ADVANSTAR COMMUNICATIONS INC - 10-Q Quarterly Report

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

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

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

As of May 16, 2005, 1,000,000 shares of the registrant's common stock were outstanding.

		Page in this Quarterly Report
	Condensed Consolidated Balance Sheets at March 31, 2005 (unaudited) and December 31, 2004	2
	Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2005 and 2004	3
	Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2005 and 2004	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	*Management's Discussion and Analysis of Financial Condition and Results of Operations*	22
Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*	33
Item 4.	*Controls and Procedures*	34
PART II	OTHER INFORMATION
Item 6.	*Exhibits*	35
Signatures	36

PART I FINANCIAL INFORMATION

Avanstar Communications Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)

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

Advanstar Communications Inc.
Condensed Consolidated Statements of Operations
(In thousands)

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

Advanstar Communications Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)

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

Advanstar Communications Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The accompanying unaudited condensed consolidated financial statements have been prepared by Advanstar Communications Inc. ("Communications," or the "Company") in accordance with the instructions to Form 10-Q and, therefore, do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Management believes that all adjustments, consisting solely of normal recurring items, considered necessary for a fair statement of financial position and results of operations, have been included. These condensed consolidated financial statements, however, should be read in conjunction with the audited financial statements and the related notes included in the Company's annual report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission on March 29, 2005. The results of operations for the three months ended March 31, 2005 are not necessarily indicative of the operating results that may be expected for the entire year ending December 31, 2005.

As permitted by Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, the Company has elected to account for stock options and awards to employees under the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.

If the Company had elected to recognize compensation costs based on the fair value of the options granted as prescribed by SFAS No. 123, net income would have been decreased to the unaudited pro forma amounts indicated in the table below (in thousands):

The Company determines its quarterly income tax provision based upon an estimated annual effective income tax rate. In determining the effective income tax rate applicable to interim periods, the Company excludes tax jurisdictions where no tax expense or benefit is expected for the entire year.

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R, Share-Based Payment, which revises SFAS 123 and supersedes APB 25. This statement establishes standards relating to accounting for transactions in which equity instruments are exchanged for goods or services, such as the granting of employee stock options. Under this statement, the Company must measure the cost of employee services received in exchange for an award of equity instruments based upon the fair value of the award on the date of grant. This cost must be recognized over the period during which an employee is required to provide the service (usually the vesting period). The Company is required to

adopt the provisions of this standard effective January 1, 2006. The Company is currently evaluating the impact of this standard. The adoption of this standard will result in an increase in compensation expense in future periods.

On March 8, 2004, the Company purchased a portfolio of pharmaceutical industry conferences and magazines from the Institute of Validation Technology, Inc. ("IVT") for $7.9 million in cash. In addition, the Company will pay additional contingent cash consideration to the former shareholder based on 2004 and 2005 operating results of the acquired assets and their continued employment with the Company. As of March 31, 2005, the Company has accrued $1.8 million of compensation expense payable to these former shareholders, of which $0.3 million was expensed in the first quarter of 2005. The payable is included in other accrued liabilities in the accompanying consolidated balance sheet as of March 31, 2005.

The results of the following divestitures have been reported in discontinued operations in the consolidated statements of operations for the three months ended March 31, 2005 and 2004.

On March 12, 2004, the Company completed the sale of its art industry tradeshows and magazines (the "Art Group") for a total selling price of $19.6 million in cash. The portfolio included three tradeshows and two publications. The Company recorded a gain on the sale of $1.0 million plus a tax benefit of $2.4 million.

Revenues of the Art Group, included in discontinued operations in the consolidated statements of operations, were $8.5 million for the period from January 1, 2004 to March 12, 2004.

On August 5, 2004, the Company completed the sale of its 65% ownership in its French joint venture ("SeCA"), which consisted of the operation of one tradeshow, for a total selling price of $3.1 million in cash. In connection with the sale, the Company recorded a goodwill impairment charge of $9.4 million, net of minority interest, in the second quarter of 2004. The amount of the impairment charge was determined based upon the excess of the carrying value of the Company's interest in SeCA over the selling price, less the costs incurred by the Company to sell SeCA. SeCA had no revenues for the three months ended March 31, 2004.

