**UNITED STATES**SECURITIES AND EXCHANGE COMMISSION

**Washington, D.C. 20549**

** **

**FORM 10-Q**
| **(Mark One)**                                          | ** **                                                                                    | ** ** |
|---------------------------------------------------------|-----------------------------------------------------------------------------------------------|------------|
| **x**                                                   | **Quarterly Report  Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**  |
| ** **                                              | ** **                                                                                    |
| **For the  quarterly period ended: September 30, 2006** |
| ** **                                              | ** **                                                                                    |
| **OR**                                                  |
| ** **                                              | ** **                                                                                    |
| **o**                                                   | **Transition Report  Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |

 

**Commission File Number: 333-61386**

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

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

#####  

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

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes xNo o

Indicateby check mark if the registrant is a large accelerated filer, an acceleratedfiler or a non accelerated filer.   
| Large Accelerated  Filer  o | Accelerated  Filer  o | Non-Accelerated  Filer  x |
|---------------------------------------|---------------------------------|-------------------------------------|

 

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

As of November 14,2006, 100 shares of the registrant’s common stock were outstanding.

 

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# ** **

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

*** ***

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**PART I FINANCIAL INFORMATION**

**Advanstar, Inc.**

**Condensed Consolidated BalanceSheets (Unaudited)**

**(In thousands, except per sharedata)**
| ** **                                                                                                                              | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                              | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| ** **                                                                                                                              |       |                   |       |                  |       |
| **ASSETS**                                                                                                                              |       |                   |       |                  |       |
| Current assets:                                                                                                                         |       |                   |       |                  |       |
| Cash and cash  equivalents                                                                                                              |       | $                      | 41,031     |                  | $          | 46,641 |   |
| Accounts  receivable, net of allowance of $914 and $1,076 at September 30, 2006 and  December 31, 2005                                  |       | 24,070                 |       | 24,607                |       |
| Prepaid expenses                                                                                                                        |       | 7,682                  |       | 7,871                 |       |
| Other                                                                                                                                   |       | 2,337                  |       | 1,965                 |       |
| Total current  assets                                                                                                                   |       | 75,120                 |       | 81,084                |       |
| Due from parent                                                                                                                         |       | 907                    |       | 804                   |       |
| Property, plant and  equipment, net                                                                                                     |       | 25,207                 |       | 21,306                |       |
| Intangible and other  assets:                                                                                                           |       |                   |       |                  |       |
| Goodwill                                                                                                                                |       | 596,988                |       | 594,982               |       |
| Intangibles and  other, net                                                                                                             |       | 42,234                 |       | 63,157                |       |
| Total intangible  and other assets, net                                                                                                 |       | 639,222                |       | 658,139               |       |
| Non current assets held  for sale                                                                                                       |       | 4,620                  |       | 4,620                 |       |
|                                                                                                                                    |       | $                      | 745,076    |                  | $          | 765,953 |   |
|                                                                                                                                    |       |                   |       |                  |       |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY**                                                                                          |       |                   |       |                  |       |
|                                                                                                                                    |       |                   |       |                  |       |
| Current liabilities:                                                                                                                    |       |                   |       |                  |       |
| Current  maturities of long-term debt                                                                                                   |       | $                      | —     |                  | $          | 201 |   |
| Accounts payable                                                                                                                        |       | 20,931                 |       | 12,507                |       |
| Accrued  compensation                                                                                                                   |       | 4,700                  |       | 7,236                 |       |
| Other accrued  expenses                                                                                                                 |       | 40,575                 |       | 36,126                |       |
| Deferred revenue                                                                                                                        |       | 27,668                 |       | 46,472                |       |
| Total current  liabilities                                                                                                              |       | 93,874                 |       | 102,542               |       |
| Long-term debt, net of  current maturities                                                                                              |       | 621,545                |       | 620,391               |       |
| Deferred income taxes                                                                                                                   |       | 37,307                 |       | 31,500                |       |
| Other long-term  liabilities                                                                                                            |       | 8,676                  |       | 4,933                 |       |
|                                                                                                                                    |       |                   |       |                  |       |
| Commitments and  contingencies                                                                                                          |       |                   |       |                  |       |
|                                                                                                                                    |       |                   |       |                  |       |
| Stockholder’s equity:                                                                                                              |       |                   |       |                  |       |
| Common stock,  $.01 par value, 10,000 shares authorized; 100 shares issued and outstanding  at September 30, 2006 and December 31, 2005 |       | —                 |       | —                |       |
| Capital in  excess of par value                                                                                                         |       | 367,136                |       | 370,424               |       |
| Accumulated  deficit                                                                                                                    |       | (393,404               | )          | (372,250              | )          |
| Accumulated  other comprehensive income                                                                                                 |       | 9,942                  |       | 8,413                 |       |
| Total  stockholder’s equity                                                                                                        |       | (16,326                | )          | 6,587                 |       |
|                                                                                                                                    |       | $                      | 745,076    |                  | $          | 765,953 |   |

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

2

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**Advanstar, Inc.**

**Condensed Consolidated Statementsof Operations(Unaudited)**

**(Inthousands)**
| ** **                                                                    | ** ** | **For the  Three Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2006**                                       | ** ** | **2005** | ** ** |
| ** **                                                                    | ** ** | ** **                                     |       |   |   |
| Revenue                                                                       |       | $                                              | 96,049     |   | $ | 85,691 |   |
|                                                                          |       |                                           |       |   |   |
| Operating  expenses:                                                          |       |                                           |       |   |   |
| Cost of production (excluding depreciation)                                   |       | 21,298                                         |       | 16,404 |   |
| Selling, editorial and circulation (excluding  depreciation)                  |       | 31,506                                         |       | 28,392 |   |
| General and administrative (excluding depreciation)                           |       | 18,713                                         |       | 9,105 |   |
| Restructure charge                                                            |       | —                                         |       | 1,041 |   |
| Depreciation and amortization                                                 |       | 8,708                                          |       | 8,927 |   |
| Total operating expenses                                                      |       | 80,225                                         |       | 63,869 |   |
|                                                                          |       |                                           |       |   |   |
| Operating income                                                              |       | 15,824                                         |       | 21,822 |   |
|                                                                          |       |                                           |       |   |   |
| Other income  (expense):                                                      |       |                                           |       |   |   |
| Interest expense                                                              |       | (20,209                                        | )          | (20,202 | ) |
| Interest income                                                               |       | 530                                            |       | 285 |   |
| Loss on extinguishment of debt                                                |       | (102                                           | )          | — |   |
| Other expense, net                                                            |       | (65                                            | )          | (60 | ) |
| (Loss) income  from continuing operations before income taxes                 |       | (4,022                                         | )          | 1,845 |   |
| Provision for  income taxes                                              |       | 1,999                                          |       | 3,346 |   |
| Loss from  continuing operations                                              |       | (6,021                                         | )          | (1,501 | ) |
| Income from  operations of discontinued businesses, net of taxes (see Note 4) |       | 235                                            |       | 191 |   |
| Net loss                                                                      |       | $                                              | (5,786     | ) | $ | (1,310 | ) |

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

3

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**Advanstar, Inc.**

**Condensed Consolidated Statementsof Operations (Unaudited)**

**(In thousands)**
| ** **                                                                    | ** ** | **For the**                | ** ** |
|-------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                    | ** ** | **Nine Months Ended** | ** ** |
| ** **                                                                    | ** ** | **September 30,**          | ** ** |
| ** **                                                                    | ** ** | **2006**                        | ** ** | **2005** | ** ** |
| ** **                                                                    | ** ** | ** **                      |       |   |   |
| Revenue                                                                       |       | $                               | 261,865    |   | $ | 232,253 |   |
|                                                                          |       |                            |       |   |   |
| Operating expenses:                                                           |       |                            |       |   |   |
| Cost of  production (excluding depreciation)                                  |       | 55,243                          |       | 43,923 |   |
| Selling,  editorial and circulation (excluding depreciation)                  |       | 92,047                          |       | 85,058 |   |
| General and  administrative (excluding depreciation)                          |       | 39,263                          |       | 32,010 |   |
| Restructuring  charge                                                         |       | 2,325                           |       | 3,056 |   |
| Depreciation and  amortization                                                |       | 27,400                          |       | 28,404 |   |
| Total operating  expenses                                                     |       | 216,278                         |       | 192,451 |   |
| Operating income                                                              |       | 45,587                          |       | 39,802 |   |
|                                                                          |       |                            |       |   |   |
| Other income (expense):                                                       |       |                            |       |   |   |
| Interest expense                                                              |       | (61,694                         | )          | (67,466 | ) |
| Interest income                                                               |       | 1,530                           |       | 1,128 |   |
| Loss on  extinguishment of debt (see Note 5)                                  |       | (599                            | )          | (12,581 | ) |
| Other expense,  net                                                           |       | (222                            | )          | (72 | ) |
| Loss from continuing  operations before income taxes                          |       | (15,398                         | )          | (39,189 | ) |
| Provision (benefit) for  income taxes                                    |       | 5,869                           |       | (589 | ) |
| Loss from continuing  operations                                              |       | (21,267                         | )          | (38,600 | ) |
| Income from operations  of discontinued businesses, net of taxes (see Note 4) |       | 113                             |       | 41,932 |   |
| Net (loss) income                                                             |       | $                               | (21,154    | ) | $ | 3,332 |   |

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

4

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**Advanstar, Inc.**

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

**(In thousands)**
| ** **                                                                         | ** ** | **For the**                | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                         | ** ** | **Nine Months Ended** | ** ** |
| ** **                                                                         | ** ** | **September 30,**          | ** ** |
| ** **                                                                         | ** ** | **2006**                        | ** ** | **2005** | ** ** |
| Operating  activities:                                                             |       |                            |       |   |   |
| Net (loss) income                                                                  |       | $                               | (21,154    | ) | $ | 3,332 |   |
| Adjustments to reconcile net (loss) income to net  cash from operating activities: |       |                            |       |   |   |
| Impairment of intangible assets                                                    |       | —                          |       | 2,272 |   |
| Depreciation and amortization                                                      |       | 27,400                          |       | 31,356 |   |
| Write-off of deferred financing costs                                              |       | 599                             |       | 3,517 |   |
| Gain on derivative financial instruments                                           |       | —                          |       | (77 | ) |
| Loss on asset disposal                                                             |       | 235                             |       | — |   |
| Gain on sale of business and other assets                                          |       | —                          |       | (52,959 | ) |
| Losses of minority interest holders                                                |       | —                          |       | 566 |   |
| Non-cash interest expense                                                          |       | 2,934                           |       | 20,552 |   |
| Deferred income taxes                                                              |       | 5,807                           |       | 13,766 |   |
| Provision for bad debts                                                            |       | 343                             |       | 739 |   |
| Changes in operating assets and liabilities                                        |       | (4,331                          | )          | (27,141 | ) |
| Net cash provided by (used in)  operating activities                          |       | 11,833                          |       | (4,077 | ) |
|                                                                               |       |                            |       |   |   |
| Investing  activities:                                                             |       |                            |       |   |   |
| Additions to property, plant and equipment                                         |       | (11,824                         | )          | (5,051 | ) |
| Acquisitions of intangible assets and other                                        |       | (41                             | )          | (15,503 | ) |
| Proceeds from sale of business and other assets                                    |       | 37                              |       | 173,842 |   |
| Net cash (used in) provided by investing activities                                |       | (11,828                         | )          | 153,288 |   |
|                                                                               |       |                            |       |   |   |
| Financing  activities:                                                             |       |                            |       |   |   |
| Payments of long-term debt                                                         |       | (9,972                          | )          | (152,142 | ) |
| Proceeds from issuance of long-term debt                                           |       | 10,000                          |       | — |   |
| Payment of deferred finance costs                                                  |       | (1,706                          | )          | (129 | ) |
| Dividends paid to minority interest holders                                        |       | —                          |       | (900 | ) |
| Project grant funds distributed                                                    |       | (175                            | )          | — |   |
| Dividends paid to stockholder                                                      |       | (3,288                          | )          | — |   |
| Net cash used in financing activities                                              |       | (5,141                          | )          | (153,171 | ) |
| Effect of  exchange rate changes on cash                                           |       | (474                            | )          | 660 |   |
| Net decrease in  cash and cash equivalents                                         |       | (5,610                          | )          | (3,300 | ) |
| Cash and cash  equivalents, beginning of period                                    |       | 46,641                          |       | 41,328 |   |
| Cash and cash  equivalents, end of period                                          |       | $                               | 41,031     |   | $ | 38,028 |   |

