**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-K**

 

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| **(Mark One)**                                                                                                                                                           |
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| **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**                                                                                                                       |
|                                                                                                                                                                     |   |   |
| **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 333-61386**                                                                                                                                     |

 

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**Advanstar,Inc.**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                 | ** ** | **94-3243499**       |
|----------------------------------------------|------------|----------------------|
| (State  or other jurisdiction of             |       | (I.R.S.  Employer    |
| incorporation  or organization)              |       | Identification  No.) |
|                                         |       |                 |
| **641 Lexington Avenue, New York, New York** | ** ** | **10022**            |
| (Address  of principal executive offices)    |       | (Zip  Code)          |

 

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

 

Securities registered pursuant to Section 12(b) ofthe Act: **None**

 

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

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No ý.

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No ý.

 

Indicateby check mark whether the registrant: (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý No o.

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. ý

 

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

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).   Yeso No 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, theregistrant had 100 shares of common stock issued and outstanding.

 

DOCUMENTSINCORPORATED BY REFERENCE

**None.**

** **

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**PART I**

 

**Item I – *BUSINESS***

 

Unlessotherwise noted herein, disclosures in this Annual Report on Form 10-K relateonly to our continuing operations. Our discontinued operations consist ofproperties sold and discontinued. See Item 7. “Management’s Discussion andAnalysis of Financial Condition and Results of Operations –Presentation ofFinancial Information–Acquisitions and Divestitures” for further information ondiscontinued properties.

 

**FORWARD-LOOKING STATEMENTS**

 

THIS ANNUAL REPORT, OTHER REPORTS, ANDCOMMUNICATIONS TO SECURITY HOLDERS, AS WELL AS ORAL STATEMENTS MADE BY THEDIRECTORS, OFFICERS OR EMPLOYEES OF ADVANSTAR, INC. (“ADVANSTAR” OR THE “COMPANY”)MAY CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THESECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGEACT OF 1934, AS AMENDED, MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THEPRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. A FORWARD-LOOKING STATEMENTIS USUALLY IDENTIFIED 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, AMONGOTHER THINGS, ADVANSTAR’S FUTURE REVENUES, OPERATING INCOME, EBITDA AND THEPLANS 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 STATEMENT TOACTUAL 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**

 

Industry and market data for thebusiness-to-business (“B-to-B”) media industry and our market share andrelative industry positions used throughout this annual report were obtainedthrough company research, internal company surveys and studies conducted bythird parties, independent industry publications and other publicly availableinformation. We have not independently verified market and industry data fromthird-party sources. In addition, while we believe internal company surveys arereliable and we believe that we define markets appropriately, none of suchsurveys nor such market definitions have been verified by any independentsources.

 

In particular:

 

•                                          *Industry overview:* Except where otherwise specifically referenced, wehave based our discussion of the B-to-B communications industry on publicationsby Veronis Suhler Stevenson and reports and studies by the B-to-B tradeassociation, including Business Information Network (BIN), an informationsource of American Business Media.

 

•                                          *Tradeshows:* We rank our tradeshows against the tradeshows ofour competitors based on an

 

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internally conducted analysis ofnet square footage of exhibition space. This data is typically reported bytradeshow organizers and published in the *Tradeshow Week QuarterlyReport*, a quarterly publication that lists tradeshows grouped byshow date. We include both direct and indirect competitors in such comparisons.Direct competitors are the tradeshows within the same industrial classificationcode and geographic region as our tradeshows, although we only includetradeshows within the same industrial classification code that are within thesame subcategory, as defined by us, as our tradeshows. For example, we onlyinclude women’s apparel shows in providing data about our women’s appareltradeshows, although the relevant industrial classification code covers allapparel shows. Direct competitors are also determined in some cases by the timeof 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 method of rankingour publications against competitors’ publications based on the number ofadvertising pages as determined, except where otherwise specificallyreferenced, by Inquiry Management Systems Ltd. and PERQ, independentvendors. For purposes of these rankings, we have defined our markets narrowlyas the niche of businesses or professionals at which a publication isspecifically targeted.

 

**General**

 

We are a leading worldwide media company providing provider of integratedmarketing solutions for both business-to-business and business-to-consumermarketing firms. Our products and services are targeted for specific industrysectors through shows and conferences, and controlled circulation trade,business and professional magazines. We also produce a limited number ofconsumer expositions and publications. Additionally, we provide a broad rangeof direct marketing products, including classified advertising, direct mailservices, reprints, database marketing, directories, guides and referencebooks. Our electronic based products include web advertising, classified andrecruitment advertising, e-newsletters, web based continuing medical education(“CME”), webinars and others. In 2005, most of our tradeshows and stand-aloneconferences were among the leading events in their respective markets based onsquare footage. For the year endedDecember 31, 2005, 73% ofour 40 magazines and journals for which competitive data is available rankedeither #1 or #2 in their respective markets, based on number of advertisingpages. We had approximately 1,000 employees as of December 31, 2005 in 14 U.S. offices and 2 international locationsin the United Kingdom.

 

**Industry Overview**

 

B-to-B media companies provide marketing solutionsfor their customers through tradeshows and conferences, trade publications,ancillary direct marketing servicesand through electronic applications. Tradeshows play a key role in B-to-B salesand marketing efforts and are utilized in the global economy as a highlycost-effective sales and marketing tool. Tradeshows provide an opportunity forindustry participants to conduct face-to-face selling efforts, transactbusiness and receive product information from exhibits, conferences, workshopsand other forums. Tradeshow attendees include executives, manufacturing andoperating management, sales and marketing personnel, industry analysts, middle-levelmanagers, buyers and other industry professionals. Trade publications aregenerally published monthly and provide information about a specific industryor market segment within an industry. Advertisers are attracted to B-to-B printmedia by the highly targeted and controlled circulation of publications. Byfocusing on targeted audiences, publishers aim to connect advertisers with keypurchasing decision-makers. Controlled distribution assists advertisers inreaching very specific target groups and

 

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provides for more efficient use of advertising dollars. The historicalgrowth in B-to-B publishing has been driven primarily by rising levels ofadvertising spending as opposed to growth in subscription revenue.

 

According to the May 2005 VeronisSuhler Stevenson *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.

 

Total business-to-business media spending was essentially flat from 1999to 2004 with the economic slowdown resulting in spending declines in 2001 and2002, and a slow recovery in 2003, and more robust growth in 2004.  Overall business-to-business mediaexpenditures climbed 5.2% to $20.9 billion in 2004, driven by surging e-mediaspending, which grew 25.9% to $1.5 billion. Tradeshow expenditures increased5.8% to $9.2 billion. The solid growth in e-media and tradeshows was temperedby a more modest 2.2% expansion in business-to-business magazine spending,which totaled $10.3 billion in 2004.

 

Total spending on tradeshows, including expenditures on exhibit space andfees, 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 of 2005 many corporationsreported that they were increasing funding for business-related travel andVeronis Suhler believes this will drive tradeshow expenditures up by 6.1% to$9.7 billion in 2005.

 

Spending on tradeshows is expected to rise 5.8% on a compound annual basisfrom 2004 to 2009, driven by a 6.8% rise in fees, sponsorships and advertisingand a 5.4% gain in total exhibit space spending.  Overall spending is expected to reach $12.1billion in 2009. As measured by *Tradeshow Week*,the nine months ended September 30, 2005 saw an increase in two of the threeprimary tradeshow indicators: square footage grew by 4.1%, and attendance by0.6%. The third indicator, the number of exhibiting companies, declined by2.9%.

 

Total spending on business-to-business magazines, including advertisingand subscriptions, increased 2.2% to $10.3 billion in 2004. Advertisingexpenditures rose 3.4% to $8.4 billion due to healthy growth among healthcare,banking, automotive, home design and furnishing titles. Circulation spendingdropped for the fourth consecutive year driven down by a 3.4% decline in paidcirculation. Total magazine expenditures are anticipated to grow at a compoundannual rate of 3.3% from 2004 to 2009, reaching $12.1 billion in 2009.

 

According to Veronis Suhler Stevenson, overall business-to-business mediaspending is expected to accelerate in 2005, fueled by solid gains in tradeshowand a double-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-wide advertising pages, as measuredby American Business Media, increased 3.9% in 2005 from 2004 levels following a1.7% increase in 2004 from 2003 levels.

 

**Product Segments**

 

Our business is grouped in three broad segments reflecting products andservices we provide to our customers to serve their marketing and theircustomers’ needs. We offer our customers a comprehensive array of marketing productsand services to reach their existing and prospective buyers on a cost-effectivebasis. Our product and service offerings are shows and conferences,publications, and direct marketing products and other.

 

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See Footnote11 to our Consolidated Financial Statements for information regarding thebreakdown of revenue, profit, and assets by segment.

 

*Shows and Conferences*

 

As of December 31, 2005, we owned and managed 29 shows and 50 standaloneconferences for business, professional and consumer audiences worldwide, mostof which were among the leading events in their respective markets based onsquare footage. Four of our largest shows are listed in the April 2005issue of *Tradeshow Week 200*’s list of the top 200tradeshows as measured by total square footage. These included MAGIC Spring,MAGIC Fall, International Powersports Dealer Expo and Licensing International. Collectively,these four shows represented 2.3 million of the 3.9 million total squarefootage for all of our shows for the year ended December 31, 2005.

 

Our show and conference revenue is derived primarily from the sale of showfloor space to exhibitors, show-specific advertising, sponsorships andconferences. Show and conference revenue accounted for approximately 42%, 40%and 47% of our revenue in 2005, 2004, and 2003, respectively.

 

Shows are a long-established effective forum to conduct business. As newproducts and services are introduced, buyers and sellers within specificindustries need efficient settings to interact and conduct business. Shows alsoinclude conference program, which provide additional learning and presentationopportunities.

 

*Publications*

 

We are a leading B-to-B trade publisher in the United States. As ofDecember 31, 2005, we published 50 specialized business magazines andprofessional journals,****7directories, one consumer magazine, CMEproducts, custom publishing and other projects.  Of our 40 magazines and journals for whichcompetitive data is available, 73% ranked either #1 or #2 in their respectivemarkets, based on the number of advertising pages in the year ended December31, 2005.

 

Our trade publications are generally distributed free-of-charge to targeted,qualified, professional recipients and generate revenue predominantly fromadvertising. Publications revenue accounted for approximately 51%, 55% and 47%of our total revenue in 2005, 2004 and 2003, respectively. Our largestpublications 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 the yearended December 31, 2005.

 

We believe that our targeted circulation lists for our U.S. andinternational publications 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.

 

*Direct Marketing Products and Other*

 

We provide a comprehensive set of marketing products, services and supportgeared to a variety of industries’ marketing customer and communications needs.These services include direct mail and database marketing programs, reprintservices, reference books and other services to facilitate our clients’marketing programs. These services are incremental to shows and publicationsand are utilized either independently or to supplement our customer’s show andpublication marketing plans.

 

In addition, we provide electronic based products and services tocomplement our delivery of show, publishing and direct marketing products toour customers.  We have over 129 electronic based products including

 

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webadvertising, e-newsletters, education and “webinars.” Direct marketing productsand other accounted for approximately 7%, 5% and 6% of our revenue in 2005,2004 and 2003.

 

**Industry Sectors**

 

We also approach our business by targeting specific industries in NorthAmerica and Europe and structuring our organization and product portfolio basedon these 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 products toreach 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.

 

**Business Strategy**

 

Our business strategy is to provide products and services to facilitate “Connectingour Customers to Theirs.” Our objective is to concentrate on our strategy to achievesustainable, profitable, long-term growth. We will accomplish this by (1)focusing on markets where we can leverage our strengths, (2) deliveringinnovative, quality products based on customer and market needs and (3)maximizing our operational efficiencies.

 

*FocusOn Markets and Customers Where We Can Leverage Our Strengths*

 

We focus on owning and building leading product position businesses thatare the important sources of information for businesses and professionals inlarge, dynamic or growing markets. The combination of our selected markets, ourleading products and focused industry teams provides strategic and operationalclarity along with deep insight into well defined customer segments within eachselected market.

 

*DeliverInnovative, Quality Products Based On Customer and Market Needs*

 

We diversify our revenue streams by developing products that providesolutions along an industry’s “communications supply chain.” We seek to identifyspecific gaps in existing markets or opportunities in adjacent markets where wecan effectively add value. We are able to address evolving market needs throughmultiple means, including:

 

•                                          adapt existing shows and magazines to reflectindustry trends and attract new categories of buyers and sellers;

 

•                                          develop new product extensions based on themarketing needs of the industry and key customers in the buying and sellingcommunity; and

 

•                                          identify fill-in acquisition and joint ventureopportunities based on continuing interaction within the market.

 

*Maximize Operating Efficiencies*

 

We operate effective back office production and Company supportoperations. We will strive to continuously improve our effectiveness throughthe employment of state of the art information systems to maximize operatingefficiencies and provide relevant, timely, fact based management information toour operating teams and senior management. Our operating teams are evaluatedbased on extensive use of defined operating

 

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metricsdesigned to focus attention and behavior on key drivers of performance success.

 

*SelectiveAcquisitions*

 

As we expand deeper into our current industry sectors, we exploreselective acquisitions and joint ventures based on the following criteria:

 

•                                          the acquisition significantly improves our existingproduct and franchise position;

 

•                                          the acquisition adds new and sustainable types ofrevenue streams to our existing product offerings; and

 

•                                          the acquisition adds to, broadens or deepensexisting management talent.

 

In 2005, we purchased five tradeshows and consumer event businesses in thefashion and powersports sectors. See “Item 7. - Management’s Discussion andAnalysis of Financial Condition and Results of Operations-Presentation ofFinancial Information-Acquisitions and Divestitures.” We are engaged in ongoingevaluations of potential acquisitions in line with our business strategy.

 

**Industry Sectors**

 

The following is a summary of our products and services by industrysector.

 

*Fashion& Licensing*

 

Our Fashion group serves the men’s, women’s, children’s and product sourcingsections of the apparel industry. In 2005, we operated in the fashion industrysectors through 9 tradeshows, including our recently acquired POOL and Projectgroups of events. Six of these tradeshows are held concurrently in Las Vegasduring February and August of each year. In 2005 we shut down our East Coast Fashion properties. The tradeshowscount and net square footage in the table below do not include any of the EastCoast Fashion events held in 2005. Our Licensing group includes a portfolio ofproducts including two tradeshows, two conferences, and two publications.

 

Key shows and publications include:

 

•                  MAGIC, the world’s largestand most widely recognized tradeshow for the men’s apparel, accessories, andfootwear industry;

 

•                  WWDMAGIC, which we believeis the largest women’s apparel and accessory tradeshow in the United States;

 

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

 

•                  Sourcing at MAGIC, whichwe believe is the largest industry trade event for manufacturing sourcing withinthe fashion industry, including full-package contractors, fabric and componentsuppliers;

 

•                  Project, a tradeshow forthe premium contemporary market for menswear including premium sportswear anddenim apparel and accessories from around the world;

 

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•                  POOL, a tradeshow for thefashion forward designers featuring a range of products including apparel,shoes, books, home furnishings, art and music; and

 

•                  Licensing International, which we believe is thelargest 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;

 

The following table sets forth information relating to shows, conferencesand publications in our Fashion and Licensing sector in the year ended December31, 2005.

 

**Fashion andLicensing 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)                                  Excludes directories.

(2)                                  Ranking based only on measured magazines for theyear ended December 31, 2005.

 

*Powersportsand Automotive*

 

Weserve the Powersports and Automotive sector through 17 shows and 7 publicationsfor both trade and consumer audiences for the year ended December 31, 2005.

 

Key shows and publications include:

 

•                                          International Powersports Dealer Expo, the largestaftermarket accessories tradeshow in the United States targeted at powersportsdealers, the 13 city tour of consumer International Motorcycle shows and *Dealernews*, the #1 magazine targeted at retailers in thepowersports market;

 

•                                          *Motor Age*, the #1 publication for the automotive service repair market, and *Aftermarket Business,* the #2 aftermarket book in the UnitedStates, which provide Advanstar an important position in the automotive parts,supplies and services publishing market;

 

•                                          *DIRTsports,* a consumer magazinecovering 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

 

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•                                          Off-Road Expo, acquired in late 2005, the largestoff-road products consumer show in the United States, directed to enthusiastsinvolved in motorsports, rock crawling, dirtbikes, ATVs and other off-road andtrail activities.

 

Thefollowing table sets forth information relating to shows, conferences andmagazines in our Powersports and Automotive sector in the year ended December31, 2005:

 

**Powersportsand 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)                                  Excludes directories.

(2)                                  Ranking based only on measured magazines for theyear ended December 31, 2005.

 

*LifeSciences*

 

We serve the Life Sciences sector by dividing our teams and productportfolio into four sub-groups: Healthcare, Pharmaceutical/Science, Dental andVeterinary, providing one tradeshow, 48 conferences and 42 publications for theyear ended December 31, 2005. We serve the healthcare group in both the primaryand specialized care areas, such as practice management and managed healthcare,pharmacy, pediatrics, geriatrics, dermatology, and ophthalmology; thepharmaceutical and science group in areas such as spectroscopy, liquid and gaschromatography, and research, development, testing, regulatory compliance,manufacturing and marketing; the dental group in general and specialtydentistry; and the veterinary group in practice management and clinicalmedicine. We sold our Abilities tradeshows, previously included in thehealthcare sector, to Questex Media Group, Inc. in May 2005. The tradeshowscount and net square footage in the table below do not include any of the propertiessold to Questex Media Group, Inc.

 

Key shows, conferences and publications include:

 

•                                          *Medical Economics*, one of the flagship publications serving physiciansin the United States since its launch in 1923, which informs physicians aboutthe practice management side of medicine;

 

•                                          *Pharmaceutical Technology,* the #1 publication targeted at pharmaceuticalscientists, engineers and operation managers, and *PharmaceuticalExecutive*, the #1 magazine for pharmaceutical company productmanagers and marketing professionals;

 

•                                          *LCGC* and *LCGC Europe,* the #1 magazines in theUnited States and Europe in liquid and gas chromatography;

 

•                                          *Drug Topics,* the #1 magazine for pharmacists;

 

•                                          IVT Conferences, a worldwide conference provider ofFDA validation and compliance information for the pharmaceutical industry;

 

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•                                          *Dental Products Report*, the #1 publication serving the information needsof dentists since 1967, focusing on new products, techniques and trends ingeneral, specialty cosmetic and restorative dentistry;

 

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

 

•                                          Central VeterinaryConference, a conference and tradeshowfor veterinary practice management and clinical medicine.

 

The following table sets forth information relating to shows, conferencesand magazines in our Life Sciences sector in the year ended December 31, 2005:

 

**Life SciencesEvents 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)                                  Excludes directories.

(2)                                  Ranking based only on measured magazines for theyear ended December 31, 2005.

 

**Company Operations**

 

*Showsand Conferences*

 

Our business is seasonal, with revenue typically reaching its highestlevels during the first and third quarters of each calendar year, largely dueto the timing of the MAGIC tradeshows and our other large tradeshows andconferences. Because event revenue is recognized when a particular event isheld, we may also experience fluctuations in quarterly revenue based on themovement of show dates from one quarter to another.

 

The sales cycle for a future show typically begins during the currentshow. Pricing information, preliminary floor plans and exhibitor promotion forthe future show are made available at the current show so that selling for thefuture show can begin at the current show. Typically, this “upfront” sellingincludes floor space reservations with exhibitors executing a contract for thefuture show. At some of our shows, reservations for a large portion of exhibitspace for the next event are reserved by the end of the current event. Thesales cycle continues with selling to new exhibitors and collecting the balanceof payments due. In general, we require exhibitor payments in full prior to ashow as a condition to participation.

 

In addition 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

 

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development.Conferences, workshops and other ancillary forums stimulate interest in theindustry and drive attendance at the show. While show attendance is typicallyfree for qualified attendees at tradeshows, participation in conferences atthese shows can be a significant revenue source.

 

Event promotion is primarily undertaken through direct mail, tradeadvertising and direct contact. In those industry sectors for which we alsohave complementary publications, our publications play a key role in eventpromotion by providing lists from circulation files and editorial coverage forthe upcoming show. Other industry magazines may also be involved, as the goalof any event is to represent the entire industry or market. The “show issue” ofan industry magazine for a related event is often the biggest issue of theyear, as the advertisers want to reinforce their show presence.

 

In operating shows and conferences, we function in a capacity similar to ageneral contractor. We select and manage venues, hotels, and vendors forset-up, registration, travel and housing, audio-visual services and otherservices. In many cases, venue and hotel reservations are made several years inadvance, particularly for primary markets such as New York, Chicago and LasVegas. While the production of a show may involve hundreds of workers, mostworkers are employees of our subcontractor vendors.

 

*Publications*

 

We operate an efficient publishing infrastructure in the United States andthe United Kingdom. Our publications generally follow the controlledcirculation model and are distributed free-of-charge to qualified recipients. Webuild readership and maintain the quality and quantity of our circulation basedon delivering high quality, professional coverage of relevant industryinformation. Because we offer our advertisers access to a highly-targeted,industry-specific subscriber base with potential buying influence, ouradvertisers place their ads in our publications to reach their customers. Mostof our magazines are published monthly, although some titles are publishedweekly or semi-monthly.

 

We attract 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.

 

Our advertising sales and editorial functions are dispersed throughout theUnited States and the United Kingdom. Advertising sales are predominantlyconducted by our dedicated sales force. Editorial content for our publicationsis either staff-written; contributed or purchased from freelance writers; orindustry or professional participants in selected markets.

 

Our advertising materials and editorial content are integrated in ourDuluth, 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.

 

*Direct Marketing Products and Other*

 

The Direct Marketing group is centrally managed, allowing our tradeshowand publishing executives to

 

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dedicatetheir activities to high value sales.  In addition, our central telesalesand product management provide professional skills to these specialized productofferings.  The fulfillment of these sales, including direct mail anddatabase marketing programs, reprint services, reference books, and internetand electronic products is managed through our publishing operations discussedabove.  We use internet and electronic products and services to complementour delivery of show, publishing and direct marketing and other products to ourcustomers.  We also use the internet as a cost effective method ofdeveloping qualifying magazine circulation and to register show and conferenceattendees.

 

**Diverse Customer Base**

 

Our customer base has provided us with stable and diverse sources ofrevenue and cash flow as well as an established foundation from which tofurther penetrate existing markets and to develop new markets. We benefit from:

 

•                  A high level of revenue diversification, primarilyas a result of our business presence in 11 different industry sectorsconsisting of approximately 14,000 advertisers and exhibitors, none of whichrepresented more than 2% of our revenue in 2005. This industry diversity helpsto mitigate our exposure to economic volatility in particular industries orgeographic markets;

 

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

 

•                  Modest exposure to currency fluctuations with 3% ofour revenue generated from international markets in 2005.

 

**Competition**

 

The markets 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 thanwe have.

 

Within each particular industry sector, we also compete with a largenumber of small to medium-sized firms. While most small to medium-sized firmsoperate in a single geographic market or industry sector, in some cases, ourcompetitors operate in several geographic markets and/or sectors. In the showand conference 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.

 

**Intellectual Property**

 

We have developed strong brand awareness for our principal products andservices. Accordingly, we consider our trademarks, trade names, service marks,copyrights, trade secrets and similar intellectual property important to oursuccess, and we rely on trademark, service mark, copyright and trade secretlaws, as well as licensing and confidentiality agreements, to protect ourintellectual property rights. We generally register our

 

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materialtrademarks and service marks in the United States and in certain other keycountries in which these trademarks and service marks are used. Trademarks andservice marks registered in the United States typically require periodicrenewals, and we typically obtain these renewals as a routine matter so long asthe applicable trademark and service marks are in use. Effective trademark,service mark and trade secret protection may not be available in every countryin which our products and services are available.

 

**Environmental Matters**

 

We are subject to various foreign, federal, state and local environmentalprotection and health and safety laws and regulations. Accordingly, we incurand will continue to incur some costs to comply with these laws andregulations. We own or lease real property, and some environmental laws holdcurrent or previous owners or operators of businesses and real property liablefor contamination on, under, or from that property, even if they did not knowof and were not responsible for the contamination. In addition, someenvironmental laws hold companies liable for the cleanup of landfills or othersites to which they may have sent waste. Based on available information, we donot believe we are responsible or liable for any such environmentalcontamination and we do not currently anticipate that the costs of complyingwith environmental laws and regulations will materially adversely affect us. However,we cannot ensure that we will not incur material costs or liabilities in thefuture, due to the discovery of new facts or conditions, releases of hazardousmaterials, or a change in environmental laws and regulations.

 

**Employees**

 

As of December 31, 2005, we had approximately 1,000full-time equivalent employees. Of these full-time employees, approximately 55employees were located in the United Kingdom with the balance based in the UnitedStates. None of our U.S. employees are represented by a labor union. Weconsider our relationships with our employees to be good.

 

**Financial Information about Geographic Areas**

 

Financial information relating to our operations by geographic area is setforth in Note 11 to ourconsolidated financial statements included in this annual report on Form 10-K.

 

**Item 1A. – RISK FACTORS**

 

**CERTAIN FACTORS WHICH MAYAFFECT FUTURE RESULTS**

 

**Show exhibit space and ad pages could decline as a result of aneconomic slowdown in the United States, the threat of future terrorist attacks,or geopolitical concern.**

 

Our customers typically reduce their marketing and advertising budgetsduring a general economic downturn or a recession in the United States or inany other market where we conduct a significant amount of business. The longera recession or economic downturn continues, the more likely it becomes that ourcustomers may significantly reduce their marketing and advertising budgets. Anymaterial 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.

