loss) income                                              |       | (6,551             | )          | 17,811           |       | (2,144           | )          | —           |       | 9,116            |       |
|                                                                  |       |               |       |             |       |             |       |             |       |             |       |
| Other income  (expense)                                               |       |               |       |             |       |             |       |             |       |             |       |
| Interest  expense, net                                                |       | (58,589            | )          | —           |       | (27              | )          | —           |       | (58,616          | )          |
| Other  income, net                                                    |       | (7,551             | )          | —           |       | (2,855           | )          | —           |       | (10,406          | )          |
| (Loss)  income from continuing operations                             |       | (72,691            | )          | 17,811           |       | (5,026           | )          | —           |       | (59,906          | )          |
|                                                                  |       |               |       |             |       |             |       |             |       |             |       |
| (Benefit)  provision for income taxes                            |       | (13,151            | )          | 6,427            |       | —           |       | —           |       | (6,724           | )          |
| Equity in  earnings of subsidiaries                                   |       | 6,358              |       | —           |       | —           |       | (6,358           | )          | —           |       |
| (Loss)  income from continuing operations                             |       | (53,182            | )          | 11,384           |       | (5,026           | )          | (6,358           | )          | (53,182          | )          |
|                                                                  |       |               |       |             |       |             |       |             |       |             |       |
| Discontinued  operations                                              |       |               |       |             |       |             |       |             |       |             |       |
| Income  (loss) from operations of discontinued business, net of taxes |       | 3,734              |       | (233             | )          | 1,368            |       | (1,135           | )          | 3,734            |       |
| Net (loss)  income                                                    |       | $                  | (49,448    | )                | $          | 11,151           |       | $                | (3,658     | )                | $          | (7,493 | ) | $ | (49,448 | ) |

 

F-36

----

 

**AdvanstarCommunications Inc.**

**CondensedConsolidating Statements of Cash Flows**

**Year EndedDecember 31, 2003**

 
| ** **                                                                               | ** ** | ** **         | ** ** | **Guarantor**    | ** ** | **Nonguarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| **(in thousands of dollars)**                                             | ** ** | **Communications** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| ** **                                                                               | ** ** | ** **         | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Cash  flows from operating activities**                                                |       |               |       |             |       |             |       |             |       |             |       |
| Net (loss)  income                                                                       |       | $                  | (49,448    | )                | $          | 11,150           |       | $                | (3,658     | )                | $          | (7,492 | ) | $ | (49,448 | ) |
| Adjustments  to reconcile net (loss) income to net cash provided by operating activities |       |               |       |             |       |             |       |             |       |             |       |
| Equity in  earnings of subsidiaries                                                      |       | (7,492             | )          | —           |       | —           |       | 7,492            |       | —           |       |
| Gain on  derivative financial instruments                                                |       | (772               | )          | —           |       | —           |       | —           |       | (772             | )          |
| Deferred  income taxes                                                                   |       | 14,779             |       | (7,554           | )          | (235             | )          | —           |       | 6,990            |       |
| Depreciation  and amortization                                                           |       | 33,788             |       | 20,492           |       | 2,323            |       | —           |       | 56,603           |       |
| Other  non-cash items                                                                    |       | 15,940             |       | 72               |       | 541              |       | —           |       | 16,553           |       |
| Change in  working capital items                                                         |       | 36,797             |       | (23,772          | )          | 2,897            |       | —           |       | 15,922           |       |
| Net cash  provided by operating activities                                               |       | 43,592             |       | 388              |       | 1,868            |       | —           |       | 45,848           |       |
|                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| **Cash  flows from investing activities**                                                |       |               |       |             |       |             |       |             |       |             |       |
| Additions to  property, plant and equipment                                              |       | (7,054             | )          | (388             | )          | (166             | )          | —           |       | (7,608           | )          |
| Acquisitions  of publications and shows, net of proceeds                                 |       | (137,712           | )          | —           |       | (13              | )          | —           |       | (137,725         | )          |
| Net cash  used in investing activities                                                   |       | (144,766           | )          | (388             | )          | (179             | )          | —           |       | (145,333         | )          |
|                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| **Cash  flows from financing activities**                                                |       |               |       |             |       |             |       |             |       |             |       |
| Payments of  long-term debt, net                                                         |       | 68,425             |       | —           |       | —           |       | —           |       | 68,425           |       |
| Dividends  paid to minority interest holders                                             |       | (1,000             | )          | —           |       | (227             | )          | —           |       | (1,227           | )          |
| Contribution  of capital from parent                                                     |       | 60,000             |       | —           |       | —           |       | —           |       | 60,000           |       |
| Deferred  financing costs                                                                |       | (16,962            | )          | —           |       | —           |       | —           |       | (16,962          | )          |
| Net cash  provided by (used in) financing activities                                     |       | 110,463            |       | —           |       | (227             | )          | —           |       | 110,236          |       |
| Effect of  exchange rate changes on cash                                                 |       | (3                 | )          | —           |       | (404             | )          | —           |       | (407             | )          |
| Net increase  in cash and cash equivalents                                               |       | 9,286              |       | —           |       | 1,058            |       | —           |       | 10,344           |       |
|                                                                                     |       |               |       |             |       |             |       |             |       |             |       |
| **Cash and  cash equivalents**                                                           |       |               |       |             |       |             |       |             |       |             |       |
| Beginning of  year                                                                       |       | 12,282             |       | —           |       | 6,648            |       | —           |       | 18,930           |       |
| End of year                                                                              |       | $                  | 21,568     |             | $          | —           |       | $                | 7,706      |             | $          | — |   | $ | 29,274 |   |