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

5

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

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

Theaccompanying unaudited condensed consolidated financial statements have beenprepared by Advanstar, Inc. (“Advanstar”), its wholly owned subsidiary,Advanstar Communications Inc. (“Communications”), and Communications’ majorityowned subsidiaries (collectively, the “Company”) in accordance with theinstructions to Form 10-Q and, therefore, do not include all the informationand footnotes required by generally accepted accounting principles for completefinancial statements.  Managementbelieves that all adjustments, consisting solely of normal recurring itemsconsidered necessary for a fair statement of financial position and results ofoperations, have been included.  Thesecondensed consolidated financial statements, however, should be read inconjunction with the audited financial statements and the related notesincluded in the Company’s annual report on Form 10-K for the year endedDecember 31, 2005, filed with the Securities and Exchange Commission on March30, 2006.  The results of operations forthe three and nine months ended September 30, 2006 are not necessarilyindicative of the operating results that may be expected for the entire yearending December 31, 2006.

**2.**                              Summary of Significant Interim AccountingPolicies

**Interim income tax expense**

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

**3.****                              Goodwill and Other Intangible Assets**

Thechanges in the carrying amount of goodwill by operating segment are as follows:

|                                                               | ** ** | **Fashion &** | ** ** | **Life**     | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|--------------|------------|-----------------|------------|------------|------------|------------|------------|
| **(in  thousands)**                                           | ** ** | **Licensing**          | ** ** | **Sciences** | ** ** | **Powersports** | ** ** | **Other**  | ** ** | **Total**  | ** ** |
| Balance as of  December 31, 2005                              |       | $                      | 316,554    |         | $          | 188,837         |       | $          | 79,674     |       | $          | 9,917 |   | $ | 594,982 |   |
| Goodwill  acquired or completion of purchase price allocation |       | —                 |       | —       |       | 41              |       | —     |       | 41         |       |
| Foreign currency  translation                                 |       | —                 |       | —       |       | —          |       | 1,965      |       | 1,965      |       |
| Balance as of September  30, 2006                             |       | $                      | 316,554    |         | $          | 188,837         |       | $          | 79,715     |       | $          | 11,882 |   | $ | 596,988 |   |

 

6

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Trade exhibitor andadvertiser lists are amortized on a double-declining balance method over sixyears and five years, respectively, subscriber lists and other intangibleassets are amortized on a straight-line basis over three to ten years, andtrademarks and trade names are amortized on a straight-line basis over twentyyears.  These intangible assets consistof the following:

|                                         | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|------------------------|------------|-----------------------|------------|
| **(in  thousands)**                     | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| Trade exhibitor  lists                  |       | $                      | 133,360    |                  | $          | 132,936 |   |
| Advertiser lists                        |       | 29,680                 |       | 29,680                |       |
| Subscriber lists                        |       | 6,023                  |       | 6,023                 |       |
| Trade names and  trademarks             |       | 19,211                 |       | 19,211                |       |
| Other intangible  assets                |       | 20,072                 |       | 20,275                |       |
| Deferred  financing costs               |       | 17,600                 |       | 19,789                |       |
|                                    |       | 225,946                |       | 227,914               |       |
| Accumulated  amortization               |       | (183,712               | )          | (164,757              | )          |
| Total intangible and  other assets, net |       | $                      | 42,234     |                  | $          | 63,157 |   |

 

Estimated amortizationexpense of identified intangible and other assets for the remaining threemonths of 2006 and for the next five years is as follows:

| (in thousands) | ** ** | ** ** | ** ** |
|----------------|------------|------------|------------|
| 2006           |       | $          | 2,468      |   |
| 2007           |       | 8,372      |       |
| 2008           |       | 5,454      |       |
| 2009           |       | 1,919      |       |
| 2010           |       | 1,570      |       |
| 2011           |       | 1,092      |       |
|                |            |            |            |  |

**4.**                             Acquisitions, Divestitures andDispositions

**Acquisitions**

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

On September 12, 2005,the Company purchased an off-road consumer event business from Petersen EventsCorporation (“Off-Road Expo”) for $2.2 million in cash.  In addition, the Company may pay additionalcontingent cash consideration to the former shareholders based on the 2006operating revenue from the acquired business. Any contingent consideration paid will be recorded as goodwill whenearned by the former shareholder.

7

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On August 23, 2005, the Company purchased a fashion industry tradeshowbusiness and related products from the owner of POOL Tradeshow (‘‘POOL’’) for$3.0 million in cash. InJuly 2006, the Company and the former owner of POOL entered into an agreementwhich terminated the former owner’s employment with the Company and settled alltheir respective rights and obligations under the POOL asset purchase agreementand the employment agreement which was originally entered into in connectionwith the POOL acquisition.  Uponexecution of this agreement, the Company made an initial payment of $1.5million to the former owner. A final payment of $0.5 million under the agreementwill be made in 2007.  The $2.0 millionconsideration was recorded as compensation expense in the third quarter of2006.  The original POOL purchase agreement provided for additionalcontingent cash consideration to be paid to the former owner based on the 2007and 2008 operating results of POOL and required the owner’s continuedemployment with the Company.  These future contingent purchase price andemployment-related payments were canceled as part of the July 2006 agreement.

On August 19, 2005, the Company purchased Project Global Tradeshow,Inc. (“Project”), a producer of tradeshows serving the fashion industry, for$9.9 million in cash. In addition, the Company may pay additional contingentcash consideration, to the former owners based on the 2007 and 2008 operatingresults of the acquired business and their continued employment with theCompany.  Management currently estimatesthe contingent payment to be $17.5 million. Contingent consideration is estimated when it is probable that it hasbeen earned and will be recorded as compensation expense over the former owners’employment period.  This estimate willchange based on actual future results. For the three and nine months ended September 30, 2006, the Companyrecorded $5.7 million in compensation expense related to the estimated additionalcontingent consideration.

In the second quarter of 2005, the Company completed two otheracquisitions of consumer tradeshow businesses with an aggregate purchase priceof $0.5 million in cash.

In 2004, the Company purchased a portfolio of pharmaceutical industryconferences and magazines (“IVT”) for which it is required to pay additionalcontingent consideration during 2006 based on the 2005 operating results of theacquired businesses and their continued employment with the Company which wasrecorded as compensation expense in 2005 when earned by former shareholders.

The Company has recognizedcontingent consideration for the Acquired Businesses as compensation expense inthe condensed consolidated statements of operations as follows:

|                                   | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(in thousands)**           | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| IVT contingent  consideration     |       | $                                                    | —     |                                                | $          | 360 |   | $ | — |   | $ | 980 |   |
| Project contingent  consideration |       | 5,673                                                |       | —                                              |       | 5,673 |   | — |   |
| POOL contingent consideration     |       | 2,000                                                |       | —                                              |       | 2,000 |   | — |   |
|                                   |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |

 

8

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The change in the balance ofaccrued contingent consideration in the accompanying condensed consolidatedbalance sheet is as follows:

| (in thousands)                          | ** ** | **Total** | ** ** |
|-----------------------------------------|------------|-----------|------------|
| Balance at  December 31, 2005 |       | $         | 1,336      |   |
| Contingent  consideration               |       | 7,673     |       |
| Payments to  former shareholders        |       | (1,948    | )          |
| Balance at September  30, 2006          |       | $         | 7,061      |   |

The contingent considerationaccrual balance in the accompanying condensed consolidated balance sheet is$7.1million and $1.3 million at September 30, 2006 and December 31, 2005, ofwhich $1.4 million and $1.3 million is in other accrued expenses at September30, 2006 and December 31, 2005, and $5.7 million is in other long termliabilities at September 30, 2006.

The pro forma combined operating results of the Acquired Businesses and the Company for the three and nine months endedSeptember 30, 2005 discussed above are not materially different from theCompany’s consolidated results of operations.

**Divestitures****and Dispositions**

The operating results, related income taxes, and any gains or losses ofthe following divestitures and dispositions (collectively, the “DisposedBusinesses”) have been reported in discontinued operations in the condensedconsolidated statements of operations for the three and nine months endedSeptember 30, 2006 and 2005. ** ******Interest expense was not allocated to any of theCompany’s discontinued operations.****

*Arenacross*

In December 2005, the Company sold its Arenacross Championship Seriesbusiness (“Arenacross”) for a total selling price of $0.2 million. The Companyrecorded a $0.4 million loss on the sale. Arenacross had no revenue in the three or nine months ended September30, 2005.

*EastCoast Fashion Tradeshow Acquired from Larkin-Pluznik-Larkin, LLC*

In the second quarter of 2005, the Company discontinued the remainingEast Coast Fashion tradeshow business acquired in the 1999 Larkin transaction (“EastCoast Fashion”) and recognized a $2.3 million impairment, which was thecarrying value of the related intangibles. East Coast Fashion had $0.9 million of revenue in the nine months endedSeptember 30, 2005. East Coast Fashion had no revenue in the three months endedSeptember 30, 2005.

9

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*PortfolioGroup*

On May 23, 2005, the Company and certain affiliates (Communications, AdvanstarExpositions Canada Limited and Advanstar.com) completed the sale of virtuallyall its business assets and liabilities associated with its tradeshows andconferences, trade publications and direct marketing products servinginformation technology, communications, travel, beauty, home entertainment, andportfolio markets, including the shares of the Company’s Hong Kongsubsidiaries.  The shares of the Company’sBrazilian subsidiary were sold to the same buyer in July 2005 after obtainingfinal regulatory approval. Collectively, all of the above properties arereferred to as “the Portfolio Group.” The sale price for these assets andshares was $185.0 million in cash, less selling expenses and working capital adjustments of $11.2million.  The Company recorded a gain of$52.9 million on the sale of these assets.