 

The threat of further terrorist attacks and continued geopolitical concern(including conflict in the Middle East) may significantly affect our futureresults of operations or financial condition, whether as a result of(1) reduced attendance at, or curtailment or cancellation of, shows due totravel fears, (2) further reduction in economic activity

 

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and arelated reduction in marketing expenditures on publications or shows, or(3) other circumstances that could result from these or subsequentattacks.

 

**We depend on securing desirable dates and locations for our shows andconferences, which we may not be able to secure.**

 

The date and location of a show or a conference can impact itsprofitability and prospects. The market for desirable dates and locations ishighly competitive. If we cannot secure desirable dates and locations for ourshows and conferences, their profitability and future prospects would suffer,and our financial condition and results of operations would be materiallyadversely affected. In general, we maintain multi-year reservations for ourshows and conferences. Consistent with industry practice, we do not pay forthese reservations, and these reservations are not binding on the facilityowners until we execute a contract with the owner. We typically sign contractsthat guarantee the right to venues or dates for only one year. Therefore, ourmulti-year reservations may not lead to binding contracts with facility owners.In addition, because shows and conferences are held on pre-scheduled dates atspecific locations, the success of a particular show or conference depends uponevents outside of our control, such as natural catastrophes, labor strikes andtransportation shutdowns.

 

**A significant portion of our revenue and contribution before generaland administrative expenses is generated from our MAGIC tradeshows, so any declinein the performance of these shows would reduce our revenue and operatingincome.**

 

For the year endedDecember 31, 2005, our MAGIC tradeshows represented approximately 27.2% ofour total revenue and approximately 40.3% of our contribution margin (definedas revenue less cost of production and selling, editorial and circulationcosts). We expect that the MAGIC tradeshows will continue to represent asignificant portion of our overall revenue and contribution margin in thefuture. Therefore, a significant decline in the performance of one or both ofthe MAGIC tradeshows, typically held in the first and third quarters, couldhave a material adverse effect on our financial condition and results ofoperations.

 

**We derive significant revenue and contribution margin before generaland administrative expenses from our healthcare and pharmaceutical markets,which are dependent upon pharmaceutical marketing budgets.**

 

Our properties serving the healthcare and pharmaceutical related marketscontributed 26.8% of our revenue in 2005 and 19.4% of our contribution margin(defined as revenue less cost of production and selling, editorial andcirculation costs). A substantial portion of the advertising in these marketsis from pharmaceutical companies. As a result, any material reduction inmarketing activities from pharmaceutical companies, which could occur due togeneral economic conditions or factors specific to the industry, including acontinued reduction in new drug introductions, a shift in marketingexpenditures by pharmaceutical companies to sources other than publications andany future governmental regulation such as price controls or types of marketingrestrictions, could have a material adverse effect on our results.

 

**Any significant increase in paperor postage costs would cause our expenses to increase significantly.**

 

Because of our print products, direct mail solicitations and productdistributions, we incur substantial costs for paper and postage. We do not useforward contracts to purchase paper, and therefore are not protected againstfluctuations in paper prices. In general, we use the U.S. Postal Service todistribute our print products and mailings. U.S. Postal Service rates increaseperiodically. If we cannot pass increased paper and postage costs through toour customers, our financial condition and results of operations could bematerially adversely affected.

 

**The market for our products andservices is intensely competitive.**

 

The intense competition for our products and services is highly fragmentedby product offering and by geography. On a global level, larger internationalfirms operate in many geographic markets and have broad

 

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productofferings in shows, conferences, publications and direct marketing products andother. In several industries, such as healthcare, we compete with large firmswith a single-industry focus. Many of these large international and single-industryfirms are better capitalized than we are and have substantially greater financialand other resources than we do.

 

Within each particular industry sector, we also compete with a largenumber of small to medium-sized firms. While most small to medium-sized firmsoperate in a single geographic market or industry sector, in some cases, ourcompetitors operate in several geographic markets and/or industry sectors. Ourshows and conferences compete with trade associations and, in severalinternational markets, with exposition hall owners and operators. Ourpublications typically have between two and five direct competitors that targetthe same industry sector, and we also have many indirect competitors thatdefine niche markets differently than we do and thus may provide alternativesfor readers and/or advertisers.

 

**We depend in part on new product introductions, and the process ofresearching, developing, launching and establishing profitability for a newevent or publication is inherently risky and costly.**

 

Our success depends in part upon our ability to monitor rapidly changingmarket trends and to adapt our events and publications to meet the evolvingneeds of existing and emerging target audiences. Our future success will dependin part on our ability to continue to adapt our existing events andpublications and to offer new events and publications by addressing the needsof specific audience groups within our target markets. The process ofresearching, developing, launching and establishing profitability for a newevent or publication is inherently risky and costly. We generally incur initialoperating losses when we introduce new events and publications. Our efforts tointroduce new events or publications may not ultimately be successful orprofitable. In addition, costs related to the development of new events andpublications are accounted for as expenses, so our year-to-year results may bematerially adversely affected by the number and timing of new product launches.

 

**Our growth strategy of identifying and consummating acquisitionsentails integration and financing risk.**

 

We intend 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 not beable to finance the acquisition of a desirable candidate or to pay as much asour 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 not realize anyof the anticipated benefits of an acquisition, and integration costs may exceedanticipated amounts.

 

**We depend on our senior management team, and we do not have employmentcontracts for many of our senior managers.**

 

We benefit substantially from the leadership and experience of members ofour senior management team and depend on their continued services tosuccessfully implement our business strategy. The loss of any member of oursenior management team or other key employee could materially adversely affectour financial condition and results of operations. Although we have enteredinto employment agreements with Mr. Loggia and Mr. Alic, we do nothave employment contracts with most other members of our senior management teamor other key employees. We cannot be certain that we will continue to retainthe executives’ services, or the services of other key personnel, in thefuture. Moreover, we may not be able to attract and retain other qualifiedpersonnel in the future. We do not currently maintain key-man life insurancepolicies on any member of our senior management team or other key employees.

 

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**Our international operations expose us to various risks associated withinternational operations.**

 

We currently maintain offices in the United Kingdom. Internationaloperations accounted for approximately 3.1% of our total revenue in 2005. Internationaloperations and expansion involve numerous risks, such as:

 

•                                          the uncertainty of product acceptance by differentcultures;

 

•                                          divergent business expectations or culturalincompatibility in establishing joint ventures with foreign partners;

 

•                                          difficulties in staffing and managing multinationaloperations;

 

•                                          currency fluctuations; and

 

•                                          potentially adverse tax consequences.

 

The impact of any of these risks could materially adversely affect ourfuture international operations and our financial condition and results ofoperations.

 

**Current geopolitical conditions and the continuing threat of domesticand international terrorist attacks may adversely impact our results.**

 

International geopolitical conditions, exacerbated by the war in Iraq andthe escalating tensions elsewhere have contributed to an uncertain politicaland economic climate, both in the United States and globally, which may affectour ability 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 tofluctuations in the exchange rates of international currencies.**

 

Our consolidated financial statements are prepared in U.S. dollars. However,a portion 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 are not material to us.

 

**Our business is seasonal due largely to higher tradeshow revenue in thefirst and third quarters.**

 

Our business is seasonal, with revenue typically reaching its highestlevels during the first and third quarters of each calendar year, largely dueto the timing of the MAGIC tradeshows and our other large shows andconferences. In 2005, approximately 31% of our revenue was generated during thefirst quarter and approximately 30% during the third quarter. The secondquarter accounted for approximately 19% of revenue and the fourth quarteraccounted for approximately 20% of revenue in 2005. Because event revenue isrecognized when a particular event is held, we may also experience fluctuationsin quarterly revenue based on the movement of annual show dates from onequarter to another.

 

**We may be required to recognize additional impairmentcharges.**

 

Pursuantto GAAP, we are required to periodically assess our goodwill, intangibles andother long-lived assets to determine if they are impaired. Disruptions to ourbusiness, end market conditions and protracted economic weakness, unexpectedsignificant declines in operating results of reporting units and divestituresmay result in additional charges to goodwill and other asset impairments. Futureimpairment charges could

 

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substantiallyaffect our reported earnings in the period of such charge.

 

**We have a significant amount of debt, which could limit our ability toremain competitive or grow our business.**

 

As of December 31, 2005, we had (a) total indebtedness of$620.6 million and (b) $58.9 million of borrowings availableunder Communications’ credit facility, subject to customary borrowingconditions. In addition, subject to the restrictions in Communications’ 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 cash flow available for general corporatepurposes, including capital expenditures and acquisitions, because asubstantial portion of our cash flow from operations must be dedicated toservicing our debt;

 

•                                          limiting our ability to obtain additional debtfinancing in the future for working capital, capital expenditures oracquisitions; and

 

•                                          limiting our flexibility in reacting to competitiveand other changes in our industry and economic conditions generally.

 

**We are a holding company and therefore dependent on dividends from oursubsidiaries to meet our debt obligations.**

 

We are a holding company, and our ability to pay interest on the seniordiscount notes when they become cash payable in 2006 is dependent upon thereceipt of dividends from our direct and indirect subsidiaries. We do not have,and may not in the future have, any assets other than ownership interests inCommunications and Advanstar IH, Inc. Communications andAdvanstar IH, Inc. and their subsidiaries are parties to the CreditFacility and Communications and its subsidiaries are party to the seniorsubordinated note indenture, and senior secured notes indenture, each of whichimposes substantial restrictions on Communications and Advanstar IH,Inc.’s ability to pay dividends. Any payment of dividends will be subject tothe satisfaction of certain financial conditions set forth in the seniorsubordinated notes indenture, the senior secured notes indenture and the CreditFacility. The ability of Communications and Advanstar IH, Inc. andtheir subsidiaries to comply with such conditions may be affected by eventsthat are beyond our or their control. Future borrowings byCommunications and Advanstar IH, Inc. can also be expected to containrestrictions or prohibitions on the payment of dividends by such subsidiariesto us. We cannot predict what the value of our subsidiaries, assets or theamount of their liabilities will be in the future and whether such values oramounts will permit the payment of distributions to us. Accordingly, there canbe no assurance that we will be able to pay our debt service obligations on thesenior discount notes.

 

As a result of our holding company structure, the holders of the seniordiscount notes are structurally junior to all creditors of our subsidiaries,except to the extent that we are recognized as a creditor of any suchsubsidiary, in which case our claims would still be subordinate to any securityin the assets of such subsidiary and any indebtedness of such subsidiary seniorto that held by us. In the event of insolvency, liquidation, reorganization,dissolution or other winding-up of our subsidiaries, we will not receive anyfunds available to pay to creditors of the subsidiaries until they are paid infull.

 

**We are controlled by principal stockholders who will be able to makeimportant decisions about our business and capital structure; their interestsmay differ from your interests as a debtholder.**

 

Circumstances may occur in which the interests of our principalstockholders could be in conflict with the interests of the holders of ourdebt. In addition, these stockholders may have an interest in pursuing transactionsthat, in their judgment, enhance the value of their equity investment in ourcompany, even though those

 

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transactionsmay involve risks to the holders of our debt.

 

Substantially all of the outstanding shares of common stock of our parentcompany are 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.

 

The general partners of each of the DLJ Merchant Banking funds areaffiliates or employees of Credit Suisse Securities (USA), LLC, which is alsoan affiliate of (1) Credit Suisse Corporation, the arranger, syndicationagent and a lender under Communications’ credit facility, to which we haveobtained amendments in the past to avoid future potential covenant defaults,and (2) the general partners of each of the DLJ Investment Partners funds,which own a substantial portion of our notes.

 

**You may not be able to rely on forward-looking statements included inthis annual report, as our actual results may be materially different.**

 

The information contained in this annual report includes some forward-lookingstatements that involve a number of risks and uncertainties. A forward-looking statementis usually identified by our use of certain terminology including “believes,” “expects,”“may,” “will,” “should,” “seeks,” “pro forma,” “anticipates” or “intends” or bydiscussions of strategy or intentions. A number of factors could cause our actualresults, performance, achievements or industry results to be very differentfrom the results, performance, achievements or industry results expressed orimplied by those forward-looking statements. These factors include, but are notlimited to:

 

•                                          the competitive environment in our industry;

 

•                                          economic conditions in general and in the industryin which we compete;

 

•                                          changes in or our failure to comply with federal,state, local or foreign laws and government regulations;

 

•                                          liability and other claims asserted against ourcompany;

 

•                                          changes in operating strategy or development plans;

 

•                                          the ability to attract and retain qualifiedpersonnel;

 

•                                          our significant indebtedness;

 

•                                          changes in our acquisition and capital expenditureplans; and

 

•                                          other factors we refer to in this section entitled “RiskFactors” and elsewhere in this annual report on Form 10-K.

 

In addition, forward-looking statements depend uponassumptions, estimates and dates that may not be correct or precise and involveknown and unknown risks, uncertainties and other factors. Accordingly, aforward-looking statement is not a prediction of future events or circumstancesand those future events or circumstances may not occur. Given theseuncertainties, you are cautioned not to place undue reliance on the forward-lookingstatements. We are not undertaking any obligation to update these factors or topublicly announce

 

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the results of any changes to our forward-looking statements due to futureevents or developments.

 

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

 

Notapplicable.

 

**Item 2. – *PROPERTIES***

 

**Properties**

 

We have executive, marketing, sales and editorialoffices in several cities in the United States, including Woodland Hills, LosAngeles and Santa Ana, California; Montvale and Iselin, New Jersey; Ft.Lauderdale, Florida; Northfield, Illinois; Lenexa, Kansas; New York City, NewYork; Cleveland, Ohio; and Concord, Massachusetts.  In addition, we have offices in Chester andLondon, United Kingdom. Our finance, show registration, call center,circulation, fulfillment, production and other necessary operational supportfacilities in the United States are located in Duluth, Minnesota.

 

We generally lease our offices from third parties. However, we own ouroffices in Duluth and Cleveland. have granted mortgages on the Clevelandproperty to the lenders under Communications’ credit facility and, on a secondpriority basis, for the benefit of the holders of the second priority seniorsecured notes. We believe that our properties are in good operating conditionand that suitable additional or alternative space will be available oncommercially reasonable terms for future expansion.

 

**Item 3. – *LEGAL PROCEEDINGS***

 

We are not a party to any legal proceedings other than ordinary course,routine litigation, which is not material to our business, financial conditionor results of operations.

 

**Item 4. – *SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS***

 

No matters were submitted to a vote of security holders during the fourthquarter of the fiscal year ended December 31, 2005.

 

**PART II**

 

**Item 5. – *MARKET FOR REGISTRANT’S COMMON EQUITY ANDRELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES***

 

There is no established public trading market forthe registrant’s common equity.

 

**Item 6. – *SELECTED FINANCIAL DATA***

 

The following table presents selected consolidatedfinancial data for Advanstar for each of the periods indicated. Theconsolidated balance sheet data as of December 31, 2001, 2002 and 2003 andthe selected historical consolidated financial data for Advanstar for the yearsended December 31, 2001 and 2002 have been derived from the auditedconsolidated financial statements and the notes thereto of Advanstar which arenot included herein. The selected consolidated financial data for Advanstar forthe years ended December 31, 2003, 2004 and 2005 have been derived fromAdvanstar’s audited financial statements and the notes thereto included herein.The selected historical consolidated financial data should be read inconjunction with Item 7. “Management’s

 

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Discussion and Analysis of Financial Condition and Results of Operations”and the consolidated financial statements and notes thereto included elsewherein this Annual Report.

 

Allhistorical amounts have been reclassified to reflect the results and any gainsor losses of sold and discontinued properties as discontinued operations. Forfurther informatino on discontinued properties, see Item 7. “Management’sDiscussion and Analysis of Financial Condition and Results of Operations –Presentationof Financial Information–Acquisitions and Divestitures.”

 

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| ** **                                                                                       | ** ** | **Year Ended**             | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                                                       | ** ** | **December 31,**           | ** ** |
| ** **                                                                                       | ** ** | **2005**                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                                       | ** ** | **(dollars in thousands)** | ** ** |
|                                                                                             |       |                       |       |   |   |   |   |   |   |   |   |
| **Income Statement Data:**                                                                       |       |                       |       |   |   |   |   |   |   |   |   |
| Revenue                                                                                          |       | $                          | 288,913    |   | $ | 271,066 |   | $ | 191,535 |   | $ | 156,315 |   | $ | 163,719 |   |
| Cost of  production and selling (excluding depreciation)                                         |       | 168,699                    |       | 158,177 |   | 105,065 |   | 78,847 |   | 83,486 |   |
| General and  administrative expenses (excluding depreciation)                                    |       | 41,677                     |       | 41,334 |   | 31,581 |   | 31,766 |   | 40,097 |   |
| Restructuring  charge (1)                                                                        |       | 4,771                      |       | (4,015 | ) | 2,692 |   | — |   | 9,406 |   |
| Depreciation and  amortization (2)                                                               |       | 37,755                     |       | 43,089 |   | 46,107 |   | 54,842 |   | 79,159 |   |
|                                                                                             |       |                       |       |   |   |   |   |   |   |   |   |
| Operating income  (loss)                                                                         |       | 36,011                     |       | 32,481 |   | 6,090 |   | (9,140 | ) | (48,429 | ) |
| Other income  (expense):                                                                         |       |                       |       |   |   |   |   |   |   |   |   |
| Interest expense                                                                                 |       | (88,060                    | )          | (92,225 | ) | (77,162 | ) | (68,479 | ) | (70,700 | ) |
| Interest income                                                                                  |       | 1,476                      |       | 468 |   | 471 |   | 1,455 |   | 2,495 |   |
| Loss on  extinguishment of debt                                                                  |       | (12,581                    | )          | — |   | (11,324 | ) | — |   | (4,038 | ) |
| Other income  (expense), net                                                                     |       | 83                         |       | 826 |   | 893 |   | 1,043 |   | (582 | ) |
|                                                                                             |       |                       |       |   |   |   |   |   |   |   |   |
| Loss from  continuing operations before income taxes and cumulative effect of accounting  change |       | (63,071                    | )          | (58,450 | ) | (81,032 | ) | (75,121 | ) | (121,254 | ) |
| (Benefit)  provision for income taxes                                                            |       | (9,524                     | )          | 6,259 |   | (6,887 | ) | (11,348 | ) | (35,991 | ) |
|                                                                                             |       |                       |       |   |   |   |   |   |   |   |   |
| Loss from  continuing operations before cumulative effect of accounting change                   |       | (53,547                    | )          | (64,709 | ) | (74,145 | ) | (63,773 | ) | (85,263 | ) |
|                                                                                             |       |                       |       |   |   |   |   |   |   |   |   |
| Income (loss)  from operations of discontinued businesses, net of tax                            |       | 31,743                     |       | (2,418 | ) | 4,001 |   | 8,423 |   | 12,855 |   |
|                                                                                             |       |                       |       |   |   |   |   |   |   |   |   |
| Loss before  cumulative effect of accounting change                                              |       | (21,804                    | )          | (67,127 | ) | (70,144 | ) | (55,350 | ) | (72,408 | ) |
|                                                                                             |       |                       |       |   |   |   |   |   |   |   |   |
| Cumulative  effect of accounting change, net of tax and minority interests                       |       | —                     |       | — |   | — |   | (62,729 | ) | (552 | ) |
|                                                                                             |       |                       |       |   |   |   |   |   |   |   |   |
| Net loss                                                                                         |       | $                          | (21,804    | ) | $ | (67,127 | ) | $ | (70,144 | ) | $ | (118,079 | ) | $ | (72,960 | ) |
|                                                                                             |       |                       |       |   |   |   |   |   |   |   |   |
| **Cash  flows provided by (used in):**                                                           |       |                       |       |   |   |   |   |   |   |   |   |
| Operating  activities                                                                            |       | $                          | 8,235      |   | $ | 18,550 |   | $ | 46,525 |   | $ | 24,701 |   | $ | 25,891 |   |
| Investing  activities                                                                            |       | 148,959                    |       | 4,996 |   | (145,655 | ) | (31,388 | ) | (25,932 | ) |
| Financing  activities                                                                            |       | (152,635                   | )          | (12,515 | ) | 110,236 |   | (15,650 | ) | 25,150 |   |
|                                                                                             |       |                       |       |   |   |   |   |   |   |   |   |
| **Balance  sheet data (at end of period):**                                                      |       |                       |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                                                                       |       | $                          | 46,641     |   | $ | 41,328 |   | $ | 29,721 |   | $ | 19,022 |   | $ | 44,797 |   |
| Working capital  (3)                                                                             |       | (67,898                    | )          | (70,658 | ) | (79,067 | ) | (70,062 | ) | (75,381 | ) |
| Total assets                                                                                     |       | 765,953                    |       | 914,910 |   | 989,173 |   | 870,562 |   | 1,016,508 |   |
| Total debt                                                                                       |       | 620,592                    |       | 753,319 |   | 744,071 |   | 657,804 |   | 524,923 |   |
| Total  stockholder’s equity                                                                 |       | 6,587                      |       | 26,223 |   | 90,618 |   | 88,171 |   | 209,336 |   |
|                                                                                             |       |                       |       |   |   |   |   |   |   |   |   |
| **Other  Data:**                                                                                 |       |                       |       |   |   |   |   |   |   |   |   |
| Capital expenditures                                                                             |       | $                          | 9,564      |   | $ | 9,576 |   | $ | 7,930 |   | $ | 7,449 |   | $ | 12,141 |   |
| Ratio of  earnings to fixed charges (4)                                                          |       | —                     |       | — |   | — |   | — |   | — |   |

 

20

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(1)               In March 2001, weannounced plans to more tightly focus the activities of our wholly ownedsubsidiary Advanstar.com, Inc. (Advanstar.com). These plans had the effect ofmore closely integrating many of the sales, marketing, technology and operatingfunctions of Advanstar.com with our wholly owned subsidiary AdvanstarCommunications Inc. (Communications) and its core activities in publishing,tradeshows and direct marketing products and other. These actions resulted in arestructuring and other charge of $9.4 million, including severance, assetimpairment related to abandoned leaseholds and facility closure costs in 2001. The restructuring activities were completed bythe end of 2001, except for facility lease costs, which were to continuethrough June 2010. In April 2004, we settled the remaining facility leasecommitment for a total of $1.9 million, resulting in an offset to operatingexpense of $4.0 million as we released the remaining accrual.

 

In September 2003, we consolidated our midtown New York leased officespace from two floors to one and sublet the excess space. These actionsresulted in a third quarter 2003 restructuring charge of approximately$2.1 million. In December 2003, we consolidated our Chester, U.K. leasedoffice space and vacated two of our four floors, resulting in a fourth quarter2003 charge of approximately $0.6 million. These activities included a chargefor the present value of future rental payments, net of estimated subleaseincome, of $2.3 million, and other relocation costs and expenses of$0.4 million. We will continue to pay facility lease costs, net ofsublease income, associated with the previously used facilities through August2015.

 

In connection with the sale of the Portfolio Groupand the reorganization of the Company’s healthcare and support departmentalmanagement 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 of $2.3 million during the year ended December 31, 2005 for severance and other termination costs.

 

(2)               Upon adoption of Statement of Financial AccountingStandards No. 142, “Goodwill and Other Intangible Assets,” we discontinuedthe amortization of goodwill beginning January 1, 2002. The followingtable reflects a reconciliation of loss from continuing operations adjusted forthe exclusion of goodwill amortization, net of tax for all periods:

 
| ** **                                                   | ** ** | **Year Ended**             | ** ** |
|--------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                   | ** ** | **December 31,**           | ** ** |
| ** **                                                   | ** ** | **2005**                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                   | ** ** | **(unaudited)**            | ** ** |
| ** **                                                   | ** ** | **(dollars in thousands)** | ** ** |
|                                                         |       |                       |       |   |   |   |   |   |   |   |   |
| Reported loss  before cumulative effect of accounting change |       | $                          | (21,804    | ) | $ | (67,127 | ) | $ | (70,144 | ) | $ | (55,350 | ) | $ | (72,408 | ) |
| Add: goodwill  amortization, net of tax                      |       | —                     |       | — |   | — |   |   |   | 22,738 |   |
|                                                         |       |                       |       |   |   |   |   |   |   |   |   |
| Adjusted loss  before cumulative effect of accounting change |       | $                          | (21,804    | ) | $ | (67,127 | ) | $ | (70,144 | ) | $ | (55,350 | ) | $ | (49,670 | ) |
|                                                         |       |                       |       |   |   |   |   |   |   |   |   |
| Reported net loss                                            |       | $                          | (21,804    | ) | $ | (67,127 | ) | $ | (70,144 | ) | $ | (118,079 | ) | $ | (72,960 | ) |
| Add: goodwill  amortization, net of tax                      |       | —                     |       | — |   | — |   | — |   | 22,738 |   |
|                                                         |       |                       |       |   |   |   |   |   |   |   |   |
| Adjusted net loss                                            |       | $                          | (21,804    | ) | $ | (67,127 | ) | $ | (70,144 | ) | $ | (118,079 | ) | $ | (50,222 | ) |

 

(3)               Working capital is defined as current assets,excluding cash, of $42.1 million, $34.6 million, $47.4 million, $38.6 million, and $34.4million in each period ending December 31, 2001, 2002, 2003, 2004, and

 

21

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2005 lesscurrent liabilities, excluding the current portion of long-term debt ofapproximately $117.5 million, $104.7 million, $126.4 million,$109.3 million and $102.3 million in each period ending December 31, 2001,2002, 2003, 2004, and 2005.

 

(4)               For purposes of determining the ratio of earnings tofixed charges, earnings are defined as pretax income from continuing operationsplus fixed charges. Fixed charges consist of interest expense and one-third ofrental expense, which is considered by management to be representative of theinterest component of rental expense. Earnings were insufficient to cover fixedcharges in the years ended December 31, 2001, 2002, 2003, 2004 and 2005 by$121.3 million, $75.1 million, $81.0 million, $58.5 million and $63.1million.