On September 8, 2004, the Company sold its German tradeshow business ("DMS") for $1.7 million in cash. In connection with the sale, the Company recorded a goodwill impairment charge of $6.2 million in the third quarter of 2004. The amount of the impairment charge was determined based upon the excess of the carrying value of DMS over the selling price, less the costs incurred by the Company to sell DMS. The Company is continuing to incur accounting and legal fees in connection with the closure of its DMS office. These costs will be reported in income (loss) from discontinued operations.

Revenues of DMS, included in discontinued operations in the consolidated statements of operations, were $0.1 million for the three months ended March 31, 2004.

The financial results of the Art Group, SeCA and DMS included in discontinued operations in the accompanying consolidated statements of operations for the three months ended March 31 are as follows (in thousands):

The amount of goodwill associated with the businesses disposed of was determined based on the relative fair values of the businesses disposed of and the businesses that were retained. The SeCA and DMS disposed businesses were never integrated into the Company's broader reporting units. Thus, the carrying amount of that acquired goodwill was included in the carrying amount of the businesses disposed of.

The Art Group goodwill included in gain on discontinued operations in the Company's reportable segments for the three months ended March 31, 2004 (in thousands) is as follows:

		Trade Shows and Conferences		Trade Publications		Direct Marketing Products and Other		Corporate		Total
Goodwill included in gain on sale of discontinued operations		$	13,264		$	3,346		$	—		$	—		$	16,610

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

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

		March 31, 2005			December 31, 2004
Trade exhibitor lists		$	155,570		$	155,721
Advertiser lists			60,938			60,943
Subscriber lists			29,145			29,145
Trade names and trademarks			17,996			17,996
Other intangible assets			24,409			24,405
Deferred financing costs			22,258			22,258

			310,316			310,468
Accumulated amortization			(219,245	)		(209,294	)

	Total intangible and other assets, net	$	91,071		$	101,174

Estimated amortization expense of identified intangible assets and other for the remaining nine months of 2005 and for the next five years is as follows: (in thousands):

The Company periodically uses derivative instruments to manage exposure to interest rates. The Company's objectives for holding derivatives are to minimize the risks using the most effective methods to eliminate or reduce the impact of these exposures.

Variable rate debt instruments are subject to interest rate risk. In 2001 the Company entered into an interest rate collar agreement expiring February 2004, to manage its exposure to interest rate movements on a portion of its variable rate debt obligations. The effective portion of the cumulative gain or loss on interest rate collar agreement is reported as a component of accumulated other comprehensive income in stockholder's equity and is recognized in earnings as the underlying interest expense is incurred. The ineffective portion of the interest rate collar and swap agreements is recognized in current earnings. The Company used a portion of these agreements as hedges of the Company's second priority senior secured floating rate notes described below. Gains and losses on the undesignated portion of these agreements at the end of each fiscal quarter (which are calculated as the

net amount payable upon termination at the date of determination) were recognized in current earnings until expired.

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

The following table summarizes the effects of SFAS 133 on the Company's accumulated other comprehensive income (loss) as of March 31, 2005 and 2004 (in thousands):

	Interest Rate Collar Agreements
Accumulated other comprehensive income (loss) balance at December 31, 2004	$	103
Unwound from accumulated other comprehensive income (loss) during the period		(26	)

Accumulated other comprehensive income (loss) balance at March 31, 2005	$	77

Accumulated other comprehensive income (loss) balance at December 31, 2003	$	(42	)
Unwound from accumulated other comprehensive income (loss) during the period		(52	)
Mark to market hedge contracts		244

Accumulated other comprehensive income (loss) balance at March 31, 2004	$	150

At March 31, 2005, the Company will reclassify out of accumulated other comprehensive income approximately $0.1 million of deferred gains into earnings within the next 12 months.

The Company had no derivatives in the consolidated balance sheet as of March 31, 2005.

The following tables summarize the effects of SFAS No. 133 on the Company's statement of operations related to the ineffective portion of the Company's interest rate collar agreements and changes in the fair value of foreign exchange contracts not designated as hedging instruments for the three months ended March 31, 2005 and 2004:

Prior to the August 2003 transactions described below, the credit facility (the "Credit Facility") consisted of (i) $415.0 million of term loans A and B payable in quarterly installments through October 11, 2008, and (ii) $80.0 million of revolving loan availability through April 11, 2007. The Credit Facility contained restrictive covenants, which required the Company to, among other things, maintain a minimum fixed charge coverage ratio and maximum quarterly leverage ratio (as defined).