Revenue of the Portfolio Group, included in discontinued operations inthe condensed consolidated statements of operations for the period from January1, 2005 to May 23, 2005 was $49.0 million.

**Non-Current Assets Held for Sale**

In the second quarter of 2005, the Company committed to a plan to sellits Cleveland office building and land (“the Cleveland Office”). The Companyceased depreciation of these assets, effective the second quarter of 2005. Asof September 30, 2006 and December 31, 2005, the Company reported this buildingand land as assets held for sale in the condensed consolidated balance sheet.

The financial results of the Disposed Businesses included indiscontinued operations in the accompanying condensed consolidated statementsof operations are as follows:

|                                                   | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(in thousands)**                           | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| (Loss) income before  income taxes                |       | $                                                    | (8         | )                                                   | $          | (319 | ) | $ | (175 | ) | $ | 58,249 |   |
| Income tax (benefit)  provision                   |       | (243                                                 | )          | (510                                                | )          | (288 | ) | 15,751 |   |
| Minority interests                                |       | —                                               |       | —                                              |       | — |   | (566 | ) |
| Income from operations of discontinued businesses |       | $                                                    | 235        |                                                | $          | 191 |   | $ | 113 |   | $ | 41,932 |   |

 

The Company allocated $121.8 million of goodwill to the Portfolio Groupand included the allocated goodwill in its calculation of gain on disposal inthe second quarter of 2005. Goodwill allocated to the Portfolio Group was basedon its relative fair value to the entire reporting unit prior to disposal.

10

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**5.**                          Debt

**Creditfacility**

Communications is party to a credit facility (the “Credit Facility”)with a group of financial institutions acting as lenders. On May 24, 2006,Communications amended and restated its existing credit facility. The amendedCredit Facility reduced the revolving loan from $60.0 million to $50.0 million,added a $10.0 million Term Loan, modified or eliminated certain restrictivecovenants and extended the maturity date from April 2007 to May 2009 for theentire Credit Facility.  The CreditFacility is guaranteed by the Company’s parent, Advanstar Holdings Corp., theCompany and Communications’ domestic subsidiaries and is collateralized byfirst priority liens on substantially all of the assets of the Communicationsand the guarantors.  As a result of theamendment and restatement of the Credit Facility, Communications expensedunamortized deferred finance costs of $0.5 million and capitalized additionaldeferred finance costs of $1.5 million.

The Credit Facility contains restrictive covenants, includinglimitations on certain asset dispositions, dividends, investments and otherrestricted payments.  Failure to comply with the covenants couldcause an event of default under the Credit Facility.  As of September 30, 2006, Communications had $2.1 million of unused letters ofcredit, which reduced borrowings available under the Credit Facility to $47.9million.

Prior to June 2005, the Credit Facility consisted of (i) $25.0million of term B loans due October 11, 2008, and (ii) $60.0 millionof revolving loan availability through April 11, 2007.  In June 2005, Communications repaid theoutstanding term B loans with proceeds from the sale of the Portfolio Group(see Note 4).

**Seniorsecured notes**

Communications’ SeniorSecured Notes initially consisted of $130.0 million of Second Priority SeniorSecured Floating Rate Notes due 2008, which required 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 “fixedrate notes”).

The fixed rate notes are fully and unconditionally guaranteed on asenior basis, jointly and severally, by Communications’ wholly owned domesticsubsidiaries and collateralized by second priority liens on substantially all the collateral pledgedagainst borrowings under Communications’ Credit Facility (other than thecapital stock of certain of its subsidiaries and assets of its parentcompanies, including the Company and Advanstar Holdings Inc. (“Holdings”),the Company’s parent).   The covenantsunder the notes include limitations, among other things, on Communications’ability to make payments, incur debt incurrence, pay dividends, and make otherrestricted payments.

In June 2005, Communicationsused a portion of the proceeds from the Portfolio Group sale to repurchase $8.7million of the fixed rate notes at a price equal to 100% of the principalamount plus accrued interest. Communications also consummated a tender offer in June 2005 for thefloating rate notes and repurchased $117.8 million of the floating rate notesat a price equal to $1,073 per $1,000 principal amount tendered plus accruedand unpaid interest to the date of settlement. In the second quarter of 2005, Communications recognizeda $12.6 million loss on extinguishmentof debt related to the repurchase, including $8.6 million in tenderoffer premium and consent fees, a write-off of $3.5 million in unamortizeddeferred financing costs, and $0.5 million in legal fees and expenses.

11

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In August 2006,Communications used a portion of the proceeds from the Term Loan to redeemall of its remaining $9.8 million of outstanding floating rate notes atpar.  As a result of the redemption,Communications recognized a $0.1 millionloss on extinguishment of debt related to the redemption for unamortizeddeferred financing costs.

**Senior subordinated debt**

Communications’ $160.0 million unsecured, 12% senior subordinatednotes due 2011 (the “Senior Subordinated Notes”) bear interest payablesemiannually on February 15 and August 15 of each year.  The Senior Subordinated Notes are fully andunconditionally guaranteed on a senior subordinated basis, jointly andseverally, 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.

**Discount notes**

The Company’s senior discount notes due October 2011 (the “DiscountNotes”) with a principal amount at maturity of $171.8 million bearinterest at 15%, payable semiannually beginning October 2005, and have animplied yield to maturity of approximately 17.2%.  The notes are redeemable at the Company’soption 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’s subsidiaries andrequire semi-annual cash interest payments. The Discount Notes containrestrictive covenants that, among other things, limit the Company’s ability andthat 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 SecuredNotes indenture and Senior Subordinated Notes indenture provide thatCommunications can pay dividends only if its leverage ratio (as defined) is 6.0to 1.0 or better and only from a “basket” as defined as the amount by which itscumulative EBITDA (as defined) since January 1, 2001 exceeds 150% ofCommunications’ cumulative interest expense in that period plus certain otheritems, including proceeds from equity offerings.  The Company cannotprovide assurance that Communications’ results will allow it to make futuredistributions in light of these restrictions. Failure to pay interest on thesenotes will be a default under the notes and also result in a default under Communications’Credit Facility, which could have a material adverse effect on the Company’sfinancial position, results of operations, and cash flows and/or could impactthe Company’s ability to continue to operate without an amendment orrestructuring of its credit facility and the notes. Notwithstanding the leverage ratio limitation on restricted payments,Communications can make restricted payments in an aggregate amount ofup to $20 million to the Company, none of which has been used as of September 30,2006. Both on March 14, 2006 and onOctober 14, 2006, Communications declared and paid a dividend of $12.9 millionto the Company to be used for the Company’s April 2006 and October 2006interest payments on the Discount Notes. Debt service on the discount notes will be $38.7 million fromOctober 1, 2006 through December 31, 2007, including payment relating to thedividend made in October 2006.  Althoughthere can be no assurance, the Company expects Communications’ results willallow Communications to continue to make dividend payments to satisfy theCompany’s debt service obligations.

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Accretion of the debt discount on theDiscount Notes was $0.4 million and $6.3 million during the three monthsended September 30, 2006 and 2005 and was $1.0 million and $18.2 million during the nine months endedSeptember 30, 2006 and 2005.  Theseamounts are included in interest expense in the respective accompanyingcondensed consolidated statements of operations.

Long-term debt consists of the following:

|                                                                                                                                                                             | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| **(in thousands)**                                                                                                                                                          | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| Revolving credit  loan, interest at LIBOR plus 2.5%; due 2009                                                                                                               |       | $                      | —     |                  | $          | — |   |
| Term loan,  interest at LIBOR plus 2.5%; 7.82% at September 30, 2006 due 2009                                                                                               |       | 10,000                 |       | —                |       |
| Second priority  senior secured floating rate notes, interest at LIBOR plus 7.5%                                                                                            |       | —                 |       | 9,872                 |       |
| 10.75% Second  priority senior secured notes, due 2010, plus unamortized premium of $570 and  $680 at September 30, 2006 and December 31, 2005, respectively                |       | 291,905                |       | 292,015               |       |
| Senior subordinated  notes, interest at 12.00%, due 2011                                                                                                                    |       | 160,000                |       | 160,000               |       |
| Senior discount  notes, interest at 15.00%, due October 2011, net of unamortized discount of  $12,152 and $13,187 at September 30, 2006 and December 31, 2005, respectively |       | 159,640                |       | 158,605               |       |
| Acquisition note                                                                                                                                                            |       | —                 |       | 100                   |       |
|                                                                                                                                                                        |       | 621,545                |       | 620,592               |       |
| Less current  maturities                                                                                                                                                    |       | —                 |       | (201                  | )          |
|                                                                                                                                                                        |       | $                      | 621,545    |                  | $          | 620,391 |   |

**6.**                          Comprehensive Income

The table below presents comprehensive income, defined as changes inthe equity of the Company excluding changes resulting from investments by anddistributions to shareholders:

| (in thousands)                                                   | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                       | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net (loss)  income                                               |       | $                                                    | (5,786     | )                                                   | $          | (1,310 | ) | $ | (21,154 | ) | $ | 3,332 |   |
| Change in  cumulative translation adjustment                     |       | 567                                                  |       | 2,657                                               |       | 1,529 |   | 2,734 |   |
| Change in  unrealized losses on derivative financial instruments |       | —                                               |       | (26                                                 | )          | — |   | (77 | ) |
| Comprehensive (loss)  income                                     |       | $                                                    | (5,219     | )                                                   | $          | 1,321 |   | $ | (19,625 | ) | $ | 5,989 |   |

** **

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**7.**                          Segments

The Company follows the provisions of SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information.” During the firstquarter of 2006, the Company undertook a strategic change in the monitoring andmanagement of the business to better reflect management’s focus and commitmentto its three industry-focused segments: Fashion & Licensing, Life Sciences,and Powersports.  This change wasprompted as a result of a substantial change in the business organization followingthe divestiture of the Portfolio Group (see Note 4).  The Company has included its non reportableoperating segments in Other.  In theCompany’s most recently filed annual report on Form 10-K for the year endedDecember 31, 2005, the Company’s reportable segments were by product type ratherthan by market sector as currently is being reported.  The Company has restated its segmentinformation for the three and nine months ended September 30, 2005 to reflectthe new reportable segments.