 

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**Item 7 – *MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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.*

 

*This discussion contains forward-looking statements, which are neitherpromises nor guarantees and involve risks and uncertainties. Our actual resultsmay differ significantly from the results discussed in the forward-lookingstatements. Factors that might cause those differences include, but are notlimited to, those discussed in Item 1A. “Risk Factors.”*

 

**Overview**

 

We are a worldwide media company providing integrated marketing for bothbusiness-to-business and business-to-consumer marketing firms. Our products andservices are targeted to specific industry sectors through shows andconferences and controlled circulation trade, business, professional andconsumer magazines. We also provide a broad range of other direct marketingproducts, including classified advertising, direct mail services, reprints,database marketing, guides, reference books and electronic based products. Ourelectronic based products include web advertising, e-newsletters, education andwebinars.

 

We report our business in three segments:

 

•                                          shows and conferences, which consists primarily ofthe management of trade and consumer shows and trade conferences held in conventionand conference centers;

 

•                                          publications, which consists primarily of thecreation and distribution of controlled circulation trade, business,professional and consumer magazines, CME products, custom publishing and otherprojects; and

 

•                                          direct marketing products and other, which consistsof sales of a variety of direct mail and database products, magazine editorialreprints, classified advertising and electronic media products.

 

Unless otherwise noted, disclosures herein relate only toour continuing operations. All historical amounts have been reclassified toexclude results and gains or losses of discontinuing operations, unless notedotherwise. For further information on discontinued properties, see “Presentationof Financial Information–Acquisitions and Divestitures.”

 

Shows and conferences accounted for 42%, 40% and 47% of total revenue in2005, 2004 and 2003, respectively. Publications accounted for 51%, 55% and 47%of total revenue in 2005, 2004 and 2003, respectively, while direct marketingproducts and other accounted for 7%, 5% and 6% of total revenue in 2005, 2004and 2003, respectively. Show and conference revenue increased as a percentageof the total revenue in 2005 primarily as a result of our current yearacquisitions and new product launches. Publication revenue increased as apercentage of total revenue in 2004 primarily as a result of our acquisition ofa group of healthcare publications in October 2003. Our revenue reaches itshighest levels during the first and third quarters of each year due to thetiming of our MAGIC tradeshows and our other large tradeshows and conferences. Becauseshow and conference revenue is recognized when a particular event is held, wemay experience fluctuations in quarterly revenue based on the movement of showdates from one quarter to another.

 

**Trends and Developments**

 

Wecompleted a significant part of our strategy to realign and refocus our productportfolio with the sale of certain assets (“the Portfolio Group”) to QuestexMedia Group in the second quarter of 2005. Net income in 2005

 

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includes approximately five months of results from thePortfolio Group before the sale to Questex Media Group in May 2005, a $52.9million gain on the sale of these assets and a $2.3 million intangible assetimpairment charge related to the closing of our East Coast Fashion events. Allof these are reported as discontinued operations.

 

The sale of the Portfolio Groupallows us to concentrate our resources on three markets in which we have ourstrongest product and market positions, which are the fashion and licensing,life sciences, and the motorcycle and automotive aftermarket markets. In 2005we invested in these core markets through the development and expansion of existingproducts, as well as through launching new events, publications and electronicmedia.

 

Our tradeshows and conferencescontinued to perform well in 2005. Revenue for our four largest events, MAGICMarketplace Spring and Fall, Dealer Expo and Licensing International, increased$11.0 million, or 13.3%, compared to 2004. We also launched the Off-Road Impacttradeshow and conference, complementing our 2004 launches of *DIRTsports* and *Off-Road Business* magazines, 18 new IVT and pharmaceuticalconferences, a dental conference and a licensing conference.

 

Theslight decline in revenue in our publishing segment in 2005 is the result of acontraction in advertising and subscriptions in our nursing publications and adecline in 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 a significantpick up in healthcare projects in the fourth quarter of 2005, and areoptimistic about 2006 based on the current pipeline of contracted projects.

 

Weidentified several new opportunities in 2005 and initiatives that we will continueto develop into 2006. Opportunities include expanding customer relationshipsand our market position in our MAGIC events and the development of a standalone continuing medical education business and other diversified customerofferings in our healthcare sector. We also will continue developing theoff-road market by expanding our Off-Road Impact tradeshow launch and buildingon our 2005 acquisition of the Off-Road Expo consumer event.

 

**Presentation of Financial Information**

 

*Acquisitionsand Divestitures*

 

Consistent with the Company’s strategy of building significant productpositions in targeted 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 contribution losswas $0.9 million and $1.6 million. Arenacross had no revenue or contributionmargin in 2004 and 2003.

 

In the second quarter of2005, we closed the last remaining East Coast Fashion event (the “East CoastFashion Group”) as part of our new strategy. We recorded a $2.3 millionimpairment charge for the remaining intangible assets of this business in 2005.Revenue and contribution margin through the second quarter of 2005 for EastCoast Fashion Group was $0.9 million and $0.1 million. East Coast Fashion Grouprevenue for 2004 and 2003 was $6.1 million and $10.9 million. 2004 contributionloss was $0.3 million and 2003 contribution margin was $1.7 million.

 

On May 23, 2005, we and certain affiliates (Communications, AdvanstarExpositions Canada Limited and Advanstar.com) completed the sale of businessassets and liabilities associated with our tradeshows and conferences, tradepublications and direct marketing products in our: Information Technology &

 

24

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Telecommunications,Travel/Hospitality, Beauty, Home Entertainment, Abilities and Portfolio groups,including the shares of our Hong Kong subsidiaries. The shares of our Braziliansubsidiary were 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. Revenueand contribution margin from January 1, 2005 to May 23, 2005 was $49.0 millionand $14.9 million. Revenue in 2004 and 2003 was $102.5 million and $104.9million and contribution margin in 2004 and 2003 was $27.5 million and $28.9million.

 

In the third 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 $0.1 million. Revenueand contribution margin for Post in 2003 was $1.7 million and $0.3 million.  We also sold our 65% ownership in our Frenchjoint venture (“SeCA”), which consisted of one tradeshow, for $3.1 million incash. In conjunction with our sale of SeCA we recorded a goodwill impairmentcharge of $9.4 million, net of minority interest in 2004. Total revenue and contributionmargin for SeCA, net of minority interest, was $2.9 million and $1.4 million in2003 in 2004, and was $4.1 million and $1.7 million in 2003. Also in the third quarter of2004, we sold our German tradeshow business (“DMS”) for $1.7 million in cash. Asa result of the sale of DMS we recordeda goodwill impairment charge of $6.2 million. Total revenue and contribution loss in 2004 was $0.1 million and $0.3million, respectively. Total revenue and contribution margin in 2003 was $2.0million and $0.5 million, respectively.

 

In the first quarter of 2004, we sold our art industry tradeshows andmagazines for a total sales price of $19.6 million in cash (“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 contributionmargin for the Art Group in 2003 was $10.9 million and $3.1 million.

 

On December 31, 2003, we sold a portfolio of automotive and technologyindustry tradeshows and magazines operated by our U.K. subsidiary for a total salesprice of $2.2 million in cash. Total revenue and contribution margin for theseproperties in 2003 was $5.8 million and $0.2 million.

 

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     |     | $          | (977     | )          | $ | 18,240 |   |
| Income tax  provision                                                                      |       | 23,652   |       | 5,705    |       | 13,612   |       |
| Minority  interests                                                                        |       | (566     | )          | 4,264    |       | (627     | )          |
|                                                                                       |       |     |       |     |       |     |       |
| Income (loss)  from discontinued businesses                                                |       | $        | 31,743     |     | $          | (2,418   | )          | $ | 4,001 |   |

 

Between January 1, 2003 andDecember 31, 2005, we completed 7 acquisitions; five of which were completed in2005, one in 2004, and one in 2003.

 

•                  On September 12, 2005, we purchased an off-roadconsumer event business from Petersen Events Corporation (“Off-Road Expo”) for$2.2 million in cash. In addition, we may pay additional contingent cashconsideration to the former shareholders based on the 2006 operating revenuefrom the acquired assets.

 

25

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•                  On August 23, 2005, we purchased two fashionindustry tradeshows and related products from the owner of POOL Tradeshow (“POOL”)for $3.0 million in cash, subject to a working capital adjustment, which willbe completed in 2006. In addition, we 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 us. Thepurchase price working capital adjustment has yet to be finalized. We do notbelieve the final allocation of purchase price will be materially differentfrom preliminary estimates.

 

•                  On August 19, 2005, we purchased ProjectGlobal Tradeshow, Inc. (“Project”), a producer of tradeshows for the premiumcontemporary sector of the fashion industry, for $9.9 million in cash, subjectto a working capital adjustment, which will be completed in 2006. In addition,we may pay additional contingent cash consideration to the former shareholdersbased on the 2007 and 2008 operating results of the acquired assets and theircontinued employment with us. The purchase price working capital adjustment hasyet to be finalized. We do not believe the final allocation of purchase pricewill be materially different from preliminary estimates.

 

•                  From January 1, 2005 through September30, 2005, we completed two other acquisitions of consumer shows with anaggregate purchase price of $0.5 million in cash.

 

•                  On March 8, 2004, we purchased a portfolio ofpharmaceutical industry specific magazines and conferences from the Instituteof Validation Technology, Inc. (“IVT”) for $7.9 million in cash. In addition,we will pay additional contingent cash consideration to the prior owners basedupon 2004 and 2005 operating results generated from the acquired assets and theircontinued employment with us. Operating results for 2005 and 2004 include $0.7million and $1.5 million in compensation expense to reflect the accrual of the2005 and 2004 components of the expected contingent payment.

 

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

 

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

 

We will continue to explore the divestiture of certain assets as we focusour portfolio on areas we believe offer the best potential for growth.

 

*Credit Facility Amendment andCredit Facility and Second Priority Secured and Floating Rate Notes Repayment*

 

Inconnection, with the sale of the Portfolio Group, Communications repaid theremaining $25 million outstanding term debt under Communications creditfacility. They 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 saleof the Portfolio Group constitutes an asset sale as defined underCommunications’ 10.75% Second Priority Senior Secured Notes indenture (the “fixedrate notes”). The indenture requires that Communications use the remaining netproceeds (after repayment of the Credit Facility borrowings) to invest in Communications’business 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 to purchaseup to $140 million of the second lien notes. Holders of $8.7 million principalamount of the fixed rate notes tendered their notes for purchase, and Communicationspurchased all such notes.

 

26

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Also inJune 2005, Communications completed a cash tender offer for any and all of itsoutstanding Second Priority Senior Secured Floating Rate Notes due 2008 (the “floatingrate notes”). Holders of $117.8 million aggregate outstanding principal amountof the floating rate notes tendered their notes for purchase, and Communicationspurchased all such notes at a price equal to 107.3% (including a 3% consentfee) of outstanding principal plus accrued interest. In connection with thetender offer, Communications received consents to proposed amendments to theindenture governing the notes, resulting in the elimination of substantiallyall of the restrictive covenants and certain default provisions with respect tothe floating rate notes.

 

Any net proceeds from the sale of the Portfolio Group notused to reinvest in the business or to purchase second lien notes within oneyear after closing of the sale will be required to be used to offer torepurchase the subordinated notes and then the discount notes pursuant to thoseindentures. After the net sale proceeds were used to repay the Credit Facilityborrowings and purchase the fixed rate and floating rate notes under the offerto purchase and tender offers, Communications had net proceeds of approximately$13.4 million remaining, all of which was used in 2005 for acquisitions.

 

*Private Placement of SecondPriority Senior Secured Notes and Refinancing of Credit Facility*

 

In August 2003, Communications amended its Credit Facility to permitthe issuance of $360.0 million of second priority senior secured notes andthe use of the proceeds thereof, eliminate the leverage ratio covenant, amendcertain other covenants contained in the Credit Facility and reduce therevolving loan commitments thereunder from $80 million to $60 million.Communications recorded an expense of $11.3 million in the third quarterof 2003 to reflect the write-off of deferred financing costs related to theterm loans, which were repaid with the proceeds of the offering. Communicationsinterest expense and cash interest is higher as a result of this refinancing. Inaddition, Communications reclassified $1.8 million of deferred lossesrelated to its interest rate collar and swap agreements previously reported asa component of accumulated other comprehensive income into other expenses inthe third quarter of 2003.

 

In September 2003, Communications issued $70 million of secondpriority senior secured notes and used the net proceeds to repay approximately$12 million of outstanding borrowings under its revolving Credit Facilityand to purchase short-term investments pending completion of the Thomsonacquisition. On October 1, 2003, Communications used $136.5 millionin cash, including $56 million of the net proceeds of the second prioritysenior secured notes, to finance the Thomson acquisition.

 

**Sourcesof Revenue**

 

*Shows and Conferences*

 

The shows and conferences segment derives revenue principally from thesale of exhibit space and conference attendance fees generated at our events. In2005, 80% of our shows andconferences revenue was from the sale of exhibit space. Events are generallyheld in major metropolitan or convention areas such as New York City and LasVegas. The sale of exhibit space is generally impacted by the ongoing qualityand quantity of attendance, venue selection and availability, industry cycleand general market conditions. Revenue and related direct event expenses arerecognized in the month in which the event is held. An event is billed and cashis collected in advance and is recorded on our consolidated balance sheet asdeferred revenue until the event has been held.

 

*Publications*

 

The publications segment derives revenue principally from the sale ofadvertising in our trade magazines. Additionally, certain publications deriverevenue from paid subscriptions and custom publishing and projects. Paidsubscriptions comprise approximately 6%of total publishing revenue in 2005. Most of our publications are producedmonthly with advertising sold on either a scheduled or single insertion basis. Thesale of advertising is

 

27

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generallyimpacted by new product releases, circulation quality, readership, and generalmarket conditions. Advertising revenue is recognized on the publication issuedate, and subscription revenue, if any, is recognized over the subscriptionperiod. Custom project contract revenue with both conference and print elementsare deferred and not recognized until all elements are delivered. Customeradvances are recorded when cash is received in anticipation of futureadvertising unrelated to a specific publication issue.

 

*Direct Marketing Products and Other*

 

The direct marketing products and other segment derives its revenue fromthe sale of value-added marketing products such as print and internet basedclassified advertising, direct mail services, reprints, database marketing,directories, guides, reference books and electronic based products. Theseproducts complement and utilize the content or databases generated by ourshows, conferences and publications. The sale of these products is generallyimpacted by the success of the event or publication from which these productsare derived, the quality of the sales team and general market conditions. Revenueis generally recognized when the applicable product is shipped or otherwisedelivered.

 

**Components of Expenses**

 

*Shows and Conferences*

 

Costs incurred by the shows and conferences segment include facility rent,attendee and 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***

 

Costs incurred by the publications segment include printing, paper andpostage; selling and promotion; editorial and prepress; and circulationacquisition and fulfillment. Additionally, publisher and sales staff costs, andproduction, editorial and circulation staff costs, with related payroll taxesand benefits, are charged to the publications segment. We outsource the actualprinting of our publications. Printing, paper and postage costs are charged tooperations at the time of publication issuance. All other direct costs arecharged to operations when incurred.

 

***Direct Marketing Products and Other***

 

Costs of the direct marketing products and other segment include printingand distribution costs, database administration fees and selling and productdevelopment staff costs. All direct costs are expensed when incurred.

** **

**Significant Accounting Policies and Estimates**

 

The discussion and analysis of our financial condition and results ofoperations are based upon our consolidated financial statements, which havebeen prepared in accordance with accounting principles generally accepted inthe United States of America. The preparation of these financial statementsrequires management to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenue and expenses. On an ongoing basis, weevaluate these estimates, including those related to bad debts, restructuringand medical claims accruals, realizability of intangible assets andrecoverability of deferred income tax assets. We base these estimates onhistorical experience and on various other assumptions that are believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions.

 

28

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We apply the following critical accounting policies in the preparation ofour consolidated financial statements:

 

*Revenue Recognition*

 

Revenue is recognized as discussed in the “Sources of Revenue” sectionabove. The balance of deferred revenue at December 31, 2005 was $35.7 millionfor shows and $10.7 million for publications. On a relative basis, our deferredrevenue reaches its highest levels during the second and fourth quarters of theyear largely due to the timing of the MAGICtradeshows and our other large shows and conferences.

 

*Allowance for Doubtful Accounts*

 

We maintain an allowance for doubtful accounts for estimated lossesresulting from the inability of our customers to make required payments. Thebalance of the allowance for doubtful accounts at December 31, 2005 and 2004was $1.1 million and $0.8 million. If the financial condition of ourcustomers were to deteriorate, resulting in an impairment of their ability tomake payments, additional allowances may be required.

 

The allowance for doubtful accounts is an estimate based on specificallyidentified accounts as well as non-specific identification reserves based on our historicalexperience. We evaluate specificaccounts where we have information that the customer may have an inability tomeet its financial obligations. In these cases, management uses judgment, basedon the best available facts and circumstances, to determine if a specificreserve for that customer’s receivable is warranted.  These specific reserves are reevaluated andadjusted as additional information is received that impacts the amountreserved. We also establish a non-specific identification reserve for allcustomers based on historical percentages applied to customer balancesdepending on the age of the amount due. This percentage is based on historicalcollection and write-off experience and varies by geographic region. Ifcircumstances change, our estimates of the recoverability of amounts due uscould be reduced or increased by a material amount. Such a change in estimatedrecoverability would be accounted for in the period in which the facts thatgive rise to the change become known.

 

*Deferred Taxes*

 

Pursuant to the requirements of SFAS No. 109, we record a valuationallowance to reduce our deferred tax assets to the amount that we determine ismore likely than not to be realized. At December 31, 2005, we have recorded avaluation allowance to offset the deferred tax benefit associated with all ofour U.S. and foreign net operating loss carryforwards because the realizationof these benefits is not considered likely based upon our history of notgenerating taxable income to utilize these tax benefits. We have consideredfuture taxable income and ongoing prudent and feasible tax planning strategiesin assessing the need for the valuation allowance. In the event we were tosubsequently determine that we would be able to realize our deferred tax assetsin excess of our net recorded amount, a reduction in the valuation allowancewould result in an income tax benefit and would increase net income or reducenet loss in the period such determination was made. In addition to the deferredtax assets, which are fully reserved, we have established a deferred taxliability based upon the excess of the carrying value of our goodwill forfinancial reporting purposes over the tax basis of this goodwill. We establishthis liability because we do not amortize goodwill for financial reportingpurposes but we do amortize goodwill for tax reporting purposes.

 

*Amortization of Intangible Assets*

 

Intangible assets related to trade exhibitor and advertiser lists areamortized using a double-declining balance method over 6 years and5 years, respectively. Intangible assets related to tradenames andtrademarks are amortized using a straight-line method over 20 years. Intangibleassets related to subscriber lists and other intangible assets are amortizedusing a straight-line method over 3 to 10 years. We amortize intangibleassets on a basis which corresponds to our projections of future cash flowsdirectly related to these intangible assets. A

 

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changein circumstances could result in a determination that asset lives should bechanged or that the related assets are impaired and impairment charges toreduce the carrying value of intangible assets may be necessary. The effect ofany changes in useful lives or a determination that the carrying value of anintangible asset is impaired would be accounted for in the period that suchdetermination was made.

 

*Impairment of Long-Lived Assets*

 

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

 

In accordance with the provisions of SFAS No. 142, we evaluategoodwill for impairment using a two-step test based upon a fair value approach.The first step is used to identify a potential impairment by comparing thecarrying value of the net assets of each reporting unit to an estimate of the fairvalue of each of our reporting units (as defined by SFAS No. 142), whilethe second step calculates the amount of impairment, if any. Additionally,goodwill will be tested for impairment between annual tests if an event occursor circumstances change that would more likely than not reduce the fair valueof an 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.

 

**Results of Operations**

 

2005 COMPARED TO 2004

 

*Revenue*

 

Total revenue increased $17.8 million, or 6.6%, to $288.9 million in 2005from $271.1 million in 2004.

 

**Revenue from shows and conferencesincreased $15.2 million, or 14.1%, to $122.2 million in 2005 from $107.1million in 2004. Our MAGIC Marketplace events increased revenue by $9.6 millionor 13.9% and square footage increased by 7.1% over 2004 due to development ofnew trend areas, the continued expansion of our Sourcing Zone initiative, andthe acquisitions of POOL and Project in 2005. Our licensing events in the U.Sand U.K. increased revenue by $0.9 million or 11.4% over 2004**due to increase in square footage and price per squarefoot. Revenue from the powersports sector increased $2.4 million or 12.5% over2004 due to new category initiatives, product launches and selectedacquisitions. We developed new initiatives for American Made motorcycleproducts in our IMS motorcycle consumer events and the Big Twin West tradeshowexpanding sales in this category significantly. Dealer Expo increased revenuethrough price increases and expansion of international exhibitors. The launchof the Off-Road Impact tradeshow and conferences, which complemented the 2004launches of *DIRTsports* and *Off-Road Business* magazines and theacquisition of the Off-Road Expo, generated $1.3 million of revenue in 2005.Revenue from our IVT conferences increased $1.6 million or32.1% over 2004 due to the launchof 18 new conference tracks to address emerging topics of interest in the FDAdrug validation process. We also launched a new dental conference, DigitalRadiography Congress, in 2005 and stopped holding three small shows andconferences in the powersports and pharmaceutical markets in 2005 compared to2004.

 

Revenue from publications was essentially even with 2004, declining $0.2million, or 0.1%, to $148.2 million in 2005 from $148.4 million in 2004 duelargely to a $4.3 million decline in healthcare custom projects.

 

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Projects have a significant lead time from proposal tocompletion. The revenue decline reflects the impact on the 2005 sales cycle ofmarketing and fulfillment problems we experienced in 2004 and the restructuringof our operations, including healthcare properties and management in the firsthalf of 2005. Revenue from our remaining publishing products increased 3.2%over 2004, with the pace of growth increasing significantly in the fourthquarter. This was driven by strong revenue gains in specialty care healthcare,dental and powersports/automotive publications, offset by a decline in ourveterinary, licensing and nursing publications. We launched or continued todevelop eight new publications,including *DIRTsports,**Off-RoadBusiness*, 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. Overall advertising pages increased 2.9% for the year dueto gains in our dental, pharmaceutical, science, specialty healthcare,powersports and automotive publications and the eight launch publications. Offsettingthese gains were declines in our license, veterinary and certain primaryhealthcare publications revenue.

 

Revenue from direct marketing products and otherincreased $2.9 million, or 18.6%, to $18.5 million in 2005 from $15.6 millionin 2004. This increase isprimarily due to increased internet sales.

 

*Cost of production and selling*

 

Cost of production and selling expense increased $10.5 million, or 6.7%,to $168.7 million in 2005 from $158.2 million in 2004.

 

Expenses of shows and conferences increased $10.5 million, or 23.6%, to $55.0million in 2005 from $44.5 million in 2004. Staffing and other direct costs tosupport our launch of the Off-Road Impact tradeshow and conference, our newlylaunched IVT and dental conferences and our acquisitions of POOL and Projectcontributed approximately $5.7 million of this increase. Expenses alsoincreased due to growth of square footage from our fashion, license, andpowersports markets and strategic investments made across our market sectorsand product lines. We invested in new product areas in the MAGIC Marketplaceevents, IMS and Dealer Expo and in a significant expansion of the IVTconferences. There were no significant increases in venue pricing during theyear.

 

Expenses of publications declined $0.9 million, or 0.9%, to $101.6 millionin 2005 from $102.5 million in 2004. This decrease is primarily attributable tocost savings associated with the restructuring of certain aspects of our operations,including healthcare publications, and decline in healthcare custom projects.These cost reductions were partially offset by investments in the eightproperties launched in 2005 as described above, as well as investments toactively develop our CME, special projects and electronic offerings in thehealthcare sector. Paper prices are expected to increase 5% to 10% in 2006. Weexpect our postage costs to decrease in 2006 as we begin utilizing co-mailingstrategies to take advantage of additional postal discounts.

 

Expenses of direct marketing products and otherincreased $0.9 million, or 8.4%, to $12.1 million in 2005 from $11.2 million in2004 due to related growth in revenue.

 

*General and administrative*

 

General and administrative expense increased $0.3 million, or 0.8%, to $41.7million in 2005 from $41.3 million in 2004. The increase is due to anincrease in earned incentives of $3.7 million and foreign currency fluctuationsof $0.9 million. These increases were partially offset by a reduction in theIVT contingent compensation accrual in 2005 over amounts in 2004 by $0.9million, and a reduction in costs due to restructuring activities as discussedbelow.

 

*Restructuring charge*

 

InMay 2005, we ceased use of certain leased office space in New York, NY,Milford, CT, Santa Ana, CA, and Chicago, IL related to the sale of thePortfolio Group (see – “Recent Developments”). These office consolidationactivities 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.

 

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During2005, we notified 120 employees that they would be severed from the Company inconnection with the sale of the Portfolio Group and the reorganization of ourhealthcare and support department management team restructuring of ouroperations. As a result, we took a $2.3 million charge to operations during the year ended December 31, 2005. As of December 31, 2005, 116 employees havebeen terminated. Severance payments will continue into 2006.

 

In March 2001, we announced plans to more tightlyfocus the activities of our wholly owned subsidiary Advanstar.com, Inc.(Advanstar.com). These plans had the effect of more closely integrating many ofthe sales, marketing, technology and operating functions of Advanstar.com withCommunications and its core activities in publishing, tradeshows and direct marketingproducts and other. Therestructuring activities were completed by the end of 2001, except for facilitylease costs which were to continue through June 2010. In April 2004, we settledthe remaining facility lease commitment for a total of $1.9 million, resultingin an offset to operating expense of $4.0 million as we released the remainingaccrual. The buyout will save approximately $5.0 million in future leasepayments through June 2010.