In connection with the Company's private placement in August 2003, described below, the Company repaid all term A loans, all but $25.0 million term B loans, and a portion of the revolving credit borrowings under the Credit Facility. The Company also amended its Credit Facility to reduce the revolving loan availability from $80.0 million to $60.0 million, eliminate the leverage ratio covenant and amend certain other covenants.

Failure to comply with current covenants may cause an event of default under the Credit Facility. Borrowings under the Credit Facility are collateralized by substantially all of the Company's assets. As of March 31, 2005, the Company had $59.1 million of borrowings available under the Credit Facility.

On August 18, 2003, the Company issued $360.0 million of second priority senior secured notes (the "August senior secured notes"). On September 25, 2003, the Company issued an additional $70.0 million of second priority senior secured notes (the "September senior secured notes"), which were issued at a premium (together with the August senior secured notes, the "Senior Secured Notes"). The Senior Secured Notes were issued in two tranches: $130.0 million of Second Priority Senior Secured Floating Rate Notes due 2008, which require quarterly amortization equal 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. Interest on the floating rate notes is payable at a rate equal to three-month LIBOR, which is reset quarterly, plus 7.5%. Each tranche of the notes is collateralized by second priority liens on substantially all the collateral pledged against borrowings under the Company's Credit Facility (other than the capital stock of certain of its subsidiaries and assets of its parent companies). The notes contain restrictive covenants that, among other things, limit the Company's ability to incur debt, pay dividends and make investments. The Company entered into a registration rights agreement in connection with the private placement pursuant to which the Company has registered substantially all of the notes under the Securities Act of 1933, as amended.

The Senior Secured Notes are fully and unconditionally guaranteed on a senior basis, jointly and severally, by the Company's wholly owned domestic subsidiaries. The financial covenants under the Senior Secured Notes include limitations on certain asset dispositions, payments, debt incurrence, dividends and other restricted payments.

The Company's $160.0 million unsecured, 12% senior subordinated notes due 2011 (the "Senior Subordinated Notes") require semiannual interest-only payments on February 15 and August 15 of each year. The Senior Subordinated Notes are fully and unconditionally guaranteed on a senior subordinated basis, jointly and severally, by the Company's wholly owned domestic subsidiaries. The financial

covenants under the Senior Subordinated Notes include limitations on certain asset dispositions, payments, debt incurrence, dividends and other restricted payments.

	March 31, 2005			December 31, 2004
Term loan B, interest at LIBOR plus 4.50%; 7.35% at March 31, 2005, due quarterly through October 11, 2008	$	20,437		$	25,000
Revolving credit loan, interest at LIBOR plus 3.75%; due April 11, 2007		—			—
Second priority senior secured floating rate notes, interest at LIBOR plus 7.5%; 10.29% at March 31, 2005, due 2008		128,050			128,375
10.75% Second priority senior secured notes, due 2010, plus unamortized premium of $806 and $844 at March 31, 2005 and December 31, 2004, respectively		300,806			300,844
Senior subordinated notes, interest at 12.00%, due 2011		160,000			160,000

		609,293			614,219
Less current maturities		(1,300	)		(1,300	)

	$	607,993		$	612,919

The table below presents comprehensive income, defined as changes in the equity of the Company excluding changes resulting from investments by and distributions to shareholders (in thousands):

The Company follows the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," and has three reportable segments: tradeshows and conferences, trade publications and direct marketing products and other.

The Company evaluates the performance of, and allocates resources to, its segments based on contribution margin—defined as net revenue less cost of production and selling, editorial and circulation costs. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. There are no inter-segment sales or transfers. Segment assets are primarily intangible assets, prepaid expenses and accounts receivable. Revenues, contribution margins and segment assets of the Company's reportable segments are as follows (in thousands):

		Trade Shows and Conferences		Trade Publications		Direct Marketing Products and Other		Corporate			Total
Three months ended March 31, 2005
	Revenues	$	62,054	$	46,194	$	5,758	$	—		$	114,006
	Contribution margin (loss)		36,294		11,176		3,237		(1,849	)
	Segment assets (at period end)		499,091		292,085		33,096		81,769			906,041
Three months ended March 31, 2004
	Revenues	$	68,225	$	47,131	$	4,495	$	—			119,851
	Contribution margin (loss)		38,928		13,220		2,423		(942	)
	Segment assets (at period end)		546,253		309,527		33,159		75,864			964,803