The Company evaluates the performance of, and allocates resources to,its segments based on contribution margin—defined as revenue less cost of production; selling,editorial and circulation; and certain allocated general and administrativecosts, which is a non-GAAP measure.  The accounting policies of the reportable segments are the same as thosedescribed in the summary of significant accounting policies.  There are no inter-segment sales ortransfers.  Assets are not allocated tosegments and therefore have not been presented. Revenue and contribution margins of the Company’s reportable segmentsare as follows:

** **

| (in thousands)              | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                  | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenue                     |       |                                                 |       |                                                |       |   |   |   |   |
| Fashion & Licensing     |       | $                                                    | 51,006     |                                                | $          | 42,740 |   | $ | 110,052 |   | $ | 89,710 |   |
| Life Sciences               |       | 37,452                                               |       | 35,956                                              |       | 112,574 |   | 107,636 |   |
| Powersports                 |       | 4,960                                                |       | 4,596                                               |       | 31,620 |   | 27,655 |   |
| Other                       |       | 2,631                                                |       | 2,399                                               |       | 7,619 |   | 7,252 |   |
| Total                       |       | $                                                    | 96,049     |                                                | $          | 85,691 |   | $ | 261,865 |   | $ | 232,253 |   |
|                        |       |                                                 |       |                                                |       |   |   |   |   |
| Contribution  margin (loss) |       |                                                 |       |                                                |       |   |   |   |   |
| Fashion & Licensing     |       | $                                                    | 28,355     |                                                | $          | 27,343 |   | $ | 62,272 |   | $ | 55,215 |   |
| Life Sciences               |       | 13,289                                               |       | 11,502                                              |       | 36,869 |   | 33,163 |   |
| Powersports                 |       | (325                                                 | )          | (645                                                | )          | 10,085 |   | 7,468 |   |
| Other                       |       | 855                                                  |       | 1,709                                               |       | 2,025 |   | 4,166 |   |

 

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The reconciliation of total segment contribution margin to consolidatedincome from continuing operations before income (loss) taxes is as follows:

| (in thousands)                                                               | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Total segment  contribution margin                                           |       | $                                                    | 42,174     |                                                | $          | 39,909 |   | $ | 111,251 |   | $ | 100,012 |   |
| General and  administrative expense not allocated to segment operations |       | (17,642                                              | )          | (8,119                                              | )          | (35,939 | ) | (28,750 | ) |
| Restructuring  charge                                                        |       | —                                               |       | (1,041                                              | )          | (2,325 | ) | (3,056 | ) |
| Depreciation and  amortization                                               |       | (8,708                                               | )          | (8,927                                              | )          | (27,400 | ) | (28,404 | ) |
| Other expense  (primarily interest)                                          |       | (19,846                                              | )          | (19,977                                             | )          | (60,985 | ) | (78,991 | ) |
| (Loss) income  from continuing operations before income taxes                |       | $                                                    | (4,022     | )                                                   | $          | 1,845 |   | $ | (15,398 | ) | $ | (39,189 | ) |

**8.**                          RestructuringActivity

Related to the sale of the Portfolio Group (seeNote 4), in May 2005, the Company ceased use of certain leased office space inNew York, NY, Milford, CT, and Santa Ana, CA.  In the third quarter of 2005, the Companyvacated additional leased office space in Milford, CT and Chicago, IL. These activities resulted in charges to theCompany’s operations during 2005.  In the first quarter of2006, the Company vacated additional leased office space in New York, NY, andrevised its estimate of expected future sublease income for this space, resulting in additional charges duringthe first quarter of 2006. These chargesconsist of the discounted remaining future minimum lease payments due undernon-cancelable leases, net of estimated future sublease income. These leasecommitments expire at various dates through 2010.

In June 2006, the Company entered into a leasemodification and surrender agreement for approximately 60% of its vacatedoffice space in New York, NY.  Under theterms of the agreement, the Company paid the landlord $2.8 million in cash, thelease covering the surrendered space was terminated and the Company has nofurther future lease obligations for the surrendered space.  In June 2006 the Company adjusted its accrualfor this space based upon the terms of the agreement and recorded a gain of$0.1 million.

During 2005 the Company notified certainemployees that they would be severed from the Company in connection with thesale of the Portfolio Group and the reorganization of the Company’soperating  and support departmentmanagement team.

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Restructuringcharges incurred are as follows:

|                                                 | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(in thousands)**                         | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Facility exit  costs                            |       | $                                                    | —     |                                                | $          | 442 |   | $ | 2,339 |   | $ | 1,236 |   |
| Employee  severance and other termination costs |       | —                                               |       | 599                                                 |       | (14 | ) | 1,820 |   |
| Restructuring  charge                           |       | $                                                    | —     |                                                | $          | 1,041 |   | $ | 2,325 |   | $ | 3,056 |   |

 

The summary of the Company’schange in restructuring accruals is as follows:

| (in thousands)                     | ** ** | **Facility Exit  Costs** | ** ** | **Employee  Severance** | ** ** | **Total** | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|-------------------------|------------|-----------|------------|
| Balance at  December 31, 2005 |       | $                             | 3,412      |                    | $          | 807       |       | $ | 4,219 |   |
| Restructuring charge                    |       | 2,339                         |       | (14                     | )          | 2,325     |       |
| Utilized-cash                           |       | (4,499                        | )          | (766                    | )          | (5,265    | )          |
| Utilized-non-cash                       |       | —                        |       | —                  |       | —    |       |
| Balance at September  30, 2006          |       | $                             | 1,252      |                    | $          | 27        |       | $ | 1,279 |   |

 

The restructuring accrual balance in the accompanying condensedconsolidated balance sheet is $1.3 million and $4.2 million at September 30,2006 and December 31, 2005, of which $0.5 million and $2.1 million is in otheraccrued expenses at September 30, 2006 and December 31, 2005, and $0.8 millionand $2.1 million is in other long term liabilities at September 30, 2006 andDecember 31, 2005.

**9.**                 Stock Based Compensation

On January 1, 2006, the Company adopted Statements of Financial Accounting StandardsNo. 123R, *Share-Based Payment* (“SFAS 123R”).  Under SFAS 123R, the Company’s share basedawards meet the definition of liability awards. As allowed under the provisions of this statement for entities notmeeting the public company definition, the Company adopted the intrinsic valuemethod of accounting for its liability awards. Accordingly, compensation expense and a related liability is recordedonly if the value of the Company’s shares underlying its share based awards aregreater than the awards’ exercise price as of the end of the applicablereporting period.  As of September 30,2006, the Company’s management has determined that the fair value of its commonstock underlying its share based option awards is less than the exercise priceof all its options.  Accordingly, noliability or expense has been recorded during the three or nine months endedSeptember 30, 2006.  The Company had nooptions exercised or cash settlement transactions during the three or ninemonths ended September 30, 2006 relating to its stock option plan.

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Prior to January 1, 2006, the Companyaccounted for its stock options and awards to employees under theprovisions of Accounting Principles Board (“APB”) Opinion No. 25, *Accounting for Stock Issued to Employees*, and relatedinterpretations.  No compensation expenserelating to stock options was recorded in the condensed consolidated statementof operations for the three and nine months ended September 30, 2005.

On October 12, 2000, Holdings adopted the 2000 ManagementIncentive Plan (“the Plan”).  A maximumof 4,072,789 shares of Holdings are authorized for grant to participants underthe Plan.  Options are granted byHoldings’ board of directors at an exercise price of not less than the fairvalue of Holdings common stock at the date of grant and vest over a maximum ofnine years.   Shares available for grantunder the Plan totaled 1,347,789 at September 30, 2006.

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

|                                       | ** ** | ** **      | ** ** | **Weighted** | ** ** |
|---------------------------------------|------------|-----------------|------------|--------------|------------|
| ** **                            | ** ** | ** **      | ** ** | **Average**  | ** ** |
| ** **                            | ** ** | **Options**     | ** ** | **Exercise** | ** ** |
| ** **                            | ** ** | **Outstanding** | ** ** | **Price**    | ** ** |
| Outstanding at December 31, 2005 |       | 3,965,000       |       | $            | 10.00      |   |
| Cancelled                             |       | (1,240,000      | )          | 10.00        |       |
| Outstanding at  September 30, 2006    |       | 2,725,000       |       | $            | 10.00      |   |

 

At September 30, 2006, the outstanding stock options had a weightedaverage remaining contractual life of 5.1 years and an exercise price of $10.00per option.  Of the options outstandingat September 30, 2006, 1,671,978 were exercisable.

**10.**          Related-Party Transactions

**Financial Advisory Fees and Agreements**

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

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

**DividendPayment**

In July 2006, Holdings entered into a stock purchase agreement with theCompany’s former Chief Executive Officer, Robert L. Krakoff.  Pursuant to the agreement, Holdings agreed torepurchase all of the shares of its common stock held by Mr. Krakoff and Mr.Krakoff surrendered all of his stock options in exchange for a $3.3 millionpayment.  The Company declared and paid a$3.3 million dividend to Holdings for purposes of funding this transaction.

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**11.**          Recently Issued Accounting Pronouncements

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

In September 2006, the FASB issued Statement of Financial AccountingStandard No. 157, *Fair Value Measurement*(“SFAS No. 157”). SFAS No. 157defines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles, and expands disclosures about fairvalue measurements. This Statement does not require any new fair valuemeasurements. SFAS No. 157 is effective for the Company on January 1, 2008. TheCompany is currently assessing the impact of SFAS No. 157 on its financialstatements.

The FASB also issued in September 2006 Statement of FinancialAccounting Standards No. 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans*.The new standard requires companies to recognize the overfunded or underfundedstatus of a defined benefit postretirement plan as an asset or liability on thebalance sheet and to recognize changes in that funded status in the year inwhich the change occurs through comprehensive income. SFAS No. 158 provides foradoption effective December 31, 2007. As such, the Company’s consolidatedbalance sheet as of December 31, 2007 will reflect the funded status of ourpostretirement benefit plans, with the offset reported in other comprehensiveincome (loss). The Company is currently assessing the impact of SFAS No. 158 onits financial statements.

**12.**          SubsequentEvent

In October 2006, the Company and one of its vendors entered into atermination agreement to terminate and cancel a long-term contract between theparties originally effective through December 31, 2008.  Under the terms of the new agreement,services will be provided through April 1, 2007 and the Company will pay a $1.9million termination fee.

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**Item 2.**           *Management’s Discussionand Analysis of Financial Condition and Results of Operations*

This quarterly report onForm 10-Q contains forward-looking statements made pursuant to the safe harborprovisions of the Private Securities Litigation Reform Act of 1995.  Investors are cautioned not to place unduereliance on these forward-looking statements, including statements about plansand objectives of management, potential acquisitions, market growth andopportunity.  These forward-lookingstatements are neither promises nor guarantees and involve risks anduncertainties that could cause actual results to differ materially from thoseindicated by such forward-looking statements. You should not expect that these forward-looking statements will beupdated or supplemented as a result of changing circumstances or otherwise, andwe disavow and disclaim any obligation to do so.  Important cautionary statements and riskfactors that would affect actual results are discussed in the our periodicreports and registration statements filed with the Securities and ExchangeCommission, including those under the caption entitled “Risk Factors” in our2005 annual report on Form 10-K filed with the Securities and ExchangeCommission on March 30, 2006.