 

----

 

**2. Financial Statement Schedules**

 

**Schedule II****3⁄4Valuation and Qualifying Accounts**

 

**Advanstar Communications Inc.**

**Valuation and Qualifying Accounts**

 
| **Allowance  for doubtful accounts** | ** ** | **Balance at  Beginning of  Period** | ** ** | **Charged to  Costs and  Expenses** | ** ** | **Charged to  Other  Accounts** | ** ** | **Deductions (1)** | ** ** | **Balance at  End of  Period** | ** ** |
|--------------------------------------|------------|--------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|--------------------|------------|--------------------------------|------------|
| **Year Ended December 31,**     | ** ** | ** **                           | ** ** | **Additions**                       | ** ** | ** **                      | ** ** | ** **         | ** ** |
|                                 |       |                                 |       |                                |       |                            |       |               |       |                           |       |
| 2005                                 |       |                                 | $          | 785,000                             |       | $                               | 1,406,000  |               | $          | —                         |       | $ | 1,115,000 |   | $ | 1,076,000 |   |
| 2004                                 |       |                                 | 838,000    |                                | 605,000    |                            | —     |               | 658,000    |                           | 785,000    |   |
| 2003                                 |       |                                 | 859,000    |                                | 521,000    |                            | —     |               | 542,000    |                           | 838,000    |   |
|                                      |            |                                      |            |                                     |            |                                 |            |                    |            |                                |            |  |  |  |  |  |  |

 

----

(1)                                  Uncollectibleaccounts written off.

 

All otherfinancial schedules are omitted because they are not applicable or theinformation is included in the financial statements or related notes.

 

II-1

----

 