The reconciliation of total segment contribution margin to consolidated income from continuing operations before income taxes, minority interests and cumulative effect of accounting change is as follows (in thousands):

		Three Months Ended March 31,
		2005			2004
Total segment contribution margin		$	48,858		$	53,629
General and administrative expense			(14,102	)		(11,215	)
Funding of affiliated dot.com company operations			—			(538	)
Depreciation and amortization			(11,620	)		(11,445	)
Other expense (primarily interest)			(17,470	)		(16,796	)

	Income from continuing operations before income taxes, minority interests and cumulative effect of accounting change	$	5,666		$	13,635

Advanstar.com, Inc. (Advanstar.com), an affiliate of the Company, operates the Company's event and publication-related web sites and develops certain enhanced web opportunities to serve the Company's customers in selected industries. The Company provides Advanstar.com with certain administrative support services and charges for these services based on a general overhead charge. In addition, selected sales, editorial, marketing and production staff of the Company are shared with Advanstar.com. The Company also provides Advanstar.com with marketing and promotional support through advertising pages in its trade publications and exhibit space in its tradeshows. In return, Advanstar.com provides support on its web sites for the Company's trade publications and tradeshows.

Effective January 1, 2005, the Company began consolidating the operations of Advanstar.com with its operations upon the adoption of FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities." As a result of the adoption of FASB Interpretation No. 46R, the Company recorded a $4.6 million gain, which was recorded as a cumulative effect of accounting change in the first quarter of 2005.

Prior to January 1, 2005, the Company recorded advances and notes issued in support of Advanstar.com operations as an operating expense in the Company's consolidated statement of operations, as a reflection of the ongoing nature of the operations of Advanstar.com in support of the Company's operations. Net advances and notes charged to the Company's operations during the three months ended March 31, 2004 were $0.5 million. The Company expects to merge the operations of Advanstar.com with those of the Company by the end of 2005.

As a part of the financing for the acquisition of the Company by the DLJ Merchant Banking Funds in October 2000 and concurrently with the closing of the offering of the Senior Subordinated Notes in February 2001, the Company's parent, Advanstar, Inc., issued discount notes (the "Discount Notes") with an aggregate principal amount at maturity of $171.8 million. These notes do not require cash interest payments until 2006. Neither the Company nor any of its subsidiaries guaranteed the

senior discount notes. Advanstar, Inc., however, is a holding company and its ability to pay interest on these Discount Notes will be dependent upon the receipt of dividends from its subsidiaries, including the Company. The Credit Facility, Senior Secured Notes and the Senior Subordinated Notes impose substantial restrictions on the Company's and its subsidiaries' ability to pay dividends. See Note 11.

On April 2, 2005, the Company, its parent company and certain affiliates (Advanstar Expositions Canada Limited, and Advanstar.com) signed a definitive asset and share purchase agreement, providing for the sale of certain business assets and liabilities associated with its tradeshows and conferences, trade publications and direct marketing products in the following primary industries: Information Technology & Communications, Travel/Hospitality, Beauty, Home Entertainment, Abilities and Portfolio, including the shares of the Company's Brazilian and Hong Kong subsidiaries to QUESTEX Media Group. The purchase price for these assets and shares, payable at closing, is $185 million in cash, plus the assumption of certain liabilities (including, without limitation, deferred revenue liabilities), less a $7 million working capital adjustment, and a post-closing distribution to us from our Brazilian subsidiary, subject to regulatory approval. The sale is subject to QUESTEX Media Group's receipt of debt financing and customary closing conditions, including antitrust clearance. Management expects the sale to close by the end of May 2005.

Revenues generated by the businesses sold, pursuant to authorization by the Company's board of directors on April 1, 2005, included in continuing operations in the consolidated statements of operations, for the three months ended March 31, 2005 and 2004 were $23.4 million and $31.3 million.