 

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. InDecember 2003, we consolidated our Chester, U.K. leased office space andvacated two of our four floors, resulting in a fourth quarter 2003 charge ofapproximately $0.6 million. These activities included a charge for the presentvalue of future rental payments, net of sublease income, of $2.3 million,and other relocation costs and expenses of $0.4 million. We will continueto pay facility lease costs, net of sublease income, associated with thepreviously 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 |   |
| Advanstar.com lease settlement                 |       | —     |       | (4,015     | )          | —     |       |
| Employee severance and other termination costs |       | 2,272      |       | —     |       | —     |       |
| Restructuring charge                           |       | $          | 4,771      |       | $          | (4,015     | )          | $ | 2,692 |   |

 

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The summary of the Company’s change in restructuring accruals is asfollows (in thousands):

 
| **(in  thousands of dollars)**             | ** ** | **Facility Exit  Costs** | ** ** | **Employee  Severance** | ** ** | **Total**  | ** ** |
|--------------------------------------------|------------|--------------------------|------------|-------------------------|------------|------------|------------|
| ** **                                 | ** ** | ** **               | ** ** | ** **              | ** ** | ** ** | ** ** |
| **Balance at December 31, 2003** |       | $                        | 8,565      |                    | $          | —     |       | $ | 8,565 |   |
| Restructuring charge                       |       | —                   |       | —                  |       | —     |       |
| Utilized-cash                              |       | (2,571                   | )          | —                  |       | (2,571     | )          |
| Utilized-non-cash                          |       | (4,167                   | )          | —                  |       | (4,167     | )          |
| **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 betaken in 2006 as we vacate additional office space pursuant to our officeconsolidation and restructuring plan.

 

*Depreciation and amortization*

 

Depreciation and amortizationexpense declined $5.3 million to $37.8 million in 2005 from $43.1 million in2004 primarily due to the effect of the double declining balance method ofaccelerated amortization on our exhibitor and advertiser lists partially offsetby additional amortization expense related to the businesses acquired in 2005.

 

# ***Interest expense***

 

Interest expense decreased $4.2million, or 4.5%, to $88.1 million in 2005 from $92.2 million in 2004 primarilydue to a decrease of $70.2 million in our weighted-average debt outstanding duringthe year. We repaid $20.4 million of Communications’ term loans, $8.7 millionof Communications’ fixed rate notes, and $117.8 million of Communications’floating 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 further information.

 

At December 31, 2005, $610.0million, or 98% of our total debt is at a fixed rate with the balance of ourdebt subject to interest rate fluctuations. We currently have no plans to hedge our interest expense related to ourremaining floating or fixed rate debt.

 

# ***Interest income***

 

Interest income increased to $1.5million in 2005 from $0.5 million in 2004 due to an increase in our averagecash balance in 2005 compared to 2004.

 

*Loss on extinguishment of debt*

 

Communications incurred $12.6 million in costs related to the repurchaseof Communications’ fixed rate notes and floating rate notes in June 2005. Thesecosts include $8.6 million in tender offer premium and consent fees, the writeoff of $3.5 million in unamortized deferred financing costs, and $0.5 millionin legal fees and expenses. See “Presentation of Financial Information– CreditFacility Amendment and Credit Facility and Second Priority Secured and FloatingRate Notes Repayment.”

 

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*Other income (expense), net*

 

Other income decreased $0.7 million to $0.1 million in 2005 from $0.9million in 2004. This decrease is attributable to gains associated with ourinterest rate protection agreement, which expired in February 2004.

 

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

 

The benefit for income taxes was $9.5 million in 2005 compared to a $6.3million provision in 2004. The 2005 and 2004 tax benefit/provision includes atax benefit representing the tax benefit provided by losses from continuingoperations to the extent that such losses offset the income from discontinuedoperations. This tax benefit is offset by a tax provision included indiscontinued operations. This tax benefit in continuing operations is offset bya basis difference 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 2005 and 2004 because we haveestablished a valuation allowance to offset any related tax benefits, due touncertainty about realization of these benefits.

 

# ***Discontinued operations***

 

In December 2005, we soldour Arenacross Championship Series for a total selling price of $0.2 million. Theloss on the sale of $0.4 million was recorded in December 2005.

 

In the second quarter of2005, our last remaining East Coast Fashion event was closed and a $2.3 millionimpairment charge for the remaining carrying value of the intangible assets ofthis business was recorded.

 

In May and July 2005,Advanstar sold certain businesses to Questex for net cash of $173.8 million. Again of $52.9 million on the sale of these assets was recorded in the secondquarter of 2005.

 

Properties sold in 2004included Art, Post, SeCA, and DMS for an aggregate of $24.3 million in cash.Total gain on sale of these businesses was $2.1 million, after tax effect. Theaggregate goodwill impairment charge recorded in 2004 relating to these assetswas $15.6 million.

 

Seefurther information regarding divestitures included in dscontinued operationsin “–Presentation of Financial Information–Acquisitions and Divestitures.”

 

2004 COMPARED TO 2003

 

# ***Revenue***

 

Total revenue increased $79.5 million, or 41.5%, to $271.1 million in 2004from $191.5 million in 2003.

 

Revenue from shows and conferences increased $16.9million, or 18.7%, to $107.1 million in 2004 from $90.2 million in 2003. OurMAGIC event grew by more than 138,000 square feet or 8.4% over 2003 and revenueincreased approximately 8.2% over 2003. The MAGIC events were successfullycombined into a single venue, the Las Vegas Convention Center, beginning withthe August 2004 event. The concentration and proximity of the various fashionsectors contributed to increased attendance and exhibitor interest andparticipation in MAGIC. Powersports events’ revenue increased approximately14.7% over 2003 with the 15th year of growth in Dealer Expo, solidperformance from the IMS Tour series of consumer events and the launch of awest coast event for the v-twin market segment. Revenue also increasedapproximately $7.3 million due to acquisitions of the Central VeterinaryConference in October 2003, and the IVT pharmaceutical conferences in March2004. Strong performances also came from our shows serving the licensingmarkets. Additionally, we launched three new

 

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events in the pharmaceutical and licensing sectors. Theincrease in revenue was partially offset by the sale of certain U.K. events inDecember 2003.

 

Revenue from publications increased $59.1 million, or 66.2%, to $148.4million in 2004 from $89.3 million in 2003. Approximately $55.0million, 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 theyear, primarily due to the properties acquired from Thomson.Advertising pages remained stable from 2003 to 2004 for allpublications other than those acquired or sold.

 

Revenue from direct marketing products and other increased$3.6 million, or 29.8%, to $15.6 million in 2004 from $12.0 million in 2003primarily due to higher levels of classified and recruitment advertising andstrong list sales and reprints, primarily from the acquisition of propertiesfrom Thomson.

 

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

 

Cost of production and selling expenses increased $53.1 million, or 50.6%,to $158.2 million in 2004 from $105.1 million in 2003.

 

Expenses of shows and conferences increased $7.4 million, or 19.9%, to$44.5 million in 2004 from $37.1 million in 2003. Expenses increased $6.5million due to the acquired healthcare conferences, the IVT acquisition, andproduct launches. These increases were partially offset by the sale of certain U.K.events in December 2003, as discussed above. There were no significantincreases in venue pricing during the year.

 

Expenses of publications increased $44.3 million, or 76.2%, to $102.5million in 2004 from $58.2 million in 2003. This increase is primarilyattributable to additional costs of $41.6 million associated with ouracquisition of the Thomson healthcare properties. The increase in expenses waspartially offset by the cost savings from the sale of certain U.K. propertiesin December 2003. Printing prices increased slightly from 2003.

 

Expenses of direct marketing products and otherincreased $1.4 million, or 14.2%, to $11.2 million in 2004 from $9.8 million in2003 due to related growth in revenue.

 

# ***General and administrative expenses***

 

General and administrative expenses increased $9.8 million, or 30.9%, to$41.3 million in 2004 from $31.6 million in 2003. The increase reflectshigher administrative costs relating to the acquisition of properties fromThomson and related investments in the management team in the healthcare group,as well as a $1.5 million employee compensation payment related to the IVTacquisition, increased employee healthcare costs, expenses relating toSarbanes-Oxley compliance and implementation and consulting costs related tostrategic management and marketing initiatives.

 

# ***Restructuring charge***

 

Seeinformation regarding restructuring activities in “-Results of Operations-2005 Compared to2004-Restructure charge.”

 

# ***Depreciation and amortization***

 

Depreciation and amortizationexpense declined approximately $3.0 million to $43.1 million in 2004 from $46.1million in 2003 primarily due to the effect of the double declining balancemethod of accelerated

 

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amortization on our exhibitor and advertiser listspartially offset by additional amortization expense related to the assetsacquired in the acquisitions of the healthcare properties from Thomson and thepharmaceutical publications from IVT.

 

# ***Interest expense***

 

Interest expense increased $15.1 million, or 19.5%, to $92.2 million in2004 from $77.2 million in 2003 due to an increase in our weighted-average debtoutstanding of approximately $65.7 million, as a result of Communications’issuance of $360 million of Senior Secured Notes in August 2003 and $70 millionSenior Secured Notes in September 2003. The increase was offset by a decreasein our debt outstanding under the Credit Facility due to the repayment inAugust 2003 of all but $25 million of the outstanding term B loans and aportion of our revolving credit borrowings under Communications’ CreditFacility. See “Presentation of Financial Information–Private Placement of Second Priority Senior Secured Notes andRefinancing of Credit Facility.”

 

*Write-off of deferred financingcosts*

 

We recorded an expense of $11.3 million in the third quarter of 2003 toreflect the write-off of deferred financing costs related to the term loanswhich were repaid with the proceeds of the August Senior Secured Notes offeringand the reduction in the revolving loan commitment. See “Presentation of FinancialInformation–Private Placement of Second Priority Senior Secured Notes andRefinancing of Credit Facility.”

 

*Other income (expense), net*

 

Other income decreased $0.1 millionto $0.8 million in 2004 from $0.9 million in 2003. This increase is attributableto gains associated with our interest rate protection agreement, which expiredin February 2004, and foreign currency translation gains.

 

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

 

The provision for income taxes was$6.3 million in 2004 compared to a benefit of $6.9 million in 2003. The 2004and 2003 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 2004 and 2003 because we have established a valuationallowance to offset any related tax benefits, due to uncertainty aboutrealization of these benefits.

 

# ***Discontinued operations***

 

See information regarding discontinued operations in “–Presentation ofFinancial Information- Acquisitions, and Divestitures.”

 

**Liquidity and Capital Resources**

 

The following discussion presents our liquidity andcapital resources on a consolidated basis, including our subsidiaries.

 

We are a holding company and have no direct material operations. Ourprincipal assets are our ownership of Communications, and Advanstar.com, and ouronly material liabilities are the senior discounts notes and our guarantee ofthe Communications credit facility. Our principal liquidity needs are for debtservice on the senior discount notes.

 

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Communications’ principal cash needs are for debtservice, capital expenditures and selective acquisitions, as well as to provideus with cash to finance our cash needs. Its principal sources of liquidity willbe cash flow from operations and borrowings under its credit facility.

 

*Sources and uses of funds*

 

We generally operate with negative working capital, excluding cash andcurrent maturities of long-term debt, due to the impact of deferred revenuefrom shows, which is billed and collected as deposits up to one year in advanceof the respective show.

 

Operating cash 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.

 

We anticipate that our operating cash flow, together with borrowings underthe credit facility (assuming continued compliance with the covenants containedtherein or a modification thereof and that it is extended or replaced prior toApril 2007, when it matures) and other future financings and refinancings, willbe sufficient to fund our anticipated future operating expenses, capitalexpenditures, debt service and other obligations as they become due. However,our ability to make scheduled payments of principal, to pay interest on or torefinance our indebtedness and to satisfy our other debt obligations willdepend upon our future operating performance, 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 primarilythrough cash generated by operating activities and borrowings under Communications’revolving credit facility. From time to time, we have also raised additionalfunds through sales of common stock, high yield offerings and term borrowingsunder Communications’ credit facility for purposes of completing selectiveacquisitions.

 

As of December 31, 2005, we had cash and cash equivalents of $46.6 millionand also had $58.9 million in availability under Communications’ revolvingcredit facility. The following table shows our cash flow activity for 2005,2004 and 2003, and should be read in conjunction with the consolidatedstatements of cash flows:

 
| **(in  thousands of dollars)**                      | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                |       |     |       |     |       |     |       |
| Net cash provided by operating activities      |       | $        | 8,235      |     | $          | 18,550   |       | $ | 46,525 |   |
| Net cash provided by (used in) investing activities |       | 148,959  |       | 4,996    |       | (145,655 | )          |
| 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          |       | $        | 5,313      |     | $          | 11,607   |       | $ | 10,699 |   |

 

*Cash flows from operating activities*

 

Net cash provided by operations decreased $10.3 million to $8.2 millionin 2005 compared to $18.6 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 withrestructuring activities, and the reduction in cash flow attributable to discontinuedoperations. During 2005, net cashprovided by discontinued operations was $1.7 million, which representsapproximately 20.6% of total n et cash provided by operations. The declines discussedabove were partially offset by a $6.8 million reduction in cash interestpayments and a $3.5 million increase in operating income in 2005 compared to2004. 

 

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Net cash provided by operations decreased$28.0 million to $18.6 million in 2004 compared to $46.5 million in2003. This decline was principally due to an increase in interest expense of$16.1 million and a reduction in our negative working capital due to the saleof our art industry tradeshow and publications in the first quarter of 2004. Inaddition, we collected less cash in the fourth quarter of 2004, which wascollected subsequently in 2005, related to tradeshows held in the first fivemonths of 2005. The decline was also attributable to changes in the timing ofour payments of accounts payable in 2004. These declines were partially offsetby an increase in operating income of $18.2 million in 2004 compared to 2003.

 

*Cash flows from investing activities*

 

Net cash provided by investing activities increased $144.0 million to $149.0 million in 2005, from $5.0 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 foracquisitions of Off-Road Expo, POOL, Project and two other small acquisitionsin 2005, partially offset by $7.9 million in cash used for the acquisition ofIVT in 2004. Our businessstrategy includes the consummation of selective acquisitions. In connectionwith any future acquisitions, we may require additional funding, which may beprovided in the form of additional debt or equity financing or a combinationthereof. There can be no assurance 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.

 

Net cash used in investing activities decreased $150.7 million to $5.0 million provided by investingactivities in 2004, from $145.7 million used in 2003. This decrease wasprincipally due to the acquisitions of the healthcare properties fromThomson for $136.5 million in 2003, the sale in 2004 of our art shows and magazinesand our European call center and document management shows for a total salesprice of $24.4 million in cash proceeds, partially offset by $7.9 million incash used for the acquisition of IVT in 2004.

 

We incurred capital expenses of $9.6 million, $9.6 million, and $7.9million in 2005, 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.

 

*Cash flows from financing activities*

 

Netcash flows used in financing activities were $152.6 million in 2005 compared to$12.5 million in 2004. In 2005, we repaid $20.4 million of Communications’ termloans, $8.7 million of Communications’ fixed rate notes, and $117.8 million ofCommunications’ floating rate notes in the second quarter of 2005 with the proceedsfrom the sale of the Portfolio Group. We incurred $12.6 million in costsrelated to the repayment. These costs include $8.6 million in tender offerpremium and consent fees, the write off of $3.5 million in unamortized deferredfinancing costs, and $0.5 million in legal fees and expenses. We repaid $11.7million of debt in 2004, including $8.0 million on Communications’ revolvingcredit facility.

 

Net cash flows used in financing activities were $12.5 million in 2004compared to cash provided by financing activities in 2003 of $110.2 million. Werepaid $11.7 million of debt in 2004, including $8.0 million on Communications’revolving credit facility. In 2003, we issued $430.0 million principal amountof the Senior Secured Notes and received $60.0 million in equity contributionsfrom our parent company. We used the proceeds from these issuances to repay andterminate all outstanding term A loans and $12.0 million of outstandingborrowings under Communications’ revolving credit facility, and paid fees of$12.3 million in connection with the offering. We also paid fees

 

38

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of$3.9 million to our senior lenders for an amendment to Communications’ creditfacility in April 2003.

 

*Debt service*

 

As ofDecember 31, 2005, we had total indebtedness of $620.6 million and $58.9million of borrowings available under Communications’ credit facility,subject to customary conditions.

 

*Credit facility*

 

Communications’ Credit Facility consists of a $60.0 million revolvingcredit facility, which will terminate in April 2007. Borrowings under thecredit facility generally bear interest based on a margin over, at Communications’option, the base rate or LIBOR. The applicable margin for revolving creditloans varies based upon Communications’ ratio of consolidated debt to EBITDA,as defined in the credit facility, and is currently 3.75% over LIBOR and 2.50%over the base rate. Communications’ obligations under the credit facility areguaranteed by Advanstar Holdings Corp. (“Advanstar Holdings” or “Holdings”),our parent company, us, Communications, and all Communications’ existing andfuture domestic subsidiaries. Communications’ obligations under the creditfacility are collateralized by substantially all of the assets of Communicationsand the subsidiary guarantors, including a pledge of the capital stock of all Communicationsexisting and future domestic subsidiaries, a pledge of no more than 65% of thevoting stock of any foreign subsidiary directly owned by Communications or anydomestic subsidiary, a pledge of all intercompany indebtedness in favor ofCommunications and Communications domestic subsidiaries, a pledge of Communications,and Advanstar IH, Inc’s capital stock held by us and a pledge of our capitalstock held by Advanstar Holdings. The Credit Facility contains restrictivecovenants, which require Communications to, among other things, maintain aminimum fixed charge coverage ratio (as defined in the credit facilitydocuments) as of the end of each fiscal quarter. 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.

 

*Second priority senior secured notes*

 

Communications’ $9.9 million of floating rate notes mature in 2008. Thefloating rate notes bear interest at an annual rate equal to the three-monthLIBOR, which is reset quarterly, plus 7.50%. Interest on the floating ratenotes, along with amortization of 0.25% of the principal of such floating ratenotes, is payable quarterly in cash. In June 2005, holders of $117.8 million aggregateoutstanding principal amount of the floating rate notes tendered their notesfor purchase, and Communications purchased all such notes at a price equal to107.3% (including a 3% consent fee) of principal plus accrued interest. Inconnection with the tender offer,Communications and the trustee entered into a supplemental indenture thateliminated substantially all of the restrictive and reporting covenants,certain events of default and certain other provisions with respect to thefloating rate notes and released the floating rate notes’ lien on thecollateral under the indenture. The fixed rate notes remain secured by thecollateral and subject to the restrictive covenants in the indenture. See “Presentationof Financial Information– PrivatePlacement of Second Priority Senior Secured Notes and Refinancing of CreditFacility.”

 

Communications’ $292.0 million of fixed rate notes mature in 2010. Thenotes are guaranteed by each of Communications’ existing and future domesticrestricted subsidiaries and collateralized by second-priority liens on theassets collateralizing Communications’ credit facility (other than certainsubsidiary stock and assets of its parent companies). The fixed rate notes bearinterest at an annual rate of 10.75%, which is payable semi-annually in cash. Thenotes contain restrictive covenants that, among other things, limitCommunications’ ability to incur debt, pay dividends and make investments. In June 2005, holders of$8.7 million principal amount of the fixed rate notes tendered their notes forpurchase, and Communications purchased all such notes. See “Presentation of Financial Information– Private Placement of Second Priority SeniorSecured Notes and Refinancing of Credit Facility.”

 

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*Senior subordinated notes*

 

Communications’ $160 million 12% senior subordinated notes mature in2011 and are guaranteed by each of Communications’ existing and future domesticrestricted subsidiaries. Interest on the notes is payable semi-annually incash. The notes contain restrictive covenants that, among other things, limitCommunications’ ability to incur debt, pay dividends and make investments.

 

*Senior discount notes*

 

As part of the financing for the acquisition of substantially all of thecommon stock of Holdings, our parent company, by certain DLJ Merchant Bankingfunds in October 2000, we issued senior discount notes due October 2011with a principal amount at maturity of $103.2 million. Concurrently withthe closing of the offering of Communications’ 12% senior subordinated notes,we sold additional senior discount notes due October 2011 with an additionalaggregate principal amount at maturity of $68.6 million. These notes donot require cash interest payments until April 2006 and contain restrictivecovenants that, among other things, limit our ability and that of oursubsidiaries to incur debt, pay dividends and make investments. However, we area holding company and our ability to pay interest on these notes will bedependent upon the receipt of dividends from our subsidiaries. Communications’credit facility, the senior subordinated notes and second priority seniorsecured notes impose substantial restrictions on our subsidiaries’ ability topay dividends.

 

The restricted payments covenants in Communications’ senior secured notesindenture and senior subordinated notes indenture provide that Communicationscan pay dividends only if its leverage ratio (as defined) is 6.0 to 1.0 orbetter and only from a basket equal to the amount by which its cumulativeEBITDA (as defined) since January 1, 2001 exceeds 150% of its cumulativeinterest expense in that same period plus other items, including proceeds fromequity offerings. In addition to such basket and notwithstanding the leverageratio limitation on restricted payments, Communications can make additionalrestricted payments in an aggregate amount of up to $20 million tous.  As of December 31, 2005 Communications’ leverage ratio under themost restrictive of these indentures was 5.96 to 1.0.  In March 2006,Communications declared and paid a dividend of $12.9 million to us to be usedfor servicing our debt obligations

 

We expect Communications’ results will allow it to continue to makedividend payments to us for purposes of debt service. However, Communications’results are subject to a variety of factors, including general economicconditions and conditions in its markets, and we cannot assure youCommunications’ will be able to make distributions.

 

*Contractual and contingent obligations*

 

Our contractual obligations (excluding accounts payable and accruedexpenses), as of December 31, 2005 are as set forth below (in millions):

 
| ** **                          | ** ** | **Payments Due By Period** | ** ** |
|-------------------------------------|------------|----------------------------|------------|
| ** **                          | ** ** | **2006**                   | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **After  2010** | ** ** | **Total** | ** ** |
|                                |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Indebtedness                        |       | $                          | 0.2        |   | $ | 0.1 |   | $ | 9.7 |   | $ | — |   | $ | 291.3 |   | $ | 331.8 |   | $ | 633.1 |   |
| Interest on indebtedness (1)        |       | 76.9                       |       | 76.9 |   | 76.6 |   | 76.3 |   | 68.5 |   | 55.8 |   | 431.0 |   |
| Operating leases                    |       | 7.7                        |       | 6.7 |   | 6.5 |   | 4.8 |   | 2.2 |   | 4.9 |   | 32.8 |   |
|                                |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  Contractual Cash Obligations |       | $                          | 84.8       |   | $ | 83.7 |   | $ | 92.8 |   | $ | 81.1 |   | $ | 362.0 |   | $ | 392.5 |   | $ | 1,096.9 |   |
|                                     |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)                                  Interest on our variable rate debt is calculatedusing LIBOR of 4.4%, the rate in effect on December 31,

 

40

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2005. Because our variable ratedebt bears interest at a variable rate, actual payments could differ.

 

Wehave no material capital lease obligations or purchase obligations. We have contingentobligations composed of $1.1 million of letters of credit securing ourlease facilities. Additionally, as a result of acquisitions discussed above, wemay have future cash consideration payable to the former selling shareholdersbased on the acquired businesses’ future periods operating results.

 

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*Off-balance sheetarrangements.*

 

We have no material off-balance sheet arrangements.

 

**Recently Issued Accounting Standards**

 

In December 2004,the Financial Accounting Standards Board issued SFAS No. 123R, “Share-BasedPayment” which revises SFAS 123 and supersedes APB 25. This statementestablishes standards relating to accounting for transactions in which equityinstruments are exchanged for goods or services. The Company is required toadopt the provisions of this standard effective January 1, 2006. This statementrequires companies to classify their awards as either an equity award orliability award. In accordance with this standard, the Company will classifythe vested portion of the awards as a liability valued at their intrinsic valueat each reporting date. Using the intrinsic method to value liability awards,compensation expense is recorded only if the value of the Company’s shares isgreater than the option exercise amounts as of the reporting date. As ofJanuary 1, 2006, we believe the intrinsic value of vested options is zero thusno liability or expense will be recorded upon adoption.

 

**Item 7A. –*QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT**MARKET RISK***

 

We are exposed to various market risks, which are the potential lossesarising from adverse changes in market rates and prices, such as foreigncurrency exchange and interest rates. We do not enter into derivatives or otherfinancial instruments for trading or speculative purposes. We enter intofinancial instruments to manage and reduce the impact of changes in interestrates and foreign currency exchange rates.

 

**Interest Rates**

 

At December 31, 2005, we had fixed rate debt of $610.0 million andvariable rate debt of $9.9 million. A change in interest rates of 1% wouldnot be material to us.

 

**Currencies**

 

Outside of the United States, we maintain assets and operations in theUnited Kingdom. These assets and operations, and our exposure to any currencygains or losses, are not material to us.

 

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

 

Please refer to Item 15. — Exhibits and Financial Statement Schedules.

 

**Item 9. — *CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE***

 

No events have occurred which would require disclosure under this Item.

 

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

 

**Evaluation ofDisclosure Controls 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 the periodcovered by this report (the “Evaluation Date”), have concluded that as of theEvaluation Date, our disclosure controls and procedures were effective.

 

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**Changes inInternal Controls**

 

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

 

**Item 9B. — OTHER INFORMATION**

 

None.