**Overview**

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

We report our business inthese three industry focused segments:

·                     Fashion& Licensing, which serves the men’s, women’s, children’s and productsourcing sectors of the apparel industry as well as the merchandise licensingindustry through industry tradeshows, conferences and on-line showrooms;publishing targeted magazines and directories; and offering a broad range ofmarketing support services;

·                     LifeSciences, which serves the healthcare, dental, veterinary, pharmaceutical, andscience fields through publishing primary and specialty care magazines andprofessional journals; organizing conferences and other events; developing continuing medical education (“CME”)products; and the creation of a wide variety of custom marketing projects;and

·                     Powersports,which serves the motorcycle, off-road and automotive aftermarket industriesthrough publishing trade and consumer magazines and shows and electronicproducts.

In addition to our threesegments described above, we combine our European, unallocated marketdevelopment and costs to support our e-media operations into “Other.”

Unless otherwise noted,disclosures herein relate only to our continuing operations. All historicalamounts have been reclassified to exclude results and gains or losses fromdiscontinued operations. For further information on discontinued properties,see “Presentation of Financial Information—Acquisitions and Divestitures.”

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The percentage of our totalrevenue by segment for the nine months ended September 30, 2006 and 2005 is asfollows:

|                          | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------|------------|-----------------------------------------------------|------------|
| ** **               | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| Fashion &  Licensing |       | 42                                                  | %          | 39 | % |
| Life Sciences            |       | 43                                                  | %          | 46 | % |
| Powersports              |       | 12                                                  | %          | 12 | % |
| Other                    |       | 3                                                   | %          | 3 | % |

 

Our revenue reaches itshighest levels during the first and third quarters of the year due to thetiming of the MAGIC Marketplace tradeshows and our other large tradeshows andconferences.  Because show and conferencerevenue is recognized when a particular event is held, we may experiencefluctuations in quarterly revenue based on the movement of show dates from onequarter to another.

**Trends and Developments**

Results for the firstnine months of 2006 reflect the successful execution of our strategy to focuswhere we can leverage our strong market positions, customer relationships andmanagement teams.  We continue to developnew revenue streams through a variety of initiatives and are constantlystriving to improve operating efficiency.

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

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

In Life Sciences ourhealthcare projects business continues to develop through the strengthening ofour sales efforts and effectively addressing our pharmaceutical customers’needs to comply with tighter regulations relating to the management anddelivery of educational projects.  Wecontinued our growth initiatives including the launch of five new publicationsand seven new conferences and the development of several new web seminars andother electronic media.

In the first quarter of2006 we established a dedicated electronic media group to focus on developingopportunities for electronic products to meet our customers’ evolving marketingand information requirements.

On May 24, 2006,Communications amended and restated its existing credit facility. The amendedCredit Facility reduced the revolving loan from $60.0 million to $50.0 million,added a $10.0 million Term Loan,modified or eliminated certain restrictive covenants and extended the maturitydate from April 2007 to May 2009 for the entire Credit Facility.** **See“Liquidity and Capital Resources-Credit facility amendment and restatement.”

20

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**Presentation ofFinancial Information**

*Acquisitionsand divestitures*

We continue to look foropportunities to execute our strategy of building significant positions intargeted markets, through the acquisition of identified assets.  In 2005, we completed five acquisitions asfollows:

·                  On September12, 2005, we purchased an off-road consumer event business from Petersen EventsCorporation (“Off-Road Expo”) for $2.2 million in cash.  In addition, we may pay additional contingentcash consideration to the former shareholders based on the 2006 operatingrevenue from the acquired business.

·                  On August 23, 2005, the Company purchasedtwo Fashion industry tradeshows based in Las Vegas from the owner of the POOLTradeshow (‘‘POOL”) for $3.0 million in cash. In July 2006, the formerowner of POOL and we entered into an agreement which terminated the formerowner’s employment with us and settled all their respective rights andobligations under the POOL asset purchase agreement and the employmentagreement.  Upon execution of thisagreement, we made an initial payment of $1.5 million to the former owner, andwill make a final payment of $0.5 million in 2007.  The $2.0 million consideration was recordedas compensation expense in the third quarter of 2006.  The originalpurchase agreement provided for additional contingent cash consideration to be paidto the former owner based on the 2007 and 2008 operating results of POOL andrequired the owner’s continued employment with us.  These futurecontingent purchase price and employment-related payments were canceled as partof the July 2006 agreement.

·                  On August 19, 2005, we purchased Project GlobalTradeshow, Inc. (“Project”), a producer of tradeshows for the fashion industryin New York and Las Vegas, for $9.9 million in cash.  In addition, we may pay additional contingentcash consideration to the former owners based on the 2007 and 2008 operatingresults of the acquired business and their continued employment with us.  Management currently estimates the contingentpayment to be $17.5 million.  Contingentconsideration is estimated when it is probable that it has been earned and willbe recorded as compensation expense over the former owners’ employmentperiod.  This estimate will change basedon actual future results.  We recorded$5.7 million in compensation expense related to the estimated additionalcontingent consideration in the third quarter of 2006.

·                  In 2005, we completed two other acquisitions ofconsumer shows in our Powersports group with an aggregate purchase price of$0.5 million in cash.

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

In addition, non-core divestitures and discontinuedoperations in 2005 include:

·                  On December 31, 2005, we sold our ArenacrossChampionship Series (“Arenacross”) for a total selling price of $0.2 million.We recorded a loss on the sale of $0.4 million in December 2005.** **Arenacross had norevenue in the three or nine months ended September 30, 2005.****Arenacross had a $0.2 million and $0.3 million contributionloss in the three and nine months ended September 30, 2005.

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·                  In the second quarter of 2005, we discontinued theremaining East Coast Fashion tradeshow business acquired in 1999 fromLarkin-Pluznik-Larkin, LLC. (the “East Coast Fashion Group”) as part of our newstrategy.  We recorded a $2.3 millionimpairment charge for the remaining intangible assets of this business in 2005.East Coast Fashion Group had $0.9 million of revenue in the nine months endedSeptember 30, 2005.  Contribution marginfor the nine months ended September 30, 2005 was $0.1 million. East CoastFashion had no revenue or contribution margin for the three months endedSeptember 30, 2005.

·                  On May 23, 2005, we and certain affiliates(Communications, Advanstar Expositions Canada Limited and Advanstar.com)completed the sale of our business assets and liabilities associated with ourtradeshows and conferences, trade publications and direct marketing productsservicing the information, technology, telecommunications, travel, beauty, homeentertainment, and portfolio markets, including the shares of our Hong Kongsubsidiaries.  The shares of ourBrazilian subsidiary were sold in July 2005 after receipt of final regulatoryapproval. Collectively, these assets and shares are referred to as the “PortfolioGroup.” The sale price for the Portfolio Group was $185.0 million less $11.2million in working capital adjustments and expenses.  We recorded a gain on the sale of $52.9million.  Revenue and contribution marginfrom January 1, 2005 to May 23, 2005 was $49.0 million and $14.9 million.

The financial results of the businesses included indiscontinued operations in the accompanying condensed consolidated statementsof operations are as follows:
| ** **                                        | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(in thousands)**                           | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| (Loss) income before  income taxes                |       | $                                                    | (8         | )                                                   | $          | (319 | ) | $ | (175 | ) | $ | 58,249 |   |
| Income tax (benefit)  provisions                  |       | (243                                                 | )          | (510                                                | )          | (288 | ) | 15,751 |   |
| Minority interests                                |       | —                                               |       | —                                              |       | — |   | (566 | ) |
|                                              |       |                                                 |       |                                                |       |   |   |   |   |
| Income from operations of discontinued businesses |       | $                                                    | 235        |                                                | $          | 191 |   | $ | 113 |   | $ | 41,932 |   |

 

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**SelectedFinancial Data**

Thefollowing table sets forth selected statements of operations and otherfinancial data.
| ** **                                                       | ** ** | **For the  Three Months Ended  September 30,** | ** ** | **For the  Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| **(in thousands)**                                          | ** ** | **2006**                                                           | ** ** | **2005**                                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                             | ** ** | ** **                                                         |       |                                                              |       |   |   |   |   |
| **Income Statement Data:**                                       |       |                                                               |       |                                                              |       |   |   |   |   |
| Revenue                                                          |       |                                                               |       |                                                              |       |   |   |   |   |
| Fashion &  Licensing                                         |       | $                                                                  | 51,006     |                                                              | $          | 42,740 |   | $ | 110,052 |   | $ | 89,710 |   |
| Life Sciences                                                    |       | 37,452                                                             |       | 35,956                                                            |       | 112,574 |   | 107,636 |   |
| Powersports                                                      |       | 4,960                                                              |       | 4,596                                                             |       | 31,620 |   | 27,655 |   |
| Other                                                            |       | 2,631                                                              |       | 2,399                                                             |       | 7,619 |   | 7,252 |   |
|                                                             |       |                                                               |       |                                                              |       |   |   |   |   |
| Total revenue                                                    |       | 96,049                                                             |       | 85,691                                                            |       | 261,865 |   | 232,253 |   |
|                                                             |       |                                                               |       |                                                              |       |   |   |   |   |
| Cost of production,  selling, editorial and circulation          |       |                                                               |       |                                                              |       |   |   |   |   |
| Fashion &  Licensing                                         |       | 22,458                                                             |       | 15,338                                                            |       | 47,427 |   | 34,329 |   |
| Life Sciences                                                    |       | 23,658                                                             |       | 23,788                                                            |       | 73,734 |   | 72,133 |   |
| Powersports                                                      |       | 4,912                                                              |       | 4,980                                                             |       | 20,535 |   | 19,433 |   |
| Other                                                            |       | 1,776                                                              |       | 690                                                               |       | 5,594 |   | 3,086 |   |
|                                                             |       |                                                               |       |                                                              |       |   |   |   |   |
| Total cost of  production and selling                            |       | 52,804                                                             |       | 44,796                                                            |       | 147,290 |   | 128,981 |   |
|                                                             |       |                                                               |       |                                                              |       |   |   |   |   |
| General and  administrative expenses                             |       | 18,713                                                             |       | 9,105                                                             |       | 39,263 |   | 32,010 |   |
| Restructuring charge                                             |       | —                                                             |       | 1,041                                                             |       | 2,325 |   | 3,056 |   |
| Depreciation and  amortization                                   |       | 8,708                                                              |       | 8,927                                                             |       | 27,400 |   | 28,404 |   |
|                                                             |       |                                                               |       |                                                              |       |   |   |   |   |
| Operating income                                                 |       | 15,824                                                             |       | 21,822                                                            |       | 45,587 |   | 39,802 |   |
| Other income (expense):                                          |       |                                                               |       |                                                              |       |   |   |   |   |
| Interest expense                                                 |       | (20,209                                                            | )          | (20,202                                                           | )          | (61,694 | ) | (67,466 | ) |
| Interest income                                                  |       | 530                                                                |       | 285                                                               |       | 1,530 |   | 1,128 |   |
| Loss on  extinguishment of debt                                  |       | (102                                                               | )          | —                                                            |       | (599 | ) | (12,581 | ) |
| Other expense,  net                                              |       | (65                                                                | )          | (60                                                               | )          | (222 | ) | (72 | ) |
|                                                             |       |                                                               |       |                                                              |       |   |   |   |   |
| (Loss) income from  continuing operations before income taxes    |       | (4,022                                                             | )          | 1,845                                                             |       | (15,398 | ) | (39,189 | ) |
| Provision (benefit) for  income taxes                            |       | 1,999                                                              |       | 3,346                                                             |       | 5,869 |   | (589 | ) |
|                                                             |       |                                                               |       |                                                              |       |   |   |   |   |
| Loss from continuing  operations                                 |       | (6,021                                                             | )          | (1,501                                                            | )          | (21,267 | ) | (38,600 | ) |
|                                                             |       |                                                               |       |                                                              |       |   |   |   |   |
| Income from operations  of discontinued businesses, net of taxes |       | 235                                                                |       | 191                                                               |       | 113 |   | 41,932 |   |
|                                                             |       |                                                               |       |                                                              |       |   |   |   |   |
| Net (loss) income                                                |       | $                                                                  | (5,786     | )                                                                 | $          | (1,310 | ) | $ | (21,154 | ) | $ | 3,332 |   |

 

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**Results of Operations**

# Three Months Ended SEPTEMBER 30, 2006 Compared tothe Three Months Ended SEPTEMBER 30, 2005

# *Revenue*

Revenue in the thirdquarter of 2006 increased 12.1% to $96.0 million from $85.7 million in the thirdquarter of 2005.