Under each of the Company's indentures and the indenture governing Advanstar, Inc.'s notes, the Company is required to either a) reinvest any proceeds received from the above sale in its business or in assets useful to its business within 365 days of the closing of the sale or b) use such proceeds to repay debt. If the Company does not reinvest the proceeds, it must offer to repurchase the notes, pursuant to their respective terms, issued under the second priority senior secured notes and senior subordinated notes indentures at 100% plus accrued interest.

The Credit Facility requires the Company to have a fixed charge coverage ratio as of the end of each fiscal quarter of at least 1.00 to 1. The fixed charge coverage ratio, as defined in the credit facility, generally measures the ratio of its EBITDA (as defined in the Credit Facility) to the sum of its capital expenditures, cash interest expense, debt principal payments and taxes paid or payable in the preceding four fiscal quarters, subject to certain adjustments, including an adjustment to exclude from the calculation any portion of the ratio components that are attributable to any business or assets disposed of during the four fiscal quarters preceding the measurement date. Assuming the sale to QUESTEX Media Group closes as anticipated it will be required to exclude any portion of its EBITDA (as defined) related to the sale when the Company calculates its compliance with the fixed charge coverage ratio as of June 30, 2005. As a result, its fixed charge coverage ratio may be below the required level unless the Company either reinvests the proceeds from the sale in EBITDA (as defined) generating assets or pays down debt prior to June 30, 2005. If the Company does not comply with this fixed charge coverage ratio, it will need to request a waiver of this financial covenant from its lenders under the Company's Credit Facility. The Company can provide no assurance that it will able to obtain such waiver, which could lead to an event of default under the credit agreement.

In addition, the Company's credit facility, the second priority senior secured notes and senior subordinated notes impose substantial restrictions on the Company's ability to pay dividends. The restricted payments covenants in the senior secured notes indenture and senior subordinated notes indenture provide that the Company can pay dividends only if its leverage ratio (as defined) is 6.00 to 1 or better and only from the amount by which its cumulative EBITDA (as defined) since January 1, 2001 exceeds 150% of its cumulative interest expense in that same period. Assuming the sale to QUESTEX Media Group is completed as anticipated, for purposes of computing the Company's leverage ratio, it will be required to exclude any EBITDA (as defined) related to the sale and under the senior subordinated notes indenture, and will not be permitted to net any proceeds from the sale against the amount of its outstanding indebtedness. As a result, unless the Company uses the proceeds from the sale to repay indebtedness or invest in a business that generates additional EBITDA (as defined), the Company does not currently anticipate that its leverage ratio will meet the requirements for it to be permitted to pay dividends.

12. Unaudited Supplemental Guarantor Condensed Consolidating Financial Statements

The Company's Senior Subordinated Notes and Senior Secured Notes are fully and unconditionally guaranteed on a senior subordinated basis and senior basis, respectively, jointly and severally, by the Company and its wholly owned domestic subsidiaries. The subsidiary guarantors are MAGIC and Applied Business teleCommunications. The unaudited condensed consolidating financial statements of the guarantors are presented below and should be read in conjunction with the consolidated financial statements of the Company. Separate financial statements of the guarantors are not presented because the guarantors are jointly, severally, fully and unconditionally liable under the guarantees and the Company believes the condensed consolidating financial statements presented are sufficiently meaningful in understanding the financial position and results of the guarantors. There are no significant restrictions on the ability of the subsidiary guarantors to make distributions to the Company.

Advanstar Communications Inc.
Condensed Consolidated Balance Sheets (Unaudited)
At March 31, 2005
(In thousands)

Advanstar Communications Inc.
Condensed Consolidating Statements of Operations (Unaudited)
For the three months ended March 31, 2005
(In thousands)

Advanstar Communications Inc.
Condensed Consolidating Statements of Cash Flows (Unaudited)
For the three months ended March 31, 2005
(In thousands)

Advanstar Communications Inc.
Condensed Consolidating Balance Sheets
At December 31, 2004
(In thousands)

Avanstar Communications Inc.
Condensed Consolidating Statements of Operations (Unaudited)
For the three months ended March 31, 2004
(In thousands)

Advanstar Communications Inc.
Condensed Consolidating Statements of Cash Flows (Unaudited)
For the three months ended March 31, 2004
(In thousands)