 

**PART III**

 

**Item 10. — *DIRECTORS AND EXECUTIVEOFFICERS OF THE REGISTRANT***

 

The following table sets forth the name, age andposition of each of our executive officers, 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                                                              |

 

**ExecutiveOfficers**

 

*Joseph Loggia* has served as Chief Executive Officer since January1, 2004, and has served as our President and Director since May 2002. Prior toMay 2002, he served as President and Chief Executive Officer of MAGIC (oursubsidiary), President from August 1996, and Chief Operating Officer beginningin 1995. Prior to our acquisition of MAGIC, from January 1993 to August 1996 heserved as MAGIC’s President and Chief Executive Officer. Prior to joiningMAGIC, 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 August2004. He previously served as our Vice Chairman and Vice President fromJuly 1996 to July 2004. From June 1995 to June 1996, he was VicePresident and Controller of IBM Corporation. From September 1994 toMay 1995, he was Chairman of Reed Exhibition Companies. FromAugust 1991 to August 1994, he was President of Reed ExhibitionsNorth America.

 

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

 

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Minneapolis, Minnesota.

 

*Eric I. Lisman* has served as our Executive Vice PresidentCorporate Development since November 2001. He previously served as our GeneralCounsel from September 1998 to February 2005. From November 1997 toAugust 1998, he engaged in a private legal practice. From August 1996to July 1997, he was a Senior Vice President and General Counsel ofCahners Publishing Company. From July 1993 to July 1996, he was aVice President and General Counsel of Reed Publishing USA.

 

*Ward D. Hewins* has served as our Vice President and Chief Counselsince February 2005. From July 2000 to February 2005, Mr. Hewins was our DeputyGeneral Counsel. From March 1998 to July 2000, Mr. Hewins served as AssistantGeneral Counsel for Interactive Data Corporation. From October 1993 to March 1998 Mr. Hewins was a corporate associate and then a partner in the Boston office of Eckert Seamans Cherin& Mellott.

 

*Rick Treese* has served as our Vice President and ChiefTechnology Officer since March of 2002, a role he moved to after two years asthe CTO of Advanstar.com. Prior to Advanstar, Mr. Treese was Vice President ofTechnology at Goldman, Sachs & Company where he led the softwaredevelopment effort for the Equity Research Division.

 

**KeyEmployees**

 

*R.**Steven Morris* currently serves as Executive Vice Presidentresponsible for the Healthcare, Science and Pharmaceutical markets. Prior toJune 2005, he was Vice President of the Market Development Group. Mr. Morrisjoined Advanstar in 2004. Prior to joining Advanstar, Mr. Morris was ChiefOperating Officer for Metro International Newspapers for the Americas and Asia.

 

*Daniel M. Phillips* has served as ExecutiveVice President of our Powersports and Automotive markets since 2003. Prior tothat, he was Vice President and General Manager of Advanstar’s Technologygroups. Mr. Phillips joined Advanstar in 1996 as a group publisher of America’sNetwork, Telecom Asia and Comunicaciones magazines, and in 1998 was promoted toVice President and General Manager. Prior to joining Advanstar, Mr. Phillips wasresponsible for publications and events for EMAP (U.K.) in the area of IT &Telecommunications.

 

*Alexander S. DeBarr*has served as our Executive Vice President since June 1997 and isresponsible for the Dental and Veterinary markets, and the Market Developmentgroup. From February 1995 to May 1997, he was a Group Vice Presidentof Advanstar. Mr. DeBarr also served as a Group Publisher of Advanstarfrom February 1993 until January 1995.

 

*Georgiann DeCenzo*currently serves as Vice President responsible for the License and MarketDevelopment groups. From July 2005 to February 2006, she served as VicePresident, Marketing & Communications and was responsible for our corporatecommunications, marketing and research. Prior to July 2005, Ms. DeCenzo servedas Corporate Marketing Director. Before joining Advanstar in 1998, Ms. DeCenzoserved as Marketing Director of Penton Media’s IndustryWeek.

 

**Directors**

 

*Joseph Loggia.* See “ExecutiveOfficers.”

 

*James M. Alic.* See “ExecutiveOfficers.”

 

*OhSang Kwon* hasserved as a director since October 2000. Since July 2005, Mr. Kwon hasbeen a partner of Avista Capital Holdings, LP, a private equity firm and also aPartner of MB Advisory Partners, LLC, which has been engaged by Credit SuisseSecurity (USA), LLC to provide consulting services with respect to DLJ MerchantBanking portfolio companies. From February 2000 to June 2005, he served as aPartner, Principal, and Vice

 

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Presidentof DLJ Merchant Banking, Inc. From May 1997 to February 2000, he wasan Associate with DLJ Securities Corporation, and he became a Vice President ofDLJ Securities Corporation in February 2000. From October 1996 toMay 1997, he was an Associate at Davis Polk & Wardwell. Prior tothat, he was a law clerk for the Hon. William C. Conner in the United StatesDistrict Court for the Southern District of New York. Mr. Kwon currently serveson the board of directors of UAE Holdings Corp., MSW Energy Holdings II LLC andAmerican Ref-Fuel Company LLC.

 

*Douglas B. Fox* hasserved as a director and chairman of the audit committee sinceSeptember 2002. Mr. Fox is a private investor and consultant. Priorto his current activities, he served as Senior Vice President of Marketing andStrategy at Compaq Computer Company from 2000 to 2001 and Senior Vice Presidentof Marketing at International Paper Inc. from 1997 to 2000. He served asPresident of Landmark Communications Inc. from 1994 to 1996 and prior tothat from 1987 to 1994 he served as President and Chief 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 aDirector since August 2004. Mr. Pieper joined DLJMB and Credit Suisse Security(USA), LLC ‘s Alternative Capital Division in 2004 as an Operating Partner andis currently a Managing Director and a member of the Firm’s Management Council.Prior to joining DLJMB, he served as President and Chief Executive Officer ofGE Japan, Korea, Taiwan; GE Medical Systems Asia; Yokogawa Medical Systems; GELighting Europe and GE Trading Co; and an Operating Partner with Clayton,Dubilier & Rice. Mr. Pieper previously served as Chairman and Acting CEO ofAlliant Foodservice, Inc. and U.S. Office Products, Chairman of the Board ofFairchild Dornier Corporation, Italtel Holding S.p.A., North American VanLines, and Vice Chairman of Dynatech.

 

*JamesFinkelstein* has served as a Director since October 2004. Mr. Finkelstein has beenExecutive Chairman of Thompson Publishing Holding Co., Inc. since May 2004. Heis presently President of Marquis Who’s Who, LLC, and CEO of NewsCommunications, Inc., publisher of The Hill, the publication for Congress, andDan’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 media partner toDB Capital Partners. From 1979 to 1998 he served as CEO of the National LawPublishing Company. Mr. Finkelstein has served on the Board of Directors of theLegal Aid Society, and New York University’s Faculty of Arts and Sciences Boardof Overseers, and was awarded an Honorary Doctor of Laws degree from HofstraUniversity.

 

**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, andMr. OhSang Kwon. Our Board of Directors has carefully considered the definitionof “audit committee financial expert” adopted by the United States Securitiesand Exchange Commission and has determined that Mr. Fox is an audit committeefinancial expert. Our Board of Directors has determined that Mr. Fox is notindependent under Rule 10A-3 of the Exchange Act.

 

**Code of Ethics**

 

Wehave adopted a Code of Ethics applicable to our Chief Executive Officer andChief Financial Officer, which is compliant with Item 406 of Regulation S-K. OurCode of Ethics is posted on our website at http://www.advanstar.com. Anywaivers or amendments to our Code of Ethics that apply to our Chief ExecutiveOfficer or our Chief Financial Officer that are required to be disclosed by SECrules will be disclosed on our website within five business days following suchwaiver.

 

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**Item 11. – *EXECUTIVE COMPENSATION***

 

**Summary Compensation Table**

 

The following table presents compensation paid toour chief executive officer and the four other most highly paid executive officersin the last three fiscal years.

 
| ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** **            | ** ** | **Long-Term**    | ** ** | ** **            | ** ** |
|----------------------------------|------------|------------|------------|------------|------------|----------------|------------|-----------------------|------------|------------------|------------|-----------------------|------------|
| ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** **            | ** ** | **Compensation** | ** ** | ** **            | ** ** |
| ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** **            | ** ** | **Awards**       | ** ** | ** **            | ** ** |
| ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** **            | ** ** | **Securities**   | ** ** | ** **            | ** ** |
| ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | **Other Annual**      | ** ** | **Underlying**   | ** ** | **All Other**         | ** ** |
| **Name and Principal Position**  | ** ** | **Year**   | ** ** | **Salary** | ** ** | **Bonus  (1)** | ** ** | **Compensation  (2)** | ** ** | **Options/SARs** | ** ** | **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 Techical |       | 2004       |       | 239,731    |       | 84,000         |       | —                |       | —           |       | 6,638                 |       |
| Officer                          |       | 2003       |       | 232,692    |       | 38,165         |       | —                |       | —           |       | 6,559                 |       |
|                                  |            |            |            |            |            |                |            |                       |            |                  |            |                       |            |  |  |  |  |

 

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(1)                                  Bonuses are reported in the year earned, even thoughthey were actually paid in the subsequent year.

 

(2)                                  Includes the incremental cost of perquisites andpersonal benefits provided for by our company.

 

(3)                                  Includes value of group term life insurance premiumspaid for by our company for the benefit of the officer.

 

(4)                                  See “Employment Agreements and Arrangements” for adiscussion of Mr. Loggia’s amended employment agreement.

 

**Option Grants 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 endedDecember 31, 2005 pursuant to the 2000 Management Incentive Plan describedbelow to each of the named executive officers. We have not granted any stockappreciation rights.

 

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**Option Grants in Last Fiscal Year**

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

 

**Option Exercises and Holdings**

 

The following table sets forth, for each of theofficers named in the Summary Compensation Table, certain informationconcerning the number of shares subject to both exercisable and unexercisablestock options as of December 31, 2005. None of the unexercised optionswere “in the money” at December 31, 2005 based on a good faith estimate ofthe fair market value of the stock price by our Board of Directors.

 

**Aggregated Option Exercises in2005 and December 31, 2005 Option Values**

 
| ** **          | ** ** | ** **    | ** ** | ** **   | ** ** | **Number of Securities** | ** ** | ** **               | ** ** | ** **      | ** ** |
|---------------------|------------|---------------|------------|--------------|------------|--------------------------|------------|--------------------------|------------|-----------------|------------|
| ** **          | ** ** | **Number of** | ** ** | ** **   | ** ** | **Underlying**           | ** ** | ** **               | ** ** | ** **      | ** ** |
| ** **          | ** ** | **Shares**    | ** ** | ** **   | ** ** | **Unexercised Options**  | ** ** | **Value of Unexercised** | ** ** |
| ** **          | ** ** | **Acquired**  | ** ** | ** **   | ** ** | **at Fiscal**            | ** ** | **In-the-Money Options** | ** ** |
| ** **          | ** ** | **on**        | ** ** | **Value**    | ** ** | **Year End**             | ** ** | **at Fiscal Year End**   | ** ** |
| **Name**            | ** ** | **Exercise**  | ** ** | **Realized** | ** ** | **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 sets forth the shares issued and issuable and exerciseprice for our equity compensation plan as of December 31, 2005.

 

**Equity Compensation PlanInformation**

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

 

We do not have any equity compensation plans thatwere not approved by shareholders.

 

**Stock Option and Incentive Plans**

 

*2000Management Incentive Plan*

 

The 2000 Management Incentive Plan was adopted bythe board of Advanstar Holdings on October 11, 2000 and amended by theboard of Holdings as of September 17, 2002, December 10, 2002, and April 19,2005. The following description of the plan is intended to be a summary anddoes not describe all provisions of the plan.

 

*Purpose of the Plan.***The purpose of the plan isto attract and retain the best available key employees, non-employee directorsand consultants for Holdings and its subsidiaries and affiliates and toencourage the highest level of performance by those individuals, therebyenhancing Holdings’ value for the benefit of its stockholders.

 

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The plan is also intended to motivate such individuals by means ofperformance-related incentives to achieve longer-range performance goals andenable such individuals to participate in the long-term growth and financialsuccess of Holdings.

 

*Administration of the Plan**.*The plan will beadministered by the compensation committee or the board as a whole, if nocommittee is constituted. The compensation committee has the power, in itsdiscretion, to select the participants who will participate in the plan, togrant awards under the plan, to determine the terms of these awards, tointerpret the provisions of the plan and to take any action that it deemsnecessary or advisable for the administration of the plan.

 

*Eligibility and Participation.***Eligibility to participate in the plan is limited to key employees ofHoldings, its subsidiaries and affiliates. Participation in the plan is at thediscretion of the compensation committee and will be based upon the individual’spresent and potential contributions to Holdings’ success and such other factorsas the compensation committee deems relevant. No individual may be granted inany calendar year awards covering more than 900,000 shares of Holdings commonstock.

 

*Type of Awards Under the Plan**.*The plan provides thatthe compensation 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 of Authorized Shares**.*Holdings has authorized amaximum of 4,072,789 shares of its common stock for participants under the planduring the term of the plan, of which 3,965,000 have been granted and remainoutstanding as of December 31, 2005. In addition, the number of sharesavailable will be increased to the extent that shares are not purchased on aleveraged basis under Holdings’ Direct Investment Program. The compensationcommittee may adjust the number and class of shares available under the plan toprevent dilution or enlargement of rights in the event of various changes inHoldings’ capitalization.

 

*Put and Call Rights.***Holdings has certainrights to repurchase, or “call,” shares purchased pursuant to the plan if aplan participant is terminated by Holdings or one of its subsidiaries for causeor without cause, or if the participant terminates employment for good reason,without good reason, or due to death, disability or “qualified retirement.” Aplan participant has the right to sell, or “put,” shares purchased pursuant tothe plan to Holdings if a participant’s employment is terminated due todisability, “qualified retirement” or death. “Qualified retirement” meansretirement at age 62 or with board approval.

 

*Change in Control**.*If there is a change incontrol of Holdings, all unvested time-vesting options granted pursuant to theplan will vest and become immediately exercisable and, if the change in controlconstitutes a liquidity event (as defined in the award agreements), allperformance vesting options will vest. A change in control generally means theacquisition by any person or group of persons, other than an affiliate oraffiliates of the DLJ Merchant Banking funds, of more than 51% of theoutstanding voting securities of Holdings or a sale of all or substantially allof Holdings’ assets.

 

*Amendment and Termination.***Holdings’ board may amend,alter, suspend, discontinue or terminate the plan at any time, provided that nosuch amendment, alteration, suspension, discontinuation or termination will bemade without stockholder approval if such approval is necessary to qualify foror comply with any tax or regulatory status or requirement with which the boarddeems it necessary or desirable to qualify or comply.

 

**Direct Investment Plan**

 

The Direct Investment Plan was adopted by the boardof Holdings on October 11, 2000 to promote the interests of Holdings andits stockholders by retaining exceptional executive personnel and aligning theinterests of such employees with those of Holdings’ equity investors. Upon theclosing of the DLJ Acquisition, 1,100,000 million shares of common stock ofHoldings were purchased by executives of the Company pursuant to the plan,

 

48

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and participation in the plan was closed at that level as of December 31,2000. Pursuant to the plan, one-half of the shares were purchased throughnon-recourse loans granted by Holdings. The principal and accrued interest onthe non-recourse loans were settled in full in 2004.

 

Holdings has certain rights to repurchase, or “call,”shares purchased pursuant to the plan if a plan participant is terminated byHoldings or one of its subsidiaries for cause or without cause, or if theparticipant terminates employment for good reason, without good reason, or dueto death, disability or “qualified retirement.” 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**

 

The Company has an Employees’ 401(k) Plan and Trust.All current and future domestic employees of Advanstar, Inc. or any otherdomestic subsidiary who are at least 21 years-of-age are eligible toparticipate in the 401(k) Plan. Participants in the 401(k) Plan may notcontribute more than the lesser of a specified statutory amount or 100% of hisor her pre-tax total compensation. The Company is required to make a matchingcontribution to the 401(k) Plan after the employee has completed one year ofservice, which vests in equal installments over five years, in accordance withthe following schedule:

 

•                  with respect to the employee’s elective contributionin an amount up to 2% of the employee’s gross compensation, the matchingcontribution is required to be equal to 100% of the employee’s contribution;

 

•                  with respect to the employee’s elective contributionin excess of 2% and not in excess of 6% of gross compensation, the matchingcontribution is required to be equal to 25% of such employee’s contribution;and

 

•                  with respect to the employee’s elective contributionin excess of 6% of gross compensation, there shall be no matching contribution.

 

**Employment Agreements and Arrangements**

 

Mr. Loggia entered into an employment agreementwith us dated as of November 21, 2003, which was amended and restated effectiveJune 22, 2005. Pursuant to the agreement, Mr. Loggia will continue to actas chief executive officer of Advanstar, Inc and Advanstar Communications Inc. throughDecember 31, 2007, followed by successive three year employment termsunless terminated by either party in accordance with the agreement. Mr. Loggiais entitled to an annual base salary of $625,000 and an annual bonus based onour EBITDA 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 us without “cause” orterminates his employment for “good reason,” each as defined in the agreement,he will be entitled to the continuation of his base salary for a period of twoyears following his termination, and the greater of his bonus that would havebeen payable to him had he remained employed through the end of the fiscal yearor the annual bonus received by Mr. Loggia in 2004. Mr. Loggia’s agreement alsoincludes provisions triggered by a qualifying change in control, as defined inthe agreement, including accelerated vesting of his stock options, and changein control bonus, calculated based upon the effective purchase price per share,and not to exceed $4,000,000. Mr. Loggia also has entered into a newnon-compete and confidentiality agreement with us. The non-compete period isone year, during which time Mr. Loggia will continue to receive his basesalary unless he was terminated for cause or as a result of his death ordisability.

 

Mr. Alic entered into an employment agreementwith us, which was amended effective March 1, 2002, September 15, 2004 andFebruary 1, 2006.  The amended agreement provides for a fixed term throughDecember

 

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31, 2007, and continuation thereafter upon agreement mutual agreement ofthe parties.  Pursuant to the amended agreement, Mr. Alic will serveas Chairman and will be entitled to an annual base salary of $150,000 and up toa maximum bonus in 2005, 2006 and 2007 of 100% of his base salary.  Theamended agreement does not provide for a bonus payment or severance upontermination.  The agreement provides for indemnification of the executiveto the extent permissible under New York law.  Mr. Alic also enteredinto a non-competition and confidentiality agreement with us.  The non-competeperiod is one year after termination of employment unless employment isterminated by us without cause or by the executive for good reason, in whichcase the non-competition period is six months.  During the non-competeperiod, Mr. Alic may not hire any employee or solicit any tradeshow orpublishing business from a third party that has a relationship or contract withus.

 

We currently have a severance arrangement with DavidW. Montgomery, our and Advanstar Communications Inc.Advanstar CommunicationsInc.’s Vice President-Finance, Chief Financial Officer and Secretary. In theevent that Mr. Montgomery’s employment is involuntarily terminated for anyreason other than for cause, the arrangement provides that Mr. Montgomerywill receive a termination payment equal to six months of salary.

 

We currently have a severance arrangement with EricI. Lisman, its Executive Vice President - Corporate Development. In the eventthat Mr. Lisman’s employment is terminated for any reason other than forcause or if Mr. Lisman’s principal office location is relocated outsidethe greater Boston area, the arrangement provides that Mr. Lisman willreceive twelve months of severance based on his then current salary, his targetbonus and health benefits.

 

Advanstar Communications Inc. currently has aseverance arrangement with Ward D. Hewins, its Vice President and GeneralCounsel.  In the event that Mr. Hewins’employment is terminated for any reason other than for cause or if Mr. Hewins’principal office location is relocated outside the greater Boston area, thearrangement provides that Mr. Hewins will receive twelve months of severancebased on his then current salary, his target bonus and health benefits.

 

We do not have employment agreements with our other named executiveofficers.

 

**Director Compensation**

 

## ***Standard Arrangements***

 

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

 

## ***Other Arrangements***

 

OnOctober 1, 2004, Mr. James Finkelstein was appointed as a member of the boardof directors. 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 all reasonableout-of-pocket expenses incurred in connection with his service as a director ofthe Company.

 

OnSeptember 17, 2002, Mr. Douglas B. Fox was appointed as a member of the boardof directors. Mr. Fox receives an annual retention fee of $40,000 and, throughRenaissance Brands, LTD, a company wholly owned by Mr. Fox, a separate annualadvisory fee of $40,000, both payable in equal quarterly installments. Mr. Foxis also reimbursed for all reasonable out-of-pocket expenses incurred inconnection with his service as a director of the Company.

 

As ofthe date of his appointment, Mr. Fox was granted options to purchase 25,000shares of the common stock of Holdings at an exercise price of $10.00 pershare, pursuant to Holdings’ 2000 Management Incentive Plan. These options willvest 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 31, 2002, to purchase up to 50,000 sharesof the common stock of Holdings at a price of $10.00 per share, which he didnot exercise.

 

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**Compensation Committee Interlocks and Insider Participation**

 

During the periods up to and including 2005, we did not have acompensation committee. During the fiscal year ended December 31, 2005, Messrs.Loggia and Alic participated in deliberations of our board of directorsconcerning executive officer compensation.

 

**Item 12. – *SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT***

 

All of our common stock is owned by Holdings. Thefollowing table sets forth information with respect to the beneficial ownershipof Holdings’ common stock as of March 30, 2006 by (a) any person or groupwho beneficially owns more than five percent of Holdings common stock,(b) each of our directors and executive officers and (c) alldirectors and officers as a group.

 

In accordance with the rules of the SEC, beneficialownership includes voting or investment power with respect to securities andincludes shares issuable pursuant to warrants that are exercisable within60 days of March 30, 2006. Shares issuable pursuant to warrants are deemedoutstanding in computing the percentage held by the person holding the warrantsbut are not deemed outstanding in computing the percentage held by any otherperson.

 
| **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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*       Represents less than 1% of the outstanding shares ofcommon stock

 

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(1)                                  Consists of 35,100,000 shares held directly by DLJMerchant Banking Partners III, L.P. and the following related investors: DLJESC II, L.P., DLJMB Funding III, Inc., DLJ Offshore Partners III, C.V.,DLJ Offshore Partners III-1, C.V., DLJ Offshore Partners III-2, C.V., DLJMBFunding III, Inc. and DLJ Partners III GmbH & Co. KG and warrants topurchase 866,117 shares of common stock issued to DLJ Investment Partners, II,L.P. and the following related investors: DLJ ESC II, L.P., DLJ InvestmentFunding II, Inc. and DLJ Investment Partners, L.P. See “Item 13. —CertainRelationships and Related Party Transactions.” The address of each of theseinvestors is 11 Madison Avenue, New York, New York 10010, except that theaddress of Offshore Partners is John B. Gorsiraweg 14, Willemstad, Curacao,Netherlands Antilles.

 

(2)                                  Consists of 674,167 shares issuable pursuant tostock options exercisable within 60 days.

 

(3)                                  Consists of 108,516 shares, warrants to purchase34,787 shares and 223,440 shares issuable pursuant to stock options exercisablewithin 60 days.

 

(4)                                  Consists of 200,000 shares issuable pursuant tostock options exercisable within 60 days.

 

(5)                                  Consists of 156,250 shares issuable pursuant tostock options exercisable within 60 days.

 

(6)                                  Consists of 32,500 shares issuable pursuant to stockoptions exercisable within 60 days.

 

(7)                                  Consists of 20,000 shares issuable pursuant to stockoptions exercisable within 60 days.

 

(8)                                  Consists of 10,000 shares issuable pursuant to stockoptions exercisable within 60 days.

 

(9)                                  Shares shown for Messrs. Kwon, Finkelstein andPieper exclude shares shown as held by the DLJ Merchant Banking funds and theDLJ Investment Partners funds, as to which they disclaim beneficial ownership. Messrs. Finkelstein andKwon are partners of Avista Capital Partners, a private equity firm that hasbeen engaged by an affiliate of Credit Suisse Securities (USA) LLC to serve asa consultant to assist in the monitoring of certain DLJ Merchant BankingPartners portfolio companies. Mr. Pieper is an employee at Credit SuisseSecurities (USA) LLC where he is a Managing Director with DLJ Merchant BankingPartners.

 

Advanstar has no securities authorized for issuance under equitycompensation plans; all equity issued as compensation consists of equity ofHoldings.

 

**Item 13. – *CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS***

 

**FinancialAdvisory Fees and Agreements**

 

Advanstar Holdings,was acquired by the DLJ Merchant Banking Partners III, L.P. and related fundsin October 2000 (“The Acquisition”).

 

Credit Suisse Securities (USA), LLC (“CSS (USA)”), an affiliate of the DLJMerchant Banking funds, has received customary fees and reimbursement ofexpenses in connection with the arrangement and syndication of the creditfacility and as a lender thereunder. CSS (USA) acts as our financial advisorand acted as our financial advisor in connection with the Thomson acquisition,was one of the initial purchasers of the second priority senior secured notesissued in August and September of 2003 and was an initial purchaser of oursenior subordinated

 

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notesand the parent company discount notes. We paid fees of $10.4 million in2003, plus out-of-pocket expenses for these services. No fees were paid in 2004related to financings.

 

In May2005, the Company paid a consulting fee of $1.5 million to CSS (USA), anaffiliate, 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 Holdingsagreed to pay CSS (USA) an annual advisory fee of $0.5 million beginningOctober 11, 2000 when the acquisition of Advanstar by DLJ Merchant BankingPartners III, L.P. and related funds occurred (“The Acquisition”) until theearlier to occur of:

 

(1) an initial public offering of Holdings;

 

(2) the date when the DLJ Merchant Banking funds own less than 162¤3% ofthe shares of 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 DLJ Merchant BankingFunds.

 

Holdingsis a holding company and has no direct material operations or source of cash topay this obligation other than by distributions from its subsidiaries,including from Communications.