Fashion and Licensing revenue of $51.0 million increased 19.3% or $8.3million from $42.7 million in the third quarter of 2005.  Revenue from MAGIC Marketplace grew11.3% or $4.8 million due to increases in yields, square feet sold and sponsorships.  MAGIC Marketplace square feet grew by 7% over2005 to 1.1 million square feet.  Revenuegrowth of $3.4 million was also generated from our July 2006 New York Projectand POOL events, which were acquired in August 2005.  Our third quarter revenue growth was alsoattributable to our *License!*publicationgrowth in revenue of 36.7% driven by an increase in ad pages over the samequarter of 2005.

Life Sciencesrevenue of $37.5 million increased 4.2% or $1.5 million from $36.0 million inthe third quarterof 2005 primarily due to a 14.8% revenue growth driven by an increase of 20.2%in ad pages from our primary and dental publications,**aswell as the launch of several new publications. Ad page growth for allpublications in the Life Sciences segment was 12.0% in the third quarter of2006 over the same quarter last year.  These revenue gains were partially offset bymarket softness in our IVT pharmaceutical conferences.

Powersports revenue of$5.0 million increased 7.9% or $0.4 million from $4.6 million in the third quarter of 2005.  This increase was driven primarily by strong growth in our automotive publications*.* Ad pages and adrevenue for these automotive publications grew 3.2% and 12.7%.

Revenuefrom our Other operationsin the third quarter of 2006 was$2.6 million compared to $2.4 million reported in the third quarter of 2005.

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

Cost of production,selling, editorial and circulation expenses in the third quarter of 2006increased 17.9% to $52.8 million from $44.8 million in the third quarter of2005.

Fashion & Licensingexpenses in the third quarter of 2006 increased by 46.4%, or $7.2 million, to$22.5 million from $15.3 million in the third quarter of 2005, primarily due tothe expansion of our MAGIC Marketplace, including POOL and Project Las Vegasand our first New York POOL and Project events.

Life Sciences expenses inthe third quarter of 2006 decreased by 0.5%, or $0.1 million, to $23.7 millionfrom $23.8 million in the third quarter of 2005.  Cost declines were primarily due to operatingefficiencies achieved through our restructuring efforts begun in 2005. Thesecost reductions were partially offset by $0.7 million in launch costs for newconferences and publications in the quarter and increased costs to supportgrowth in our primary and dental publications.

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Powersports expenses inthe third quarter of 2006 decreased by 1.4%, or $0.1 million, to $4.9 millionfrom $5.0 million in the third quarter of 2005 due primarily to reduced costsfrom our off-road group.

Expenses of Otheroperations in the third quarter of 2006 were $1.8 million, compared to $0.7million in the third quarter of 2005. This increase is primarily due to the renegotiation of certain tradeshowvendor agreements, investments in the development of our e-media productofferings and launch costs for *OphthalmologyTimes Europe*.

# *General and administrative expenses*

General and administrative costs increased $9.6 million to$18.7 million in the third quarter of 2006 from $9.1 million in the thirdquarter of 2005. This increase is primarily due to a $5.7 million chargerelated to the estimated contingent consideration payments for the Projectacquisition and a $2.0 million charge pursuant to an agreement to settle allfuture contingent payments under the POOL asset purchase agreement includingthe termination of employment of the former owner of POOL.  Additionally,general and administrative expenses in the third quarter of 2006 includes $2.4million in non-recurring charges related to executive separation costs, legalclaims and property obligations. See further informationregarding the Project and POOL transactions in “—Presentation of FinancialInformation—Acquisitions and Divestitures.”

# *Restructuring charge*

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

Effective June 2006, we enteredinto a lease modification and surrender agreement for approximately 60% of ourvacated office space in New York, NY. Under the terms of the agreement, we paid the landlord $2.8 million incash, the lease covering the surrendered space was terminated and we will haveno further future lease obligations for the portion of the spacesurrendered.  At the same time, weadjusted our accrual for this space based upon the terms of the agreement andrecorded a gain of $0.1 million.

During 2005 we notified certainemployees that they would be severed from the Company in connection with thesale of the Portfolio Group and the reorganization of our operating and supportdepartment management team.

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Pre-tax restructuring chargesincurred are as follows:

|                                                | ** ** | **Three Months  Ended  September 30,** | ** ** | **Nine Months  Ended  September 30,** | ** ** |
|------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| **(in thousands)**                        | ** ** | **2006**                                         | ** ** | **2005**                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| Facility exit costs                            | ** ** | $                                                | **—** | ** **                                      | $          | 442 |   | $ | 2,339 |   | $ | 1,236 | ** ** |
| Employee severance and other termination costs | ** ** | **—**                                       | ** ** | 599                                             |       | (14 | ) | 1,820 | ** ** |
| Restructuring  charge                          |       | $                                                | **—** |                                            | $          | 1,041 |   | $ | 2,325 |   | $ | 3,056 |   |

# *Depreciation and amortization expense*

Depreciation andamortization expense decreased $0.2 million to $8.7 million in the third quarterof 2006 from $8.9 million in the third quarter of 2005 primarily due to thereduction in amortization attributable to the effect of the double decliningbalance method of accelerated amortization on our exhibitor and advertiserlists, partially offset by additional amortization expense related to thebusinesses acquired in 2005.

# *Interest expense*

Interest expense was $20.2 million in both the third quarter of 2006and 2005.  The decreased interest expenserelating to the $9.8 million repayment of Communications floating rate notes inAugust 2006 was offset by the increase in interest expense relating to seniordiscount notes accretion. See “—Liquidity andCapital Resources-**secondpriority secured notes.”

At September 30, 2006,$611.5 million, or 98%, of our total debt is at a fixed rate with the remaining2% of our debt subject to interest rate fluctuations.

# *Provision (benefit) for income taxes*

The provision for incometaxes before discontinued operations was $2.0 million in the third quarter of2006 compared to $3.3 million in the third quarter of 2005.  For both 2006 and 2005, the provisionincludes income taxes in certain foreign jurisdictions and a deferred taxprovision related to the basis of goodwill for tax purposes being less than thecarrying value of goodwill for financial reporting purposes.  The third quarter 2005 provision alsoincludes an adjustment to the allocation of taxes between continuing operationsand discontinued operations based on year to date results. This tax provisionis offset by a tax benefit included in discontinued operations. We recorded noincome tax benefit related to the net operating losses we generated during 2005because we established a valuation allowance to offset any related tax benefitsdue to uncertainty about realization of these benefits.

# *Discontinued operations*

In December 2005, we sold our Arenacross ChampionshipSeries for a total selling price of $0.2 million. The loss on the sale of $0.4million was recorded in December 2005.

In the second quarter of 2005, we discontinued theremaining East Coast Fashion tradeshow business acquired in the 1999 Larkintransaction and recognized a $2.3 million impairment charge for the remainingcarrying value of the intangible assets of this business.

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In May and July 2005, we sold certain businesses toQuestex for net cash of $173.8 million. A gain of $52.9 million on the sale of these assets was recorded in2005.

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

# NINE Months Ended SEPTEMBER 30, 2006 Compared to theNINE Months Ended SEPTEMBER 30, 2005

# *Revenue*

Revenue in the first ninemonths of 2006 increased 12.7% to $261.9 million from $232.3 million in thefirst nine months of 2005.

Fashionand Licensing revenue of $110.1 million increased 22.7% or $20.4 million from$89.7 million in the first nine months of 2005. Revenue from our 2006 MAGIC Marketplace Las Vegas spring and fall eventsincreased a combined $13.0 million or 16.5% over 2005 due to an increase insquare feet sold, yields and sponsorships. Total exhibit space for both eventsincreased by 11.7% to 2,145,000 square feet. The August 2005 acquisitions ofPOOL and Project expanded our presence in the contemporary and boutique fashionmarkets.  The spring POOL and Projectevents, which were integrated into MAGIC Marketplace in Las Vegas, along withthe Project and POOL New York events, contributed $12.6 million of revenue and260,000 square feet in the first and third quarters of 2006.  Revenue in the first nine months of 2006 alsobenefited from a successful Licensing International event held in New York and15.3% growth in revenue from our *License!*magazine.

Life Sciencesrevenue of $112.6 million increased 4.6% or $5.0 million from $107.6 million inthe first nine months of 2005.  Revenuefrom healthcare custom projects increased $1.7 million or 21.1% from the firstnine months of 2005 primarily due to more focused selling efforts and our abilityto meet the new pharmaceutical regulatory rules governing the management anddelivery of many of these projects. Strong performances also were achieved fromseveral of our primary care, specialty care and dental publications.  In addition, our launches of *Firstline*and*Modern Hygienist*magazines,and a veterinary conference generated $2.2 million of revenue.  These revenue gains were partially offset bya decline of $2.5 million from our IVT pharmaceutical conferences, *Drug Topics* and *RN Magazine*, aswell as the effect of the sale of *Pharmaceutical Discovery*in late 2005.  Ad page growth for allpublications in the Life Sciences segment grew 6.2% in the first nine months of2006 over the same period last year primarily due to strong performances fromour specialty healthcare, primary healthcare and dental publications.

Powersports revenue of$31.6 million increased 14.3% or $3.9 million from $27.7 million in the firstnine months of 2005.  The International Motorcycle Show events andDealer Expo experienced an increase in square feet of 5.8% and revenue of $1.4million or 9.9% in first nine months of 2006 over the same period lastyear.  In the off-road market we held astrong Off-Road Impact Expo trade event and held our first Off-Road Expo-SaltLake City event, a consumer off-road event acquired in October 2005. Ad revenuefor Powersports publications grew 19.5% or $2.0 million and Powersports adpages grew 15.3% primarily due to strong performance from our automotivepublications as well as the continued development of our Off-Road publications,*DIRTsports* and *Off-RoadBusiness*.