			Communications			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Operating activities:
	Net income (loss)		$	16,100		$	11,083		$	1,768		$	(12,851	)	$	16,100
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Equity in earnings of subsidiaries		(12,851	)		—			—			12,851			—
		Gain on derivative financial instruments		(1,280	)		—			—			—			(1,280	)
		Depreciation and amortization		7,689			3,470			428			—			11,587
		Other noncash items		981			86			(2	)		—			1,065
		Change in working capital items		(9,879	)		(14,592	)		(941	)		—			(25,412	)

		Net cash provided by operating activities		760			47			1,253			—			2,060

Investing activities:
	Additions to property, plant and equipment			(1,618	)		(47	)		(59	)		—			(1,724	)
	Acquisitions of publications and trade shows, net of proceeds			(7,986	)		—			—			—			(7,986	)
	Proceeds from sale of business and other assets			19,407			—			—			—			19,407

		Net cash provided by (used in) investing activities		9,803			(47	)		(59	)		—			9,697

Financing activities:
	Borrowings of long term debt, net			(8,826	)		—			—			—			(8,826	)
	Deferred financing costs			(302	)		—			—			—			(302	)
	Dividends paid to minority interest holders			—			—			—			—			—

		Net cash used in financing activities		(9,128	)		—			—			—			(9,128	)

Effect of exchange rate changes on cash				—			—			(99	)		—			(99	)

Net increase in cash and cash equivalents				1,435			—			1,095			—			2,530
Cash and cash equivalents, beginning of year				22,626			—			6,648			—			29,274

Cash and cash equivalents, end of year			$	24,061		$	—		$	7,743		$	—		$	31,804

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations:

This quarterly report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned not to place undue reliance on these forward-looking statements, including statements about plans and objectives of management, potential acquisitions, market growth and opportunity. These forward-looking statements are neither promises nor guarantees and involve risks and uncertainties that could cause actual results to differ materially from those indicated by such forward-looking statements. You should not expect that these forward-looking statements will be updated or supplemented as a result of changing circumstances or otherwise, and we disavow and disclaim any obligation to do so. Important cautionary statements and risk factors that would affect actual results are discussed in the our periodic reports and registration statements filed with the Securities and Exchange Commission, including those under the caption entitled "Factors Which May Affect Future Results" in our 2004 annual report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2005.

We are a worldwide provider of integrated, B-to-B marketing communications products and services for targeted industry sectors, principally through tradeshows and conferences and through controlled circulation trade, business and professional magazines. We also provide a broad range of other market development products, including classified advertising, direct mail services, reprints, database marketing, guides, and reference books.

In addition to our tradeshows, trade publications and market development, we deliver our integrated B-to-B marketing communications products and services to our customers using the internet. For discussion purposes, we have included our internet activity in our market development segment.

Tradeshows and conferences accounted for approximately 54% and 57% of total revenue in the three months ended March 31, 2005 and 2004, respectively. Trade publications accounted for approximately 41% and 39% of total revenue in the three months ended March 31, 2005 and 2004, respectively, while direct marketing products and other accounted for approximately 5% and 4% of total revenue in the three months ended March 31, 2005 and 2004, respectively. Our revenue reaches its highest levels during the first and third quarters of the year due to the timing of the MAGIC tradeshows and our other large tradeshows and conferences. Because tradeshows and conferences revenue is recognized when a particular event is held, we may experience fluctuations in quarterly revenue based on the movement of tradeshow dates from one quarter to another.

On April 2, 2005, we and our parent, Advanstar, Inc, and certain affiliates (Advanstar Expositions Canada Limited, and Advanstar.com, Inc.) signed a definitive asset and share purchase agreement, providing for the sale of certain business assets and liabilities associated with our tradeshows and conferences, trade publications and direct marketing products in the following primary industries: Information Technology & Communications, Travel/Hospitality, Beauty, Home Entertainment, Abilities

and Portfolio, including the shares of our Brazilian and Hong Kong subsidiaries (collectively the "Portfolio Group"), to QUESTEX Media Group, a company formed by Audax Private Equity Fund, L.P.. We expect the sale of the Portfolio Group to close by the end of May 2005, subject to buyer financing and customary closing conditions.

Operating results of the Portfolio Group, included in continuing operations in the consolidated statements of operations, for quarter ended March 31, 2005 and 2004 are as follows:

We will report the net assets and operating results of the Portfolio Group as discontinued operations beginning in the second quarter of 2005, assuming the sale is completed as expected.