**3.Exhibits**

 
| **Exhibit  No.** | ** ** | **Document**                                                                                                                                                                                                                                                                                                                                                                                                   |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 2.1              |       | Asset Purchase Agreement among Thomson  Healthcare Inc., Global Information Licensing Corporation and Advanstar  Communications Inc. dated as of August 22, 2003 (Previously filed as an exhibit to  the Company’s Registration Statement on Form S-1 (333-109648) and  incorporated by reference herein)                                                                                  |
| 2.1.1            |       | Amendment No. 1 dated October 1,  2003 to the Asset Purchase Agreement dated as of August 22, 2003 among  Thomson Healthcare Inc., Global Information Licensing Corporation and  Advanstar Communications Inc. (Previously filed as an exhibit to the  Company’s Registration Statement on Form S-1 (333-109648) and  incorporated by reference herein)                          |
| 2.2              |       | Asset and share purchase agreement dated April 2,  2005 between Advanstar, Inc. and its subsidiaries and Questex Media  Group, Inc. (Previously filed as an exhibit to Advanstar  Communications Inc.’s Current Report on Form 8-K filed on April 6,  2005 and incorporated by reference herein)                                                                            |
| 3.1              |       | Certificate of Incorporation of Advanstar  Communications Inc. (Previously filed as an exhibit to the Company’s  Registration Statement on Form S-4 (333-57201) and incorporated by  reference herein)                                                                                                                                                                                          |
| 3.1.1            |       | Certificate of Amendment of the  Certificates of Incorporation of Advanstar Communications Inc. (Previously  filed as an exhibit to the Company’s Annual Report on Form 10-K for  2000 and incorporated by reference herein)                                                                                                                                                                    |
| 3.2              |       | Amended and Restated By-Laws of Advanstar  Communications Inc. (Previously filed as an exhibit to the Company’s  Quarterly Report on Form 10-Q for the quarter ended June 30, 2003  and incorporated by reference herein)                                                                                                                                                                  |
| 4.1              |       | Indenture, dated as of February 21,  2001 among Advanstar Communications Inc., the guarantors party thereto and  the Trustee (Previously filed as an exhibit to the Company’s Annual  Report on Form 10-K for 2000 and incorporated by reference herein)                                                                                                                                   |
| 4.2              |       | Indenture, dated as of August 18, 2003  among Advanstar Communications Inc., the guarantors party thereto and the  Trustee (Previously filed as an exhibit to the Company’s Registration  Statement on Form S-1 (333-59284) and incorporated by reference herein)                                                                                                                          |
| 4.3              |       | Intercreditor Agreement dated as of August 18,  2003 among Advanstar Communications Inc., Fleet National Bank, Credit Suisse First  Boston and Wells Fargo Bank Minnesota N.A. (Previously filed as an exhibit to  the Company’s Registration Statement (333-109648) and incorporated by  reference herein)                                                                                     |
|             |       | The Company has not filed certain debt  instruments with respect to long-term debt that does not exceed ten percent  of the total assets of the Company and its subsidiaries on a consolidated  basis. The Company hereby agrees to furnish a copy of such instruments to the  Commission upon request.                                                                                                        |
| 10.1             |       | Advanstar Holdings Corp. 2000 Management  Plan Incentive dated as of October 11, 2000 (as amended September 17,  2002, December 10, 2002, April 19, 2005 and September 30,  2005) (Previously filed as an exhibit to Advanstar, Inc.’s Current  Report on Form 8-K filed on April 21, 2005 and October 5, 2005  and incorporated by reference herein) + |
| 10.1.1           |       | Form of Award Agreement under  Advanstar Holdings Corp. 2000 Management Incentive Plan (filed as an exhibit to  Advanstar, Inc.’s Annual Report on Form 10-K for 2004 and  incorporated by reference herein) +                                                                                                                                                                        |
| 10.2             |       | Advanstar Holdings Corp. Shareholders  Agreement dated as of October 11, 2000 (Previously filed as an exhibit to  the Company’s Annual Report on Form 10-K for 2000 and incorporated by  reference herein)                                                                                                                                                                                 |

 