 

Advanstar and its subsidiaries may from time to time enter into otherinvestment banking relationships with CSS (USA) or one of its affiliatespursuant to which CSS (USA) or its affiliates will receive customary fees andwill be entitled to reimbursement for all related disbursements andout-of-pocket expenses. We expect that any arrangement will include provisionsfor the indemnification of CSS (USA) against a variety of liabilities,including liabilities under the federal securities laws.

 

**Stockholders’Agreement**

 

Holdings, the DLJ Merchant Banking funds, the DLJ Investment Partnersfunds and the other stockholders of Advanstar Holdings (collectively, includingMr. Alic, the “Advanstar Holdings Stockholders”) entered into a stockholders’agreement at the closing of the DLJMB acquisition. The stockholders’ agreementprovides that any person acquiring shares of common stock of Advanstar Holdingswho is required by the stockholders’ agreement or by any other agreement orplan of Advanstar Holdings to become a party to the stockholders’ agreementwill execute an agreement to be bound by the stockholders’ agreement.

 

The terms of the stockholders’ agreement restrict transfers of shares ofAdvanstar Holdings capital stock by the Advanstar Holdings Stockholders, exceptto permit transferees and subject to various exceptions. The agreement willpermit:

 

•                  theother stockholders to participate in specified sales of shares of AdvanstarHoldings capital stock by the DLJ Merchant Banking funds,

 

•                  the DLJ Merchant Banking funds to require the otherstockholders to sell shares of Advanstar Holdings capital stock in specifiedcircumstances should the DLJ Merchant Banking funds choose to sell any sharesowned by them, and

 

•                  the stockholders to purchase equity securitiesproposed to be issued by Advanstar Holdings to the DLJ Merchant Banking fundson a preemptive basis to maintain their percentage ownership interest.

 

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The stockholders’ agreement also provides that the DLJ Merchant Bankingfunds have the right to select three of the six members of the board ofdirectors of Advanstar Holdings, the DLJ Investment Partners funds will havethe right to select one member so long as they maintain ownership of at least50% of their initial ownership of senior discount notes of Advanstar, Inc. (andthereafter will have rights to an observer). In addition, the DLJ MerchantBanking funds are permitted to expand Advanstar Holdings’ board and select allof the additional directors. Messrs. Finkelstein, Kwon and Pieper are thedirectors selected by the DLJ Merchant Banking funds. As of December 31, 2005,DLJ Investment Partners no longer owns Advanstar, Inc.’s senior discount notes,so they can no longer 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.

 

**PART IV**

 

**Item 14. – *PRINCIPAL ACCOUNTING FEESAND SERVICES.***

 

**Principal Accounting Fees and Services**

 

The Audit Committee engaged PricewaterhouseCoopers LLP (“PwC”) to performan annual audit of Advanstar’s financial statements in 2004 and 2005. Thefollowing table presents information concerning fees paid to PwC in each ofthose 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 fees forprofessional services performed by PwC for (1) the annual audit and quarterlyreviews of Advanstar’s consolidated financial statements, (2) statutory auditsfor subsidiaries outside of the United States, and (3) fees related to theaudit of the financial statements of the Portfolio Group of which approximately$292 thousand of the 2005 fees were reimbursed by Questex Media Group, Inc.

 

(2)          These are fees for assuranceand related services performed by PwC that are reasonably related to theperformance of the audit or review of Advanstar’s financial statements but notdescribed in item (1) above, primarily attributable to audits of our employeebenefit plan, third-party workpaper reviews, and post effective amendment (S-1)filings.

 

(3)          These are fees forprofessional 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.

 

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

 

TheAudit Committee has adopted policies and procedures for pre-approving all workperformed by PwC. Specifically,the policies and procedures prohibit PwCfrom performing any services for Advanstar or its subsidiaries without theprior specific approval of the audit committee, except that the audit committeepre-approved the use of PwC forthe following service categories of non-audit service for 2005: audit related services in aggregatenot to exceed $120,000; U.S. tax planning and compliance in aggregate not toexceed $385,000; other tax services in aggregate not to exceed $145,000; othernon-audit services in aggregate not to exceed $50,000. Services in excess ofthese limits must have prior specific approval by the audit committee.

 

All services provided by PwC in 2005 were pre-approved by the audit committee pursuant to the approvalpolicies described above. None of such services were approved pursuant to theprocedures described in Rule 2-01(c)(7)(i)(C) of Regulation S-X, which waivesthe general requirement for pre-approval in certain circumstances.

 

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**PART IV**

 

**Item 15. – *EXHIBITS AND FINANCIALSTATEMENT SCHEDULES***

 

**A.****           ****Documents Filed as Part 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 Schedules:**

 

The following schedules are included in this Annual Report on the pageindicated:

 
| Schedule I—Condensed  Financial Information of Advanstar, Inc. (Parent Company) |   |
|--------------------------------------------------------------------------------------|--------|
| Schedule  II—Valuation and Qualifying Accounts                                  |   |

 

All other schedules have beenomitted because they are not applicable.

 

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**Report of Independent RegisteredPublic Accounting Firm**

 

To the Stockholder and Board ofDirectors of Advanstar, Inc.

 

In our opinion, the consolidated financial statements listed in theindex appearing under Item 15(a)(1) present fairly, in all material respects,the financial position of Advanstar, Inc., a wholly owned subsidiary ofAdvanstar Holdings Corporation, and its subsidiaries at December 31, 2005 and2004, and the results of their operations and their cash flows for each of thethree years in the period ended December 31, 2005, in conformity withaccounting principles generally accepted in the United States of America.  In addition, in our opinion, the financialstatement schedules listed in the index appearing under Item 15(a)(2) present fairly,in all material respects, the information set forth therein when read inconjunction with the related consolidated financial statements.  These financial statements and financialstatement schedules are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements and financial statement schedules 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 materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

 
| **/s/ PricewaterhouseCoopers LLP**                 |   |   |
|----------------------------------------------------|--------|--------|
| ** **                                         |   |   |
| **Minneapolis, Minnesota**                         |
| March 1, 2006, except as to the eleventh paragraph |
| of Note 6, for which the date is March 14, 2006    |

 

F-1

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**Advanstar, Inc.**

**Consolidated Balance Sheets**

**December31, 2005 and 2004**

 
| **(in thousands of dollars, except share and per  share data)**                                                                     | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Assets**                                                                                                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current assets                                                                                                                      |       |       |       |       |       |
| Cash and cash  equivalents                                                                                                          |       | $          | 46,641     |       | $          | 41,328 |   |
| Accounts  receivable, net of allowance of $1,076 and $785 at December 31, 2005 and 2004                                             |       | 24,607     |       | 27,047     |       |
| Prepaid expenses                                                                                                                    |       | 7,871      |       | 6,417      |       |
| Other                                                                                                                               |       | 1,965      |       | 2,450      |       |
| Current assets  of discontinued operations                                                                                          |       | —     |       | 2,690      |       |
| Total current  assets                                                                                                               |       | 81,084     |       | 79,932     |       |
| Due from parent                                                                                                                     |       | 804        |       | 256        |       |
| Property, plant and equipment, net                                                                                                  |       | 21,306     |       | 19,331     |       |
| Intangible and other assets                                                                                                         |       |       |       |       |       |
| Goodwill                                                                                                                            |       | 594,982    |       | 586,967    |       |
| Intangibles and  other, net                                                                                                         |       | 63,157     |       | 92,587     |       |
| Total intangible  and other assets, net                                                                                             |       | 658,139    |       | 679,554    |       |
| Non-current assets of discontinued operations and  assets held for sale                                                             |       | 4,620      |       | 135,837    |       |
|                                                                                                                                |       | $          | 765,953    |       | $          | 914,910 |   |
| **Liabilities and Stockholder’s Equity**                                                                                       |       |       |       |       |       |
| Current liabilities                                                                                                                 |       |       |       |       |       |
| Current  maturities of long-term debt                                                                                               |       | $          | 201        |       | $          | 1,300 |   |
| Accounts payable                                                                                                                    |       | 12,507     |       | 13,578     |       |
| Accrued  compensation                                                                                                               |       | 7,236      |       | 7,494      |       |
| Other accrued  expenses                                                                                                             |       | 36,126     |       | 32,981     |       |
| Deferred revenue                                                                                                                    |       | 46,472     |       | 39,323     |       |
| Current  liabilities of discontinued operations                                                                                     |       | —     |       | 15,886     |       |
| Total current  liabilities                                                                                                          |       | 102,542    |       | 110,562    |       |
| Long-term debt, net of current maturities                                                                                           |       | 620,391    |       | 752,019    |       |
| Deferred income taxes                                                                                                               |       | 31,500     |       | 18,250     |       |
| Other long-term liabilities                                                                                                         |       | 4,933      |       | 4,229      |       |
| Long-term liabilities of discontinued operations                                                                                    |       | —     |       | 3,627      |       |
| Commitments and contingencies (Note 10)                                                                                             |       |       |       |       |       |
| Stockholder’s equity                                                                                                           |       |       |       |       |       |
| Common stock,  $.01 par value, 10,000 shares authorized; 100 shares issued and  outstanding at December 31, 2005 and 2004 |       | —     |       | —     |       |
| Capital in  excess of par value                                                                                                     |       | 370,424    |       | 370,424    |       |
| Accumulated  deficit                                                                                                                |       | (372,250   | )          | (350,446   | )          |
| Accumulated other  comprehensive income                                                                                             |       | 8,413      |       | 6,245      |       |
| Total  stockholder’s equity                                                                                                    |       | 6,587      |       | 26,223     |       |
|                                                                                                                                |       | $          | 765,953    |       | $          | 914,910 |   |

 

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

 

F-2

----

 

**Advanstar, Inc.**

**Consolidated Statements ofOperations**

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

 
| **(in thousands of dollars)**                                                  | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                                                        |       | $          | 288,913    |       | $          | 271,066    |       | $ | 191,535 |   |
|                                                                           |       |       |       |       |       |       |       |
| Operating expenses                                                             |       |       |       |       |       |       |       |
| Cost of  production (excluding depreciation)                                   |       | 56,326     |       | 50,958     |       | 35,363     |       |
| Selling,  editorial and circulation (excluding depreciation)                   |       | 112,373    |       | 107,219    |       | 69,702     |       |
| General and  administrative (excluding depreciation)                           |       | 41,677     |       | 41,334     |       | 31,581     |       |
| Restructuring  charge                                                          |       | 4,771      |       | (4,015     | )          | 2,692      |       |
| Amortization of  intangibles                                                   |       | 29,750     |       | 34,809     |       | 35,841     |       |
| Depreciation                                                                   |       | 8,005      |       | 8,280      |       | 10,266     |       |
| Total operating  expenses                                                      |       | 252,902    |       | 238,585    |       | 185,445    |       |
| Operating income                                                               |       | 36,011     |       | 32,481     |       | 6,090      |       |
| Other income (expense)                                                         |       |       |       |       |       |       |       |
| Interest expense                                                               |       | (88,060    | )          | (92,225    | )          | (77,162    | )          |
| Interest income                                                                |       | 1,476      |       | 468        |       | 471        |       |
| Loss on  extinguishment of debt (Note 6)                                       |       | (12,581    | )          | —     |       | (11,324    | )          |
| Other income,  net                                                             |       | 83         |       | 826        |       | 893        |       |
| Loss from  continuing operations before income taxes                           |       | (63,071    | )          | (58,450    | )          | (81,032    | )          |
| Income tax (benefit) provision                                                 |       | (9,524     | )          | 6,259      |       | (6,887     | )          |
| Loss from  continuing operations                                               |       | (53,547    | )          | (64,709    | )          | (74,145    | )          |
| Income (loss) from operations of discontinued  businesses, net of tax (Note 4) |       | 31,743     |       | (2,418     | )          | 4,001      |       |
| Net loss                                                                       |       | $          | (21,804    | )          | $          | (67,127    | )          | $ | (70,144 | ) |

 

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

 

F-3

----

 

**Advanstar, Inc.**

**Consolidated Statements ofStockholder’s Equity**

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

 
| ** **                                                     | ** ** | ** **            | ** ** | ** **         | ** ** | ** **          | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|----------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|---------------------|------------|-------------------|------------|------------------------|------------|------------|------------|
| ** **                                                     | ** ** | ** **            | ** ** | ** **         | ** ** | **Capital in** | ** ** | ** **        | ** ** | **Other**              | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | **Common Stock** | ** ** | **Excess of** | ** ** | **Accumulated**     | ** ** | **Comprehensive** | ** ** | ** **             | ** ** |
| **(in thousands of dollars)**                   | ** ** | **Shares**            | ** ** | **Amount**         | ** ** | **Par Value**  | ** ** | **Deficit**       | ** ** | **Income (Loss)** | ** ** | **Total**  | ** ** |
|                                                           |       |                  |       |               |       |                |       |              |       |                   |       |       |       |
| **Balances at December 31, 2002**                    |       | 100                   |       | $                  | —     |                | $          | 310,424           |       | $                      | (213,175   | )          | $          | (9,078 | ) | $ | 88,171 |   |
| ** **                                                     |       |                  |       |               |       |                |       |              |       |                   |       |       |       |   |   |   |   |   |
| Comprehensive  loss                                            |       |                  |       |               |       |                |       |              |       |                   |       |       |       |
| Net loss                                                       |       | —                |       | —             |       | —              |       | (70,144           | )          | —                 |       | —     |       |
| Translation  adjustment                                        |       | —                |       | —             |       | —              |       | —            |       | 8,283                  |       | —     |       |
| Change in  unrealized loss on derivative financial instruments |       | —                |       | —             |       | —              |       | —            |       | 4,308                  |       | —     |       |
| Total  comprehensive loss                                      |       | —                |       | —             |       | —              |       | —            |       | —                 |       | (57,553    | )          |
| Contribution of  capital from parent                           |       | —                |       | —             |       | 60,000              |       | —            |       | —                 |       | 60,000     |       |
| **Balances  at December 31, 2003**                   |       | 100                   |       | —             |       | 370,424             |       | (283,319          | )          | 3,513                  |       | 90,618     |       |
| ** **                                                     |       |                  |       |               |       |                |       |              |       |                   |       |       |       |
| Comprehensive  loss                                            |       |                  |       |               |       |                |       |              |       |                   |       |       |       |
| Net loss                                                       |       | —                |       | —             |       | —              |       | (67,127           | )          | —                 |       | —     |       |
| Translation  adjustment                                        |       | —                |       | —             |       | —              |       | —            |       | 2,587                  |       | —     |       |
| Change in  unrealized loss on derivative financial instruments |       | —                |       | —             |       | —              |       | —            |       | 145                    |       | —     |       |
| Total  comprehensive loss                                      |       | —                |       | —             |       | —              |       | —            |       | —                 |       | (64,395    | )          |
| **Balances  at December 31, 2004**                   |       | 100                   |       | —             |       | 370,424             |       | (350,446          | )          | 6,245                  |       | 26,223     |       |
| ** **                                                     |       |                  |       |               |       |                |       |              |       |                   |       |       |       |
| Comprehensive  loss                                            |       |                  |       |               |       |                |       |              |       |                   |       |       |       |
| Net loss                                                       |       | —                |       | —             |       | —              |       | (21,804           | )          | —                 |       | —     |       |
| Translation  adjustment                                        |       | —                |       | —             |       | —              |       | —            |       | 2,271                  |       | —     |       |
| Change in  unrealized loss on derivative financial instruments |       | —                |       | —             |       | —              |       | —            |       | (103                   | )          | —     |       |
| Total  comprehensive loss                                      |       | —                |       | —             |       | —              |       | —            |       | —                 |       | (19,636    | )          |
| **Balances  at December 31, 2005**                   |       | 100                   |       | $                  | —     |                | $          | 370,424           |       | $                      | (372,250   | )          | $          | 8,413 |   | $ | 6,587 |   |

 

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

 

F-4

----

 

**Advanstar, Inc.**

**Consolidated Statements of CashFlows**

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

 
| **(in thousands of dollars)**                                                   | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash  flows from operating activities**                                       |       |       |       |       |       |       |       |
| Net loss                                                                        |       | $          | (21,804    | )          | $          | (67,127    | )          | $ | (70,144 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities |       |       |       |       |       |       |       |
| Impairment of  intangibles                                                      |       | 2,272      |       | —     |       | —     |       |
| Write-off of  deferred financing costs                                          |       | 3,517      |       | —     |       | 11,324     |       |
| Restructuring  charge                                                           |       | —     |       | (4,015     | )          | —     |       |
| Impairment of  goodwill                                                         |       | —     |       | 15,570     |       | —     |       |
| Depreciation and  amortization                                                  |       | 40,718     |       | 50,433     |       | 59,180     |       |
| Gain on  derivative financial instruments                                       |       | (103       | )          | (1,391     | )          | (772       | )          |
| Losses of  minority interest holders                                            |       | 566        |       | 562        |       | 627        |       |
| Non-cash  interest expense                                                      |       | 22,474     |       | 24,489     |       | 21,386     |       |
| (Gain) loss on  disposition of business and other                               |       | (52,710    | )          | (1,006     | )          | 661        |       |
| Provision for  bad debts                                                        |       | 1,417      |       | 874        |       | 589        |       |
| Deferred income  taxes                                                          |       | 13,250     |       | 11,260     |       | 6,990      |       |
| Changes in  operating assets and liabilities                                    |       |       |       |       |       |       |       |
| Accounts  receivable                                                            |       | (224       | )          | 6,060      |       | (407       | )          |
| Inventories                                                                     |       | 507        |       | (708       | )          | 188        |       |
| Prepaid expenses                                                                |       | 24         |       | (506       | )          | 891        |       |
| Accounts payable  and accrued expenses                                          |       | 3,515      |       | (10,776    | )          | 16,216     |       |
| Deferred revenue                                                                |       | (3,926     | )          | (6,902     | )          | 1,394      |       |
| Other                                                                           |       | (1,258     | )          | 1,733      |       | (1,598     | )          |
| Net cash  provided by operating activities                                      |       | 8,235      |       | 18,550     |       | 46,525     |       |
| ** **                                                                      |       |       |       |       |       |       |       |
| **Cash  flows from investing activities**                                       |       |       |       |       |       |       |       |
| Additions to  property, plant and equipment                                     |       | (9,564     | )          | (9,576     | )          | (7,930     | )          |
| Acquisition 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         |       | (1,931     | )          | 3          |       |
| Net cash  provided by (used in) investing activities                            |       | 148,959    |       | 4,996      |       | (145,655   | )          |
| ** **                                                                      |       |       |       |       |       |       |       |
| **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  contributions 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                                      |       | 5,313      |       | 11,607     |       | 10,699     |       |
| ** **                                                                      |       |       |       |       |       |       |       |
| **Cash  and cash equivalents**                                                  |       |       |       |       |       |       |       |
| Beginning of  year                                                              |       | 41,328     |       | 29,721     |       | 19,022     |       |
| End of year                                                                     |       | $          | 46,641     |       | $          | 41,328     |       | $ | 29,721 |   |

 

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

 

F-5

----

 

**Advanstar, Inc.**

**Notes to Consolidated FinancialStatements**

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

 

**1.**                                      Nature of Business and Basis ofPresentation

 

The accompanying consolidated financial statementsinclude the accounts of Advanstar, Inc. (“Advanstar”), a wholly ownedsubsidiary of Advanstar Holdings Corporation (“Holdings”), and its wholly ownedsubsidiaries, Advanstar Communications Inc. (“Communications”) and AdvanstarIH, Inc. (“Advanstar.com”), (collectively, the “Company”).  All intercompany accounts and transactionsbetween consolidated entities have been eliminated.

 

The Company operates and manages shows andconferences; publishes controlled and paid circulation trade, professional andconsumer periodicals; and markets a broad range of marketing, direct mail anddatabase products and services.  TheCompany’s Magic tradeshows and Healthcare/ Pharmaceutical product sector each generatedapproximately 27% of total revenue in 2005.

 

**2.**                                      Summary of Significant AccountingPolicies

 

**Cash andCash Equivalents**

Cash and cash equivalents include cash on deposit andhighly liquid investments with original maturities of three months or less.  Cash equivalents are stated at cost, whichapproximates fair market value.

 

**PrepaidExpenses and Other Current Assets**

Prepaid expenses consist primarily of prepaid show andconference expenses, prepaid publication production costs and miscellaneousdeposits.  Event and publication expensesare charged to operations at the time of the related event and at the time ofpublication issuance.  Other currentassets consist primarily of paper inventories.

 

**Property,Plant and Equipment**

Property, plant and equipment consisted of thefollowing at December 31:

 
| **(in thousands of dollars)**       | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-------------------------------------|------------|------------|------------|------------|------------|
| ** **                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land and improvements               |       | $          | 481        |       | $          | 481 |   |
| Buildings                           |       | 3,850      |       | 3,093      |       |
| Furniture, machinery and equipment  |       | 43,519     |       | 44,005     |       |
| Leasehold improvements              |       | 7,997      |       | 6,083      |       |
|                                |       | 55,847     |       | 53,662     |       |
| Accumulated depreciation            |       | (34,541    | )          | (34,331    | )          |
| Property, plant  and equipment, net |       | $          | 21,306     |       | $          | 19,331 |   |

 

Property, plant and equipment is stated at itsoriginal cost and is depreciated on a straight-line basis over the followingestimated useful lives:

 
| 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 asincurred.  Major betterments andimprovements, which extend the useful life of the item, are capitalized anddepreciated.  The cost and accumulateddepreciation of property, plant and equipment retired or otherwise disposed ofare removed from the related accounts, and any residual values are charged orcredited to operations.

 

**Intangibleand Other Assets**

Trade exhibitor and advertiser lists are amortized ona double-declining balance method over six years and five years,respectively.  Subscriber lists and otherintangible assets are amortized on a straight-line basis over three to tenyears.  Trademarks and trade names areamortized on a straight-line basis over twenty years.

 

**Impairmentof Long-Lived Assets and Goodwill**

The Company evaluates the carrying value of long-livedassets, including identifiable intangibles, for impairment when events orchanges in circumstances indicate that the carrying amount of an assetmay not be recoverable.  Ifimpairment indicators are present and the estimated future undiscounted cashflows are less than the carrying value of the assets, the carrying value isreduced to the estimated fair value as measured by the associated discountedcash flows.

 

The Company evaluates goodwill for impairment annuallyusing a two-step test 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 between annual tests if an event occurs orcircumstances change that would more likely than not reduce the fair value of areporting unit below its carrying value.

 

**AccruedExpenses**

Accrued expenses consisted of the following atDecember 31:

 
| **(in thousands of dollars)**        | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
|                                 |       |     |       |     |       |
| Interest                             |       | $        | 16,629     |     | $          | 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    |       | 4,371    |       |
| Other                                |       | 3,234    |       | 1,689    |       |
|                                 |       | $        | 36,126     |     | $          | 32,981 |   |

 

**RevenueRecognition**

Shows and conferences revenue is recognized in theperiod in which the event is conducted. Subscription revenue is recognized on a pro rata basis as publicationsare issued to fulfill the subscription obligations.  Advertising revenue is recognized when thepublication with the respective advertisement is issued.  Custom project contract revenue with bothconference and print elements are deferred and not recognized until allelements are delivered.  Deferred revenueis recorded when cash is received in advance of when an event is held, thepublication is issued, or project is completed. Customer advances are recorded when cash is received in anticipation offuture advertising unrelated to a specific publication issue.

 

F-7

----

 

Deferred revenueconsisted 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   |       | 9,147    |       |
| Total deferred  revenue                                |       | $        | 46,472     |     | $          | 39,323 |   |

 

**ForeignCurrency Translation**

The Company accounts for translation adjustmentsrelated to its investments in foreign entities in accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 52, *ForeignCurrency Translation*.  Localcurrencies are considered the functional currencies outside of the U.S.  Income and expense items are translated ataverage rates of exchange prevailing during the year.  For operations in local currencyenvironments, assets and liabilities are translated at year-end exchange rateswith cumulative translation adjustments included as a component ofstockholder’s equity.

 

**FinancialDerivative Instruments**

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

 

**Stock-BasedCompensation**

As permitted by SFAS No. 123, *Accounting for Stock-Based Compensation*, the Company haselected to account for stock options and awards to employees using theintrinsic value method under the provisions of Accounting Principles Board(“APB”) Opinion No. 25, *Accounting for StockIssued to Employees*, and related interpretations.

 

F-8

----

 

The following table presents unaudited pro forma netincome as if the Company had elected to recognize compensation cost based onthe fair value of the options granted as prescribed by SFAS No. 123, forthe years ended December 31:

 
| **(in thousands of dollars - unaudited)**               | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net loss—as reported                               |       | $          | (21,804    | )          | $          | (67,127    | )          | $ | (70,144 | ) |
| Less: Pro forma stock-based employee compensation  cost |       | (5,740     | )          | (2,550     | )          | (2,400     | )          |
| Net loss—pro forma                                 |       | $          | (27,544    | )          | $          | (69,677    | )          | $ | (72,544 | ) |
|                                                         |            |            |            |            |            |            |            |  |  |  |  |

 

See Note 7 for further discussion of theCompany’s stock compensation plans.

 

**ComprehensiveIncome (Loss)**

The Company follows the provisions ofSFAS No. 130, *Reporting ComprehensiveIncome*.  This statementestablished rules for the reporting of comprehensive income (loss) and itscomponents.  Comprehensive income (loss)reflects the change in equity of a business enterprise during a period fromtransactions and other events and circumstances from nonowner sources.  Comprehensive income (loss) consists of netincome (loss), foreign currency translation adjustments and changes inunrealized loss on derivative financial instruments, and is presented in theaccompanying consolidated statements of stockholder’s equity.

 

**Use ofEstimates**

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenue and expenses during the reporting periods.  Ultimate results could differ from these estimates.  On an ongoing basis, management reviews itsestimates, including those affecting doubtful accounts, recovery of goodwilland intangible assets, restructuring and medical claims accruals and incometaxes.  Changes in facts andcircumstances may result in revised estimates.