Revenuefrom our Other operationsin the first nine months of 2006was $7.6 million, compared to $7.3 million reported in the first nine months of2005.

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

Cost of production,selling, editorial and circulation expenses in the first nine months of 2006increased 14.2% to $147.3 million from $129.0 million in the first nine monthsof 2005 due to acquisitions and growth across our segments.

Fashion & Licensingexpenses in the first nine months of 2006 increased by 38.2%, or $13.1 million,to $47.4 million from $34.3 million in the first nine months of 2005, primarilydue to our program to expand our MAGIC Marketplace spring and fall and our POOLand Project New York events. Expenses to support our first spring Las VegasPOOL and Project events, included in MAGIC Marketplace, and our first Projectand POOL New York events were $7.5 million for the first nine months of 2006.

Life Sciences expenses inthe first nine months of 2006 increased by 2.2%, or $1.6 million, to $73.7million from $72.1 million in the first nine months of 2005.  The increase primarily is due to $2.6 millionin product launch costs for new conferences and publications launches, a $1.7million increase in healthcare special projects costs related to the growth inthe number of delivered projects, and increased costs associated with our basepublication ad page growth, offset by reductions of $0.9 million in costsrelated to the sold publication *Pharmaceutical Discovery*and $1.9 million in cost reductions due to improved operating efficiencies fromthe restructuring program implemented at the end of the second quarter of 2005.

Powersports expenses inthe first nine months of 2006 increased by 5.7%, or $1.1 million, to $20.5million from $19.4 million in the first nine months of 2005.  Expenses increased primarily due to increaseddirect costs for the Powersports publications in support of ad page increasesover the same period last year and due to our first Off-Road Expo — Salt Lakeevent.

Expenses of our Otheroperations in the first nine months of 2006 were $5.6 million, compared to $3.1million in first nine months of2005.  This increase is primarilydue to the renegotiation of certain tradeshow vendor agreements, investments inthe development of our e-media product offerings and launch costs for *Ophthalmology Times Europe*.

# *General and administrative expenses*

General andadministrative costs increased 22.7% to $39.3 million in the first nine monthsof 2006 from $32.0 million in the first nine months of 2005.  Expenses increased primarily due to the $7.7million of expected payments for our Project and POOL acquisitions, asdescribed above, $0.8 million in executive separation costs, $2.6 million inproperty obligations and increased charges related to outstanding legal claims.These increases were partially offset by operating efficiencies achieved due to2005 restructuring actions. Additionally, the first nine months of 2005 had nonrecurring costs of $1.0 million for employee contingent compensation chargesrelated to the IVT acquisition and $2.7 million in reduced strategic consultingand employee medical costs.

# *Restructuring charge*

See information regardingrestructuring activities in “—Results of Operations-Three Months EndedSeptember 30, 2006 compared to the three months ended September 30,2005-Restructuring charge.”

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# *Depreciation and AmortizationExpense*

Depreciation andamortization expense declined $1.0 million to $27.4 million in the first ninemonths of 2006 from $28.4 million in the first nine months of 2005 primarilydue to the effect of the double declining balance method of acceleratedamortization on our exhibitor and advertiser lists, partially offset byaccelerated depreciation for leaseholds in leased office space vacated in 2006and additional amortization expense related to the businesses acquired in 2005.

# *Interest expense*

Interest expense in the first nine months of 2006 decreased $5.8million, or 8.6%, to $61.7 million from $67.5 million in the first nine monthsof 2005 primarily due to the repayment of $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 theproceeds from the sale of the Portfolio Group. See “—Liquidity and Capital Resources-*SecondPriority Secured and Floating Rate Notes Repayment*.”

Communications incurred$0.6 million in costs related to the write off of unamortized deferred financecosts relating to the amendment and restatement of the credit facility in May2006 and repayment of floating rate notes in August 2006. See “—Liquidityand Capital Resources-**Creditfacility amendment and restatement.”

Communications incurred $12.6 million in costs related to therepurchase of a part of Communications’ fixed and floating rate senior secureddebt in the nine months of 2005, discussed above.  These costs include $8.6 million in tenderoffer premium and consent fees, $3.5 million in unamortized deferred financingcosts, and $0.5 million in legal fees and expenses.

# *Provision (benefit) for income taxes*

The provision for incometaxes before discontinued operations was a provision of $5.9 million in thenine months of 2006 compared to a benefit of $0.6 million in the same periodlast year.  For both 2006 and 2005, theprovision/benefit includes income taxes in certain foreign jurisdictions and adeferred tax provision related to the basis of goodwill for tax purposes beingless than the carrying value of goodwill for financial reporting purposes.  The 2005 tax benefit reflects the tax benefitprovided by losses from continuing operations to the extent that such lossesoffset the income from discontinued operations. This tax benefit is offset by atax provision included in discontinued operations resulting from the operatingincome and gain attributable to the sale of the Portfolio Group business. Werecorded no income tax benefit related to the net operating losses we generatedduring 2006 or 2005 because we have established a valuation allowance to offsetany related tax benefits due to uncertainty about realization of thesebenefits.

# *Discontinued operations*

See information regardingdiscontinued operations in “—Results of Operations-Three Months Ended September30, 2006 compared to the three months ended September 30, 2005-Discontinuedoperations.”

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**Liquidityand Capital Resources**

Thefollowing discussion presents our liquidity and capital resources on aconsolidated basis, including that of our subsidiaries.

We are aholding company and have no direct material operations.  Our principal assets are our ownership ofCommunications, and Advanstar.com, and our only material liabilities are thesenior discounts notes and our guarantee of the Communications creditfacility.  Our principal liquidity needsare for debt service on the senior discount notes.

Communications’principal cash needs are for debt service, capital expenditures, investments in our products and selectiveacquisitions, as well as to provide us with cash to finance our cashneeds.  Its principal sources ofliquidity will be cash flow from operations and borrowings under its creditfacility.

*Sources and uses of funds*

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

Weanticipate that our operating cash flow, together with borrowings under thecredit facility and other future financings and refinancings, will besufficient to fund our anticipated future operating expenses, capitalexpenditures, debt service and other obligations as they become due.  However, our ability to make scheduledpayments of principal, to pay interest on or to refinance our indebtedness andto satisfy our other debt obligations will depend upon our future operating performance.  Ourfuture performance and continued compliance with the covenants contained in ourcredit facility will be affected by general economic, financial,competitive, legislative, regulatory, business and other factors beyond ourcontrol.  We expect to be in compliance with our debt covenants during 2006 and2007.

Historically,our financing requirements have been funded primarily through cash generated byoperating activities and borrowings under Communications’ revolving creditfacility.  From time to time, we havealso raised additional funds through sales of common stock, high yieldofferings and term borrowings under Communications’ credit facility forpurposes of completing selective acquisitions.

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Asof September 30, 2006, we had cash and cash equivalents of $41.0 million andalso had $47.9 million in availability under Communications’ revolving creditfacility.  The following table shows ourcash flow activity for the nine months ended September 30, 2006 and 2005 andincludes the results of discontinued operations, and should be read inconjunction with the consolidated statements of cash flows:

|                                                           | ** ** | **Nine Months Ended  September 30,**                              | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **(in thousands)**                                   | ** ** | **      2006      ** | ** ** | **      2005      ** | ** ** |
| Net cash  provided by (used in) operating activities |       | $                                                                                | 11,833     |   | $ | (4,077) |   |
| Net cash (used  in) provided by investing activities      |       | (11,828                                                                          | )          | 153,288 |   |
| Net cash used in  financing activities                    |       | (5,141                                                                           | )          | (153,171 | ) |
| Effect of  exchange rate changes on cash                  |       | (474                                                                             | )          | 660 |   |
| Net decrease in  cash and cash equivalents                |       | $                                                                                | (5,610     | ) | $ | (3,300 | ) |

 

The $15.9 million increase incash provided by operating activities as compared to the first six months of2005 was due principally to the $4.8 million in improved operating results, anincrease in our outstanding accounts payable by $3.8 million, other long-termliabilities increases of $4.4 million and an increase in cash collected inadvance of our fourth quarter events of $3.7 million, and $9.1 million innon-recurring cash fees and expenses related to our repurchase of a portion ofour outstanding debt in June 2005, partially offset by an increase in cashinterest payments of $8.3 million as we made our first interest payment on theSenior Discount Notes in the second quarter of 2006.

Net cash used in investing activities increased $165.1 million to $11.8 million in thefirst nine months of 2006, from $153.3 million provided by investingactivities in the first nine months of 2005. This increase was principally due to the proceeds received in the secondquarter of 2005 from the sale of the Portfolio Group.  We also increased capitalexpenditures in 2006 for computer upgrades, applications development and forbuild-outs and furnishing of our new downsized office in New York.  Weincurred capital expenditures of $11.8 million and $5.1 million in the firstnine months of 2006 and 2005.  Themajority of these expenditures are related to expansions and enhancements toour IT and communications infrastructure and management and operating groupinformation systems, and office build-outs arising from our recent officeconsolidations.  We believe that thisamount of capital expenditure will be adequate to grow our business accordingto our business strategy and to maintain the key tradeshows, publications andbusiness of our continuing operations.

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

Cash used in financing activities in the first ninemonths of 2006 was$5.1 million compared to $153.2 million in the first nine months of2005.  In the first nine months of 2006,we paid $3.3 million in dividends to our stockholder, Advanstar Holdings Corp.to be used for a stock and option repurchase from a former Chief ExecutiveOfficer. Communications repaid $9.8 million of its remaining second priorityfloating rate notes at par in August 2006. Communications borrowed an additional $10.0 million and incurredfinancing costs of $1.5 million in connection with the amendment andrestatement of its credit facility in May 2006 (see “—Credit facility amendmentand restatement”).  In March 2005,Communications repaid $4.6 million of our outstanding Term Loan B with the 2004proceeds from the sale of a tradeshow business. In June 2005, Communications repaid its outstanding Term Loan B of $20.4million and repurchased $126.5 million of its floating and fixed rate notes,using proceeds from the Portfolio Group sale.

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*Debt service*

As of September 30, 2006, we had total indebtedness of$621.5 million and $47.9 million of borrowings available underCommunications revolving credit facility. Our principal debt obligations are described below.

*Credit facility amendment and restatement*

On May 24, 2006, Communications amended and restated its existingcredit facility. The amended credit facility reduced the revolving loancommitment amount from $60.0 million to $50.0 million, added a $10.0 millionTerm Loan, modified certain restrictive covenants and extended the maturitydate from April 2007 to May 2009 for the entire Credit Facility.  The amendment also eliminated the minimum quarterly fixed charge coverage ratiocovenant.

*Credit Facility and Second Priority Secured andFloating Rate Notes Repayment*

Asa result of the sale of the Portfolio Group, Communications’ second prioritysenior secured notes indenture required that Communications either use theremaining net proceeds (after repayment of the Credit Facility borrowings) toinvest in Communications’ business or to offer to purchase Communications’second priority senior secured notes at par plus accrued interest.  In June 2005, Communications offered topurchase up to $140.0 million of the second lien notes.  Holders of the $8.7 million principal amountof the 10.75% Second Priority Senior Secured Notes (the “fixed rate notes”)tendered their notes for purchase, and Communications purchased all such notes.