On a pro forma basis, excluding the revenues of the Portfolio Group, tradeshows and conferences would have accounted for approximately 58% and 57% of our total revenue in the quarter ended March 31, 2005 and 2004, respectively; trade publications would have accounted for 37% and 39% of our total revenue in the quarter ended March 31, 2005 and 2004, respectively; and direct marketing products would have accounted for 5% and 4% of our total revenue in the quarter ended March 31, 2005 and 2004, respectively.

Our first quarter 2005 results were impacted by the effects of tradeshow timing shifts and investments in Life Sciences and Powersports operating groups. Revenue for the quarter reflects the shift of four tradeshows held in the first quarter of 2004 to the second quarter of 2005 and the shift of one tradeshow from the second quarter of 2004 to the first quarter of 2005. Net income in the first quarter of 2005 includes the favorable impact of a cumulative effect of an accounting change of $4.6 million related to the consolidation of Advanstar.com for financial reporting purposes as a result of the adoption of FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities," which became effective for Advanstar on January 1, 2005.

Our tradeshows and conferences continued to perform well in 2005. Revenue in the first quarter from MAGIC, Dealer Expo and our IVT pharmaceutical conferences increased $4.8 million, or 12.2%, compared to the first quarter of 2004. We also launched the Off Road Impact tradeshow and conference complementing our 2004 launches of Dirt Sports and Off Road Retailer magazines. Results for the first quarter of 2005 were negatively impacted by the effects of tradeshow timing shifts discussed above.

The principal drivers of the decline in results in our publishing segment in the first quarter of 2005 are a shift in issue timing for our pharmaceutical publications linked to a timing shift of the industry's leading tradeshow, continued weakness in the traveling nursing market, a softening pace of market spending in the veterinary markets, a decline in our healthcare special projects and continued softness in the technology and travel markets.

We have identified new opportunities and initiatives that we will be pursuing in 2005, including opportunities to expand customer relationships and our market position in our MAGIC events and the development of a stand alone Continuing Medical Education business and other diversified customer offerings in our healthcare sector. We also recently announced the launch of our Arenacross Championship Motorcycle Racing series in conjunction with our existing international motorcycle show series.

On March 8, 2004, we purchased a portfolio of pharmaceutical industry specific magazines and conferences from the Institute of Validation Technology, Inc. ("IVT") for $7.9 million in cash. In addition, we will pay additional contingent cash consideration based upon 2004 and 2005 operating results generated from the acquired assets and their continued employment with us. Operating results for the first quarter of 2005 include $0.3 million in compensation expense to reflect the accrual of the 2005 component of the expected contingent payment.

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

On April 2, 2005, we committed to the sale of the Portfolio Group to QUESTEX Media Group for $185 million, plus the assumption of certain liabilities (including without limitation deferred liabilities), less a $7 million working capital adjustment, and a post-closing distribution to us from our Brazilian subsidiary, subject to regulatory approval. We expect the transaction to close by the end of May 2005. Operating results of the Portfolio Group are included in continuing operations for the three months ended March 31, 2005 and 2004. See "—Recent Developments" for further information on the divestiture of the Portfolio Group.

In the third quarter of 2004, we sold our German tradeshow business ("DMS") for $1.7 million in cash. As a result of the sale of DMS we recorded a goodwill impairment of $6.2 million. Total revenue and contribution margin in the first quarter of 2004 were not material.

In the second quarter of 2004, we sold our 65% ownership in our French joint venture ("SeCA"), which consisted of one tradeshow, for $3.1 million in cash. In conjunction with our sale of SeCA we recorded a goodwill impairment charge of $9.4 million, net of minority interest. Total revenue and contribution margin for SeCA, net of minority interest, in the first quarter of 2004 were not material.

In the first quarter of 2004, we sold our art industry tradeshows and magazines for a total sales price of $19.6 million in cash ("Art Group"). Total revenue and contribution margin for the Art group in the first quarter of 2004 were $8.5 million and $3.4 million, respectively.

The tradeshows and conferences segment derives revenue principally from the sale of exhibit space and conference attendance fees generated at our events. In 2004, approximately 77% of our tradeshows and conferences revenue was from the sale of exhibit space. Events are generally held in major metropolitan or convention areas such as New York City and Las Vegas. At many of our tradeshows, a portion of exhibit space is reserved as much as a year in advance. The sale of exhibit space is generally impacted by the ongoing quality and quantity of attendance, venue selection and availability, industry cycle and general market conditions. Revenue and related direct event expenses are recognized in the month in which the event is held. An event is billed and cash is collected in advance and is recorded on our consolidated balance sheet as deferred revenue until the event has been held.