 

**NewAccounting Pronouncements**

In December 2004, the Financial AccountingStandards Board issued SFAS No. 123R, *Share-Based Payment*which revises SFAS 123 and supersedes APB 25. This statement establishes standards relating to accounting fortransactions in which equity instruments are exchanged for goods orservices.  The Company is required toadopt the provisions of this standard effective January 1, 2006.  This statement requires companies to classifytheir awards as either an equity award or liability award. In accordance withthis standard, the Company will classify the vested portion of the awards as aliability valued at their intrinsic value at each reporting date. Using theintrinsic method to value liability awards, compensation expense is recordedonly if the value of the Company’s shares are greater than the option exerciseamounts 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 Other Intangible Assets

 

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

 

F-9

----

 

occurs or circumstances changethat would more likely than not reduce the fair value of a reporting unit belowits carrying value.

 

On July 1, 2005 and 2004, the Company completed its annualgoodwill impairment test of each of its three reporting units.  Based on this valuation, which utilized a discounted cash flow method, there was noimpairment of goodwill indicated.

 

The changes in the carryingamount of goodwill for the year ended December 31, by operating segment, are asfollows:

 
| ** **                                                    | ** ** | **Shows**       | ** ** | ** **       | ** ** | **Direct  Marketing** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|-----------------|------------|------------------|------------|-----------------------|------------|------------|------------|
| ** **                                                    | ** ** | **and**         | ** ** | ** **       | ** ** | **Products**          | ** ** | ** ** | ** ** |
| **(in thousands of dollars)**                                 | ** ** | **Conferences** | ** ** | **Publications** | ** ** | **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 followingat December 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                |       | 19,789   |       | 23,379   |       |
|                                    |       | 227,914  |       | 252,930  |       |
| Accumulated amortization                |       | (164,757 | )          | (160,343 | )          |
| Total intangible  and other assets, net |       | $        | 63,157     |     | $          | 92,587 |   |

 

F-10

----

 

The allocated fair valueof intangible assets acquired during the year ended 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 amortizationexpense of intangible assets for the next five years 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 thepurchase method of accounting and, accordingly, the assets acquired and liabilitiesassumed have been recorded at their fair values as of the dates of theacquisitions.  The excess of the purchaseprice over the fair value of the assets acquired and liabilities assumed hasbeen recorded as goodwill.  Results ofoperations for these acquisitions have been included in the accompanyingconsolidated financial statements since their respective dates ofacquisition.  All acquisitions have beenconsummated to expand the Company’s show and publication presence within itsexisting market sector and to maximize marketing and customer serviceinfrastructure and expertise.

 

On September 12, 2005, the Company purchased anoff-road consumer event business from Petersen Events Corporation (“Off-RoadExpo”) for $2.2 million in cash.  Inaddition, the Company may pay additional contingent cash consideration to theformer shareholders based on the 2006 operating revenue from the acquiredassets.  Any contingent considerationpaid will be recorded as goodwill.

 

On August 23, 2005, the Company purchased a fashionindustry tradeshow business and related products from the owner of POOLTradeshow (“Pool”) for $3.0 million in cash, subject to a working capitaladjustment, which will be completed 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 theCompany.  Any contingent considerationpaid will be recorded as compensation expense in the consolidated statement ofoperations.

 

F-11

----

 

The purchase price working capital adjustment has yetto be finalized. The Company does not believe the final allocation of purchaseprice will be materially different from preliminary estimates.

 

On August 19, 2005, the Company purchased ProjectGlobal Tradeshow, Inc. (“Project”), a producer of tradeshows serving thepremium contemporary sector of the fashion industry, for $9.9 million in cash,subject to a working capital adjustment which will be completed in 2006.  In addition, the Company may pay additionalcontingent cash consideration to the former shareholders based on the 2007 and2008 operating results of the acquired assets and their continued employmentwith the Company.  Any contingentconsideration paid will be recorded as compensation expense in the consolidatedstatement of operations.  The purchaseprice working capital adjustment has yet to be finalized. The Company does notbelieve the final allocation of purchase price will be materially differentfrom preliminary estimates.

 

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

 

On March 8, 2004, the Company purchased a portfolio ofpharmaceutical industry conferences and magazines from the Institute ofValidation Technology, Inc. (“IVT”) for $7.9 million in cash.  The Company is required to pay additionalcontingent cash consideration to the former shareholders based on 2004 and 2005operating results of the acquired assets and their continued employment withthe Company.  For the year ended December31, 2005 and 2004, the Company recorded $0.7 million and $1.5 million of contingentconsideration.  These charges wererecorded as compensation expense in the consolidated statement of operations inthe periods indicated.  As of December31, 2004, $1.0 million of the contingent consideration accrual is included inother accrued liabilities and $0.5 million is included in other long-termliabilities. In 2005, the Company paid $0.9 million of contingent considerationto the former shareholders. As of December 31, 2005, the balance of theremaining contingent consideration accrual is $1.3 million and is included inother accrued liabilities in the accompanying consolidated balance sheet.

 

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

 

During 2003, the Companyacquired intangible assets, primarily customer relationships, for $0.7 millionin cash.  The Company also paid anadditional $0.5 million of contingent purchase price related to its 2002acquisition of *HT—the Magazine forHealthcare Travel Professionals*.

 

The following are the Company’s unaudited pro formaoperating results as if the Thomson acquisition had taken place at January 1,2003.  The unaudited pro forma operatingresults related to all other acquisitions discussed above were immaterial.

 
| **(in thousands of dollars - unaudited)** | ** ** | **2003** | ** ** |
|-------------------------------------------|------------|----------|------------|
|                                      |       |     |       |
| Revenue                                   |       | $        | 254,934    |   |
| Loss from continuing operations           |       | (87,498  | )          |
| Net loss                                  |       | (83,497  | )          |
|                                           |            |          |            |  |

 

F-12

----

 

The unaudited pro forma operating results do notpurport to represent what the Company’s results of operations actually wouldhave been if the acquisition had occurred as of the date indicated or what suchresults will be for any future periods.

 

**Divestitures**

The operating results,related income taxes and any gains or losses of the following divestitures(collectively, the “Disposed Businesses”) have been reported in discontinuedoperations in the consolidated statements of operations for the years endedDecember 31, 2005, 2004 and 2003. ** ******Interest expense was not allocated to any of theCompany’s discontinued operations.****

 

The assets and liabilities of the following DisposedBusinesses are reported as assets and liabilities of discontinued operations,where appropriate, in the consolidated balance sheet as of December 31, 2005and 2004.

 

*Arenacross*

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

 

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

 

*EastCoast Fashion*

In the second quarter of 2005, the Companydiscontinued its East Coast Fashion group business (“East Coast Fashion”) andrecognized a $2.3 million impairment, which was the carrying value of therelated intangibles.

 

Revenue of East Coast Fashion included in discontinuedoperations in the consolidated statements of operations was $0.9 million, $6.1million and $10.9 million for the years ended December 31, 2005, 2004, and2003.

 

*PortfolioGroup*

On May 23, 2005, the Company and certain affiliates(Communications, Advanstar Expositions Canada Limited and Advanstar.com)completed the sale of virtually all business assets and liabilities associatedwith its tradeshows and conferences, trade publications and direct marketingproducts in the following primary industries: Information Technology &Communications, Travel/Hospitality, Beauty, Home Entertainment, Abilities andPortfolio, including the shares of the Company’s Hong Kong subsidiaries.  The shares of the Company’s Braziliansubsidiary were sold to the same buyer in July 2005 after final regulatoryapproval. Collectively, all of the above properties are referred to as “thePortfolio Group.”  The sale price forthese assets and shares was $173.8 million in cash, net of sellingexpenses.  The Company recorded a gain onthe sale of $52.9 million.

 

Revenue of thePortfolio Group, included in discontinued operations in the consolidatedstatements of operations, was $49.0 million for the period from January 1, 2005to May 23, 2005, and $102.5 million and $104.9 million for the years endedDecember 31, 2004 and 2003.

 

F-13

----

 

*DMS*

On September 8, 2004, the Company sold its Germantradeshow business (“DMS”) for $1.7 million in cash.  In connection with the sale, the Companyrecorded a goodwill impairment charge of $6.2 million in the third quarter of2004.  The amount of the impairmentcharge was determined based upon the excess of the carrying value of DMS overthe selling price, less the costs incurred by the Company to sell DMS.  The Company is continuing to incur accountingand legal fees in connection with the closure of its DMS office. These costs willbe reported in income (loss) from discontinued operations.

 

Revenue of DMS, included in discontinued operations inthe consolidated statements of operations, was $0.1 million for the period fromJanuary 1, 2004 to September 8, 2004, and $2.0 million for the year endedDecember 31, 2003.

 

*SeCA*

On August 5, 2004, the Company completed the sale ofits 65% ownership in its French joint venture (“SeCA”) for a total sellingprice of $3.1 million in cash.  Inconnection with the sale, the Company recorded a goodwill impairment charge of$9.4 million, net of minority interest effect of $5.1 million in the secondquarter of 2004.  The impairment chargerelates to the Company’s tradeshow reporting segment and was determined basedupon the excess of the carrying value of the Company’s interest in SeCA overthe selling price, less the costs incurred by the Company to sell SeCA.

 

Revenue of SeCA, included in discontinued operationsin the consolidated statements of operations, was $2.9 million for the periodfrom January 1, 2004 to August 5, 2004, and $4.1 million for the year endedDecember 31, 2003.

 

*Post*

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

 

Revenue of Post, included in discontinued operationsin the consolidated statements of operations, was $0.7 million for the periodfrom January 1, 2004 to July 2, 2004 and $ 1.7 million for the year endedDecember 31, 2003.

 

*ArtGroup*

On March 12, 2004, the Company completed the sale ofits art industry tradeshows and magazines business (the “Art Group”) for atotal selling price of $19.6 million in cash. The Company recorded a gain after taxes on the sale of $3.4 million.

 

Revenue of the Art Group, included in discontinuedoperations in the consolidated statements of operations, was $8.5 million forthe period from January 1, 2004 to March 12, 2004, and $10.9 million for theyear ended December 31, 2003.

 

**Assets Held for Sale**

In the second quarter of 2005, the Company committedto a plan to sell its Cleveland office building and land (“the ClevelandOffice”) as a result of the sale of the Portfolio Group. As of December 31,2005, the Company reported this building and land as assets held for sale andceased depreciation of these assets, effective second quarter of 2005.  The Cleveland Office is reported as assetsheld for sale in the consolidated balance sheet as of December 31, 2005 and 2004.

 

F-14

----

 

The financial results of the Disposed Businessesincluded in the discontinued operations in the accompanying consolidatedstatements of operations for the years ended December 31, 2005, 2004 and 2003are as follows:

 
| **(in thousands of dollars)**                                                              | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                       |       |     |       |     |       |     |       |
| Income (loss)  before income taxes (including goodwill impairment charge and gain on sale) |       | $        | 55,961     |     | $          | (977     | )          | $ | 18,240 |   |
| Income tax  provision                                                                      |       | 23,652   |       | 5,705    |       | 13,612   |       |
| Minority  interests                                                                        |       | (566     | )          | 4,264    |       | (627     | )          |
| Income (loss)  from discontinued businesses                                                |       | $        | 31,743     |     | $          | (2,418   | )          | $ | 4,001 |   |

 

The Company allocated goodwill to the DisposedBusinesses and included the allocated goodwill in its determined gain or losson disposal.  Goodwill allocated to Art,Post, and the Portfolio Group is based on the relative fair values of the DisposedBusiness to the entire reporting unit prior to disposal.  SeCA and DMS werenever integrated into the Company’s broader reporting units. Thus, the carryingamount of acquired goodwill for those businesses was included in thecalculation of any gain or loss on disposal.

 

Goodwill allocated to the businesses disposed of andused in the calculation of the gain or loss on sale of the Disposed Businessesby reporting segment was included in discontinued operations in the Company’sreportable segments for the years ended December 31, 2005 and 2004 are asfollows:

 
| ** **                    | ** ** | ** **      | ** ** | ** **       | ** ** | **Direct**     | ** ** | ** **    | ** ** | ** ** | ** ** |
|-------------------------------|------------|-----------------|------------|------------------|------------|----------------|------------|---------------|------------|------------|------------|
| ** **                    | ** ** | **Shows**       | ** ** | ** **       | ** ** | **Marketing**  | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **and**         | ** ** | ** **       | ** ** | **Products**   | ** ** | ** **    | ** ** | ** ** | ** ** |
| **(in thousands of dollars)** | ** ** | **Conferences** | ** ** | **Publications** | ** ** | **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 operationsof the Portfolio Group, East Coast Fashion and the Cleveland Office included inthe consolidated balance sheets as of December 31, 2005 and 2004 are asfollows:

 
| ** **                                              | ** ** | **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 theCleveland Office assets included in assets held for sale and discontinuedoperations in the Company’s reportable segments as of December 31, 2005 and2004 are as follows:

 
| *** ***                        | ** ** | ** **      | ** ** | ** **       | ** ** | **Direct**     | ** ** | ** **    | ** ** | ** ** | ** ** |
|-------------------------------------|------------|-----------------|------------|------------------|------------|----------------|------------|---------------|------------|------------|------------|
| ** **                          | ** ** | **Shows**       | ** ** | ** **       | ** ** | **Marketing**  | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **and**         | ** ** | ** **       | ** ** | **Products**   | ** ** | ** **    | ** ** | ** ** | ** ** |
| **(in thousands of dollars)**       | ** ** | **Conferences** | ** ** | **Publications** | ** ** | **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 instrumentsto manage exposure to interest rate and foreign currency risks.  The Company’s objectives for holdingderivatives are to minimize the risks using what management believes are themost effective methods to eliminate or reduce the impact of these exposures.

 

**InterestRate Risk**

Variable rate debt instruments are subject to interestrate risk.  The Company periodicallyenters into interest rate collar and swap agreements to manage its exposure tointerest rate movements on its variable rate debt obligations.  The effective portion of the cumulative gainor loss on these agreements are reported as a component of accumulated othercomprehensive income in stockholder’s equity and recognized in earnings as theunderlying interest expense is incurred. The ineffective portion of these agreements are recognized in currentearnings.  Gains and losses on theundesignated portion of these agreements at the end of each fiscal quarter(which are calculated as the net amount payable upon termination at the date ofdetermination) are recognized in current earnings until expired.

 

In 2001 the Company entered into an interest ratecollar agreement which expired in February 2004 to manage its exposure tointerest rate movements on a portion of its variable rate debt obligations.

 

In May 2003 the Company entered into an interest rateswap agreement expiring November 2005, and subsequently terminated theagreement in December 2003.  The net gainat termination of approximately $0.2 million was reported in accumulated othercomprehensive income and was amortized into earnings over the original contractterm.

 

In connection with the Company’s private placement of$360 million of second priority senior secured notes in August 2003 and the useof proceeds therefrom to repay and terminate all outstanding term A loans underthe credit facility and all but $25.0 million of the outstanding term B loansunder its credit facility (Note 6), the Company reclassified approximately $1.8million of deferred losses previously reported as a component of accumulatedother comprehensive income into other expense in 2003.

 

**ForeignCurrency Risk**

The Company periodically uses forward contracts tomanage its exposure associated with forecasted international revenue andexpense transactions denominated in euro and British Pound Sterling for up to15 months in the future.  Changes in thefair value of these instruments are reported as a component of accumulatedother comprehensive income in stockholder’s equity and are recognized inearnings as the underlying revenue or expense is recognized.  Forward contracts not designated as hedginginstruments under SFAS No. 133 are also used to manage the impact of thevariability in exchange rates.  Changesin the fair value of these foreign exchange contracts are recognized in currentearnings.

 

At December 31, 2005, the Company had no foreignexchange derivative contracts.

 

F-17

----

 

**AccumulatedOther Comprehensive Income (Loss)**

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

 
| ** **                                                             | ** ** | **Interest  Rate** | ** ** | **Foreign**   | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------|------------|--------------------|------------|---------------|------------|------------|------------|
| ** **                                                             | ** ** | **Collar**         | ** ** | **Exchange**  | ** ** | ** ** | ** ** |
| **(in thousands of dollars)**                                          | ** ** | **Agreements**     | ** ** | **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 ofDecember 31, 2005 and 2004.

 

**Statementof Operations**

The following tables summarize the effects of SFASNo. 133 on the Company’s statement of operations related to the ineffectiveportion of the Company’s interest rate collar agreements and changes in thefair value of foreign exchange contracts not designated as hedging instrumentsfor the years ended December 31, 2005 and 2004:

 
| ** **                                        | ** ** | **Interest  Rate** | ** ** | **Foreign**   | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|--------------------|------------|---------------|------------|------------|------------|
| ** **                                        | ** ** | **Collar**         | ** ** | **Exchange**  | ** ** | ** ** | ** ** |
| **(in thousands of dollars)**                     | ** ** | **Agreements**     | ** ** | **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

 

**CreditFacility**

Communications is party to a credit facility (the“Credit Facility”) with a group of financial institutions acting aslenders.  The Credit Facility iscollateralized by Communications’ domestic subsidiaries and is collateralizedby first priority liens on substantially all of the assets of Communicationsand the guarantors.  The Credit Facilitycontains restrictive covenants, including limitations on certain assetdispositions, dividends, investments and other restricted payments.  In addition, the Credit Facility requires aminimum fixed charge coverage ratio (as defined).  Failure to comply with the covenants couldcause an event of default under the Credit Facility.

 

Prior to the June 2005 transaction described below,the Credit Facility consisted of (i) $25.0 million of term B dueOctober 11, 2008, and (ii) $60.0 million of revolving loanavailability through April 11, 2007.

 

In June 2005, Communications repaid the outstandingterm B loans with proceeds from the sale of the Portfolio Group (see Note 4)and amended the Credit Facility to allow Communications to retain its revolvingloan availability at $60.0 million while allowing for repayment of second lienand junior debt with proceeds from the 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.

 

**SeniorSecured Notes**

Communications’Senior Secured Notes consist of $130.0 million of Second Priority SeniorSecured Floating Rate Notes due 2008, which require quarterly amortizationequal to 0.25% of the principal amount thereof (the “floating rate notes”), and$300.0 million of 10.75% Second Priority Senior Secured Notes due 2010 (the“fixed rate notes”).  Interest on the floatingrate notes is payable at a rate equal to three-month LIBOR, which is resetquarterly, plus 7.5%.

 

In June 2005,Communications repurchased $8.7 million of the fixed rate notes pursuant to anoffer to purchase at an offer price of 100% of principal amount tendered, plusaccrued interest to the date of settlement.

 

Separately,Communications also consummated a tender offer in June 2005 for the floatingrate notes and repurchased $117.8 million of the floating rate notes at a priceequal to $1,043 plus a consent payment of $30 per $1,000 principal amounttendered, and accrued and unpaid interest to the date of settlement.  In connection with the tender 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 floating rate notes and fixed rate noteswere initially fully and unconditionally guaranteed on a senior basis, jointlyand severally, by Communications’ wholly owned domestic subsidiaries andcollateralizedby second priority liens on substantially all the collateral pledged againstborrowings under Communications’ Credit Facility (other than the capital stockof certain of its subsidiaries and assets of its parent companies, includingthe Company).  Thefinancial covenants under the notes include limitations, among other things, onCommnuications’ ability to make payments, incur debt incurrence, pay dividends,and make other restricted payments.  Thefixed rate notes remain collateralized by the collateral and subject to therestrictive covenants in the indenture.

 

F-19

----

 

In 2005,Communications recognized$12.6 million loss on extinguishment of debt related to the repurchase,including $8.6 million in tender offer premium and consent fees, a write-off of$3.5 million in unamortized deferred financing costs, and $0.5 million in legalfees and expenses.

 

**SeniorSubordinated Debt**

Communications’ $160.0 million unsecured, 12%senior subordinated notes due 2011 (the “Senior Subordinated Notes”) bearinterest payable semiannually on February 15 and August 15 of eachyear.  The Senior Subordinated Notes arefully and unconditionally guaranteed on a senior subordinated basis, jointlyand severally, by Communications’ wholly owned domestic subsidiaries.  The covenants under the Senior SubordinatedNotes include limitations on certain asset dispositions, payments, debtincurrence, dividends and other restricted payments.

 

**DiscountNotes**

The Company’s senior discount notes dueOctober 2011 (the “Discount Notes”) with a principal amount at maturity of$171.8 million bear interest at 15%, payable semiannually beginningOctober 2005, and have an implied yield to maturity of approximately17.2%.  The notes are redeemable at theCompany’s option at specified premiums through 2007 and at par thereafter.  The notes may also be redeemed at a premiumupon a qualifying change of control of the Company.

 

The Discount Notes are not guaranteed by the Company’ssubsidiaries, do not require cash interest payments until April 2006 andcontain restrictive covenants that, among other things, limit the Company’sability and that of its subsidiaries to incur debt, pay dividends and makeinvestments.  Since the Company is aholding company and its subsidiaries serve as its only source of cash flow, itsability to pay interest on these notes will be dependent upon the receipt ofdividends from its subsidiaries.  TheCredit Facility, the Senior Secured Notes and the Senior Subordinated Notesimpose substantial restrictions on the Company’s subsidiaries’ ability to paydividends to the Company.

 

The restricted payments covenants in Communications’Senior Secured Notes indenture and Senior Subordinated Notes indenture providethat Communications can pay dividends only if its leverage ratio (as defined)is 6.0 to 1.0 or better and only from a “basket” as defined as the amount bywhich its cumulative EBITDA (as defined) since January 1, 2001 exceeds 150% ofCommunications’ cumulative interest expense in that period plus certain otheritems, including proceeds from equity offerings.  Communications’ resultsare subject to a variety of factors, including general economic conditions andconditions in its markets. Although management believes that as of December 31,2005, Communications would be permitted to pay dividends, the Company cannotassure you Communications’ results will allow it to make distributions in lightof these restrictions.  Failure to payinterest on these notes will be a default under the notes and also result in adefault under Communications’ Credit Facility, which could have a materialadverse effect on the Company’s financial position, results of operations, andcash flows and/or could impact the Company’s ability to continue to operatewithout an amendment or restructuring of its credit facility and thenotes.  Notwithstanding the leverageratio limitation on restricted payments, Communications can make restrictedpayments in an aggregate amount of up to $20 million to the Company.  On March 14, 2006, Communications declaredand paid a dividend of $12.9 million to the Company to be used for servicing itsdebt obligations.

 

Accretion of the debt discount on the Discount Noteswas $19.5 million, $21.1 million, and $17.9 million during the years endedDecember 31, 2005, 2004, and 2003.  Theseamounts are included in interest expense in the respective accompanyingconsolidated statements of operations.

 

F-20

----

 

Long-term debt consists of the following atDecember 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 7.50%, 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  |       |
| Senior discount  notes, interest at 15%, due October 2011, net of unamortized discount of  $13,187 and $32,692 at December 31, 2005 and 2004, respectively |       | 158,605  |       | 139,100  |       |
| Non-interest  bearing acquisition note payable, June 2006                                                                                                  |       | 100      |       | —   |       |
|                                                                                                                                                       |       | 620,592  |       | 753,319  |       |
| Less: Current  maturities                                                                                                                                  |       | (201     | )          | (1,300   | )          |
|                                                                                                                                                       |       | $        | 620,391    |     | $          | 752,019 |   |

 

Based on the borrowing rates currently available tothe Company for debt instruments with similar terms and average maturities, thefair value of long-term debt exceeded its carrying value by $56.7 million and$55.6 million at December 31, 2005 and 2004.

 

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

 

Annual maturities of long-term debt for the next fiveyears (excluding amortization of premium) are as follows:

 
| **(in thousands of dollars)** | *** *** | *** *** | *** *** |
|-------------------------------|--------------|--------------|--------------|
|                          |         |         |         |
| 2006                          |         | $            | 201          |   |
| 2007                          |         | 101          |         |
| 2008                          |         | 9,670        |         |
| 2009                          |         | —       |         |
| 2010                          |         | 291,335      |         |
| Thereafter                    |         | 331,792      |         |
|                          |         | $            | 633,099      |   |

 

F-21

----

 

**7.**                                      Stockholder’s Equity

 

**2000Management Incentive Plan**

On October 12, 2000, Holdings adopted the 2000Management Incentive Plan (“the Plan”). A maximum of 4,072,789 shares of Holdings are authorized for grant toparticipants under the Plan.  Options aregranted by Holdings’ board of directors at an exercise price of not less thanthe fair value of Holdings common stock at the date of grant and vest over amaximum of nine years.  In 2005, Holdingsamended and restated the Plan to accelerate the vesting of certain optionsgranted under the Plan.  Although thismodification resulted in a new measurement date for all modified options, theintrinsic value on the date of modification was zero and accordingly resultedin no compensation expense. Shares available for grant under the Plan totaled107,789 at December 31, 2005.

 

For purposes of computing pro-forma compensation costof stock options granted, as summarized in Note 2, the fair value of eachstock option grant was estimated on the date of grant using the Black-Scholes optionpricing model with the following weighted average assumptions for each of theyears ended December 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 itsindustry for estimating its expected stock price volatility.  Holdings has not declared or paid any cashdividends in the past.