Alsoin June 2005, Communications completed a cash tender offer for any and all ofCommunications’ outstanding Second Priority Senior Secured Floating Rate Notesdue 2008 (the “floating rate notes”). Holders of the $117.8 million aggregate outstanding principal amount ofthe 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 the tender offer,Communications received consents to proposed amendments to the indenturegoverning the notes, resulting in the elimination of substantially all of therestrictive covenants and certain default provisions with respect to thefloating rate notes.

*Credit facility*

Communications’ Credit Facility consists of a$50.0 million revolving credit facility which terminates in May 2009, and$10.0 million term loan which matures in May 2009.  Borrowings under the Credit Facility generallybear interest based on a margin over, at our option, the base rate orLIBOR.  The applicable margin forrevolving credit loans varies based upon our ratio of consolidated debt toEBITDA, as defined in the credit facility, and is currently 2.5% over LIBOR or2.5% over the base rate.  Communications’obligations under the credit facility are guaranteed by Advanstar HoldingsCorp. (“Advanstar Holdings” or “Holdings”), our parent company, us,Communications, and all Communications’ existing and future domesticsubsidiaries. Communications’ obligations under the Credit Facility arecollateralized by substantially all of the assets of Communications and thesubsidiary guarantors, including a pledge of the capital stock of allCommunications existing and future domestic subsidiaries, a pledge of no morethan 65% of the voting stock of any foreign subsidiary directly owned byCommunications or any domestic subsidiary, a pledge of all intercompanyindebtedness in favor of Communications and Communications domestic subsidiaries,a pledge of Communications, and Advanstar IH, Inc’s capital stock held by usand a pledge of our capital stock held by Advanstar Holdings.   The Credit Facility containsrestrictive covenants, including limitations on certain asset dispositions,dividends, investments and other restricted payments.  Failureto comply with the covenants could cause an event of default under the CreditFacility.

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*Second priority senior secured notes*

Communications’$292.0 million of fixed rate notes mature in 2010.  The notes are guaranteed by each ofCommunications’ existing and future domestic restricted subsidiaries andcollateralized by second-priority liens on the assets collateralizingCommunications’ credit facility (other than certain subsidiary stock and assetsof its parent companies).  The fixed ratenotes bear interest at an annual rate of 10.75%, which is payable semi-annuallyin cash.  The notes contain restrictivecovenants that, among other things, limit Communications’ ability to incurdebt, pay dividends and make investments.

In August 2006,Communications used a portion of the proceeds from its Term Loan to redeemall of its remaining $9.8 million of outstanding floating rate notes at par.

*Senior subordinated notes*

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

*Senior discount notes*

Aspart of the financing for the acquisition of substantially all of the commonstock of Holdings, our parent company, by certain DLJ Merchant Banking funds inOctober 2000, we issued senior discount notes due October 2011 with aprincipal amount at maturity of $103.2 million.  Concurrently with the closing of the offeringof Communications’ 12% senior subordinated notes, we sold additional seniordiscount notes due October 2011 with an additional aggregate principalamount at maturity of $68.6 million. These notes do not require cash interest payments until April 2006 andcontain restrictive covenants that, among other things, limit our ability andthat of our subsidiaries to incur debt, pay dividends and makeinvestments.  However, we are a holdingcompany and our ability to pay interest on these notes will be dependent uponthe receipt of dividends from our subsidiaries. Communications’ credit facility, the senior subordinated notes andsecond priority senior secured notes impose substantial restrictions on oursubsidiaries’ ability to pay dividends.

Therestrictive covenants in Communications’ senior secured notes indenture andsenior subordinated notes indenture provide that Communications can paydividends only if its leverage ratio (as defined) is 6.0 to 1.0 or better andonly from “a basket” equal to the amount by which its cumulative EBITDA (asdefined) since January 1, 2001 exceeds 150% of its cumulative interest expensein that same period plus other items, including proceeds from equity offerings.In addition to the basket and notwithstanding the leverage ratio limitation onrestricted payments, Communications can make additional restricted payments inan aggregate amount of up to $20 million to us. As of December 31, 2005,Communications’ leverage ratio under the most restrictive of these indentures was5.96 to 1.0. Both in March 2006 and October 2006, Communications declared andpaid a dividend of $12.9 million to us to be used for servicing our debtobligations. As of September 30, 2006, Communications’ leverageratio under the most restrictive of these indentures was 5.39 to 1.0.

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Debtservice on the discount notes will be $38.7 million from October 1,2006 through December 31, 2007.  Weexpect Communications’ results will allow it to continue to make dividendpayments to us for purposes of debt service. However, Communications’ resultsare subject to a variety of factors, including general economic conditions andconditions in its markets, and we cannot assure you Communications will be ableto make distributions.   Communications may not generate sufficient cashflow from operations or be permitted by the terms of its debt instruments topay dividends or distributions to us in amounts sufficient to allow us to paycash interest on the notes. If we are unable to meet our debt serviceobligations, we could attempt to restructure or refinance our indebtedness orseek additional equity capital.   Wecannot assure you that we will be able to accomplish these actions onsatisfactory terms or at all.  A defaultunder the senior discount notes could result in an acceleration of alloutstanding loans under Communications’ credit facility which, in turn, wouldtrigger a cross-default under both Communications’ second priority seniorsecured notes and their senior subordinated notes.

*Contractual and contingent obligations*

Ourcontractual obligations (excluding accounts payable and accrued expenses), asof September 30, 2006 are as set forthbelow:
| ** **                          | ** ** | **Payments Due By Period** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|
| **(in millions)**              | ** ** | ** **                                | ** ** | **2006 (1)** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **After  2011** | ** ** | **Total** | ** ** |
| Indebtedness                        |       | $                                         | —     |   | $ | — |   | $ | — |   | $ | 10.0 |   | $ | 291.9 |   | $ | 319.6 |   | $ | — |   | $ | 621.5 |   |
| Interest on  indebtedness (2)       |       | 28.8                                      |       | 77.4 |   | 77.4 |   | 76.9 |   | 68.5 |   | 30.0 |   | — |   | 359.0 |   |
| Contingent  consideration           |       | 0.9                                       |       | 0.5 |   | 17.5 |   | — |   | — |   | — |   | — |   | 18.9 |   |
| Operating lease  obligations        |       | 1.1                                       |       | 4.6 |   | 4.3 |   | 3.0 |   | 2.7 |   | 2.1 |   | 5.8 |   | 23.6 |   |
| Total  contractual cash obligations |       | $                                         | 30.8       |   | $ | 82.5 |   | $ | 99.2 |   | $ | 89.9 |   | $ | 363.1 |   | $ | 351.7 |   | $ | 5.8 |   | $ | 1,023.0 |   |
|                                     |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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

(2)             Intereston our variable rate debt is calculated using LIBOR of 5.32%, the rate ineffect on September 30, 2006.  Becauseour variable rate debt bears interest at a variable rate, actual payments coulddiffer.

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

*Off-balancesheet arrangements*

We haveno material off-balance sheet arrangements.

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*Recentlyissued accounting pronouncements*

In July,2006 the Financial Accounting Standards Board (“FASB”) issued InterpretationNo. 48 (“FIN 48”) *Accounting for Uncertainty in Income Taxes —an interpretation of FASB Statement No. 109*.  FIN 48 prescribesa recognition threshold and measurement process for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return.  Additionally, FIN 48 provides guidance on the derecognition,classification, accounting in interim periods and disclosure requirements foruncertain tax positions.  The accounting provisions of FIN 48 will beeffective for the Company beginning January 1, 2007.  The Company is inthe process of determining the effect, if any, that the adoption of FIN 48 willhave on its consolidated financial statements.

In September 2006, the FASB issued Statement ofFinancial Accounting Standard No. 157, *FairValue Measurement (“*SFAS No. 157”). SFAS No. 157 defines fair value,establishes a framework for measuring fair value in generally acceptedaccounting principles, and expands disclosures about fair value measurements.This Statement does not require any new fair value measurements. SFAS No. 157is effective for the Company on January 1, 2008. The Company is currentlyassessing the impact of SFAS No. 157 on its financial statements.

TheFASB also issued in September 2006 Statement of Financial Accounting StandardsNo. 158, *Employers’ Accounting for DefinedBenefit Pension and Other Postretirement Plans*. The new standardrequires companies to recognize the overfunded or underfunded status of adefined benefit postretirement plan as an asset or liability on the balancesheet and to recognize changes in that funded status in the year in which thechange occurs through comprehensive income. SFAS No. 158 provides for adoptioneffective December 31, 2007. As such, the Company’s consolidated balance sheetas of December 31, 2007 will reflect the funded status of our postretirementbenefit plans, with the offset reported in other comprehensive income (loss).The Company is currently assessing the impact of SFAS No. 158 on its financialstatements.

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

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

# **Interest Rates**

At September 30, 2006, we had fixed rate debt of$611.5 million and variable rate debt of $10.0 million.  A change in interest rates of 1% would not bematerial to our operating results.

# **Currencies**

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

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

*Evaluationof disclosure controls and procedures*.

Advanstar’s ChiefExecutive Officer and Chief Financial Officer, after evaluating theeffectiveness of the Company’s disclosure controls and procedures (as definedin Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, asamended (the “Exchange Act”)) as of the end of the period covered by thisreport (the “Evaluation Date”), have concluded that as of the Evaluation Date,our disclosure controls and procedures were effective.

*Changesin internal controls*.

There were no significantchanges during the Company’s third 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.

It should be noted thatin the third quarter 2006, the Company hired Ted Alpert as the Company’s ChiefFinancial Officer.

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# **PART II         OTHERINFORMATION**

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

**Item 6.                    Exhibits**
| 31.1   |   | Certification of principal executive officer  required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act |
|--------|--------|-----------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                      |
| 31.2   |   | Certification of principal financial officer  required by Rule 13a-14(a) or 15d-14(a) of the Exchange Act |
|   |   |                                                                                                      |
| 32.1   |   | Certification of principal executive officer  required by Rule 13a-14(b) or 15d-14(b) of the Exchange Act |
|   |   |                                                                                                      |
| 32.2   |   | Certification of principal financial officer  required by Rule 13a-14(b) or 15d-14(b) of the Exchange Act |

 

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**SIGNATURES**

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

 
|                    | ** ** | ADVANSTAR, INC.                                                                                                                                          |
|--------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|               | ** ** |                                                                                                                                                     |
|               | ** ** |                                                                                                                                                     |
| November 14,  2006 | ** ** | /s/ Ted S. Alpert                                                                                                                                        |
|               | ** ** | Theodore S. Alpert                                                                                                                                       |
|               | ** ** | Vice President-Finance, Assistant Secretary and  Chief Financial Officer  (Principal Financial Officer and Authorized  Representative of the Registrant) |

 

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

 

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