II-2

----

 
| 10.2.1 |   | First Amendment and Waiver to Shareholders’  Agreement dated as of February 21, 2001 (Previously filed as an Exhibit to  Advanstar Communications’ Registration Statement on Form S-1 (333-59284)  and incorporated by reference herein)                                                                                 |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2.2 |   | Second Amendment and Waiver to Stockholders’  Agreement dated as of April 4, 2001 (Previously filed as an Exhibit to  Advanstar Communications’ Registration Statement on Form S-1 (333-59284)  and incorporated by reference herein)                                                                                    |
| 10.3   |   | Credit Agreement, dated as of October 11,  2000, as amended and restated November 7, 2000, among Advanstar  Communications Inc., the guarantors party thereto and the lenders party  thereto (Previously filed as an exhibit to the Company’s Annual Report  on Form 10-K for 2000 and incorporated by reference herein) |
| 10.3.1 |   | First amendment to Credit Agreement, dated  as of March 22, 2002 (Previously filed as an exhibit to the Company’s  Annual Report on Form 10-K for 2001 and incorporated by reference  herein)                                                                                                                                 |
| 10.3.2 |   | Second Amendment to Credit Agreement dated  as of March 28, 2003 (Previously filed as an exhibit to Advanstar  Communications Inc.’s Current Report on Form 8-K filed on April 15,  2003 and incorporated by reference herein)                                                                                           |
| 10.3.3 |   | Third Amendment to Credit Agreement, dated  as of August 18, 2003 (Previously filed as an exhibit to Advanstar  Communications Inc.’s Registration Statement on Form S-1 (333-59284) and  incorporated by reference herein)                                                                                                   |
| 10.3.4 |   | Fourth Amendment to Credit Agreement, dated  as of June 17, 2005 (Previously filed as an exhibit to Advanstar  Communications Inc.’s Current Report on Form 8-K filed on June 23,  2005 and incorporated by reference herein)                                                                                            |
| 10.3.5 |   | Fifth Amendment to Credit Agreement, dated  as of August 19, 2005 (Previously filed as an exhibit to the  Company’s Form 10-Q Inc. filed with the Securities and Exchange  Commission on November 14, 2005, and incorporated by reference herein)                                                                        |
| 10.4   |   | Compensation Agreement, effective October 1,  2004, between Advanstar Holdings Corp. and James A. Finkelstein. (Filed as an  exhibit to Advanstar, Inc.’s Annual Report on Form 10-K for  2004 and incorporated by reference herein) +                                                                                   |
| 10.5   |   | Employment Agreement, dated August 14,  2000, between Advanstar, Inc. and James M. Alic. (Previously filed  as Exhibit 10.2 to Form 10-Q of Advanstar, Inc. filed with the  Securities and Exchange Commission on November 14, 2000, and  incorporated by reference herein) +                                  |
| 10.5.1 |   | Amendment to Employment Agreement,  effective March 1, 2002, between Advanstar, Inc. and James M. Alic  (Previously filed as an exhibit to the Company’s Annual Report on Form 10-K  for 2001 and incorporated by reference herein) +                                                                                    |
| 10.5.2 |   | Amendment to Employment Agreement,  effective September 15, 2004, between Advanstar, Inc. and James M.  Alic (Filed as an exhibit to Advanstar, Inc.’s Annual Report on Form 10-K  for 2004 and incorporated by reference herein) +                                                                                 |
| 10.5.3 |   | Amendment to Employment Agreement No. 3,  effective February 1, 2006, between Advanstar, Inc. and James M.  Alic. (Previously filed as an exhibit to Advanstar Communications Inc.’s  Current Report on Form 8-K filed on March 27, 2006 and incorporated  by reference herein) +                              |
| 10.6   |   | Employees’ 401(k) Plan and Trust, as  amended (Previously filed as an exhibit to the Company’s Registration  Statement on Form S-4 (333-57201) and incorporated by reference herein)  +                                                                                                                                       |
| 10.7   |   | Agreement, dated July 31, 1997,  between Advanstar Communications Inc. and Banta Publications (Previously  filed as an exhibit to the Company’s Registration Statement on Form S-4  (File No. 333-57201) and incorporated by reference herein)                                                                           |
| 10.8   |   | Employment Agreement dated November 21,  2003 between Advanstar, Inc. and Joseph Loggia (Previously filed as an exhibit to  Advanstar Communications Inc.’s Registration Statement (333-109648) and  incorporated by reference herein) +                                                                                      |
| 10.8.1 |   | Amended and restated employment agreement  by and between Advanstar, Inc., and Joseph Loggia dated April 1,  2005 (Previously filed as an exhibit to Advanstar Communications Inc.’s  Current Report on Form 8-K filed on June 28, 2005 and incorporated  by reference herein) +                                    |
| 10.9   |   | Direct Investment Plan dated as of October 11,  2000 (Previously filed as an exhibit to the Company’s Annual Report on Form 10-K  for 2001 and incorporated by reference herein) +                                                                                                                                            |

 