 

A summary of stock option activity under the Plan isas follows:

 
| ** **                            | ** ** | ** **      | ** ** | **Weighted** | ** ** |
|---------------------------------------|------------|-----------------|------------|--------------|------------|
| ** **                            | ** ** | ** **      | ** ** | **Average**  | ** ** |
| ** **                            | ** ** | **Options**     | ** ** | **Exercise** | ** ** |
| ** **                            | ** ** | **Outstanding** | ** ** | **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        |       |
|                                       |            |                 |            |              |            |  |

 

F-22

----

 

At December 31, 2005 and 2004, the outstandingstock options had a weighted average remaining contractual life of 5.2 yearsand 6.8 years and an exercise price of $10.00 per option.  Of the options outstanding atDecember 31, 2005 and 2004, 2,762,915 and 2,230,798 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 domesticsubsidiaries.  All domestic employees whoare at least 21 years of age are eligible to participate in the 401(k)Plan.  The Company is required to make amatching contribution, after the employee completes one year of service, to the401(k) Plan and may make discretionary contributions to the 401(k) Plan.  Eligible employees are vested 100% in theirown contributions.  Contributions made bythe Company vest in equal installments over five years.  Total contribution expense was $1.4 million,$1.6 million, and $1.2 million for the year ended December 31, 2005, 2004 and2003.

 

**9.**                                      Income Taxes

 

The Company’s taxable income or loss is included inthe consolidated federal income tax return of Holdings.  Federal income taxes are paid or refundedpursuant to the terms of a tax sharing agreement under which taxes approximatethe amount that would have been computed on a separate company basis.  Taxes payable to Holdings of $0.1 million atDecember 31, 2005 and 2004 are included in Due from parent in theaccompanying consolidated balance sheets.

 

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

 

The summary of loss from continuing operations before(benefit) provision for income taxes was as follows for the years endedDecember 31:

 
| **(in thousands of dollars)** | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Domestic                      |       | $          | (61,220    | )          | $          | (58,201    | )          | $ | (76,007 | ) |
| Foreign                       |       | (1,851     | )          | (249       | )          | (5,025     | )          |
|                          |       | $          | (63,071    | )          | $          | (58,450    | )          | $ | (81,032 | ) |

 

F-23

----

 

The (benefit)provision for income taxes is comprised of the following for the years endedDecember 31:

 
| **(in thousands of dollars)** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                          |       |     |       |     |       |     |       |
| Current                       |       |     |       |     |       |     |       |
| Federal                       |       | $        | —     |     | $          | —   |       | $ | — |   |
| State                         |       | 14       |       | 7        |       | —   |       |
| Foreign                       |       | (675     | )          | 20       |       | 4        |       |
| Deferred                      |       | (8,863   | )          | 6,232    |       | (6,891   | )          |
| Total (benefit)  provision    |       | $        | (9,524     | )        | $          | 6,259    |       | $ | (6,887 | ) |
|                               |            |          |            |          |            |          |            |  |  |  |  |

 

The Company accounts for income taxes following theprovisions of SFAS No. 109, *Accounting for IncomeTaxes*, which requires recognition of deferred tax assets andliabilities for the expected future tax consequences of differing amounts thathave been included in the financial statements or tax returns.  Under this method, deferred tax assets andliabilities are determined based on the difference between the financialstatement and tax bases of assets and liabilities using currently enacted taxrates at which the differences are expected to reverse.

 

Significant components of the Company’s deferredincome taxes were as follows at December 31:

 
| **(in thousands of dollars)**                          | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                   |       |     |       |     |       |
| Net current deferred tax asset                         |       |     |       |     |       |
| Accounts  receivable                                   |       | $        | 467        |     | $          | 367 |   |
| Accrued expenses  and other                            |       | 5,204    |       | 7,560    |       |
| Prepaid and  other                                     |       | (1,037   | )          | (372     | )          |
| Total net  current deferred tax asset                  |       | 4,634    |       | 7,555    |       |
|                                                   |       |     |       |     |       |
| Net noncurrent deferred tax asset                      |       |     |       |     |       |
| Property, plant  and equipment                         |       | 1,246    |       | 777      |       |
| Identifiable  intangible assets                        |       | 17,598   |       | 16,012   |       |
| Goodwill                                               |       | (31,500  | )          | (18,250  | )          |
| U.S. net  operating loss carryforwards                 |       | 40,314   |       | 41,878   |       |
| Foreign  jurisdiction net operating loss carryforwards |       | 8,600    |       | 10,744   |       |
| Financial  derivatives                                 |       | —   |       | (419     | )          |
| Debt discount                                          |       | 23,331   |       | 17,089   |       |
| AMT credit  carryforwards                              |       | 453      |       | 453      |       |
| Total net  noncurrent deferred tax asset               |       | 60,042   |       | 68,284   |       |
| Valuation allowance                                    |       | (96,176  | )          | (94,089  | )          |
| Net deferred income tax liabilities                    |       | $        | (31,500    | )        | $          | (18,250 | ) |

 

The Company has established a valuation allowance tooffset all of these net deferred tax assets. The amortization of goodwill forincome tax purposes resulted in the tax basis of goodwill being less than thecarrying value for financial reporting purposes.  Because goodwill is not amortized forfinancial reporting purposes, the Company has established a deferred taxliability equal to this tax effected basis difference of $31.5 million and$18.3 million at December 31, 2005 and 2004 and has increased the valuationallowance by the same amount. All goodwill resulting from acquisitions during2005 is expected to be deductible for tax purposes.

 

F-24

----

 

At December 31, 2005 and 2004, the Company had netoperating loss carryforwards of $124.6 million and $134.5 million.  Of these losses, $21.5 million and$26.9 million are related to losses generated by the Company’s operationsin foreign tax jurisdictions whose use are subject to the tax laws of such foreignjurisdictions and will be limited by the ability of such foreign entities togenerate taxable income.  Of the totaloperating loss carryforwards at December 31, 2005, approximately $21.5 millionhave no expiration date and approximately $103.1 million expire at variousdates beginning in 2021.  The Company hasrecorded a valuation allowance to offset the potential tax benefits of the losscarryforwards and all other deferred tax assets because their realization isuncertain based on the Company’s operating history.

 

A reconciliation of the Company’s (benefit) provisionfor income taxes at the federal statutory rate to the reported income tax(benefit) provision is as follows:

 
| **(in thousands of dollars)**                                            | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                     |       |     |       |     |       |     |       |
| Income tax  benefit at statutory rates                                   |       | $        | (22,075    | )        | $          | (20,458  | )          | $ | (28,361 | ) |
| Change in  valuation allowance                                           |       | 2,087    |       | 27,580   |       | 28,832   |       |
| State taxes, net  of federal benefit                                     |       | (1,577   | )          | (1,461   | )          | (2,026   | )          |
| Nondeductible  interest                                                  |       | 3,084    |       | 2,616    |       | 2,220    |       |
| 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      |       | 1,007    |       | 259      |       |
| Other, net                                                               |       | 98       |       | (3,238   | )          | (7,285   | )          |
| (Benefit)  provision for income taxes                                    |       | $        | (9,524     | )        | $          | 6,259    |       | $ | (6,887 | ) |

 

**10.**                               Commitments and Contingencies

 

**Leases**

The Company has long-term operating leases for officespace and office equipment.  The leasesgenerally require the Company to pay maintenance, insurance, taxes and otherexpenses in addition to minimum annual rentals. Building and equipment rent expense, including an allocation of certainfacility operating expenses net of sublease rent income of $2.7 million, $0.2million, and $0.2 million, was $7.0 million, $9.1 million and $7.3 million forthe years ended December 31, 2005, 2004 and 2003, respectively.  Future minimum rent commitments underoperating leases with initial terms of one year or more are as follows:

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

 

F-25

----

 

**Litigation**

The Company is a defendant in legal proceedingsarising in the ordinary course of business. Based on information presently available, management has determined thatthe accruals for these routine actions and claims are adequate.  Although recorded accruals includemanagement’s best estimates of probable outcome, the resolution of thesematters cannot be predicted with certainty. Management believes, however, that it is unlikely that any identifiedmatters, either individually or in the aggregate, will have a material adverseeffect on the Company’s results of operations, financial position or cashflows.

 

**11.**                               Segments

 

The Company follows the provisions of SFAS No. 131, *Disclosures about Segments of an Enterprise andRelated Information,*and**hasthree reportable segments: shows and conferences, publications, and directmarketing products and other.  The showand conference segment allows exhibitors a cost-effective means to showcase andsell products and services, while developing business relationships withpotential 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 productsand other segment offers customers mailing lists from the Company’s subscriberand attendee databases; editorial and advertising reprints; direct mailpostcards; and classified, recruitment and industry directory advertising.

 

The Company evaluates the performance of, andallocates resources to, its segments based on contribution margin –defined as net revenue less cost of production and selling, editorial, andcirculation costs (excluding depreciation), which is a non-GAAP measure.  The accounting policies of the reportablesegments are the same as those described in the summary of significantaccounting policies.  There are nointersegment sales or transfers.  Segmentassets are primarily intangible assets, prepaid expenses and accountsreceivable.  Revenue, contributionmargins and segment assets of the Company’s reportable segments are as follows:

 
| ** **                        | ** ** | **Shows**       | ** ** | ** **       | ** ** | **Direct  Marketing** | ** ** | ** **    | ** ** | ** ** | ** ** |
|-----------------------------------|------------|-----------------|------------|------------------|------------|-----------------------|------------|---------------|------------|------------|------------|
| ** **                        | ** ** | **and**         | ** ** | ** **       | ** ** | **Products**          | ** ** | ** **    | ** ** | ** ** | ** ** |
| **(in thousands of dollars)**     | ** ** | **Conferences** | ** ** | **Publications** | ** ** | **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                |       | 82,569        |       | 765,953    |       |
|                              |       |            |       |             |       |                  |       |          |       |       |       |
| Year ended December 31, 2004 |       |            |       |             |       |                  |       |          |       |       |       |
| Revenue                           |       | 107,089         |       | 148,408          |       | 15,569                |       | —        |       | 271,066    |       |
| Contribution  margin (loss)       |       | 62,598          |       | 45,912           |       | 8,910                 |       | (4,531        | )          |       |       |
| Segment assets                    |       | 502,663         |       | 293,399          |       | 33,849                |       | 84,999        |       | 914,910    |       |
|                              |       |            |       |             |       |                  |       |          |       |       |       |
| Year ended December 31, 2003 |       |            |       |             |       |                  |       |          |       |       |       |
| Revenue                           |       | 90,232          |       | 89,310           |       | 11,993                |       | —        |       | 191,535    |       |
| Contribution margin  (loss)       |       | 53,135          |       | 31,137           |       | 5,865                 |       | (3,667        | )          |       |       |
| Segment assets                    |       | 563,055         |       | 279,792          |       | 33,349                |       | 112,977       |       | 989,173    |       |
|                                   |            |                 |            |                  |            |                       |            |               |            |            |            |  |  |  |  |  |

 

F-26

----

 

The reconciliation of total segment contributionmargin to consolidated loss from continuing operations before taxes andcumulative effect of accounting change is as follows for the years endedDecember 31:

 
| **(in thousands of dollars)**                                                     | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-----------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total segment contribution margin                                                 |       | $          | 120,214    |       | $          | 112,889    |       | $ | 86,470 |   |
| General and administrative expense                                           |       | (41,677    | )          | (41,334    | )          | (31,581    | )          |
| Restructuring charge                                                              |       | (4,771     | )          | 4,015      |       | (2,692     | )          |
| Depreciation and amortization                                                     |       | (37,755    | )          | (43,089    | )          | (46,107    | )          |
| Other expense (primarily interest)                                                |       | (99,082    | )          | (90,931    | )          | (87,122    | )          |
| Consolidated loss  before income taxes and cumulative effect of accounting change |       | $          | (63,071    | )          | $          | (58,450    | )          | $ | (81,032 | ) |

 

Financial information relating to the Company’scontinuing operations by geographic area is as follows for the years endedDecember 31:

 
| **(in thousands of dollars)** | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenue**                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| United States                 |       | $          | 280,059    |       | $          | 262,618    |       | $ | 178,547 |   |
| International                 |       | 8,854      |       | 8,448      |       | 12,988     |       |
|                          |       | $          | 288,913    |       | $          | 271,066    |       | $ | 191,535 |   |
|                               |            |            |            |            |            |            |            |  |  |  |  |

 
| **(in thousands of dollars)** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|
|                          |       |     |       |     |       |
| **Long-Lived Assets**         |       |     |       |     |       |
| United States                 |       | $        | 656,590    |     | $          | 672,590 |   |
| International                 |       | 22,855   |       | 26,295   |       |
|                          |       | $        | 679,445    |     | $          | 698,885 |   |

 

**12.**                               Restructuring Activity

 

Related to the sale of thePortfolio Group (see Note 4), in May 2005, the Company ceased use of certainleased office space in New York, NY, Milford, CT, and Santa Ana, CA. In thethird quarter of 2005, the Company vacated additional leased office space inMilford, CT and Chicago, IL. These activities resulted in charges to the Company’s operationsduring the year ended December 31, 2005.These charges consist of the discounted remaining future minimum lease paymentsdue under non-cancelable leases, net of estimated future sublease income. Theselease commitments expire at various dates through 2010.

 

In connection with the sale ofthe Portfolio Group and the reorganization of the Company’s healthcare andsupport department management team restructuring of its operations during 2005,the Company notified 120 employees that they would be severed from the Company.The Company took a charge to operations during the year ended December 31, 2005 for severance and other termination costs.  As of December 31, 2005, 116 employees havebeen terminated. Severance payments will continue into 2006.

 

F-27

----

 

In September 2003, the Company consolidated itsmidtown New York leased office 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.  These activities included a charge for thepresent value of future facility rental payments, net of sublease income.  The Company will continue to pay facilitylease costs, net of sublease income, associated with the previously usedfacilities through August 2015.

 

The Company integrated many ofthe sales, marketing, technology and operating functions of Advanstar.com withCommunications and its core activities in publishing, shows and direct marketingproducts.  These restructuring activitieswere completed by the end of 2001, except for facility lease costs, whichcontinue through June 2010, including leasehold improvements from the facilityAdvanstar.com vacated.  The facilitylease obligation was settled in May 2004 for less than amounts owed under thelease.  An $4.0 million favorablesettlement (net of fees and related expenses) of the lease obligation wasrecognized as an offset to operating expenses in 2004.

 

Restructuring charges incurredare as follows forthe years ended December 31:

 
| **(in thousands of dollars)**                  | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Facility exit costs                            |       | $          | 2,499      |       | $          | —     |       | $ | 2,692 |   |
| Advanstar.com lease settlement                 |       | —     |       | (4,015     | )          | —     |       |
| Employee severance and other termination costs |       | 2,272      |       | —     |       | —     |       |
| Restructuring charge                           |       | $          | 4,771      |       | $          | (4,015     | )          | $ | 2,692 |   |
|                                                |            |            |            |            |            |            |            |  |  |  |  |

 

The Change in restructuringaccruals is as follows (in thousands):

 
| **(in thousands of dollars)**              | ** ** | **Facility  Exit  Costs** | ** ** | **Employee  Severance** | ** ** | **Total**  | ** ** |
|--------------------------------------------|------------|---------------------------|------------|-------------------------|------------|------------|------------|
| ** **                                 | ** ** | ** **                | ** ** | ** **              | ** ** | ** ** | ** ** |
| **Balance at December 31, 2003** |       | $                         | 8,565      |                    | $          | —     |       | $ | 8,565 |   |
| Restructuring charge                       |       | —                    |       | —                  |       | —     |       |
| Utilized-cash                              |       | (2,571                    | )          | —                  |       | (2,571     | )          |
| Utilized-non-cash                          |       | (4,167                    | )          | —                  |       | (4,167     | )          |
| **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 accrualbalance in the accompanying consolidated balance sheet is $4.2 million and $1.8million at December 31, 2005 and 2004, of which $2.1 million and $0.5 millionis in other

 

F-28

----

 

accrued expenses at December 31,2005 and 2004, and $2.1 million and $1.3 million is in other long termliabilities at December 31, 2005 and 2004.

 

**13.**                               Related-Party Transactions

 

**FinancialAdvisory Fees and Agreements**

In 2003, Credit Suisse Corporation (“CS Corp.”), anaffiliate of the DLJ Merchant Banking funds, provided services to the Companyin connection with the arrangement and syndication of the Credit Facility andas a lender thereunder.  CS Corp. was an initial purchaser of the SeniorSecured Notes. 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 $1.5million to Credit Suisse Securities (USA), LLC (“CSS (USA)”), an affiliate ofCS Corp. related to the sale of the Portfolio Group (see Note 4).

 

In June 2005, the Company repurchased $7.1 million of itsfixed rate notes at par, and $4.6 million of its floating rate notes at a priceequal to 107.3% of principal, from CSS (USA) pursuant to Communications’ tenderoffer (see Note 6).

 

The Company has agreed to pay CSS (USA) an annualadvisory fee of $0.5 million until the earlier of (i) an initialpublic offering of Holdings, (ii) the date when the DLJ Merchant Bankingfunds own less than 16-2/3% of the shares of Holdings’ common stock held bythem on the closing date of the DLJ Acquisition or (iii) October 11, 2005.This amount was expensed as incurred.

 

F-29

----

 

**2.****            ****Financial Statement Schedules**

 

**Schedule I****3⁄4****Condensed Financial Information of Advanstar, Inc. (Parent Company)**

 
| **Condensed Balance Sheet - December 31,** | ** ** | **2005**            | ** ** | **2004** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------|------------|---------------------|------------|----------|------------|------------|------------|
| ** **                                                          | ** ** | **(In  thousands)** |       |     |       |
|                                                                |       |                |       |     |       |       |       |
| Cash and cash equivalents                                           |       | $                   | 32         |     | $          | 32         |       |   |   |
|                                                                |       |                |       |     |       |       |       |
| Total current  assets                                               |       | 32                  |       | 32       |       |       |       |
|                                                                |       |                |       |     |       |       |       |
| Investment in subsidiaries                                          |       | 187,804             |       | 181,676  |       |       |       |
| Debt issuance costs                                                 |       | 513                 |       | 638      |       |       |       |
|                                                                |       |                |       |     |       |       |       |
| Total assets                                                        |       | $                   | 188,349    |     | $          | 182,346    |       |   |   |
|                                                                |       |                |       |     |       |       |       |
| Total current liabilities                                           |       | 5,534               |       | 55       |       |       |       |
| Long-term debt                                                      |       | 158,605             |       | 139,100  |       |       |       |
| Due to affiliate, net                                               |       | 17,623              |       | 16,968   |       |       |       |
| Stockholder’s equity                                           |       | 6,587               |       | 26,223   |       |       |       |
|                                                                |       |                |       |     |       |       |       |
| Total  liabilities and stockholder’s equity                    |       | $                   | 188,349    |     | $          | 182,346    |       |   |   |

 
| ** **                                            | ** ** | **Year Ended** | ** ** |
|-------------------------------------------------------|------------|---------------------|------------|
| **Condensed Statements of Operations** | ** ** | **2005**            | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                            | ** ** | **(In  thousands)** | ** ** |
|                                                  |       |                |       |   |   |   |   |
| Revenue                                               |       | $                   | —     |   | $ | — |   | $ | — |   |
| Operating loss                                        |       | (762                | )          | (706 | ) | (676 | ) |
| Interest expense                                      |       | (25,002             | )          | (21,233 | ) | (18,050 | ) |
| Other expense                                         |       | —              |       | — |   | — |   |
| Provision (benefit) for income taxes                  |       | —              |       | — |   | — |   |
| Equity in losses of subsidiaries                      |       | 3,960               |       | (45,188 | ) | (51,418 | ) |
|                                                  |       |                |       |   |   |   |   |
| Net loss                                              |       | $                   | (21,804    | ) | $ | (67,127 | ) | $ | (70,144 | ) |

 
| ** **                                                | ** ** | **Year Ended** | ** ** |
|-----------------------------------------------------------|------------|---------------------|------------|
| **Condensed Statements of Cash Flow** | ** ** | **2005**            | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                | ** ** | **(In  thousands)** | ** ** |
|                                                      |       |                |       |   |   |   |   |
| Cash provided by operating activities                     |       | $                   | —     |   | $ | 1 |   | $ | 1 |   |
| Cash used by investing activities                         |       | —              |       | — |   | (60,000 | ) |
| Cash provided by financing activities                     |       | —              |       | — |   | 60,000 |   |
| Cash at beginning of year                                 |       | 32                  |       | 31 |   | 30 |   |
| Cash at end of year                                       |       | 32                  |       | 32 |   | 31 |   |
|                                                           |            |                     |            |  |  |  |  |  |  |  |

 

Notes to CondensedFinancial Statements

 

1                                          Basisof presentation:

In theparent-Company-only financial statements, the Company’s investment insubsidiaries is stated at cost plus equity in undistributed earnings ofsubsidiaries, plus additional investment in subsidiaries. Parent-Company-onlyfinancial statements should be read in conjunction with the Company’sconsolidated financial statements.

 

2                                          Long-termdebt:

Long-term debt consistsof the Discount Notes (see Note 6 to the consolidated financial statements -Debt).

 

II-1

----

 

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

 

**Advanstar, Inc.**

**Valuation andQualifying Accounts**

 
| ** **                          | ** ** | ** **        | ** ** | **Charged  to** | ** ** | **Charged  to**     | ** ** | ** ** | ** ** | ** **      | ** ** |
|-------------------------------------|------------|-------------------|------------|-----------------|------------|---------------------|------------|------------|------------|-----------------|------------|
| ** **                          | ** ** | **Balance  at**   | ** ** | **Costs  and**  | ** ** | **Other**           | ** ** | ** ** | ** ** | **Balance  at** | ** ** |
| ** **                          | ** ** | **Beginning  of** | ** ** | **Expenses**    | ** ** | **Accounts**        | ** ** | ** ** | ** ** | **End of**      | ** ** |
| **Allowance for doubtful accounts** | ** ** | **Period**        | ** ** | **Additions**   | ** ** | **Deductions  (1)** | ** ** | **Period** | ** ** |
|                                |       |              |       |            |       |                |       |       |       |            |       |
| Year Ended December 31,             |       |              |       |            |       |                |       |       |       |            |       |
|                                |       |              |       |            |       |                |       |       |       |            |       |
| 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)                                  Uncollectible accounts written off.

 

All other financial schedules are omitted becausethey are not applicable or the information is included in the financialstatements or related notes.

 

II-2

----

 

**3****. Exhibits**

 
| **Exhibit  No.** | ** ** | **Document**                                                                                                                                                                                                                                                                                                                                                      |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                                                                                                                                                                                                                                                              |
| 2.1              |       | Agreement  and Plan of Merger dated August 14, 2000 among Advanstar, Inc., Advanstar Holdings  Corp. (formerly known as Jetman Acquisition Corp.), Junior Jetman Corp. and  AHI Advanstar LLC (filed as Exhibit 2.1 to Form 8-K of Advanstar, Inc. filed  with the Securities and Exchange Commission on October 26, 2000, and  incorporated by reference herein) |
| 2.2              |       | 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 current report on  Form 8-K filed on October 16, 2003 and incorporated by reference herein)                                               |
| 2.2.1            |       | 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 current report on Form 8-K filed on October 16, 2003 and  incorporated by reference herein) |
| 2.3              |       | 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, 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 Certificate of Incorporation of Advanstar, Inc.  (Previously filed as an exhibit to the Company’s Quarterly Report on  Form 10-Q for June 30, 1999 and incorporated by reference herein)                                                                                                                               |
| 3.2              |       | By-Laws  of Advanstar, Inc. (Previously filed as an exhibit to the Company’s  Registration Statement on Form S-4 (333-57201) and incorporated by reference  herein)                                                                                                                                                                                          |
| 3.2.1            |       | Amended  and Restated By-Laws of Advanstar, Inc. (Previously filed as an exhibit to  the Company’s Registration Statement on Form S-4 (333-57201) 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  Advanstar Communications Inc.’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  Advanstar Communications Inc.’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 Advanstar Communications  Inc.’s Registration Statement (333-109648) and incorporated by reference  herein)                          |
| 4.4              |       | Indenture  dated as of February 21, 2001 between Advanstar, Inc. and the Trustee  (Previously filed).                                                                                                                                                                                                                                                             |
| 4.4.1            |       | Registration  Rights Agreement dated as of February 21, 2001 between Advanstar, Inc. and  Credit Suisse First Boston Corporation, as Initial Purchaser (Previously  filed)                                                                                                                                                                                        |
| 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,                                                                        |

 

II-3

----

 
|   |   | 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)                                                                                                                     |
| 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 Advanstar Communications Inc. 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 Advanstar Communications  Inc. 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)                                                                                      |

 

II-4

----

 
| 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 Advanstar Communications Inc. Annual Report on Form 10-K for 2001 and  incorporated by reference herein) +                                                                                   |
| 10.10   |   | Advisory  Agreement, effective December 10, 2002, between Advanstar, Inc. and Douglas  B. Fox (Previously filed as an exhibit to the Advanstar Communications Inc.  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 Advanstar Communications Inc. and David W.  Montgomery (filed as an exhibit to the Advanstar Communications Inc. Annual  Report on Form 10-K 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 (filed as an exhibit to the Advanstar  Communications Inc. Annual Report on Form 10-K 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  (filed as an exhibit to the Advanstar Communications Inc. Annual Report on  Form 10-K for 2005 and incorporated by reference herein) +                                                     |
| 12.1    |   | Computation  of Ratio of Earnings to Fixed Charges *                                                                                                                                                                                                                                  |
| 21.1    |   | Subsidiaries  of Advanstar, Inc. (Previously filed as an exhibit to Advanstar, Inc.’s  Annual Report on Form 10-K for 2000 and incorporated by reference  herein)                                                                                                           |
| 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*                                                                                                                                     |

 

----

*              Filedherewith

+              Denotesmanagement contract or compensatory plan

 

II-5

----

 

**SIGNATURES**

 

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

 
|   | Advanstar, 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 the Securities Exchange Act of 1934, thisreport has been signed below by the following persons on behalf of theRegistrant, in the capacities indicated, on the 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, |       | March 30, 2006 |
| David W. Montgomery           |       | Secretary  and Principal Accounting Officer       |       |           |
|                          |       |                                              |       |           |
|  /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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