II-3

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| 10.10   |   | Advisory Agreement, effective December 10,  2002, between Advanstar, Inc. and Douglas B. Fox (Previously filed  as an exhibit to the Company’s Annual Report on Form 10-K for 2002  and incorporated by reference herein) +                                    |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.10.1 |   | Letter Agreement by and between Advanstar  Holdings Corp., and Douglas B. Fox dated March 6, 2006. (Previously  filed as an exhibit to Advanstar Communications Inc.’s Current Report on  Form 8-K filed on March 29, 2006 and incorporated by reference  herein) + |
| 10.11   |   | Letter, dated February 7, 1994,  between the Company and David W. Montgomery (Previously filed as an exhibit to  the Company’s Annual Report on Form 10-K/A for 2002 and incorporated by  reference herein) +                                                            |
| 10.12   |   | Agreement, dated February 19, 1999, by  and among Advanstar, Inc., Advanstar Communications Inc. and Eric I.  Lisman (Previously filed as an exhibit to the Company’s Annual Report on  Form 10-K/A for 2002 and incorporated by reference herein) +                |
| 10.13   |   | Award Agreement, effective October 1,  2004 between Advanstar Holdings Corp. and James A. Finkelstein (Filed as an exhibit to  Advanstar, Inc.’s Annual Report on Form 10-K for 2004 and  incorporated by reference herein) +                                       |
| 10.14   |   | Agreement, dated June 29, 2000, between  Advanstar Communications Inc. and Ward D, Hewins + *                                                                                                                                                                                                |
| 12.1    |   | Computation of Ratio of Earnings to Fixed  Charges *                                                                                                                                                                                                                                         |
| 21.1    |   | Subsidiaries of Advanstar Communications  Inc. *                                                                                                                                                                                                                                             |
| 31.1    |   | Certification by Chief Executive Officer  required by Rule 13a-14(a)/15d-14(a)*                                                                                                                                                                                                         |
| 31.2    |   | Certification by Chief Financial Officer  required by Rule 13a-14(a)/15d-14(a)*                                                                                                                                                                                                         |
| 32.1    |   | Certification of Chief Executive Officer  required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350  of Chapter 63 of the United States Code*                                                                                                                   |
| 32.2    |   | Certification of Chief Financial Officer  required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350  of Chapter 63 of the United States Code*                                                                                                                   |

 

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*                                         Filed herewith

+                                         Denotesmanagement contract or compensatory plan

 

II-4

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**SIGNATURES**

 

Pursuant tothe requirements of Section 13 or 15(d) of the Exchange Act of 1934,the registrant has duly caused this Report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|   |   | ADVANSTAR COMMUNICATIONS INC. |
|--------|--------|-------------------------------|
|   |   | By:                           |
|   |   |                          | /s/ David W. Montgomery |   |
|   |   |                          | Name: David W. Montgomery |
|   |   |                          | Title:  Vice President - Finance, |
|   |   |                          | Chief Financial Officer |
|   |   |                          |
|   |   |                          | Date: March 30, 2006 |

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the Registrant, in the capacities indicated, onthe dates indicated below.

 
| **Signature**           | ** **          | **Title**                                                                                    | ** ** | **Date**            |
|-------------------------|---------------------|----------------------------------------------------------------------------------------------|------------|---------------------|
|                    |                |                                                                                         |       |                |
| /s/ James M. Alic       |                | Chairman of the Board and Director                                                           |       | March 30, 2006 |
|                    | James M. Alic       |                                                                                         |       |                |   |
|                    |                |                                                                                         |       |                |   |
| /s/ Joseph Loggia       |                | Chief Executive Officer and Director                                                         |       | March 30, 2006 |
|                    | Joseph Loggia       |                                                                                         |       |                |   |
|                    |                |                                                                                         |       |                |   |
| /s/ David W. Montgomery |                | Vice President-Finance, Chief Financial  Officer, Secretary and Principal Accounting Officer |       | March 30, 2006 |
|                    | David W. Montgomery |                                                                                         |       |                |   |
|                    |                |                                                                                         |       |                |   |
| /s/ OhSang Kwon         |                | Director                                                                                     |       | March 30, 2006 |
|                    | OhSang Kwon         |                                                                                         |       |                |   |
|                    |                |                                                                                         |       |                |
| /s/ Douglas B. Fox      |                | Director                                                                                     |       | March 30, 2006 |
|                    | Douglas B. Fox      |                                                                                         |       |                |   |
|                    |                |                                                                                         |       |                |   |
| /s/ Charles Pieper      |                | Director                                                                                     |       | March 30, 2006 |
|                    | Charles Pieper      |                                                                                         |       |                |   |
|                    |                |                                                                                         |       |                |
| /s/ James Finkelstein   |                | Director                                                                                     |       | March 30, 2006 |
|                    | James Finkelstein   |                                                                                         |       |                |   |

 

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