The trade publications segment derives revenue principally from the sale of advertising in our B-to-B magazines. Additionally, certain publications derive revenue from paid subscriptions and custom publishing and projects. Paid subscriptions comprise less than 3% of total publishing revenue. Most publications are produced monthly with advertising sold on either a scheduled or single insertion basis. The sale of advertising is generally impacted by new product releases, circulation quality, readership,

and general market conditions. Advertising revenue is recognized on the publication issue date, and subscription revenue, if any, is recognized over the subscription period. Custom project contract revenue with both conference and print elements are deferred and not recognized until all elements are delivered. Customer advances are recorded when cash is received in anticipation of future advertising unrelated to a specific publication issue.

Our publishing properties operate in many different markets and industries, which are subject to economic conditions prevalent in those industries. Accordingly, publishing revenues may fluctuate in connection with the markets in which we operate.

The direct marketing products and other segment derives its revenue from the sale of value-added marketing products such as print and internet based classified advertising, direct mail services, reprints, database marketing, directories, guides and reference books. These products complement and utilize the content or databases generated by our tradeshows, conferences and publications. The sale of these products is generally impacted by the success of the event or publication from which these products are derived, the quality of the sales team and general market conditions. Revenue is generally recognized when the applicable product is shipped or otherwise delivered.

Costs incurred by the tradeshows and conferences segment include facility rent, attendee and exhibitor promotion and on-site services such as registration, security and set-up. Exhibitors generally contract directly with third parties for on-site services such as electrical services and booth set-up. Staff salaries and related payroll expenses are treated as monthly period expenses. All other direct costs are expensed when the event occurs.

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

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

The following table sets forth selected statements of operations and other financial data.

			Three Months Ended March 31,
			2005			2004
			(in thousands)
Income Statement Data:
Revenue
	Tradeshows and conferences		$	62,054		$	68,225
	Publications			46,194			47,131
	Direct marketing products and other			5,758			4,495

		Total revenue		114,006			119,851
Cost of production and selling
	Tradeshows and conferences			25,760			29,297
	Publications			35,018			33,910
	Direct marketing products and other			4,370			3,015

		Total cost of production and selling		65,148			66,222
General and administrative expenses				14,102			11,215
Funding of affiliated dot.com company operations				—			538
Depreciation and amortization				11,620			11,445

Operating income				23,136			30,431
Other income (expense):
	Interest expense			(17,400	)		(18,123	)
	Other (expense) income, net			(70	)		1,327

Income from continuing operations before income taxes, minority interests and cumulative effect of accounting change				5,666			13,635
Provision for income taxes				3,449			3,165
Minority interests				(646	)		(550	)

Income from continuing operations				1,571			9,920
(Loss) income from operations of discontinued businesses				(44	)		6,180

Income before cumulative effect of accounting change				1,527			16,100
Cumulative effect of accounting change				4,618			—

Net income			$	6,145		$	16,100

Due to the proposed divestiture of the Portfolio Group, we expect our future results of operations to differ materially from the historical results of operations presented below. See "—Recent Developments" for further information.

THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2004

Revenue in the first quarter of 2005 declined 4.9% to $114.0 million from $119.9 million in the first quarter of 2004 due primarily to tradeshow timing shifts in the first quarter.

Revenue from tradeshows and conferences declined 9.0%, or $6.1 million, to $62.1 million from $68.2 million in the first quarter of 2004. Four tradeshows held in the first quarter of 2004 shifted to the second quarter of 2005 and one tradeshow shifted from the second quarter of 2004 to the first quarter of 2005. This shift in tradeshow timing resulted in a quarter over quarter net reduction to revenue of $8.1 million.

Revenue in the first quarter from Advanstar's MAGIC, Dealer Expo and IVT pharmaceutical conferences increased $4.8 million, or 12.2%, compared to the first quarter of 2004. Square footage of our MAGIC event grew by 3.8% over the spring of 2004. Our Powersports events increased square footage by 2.4%, primarily due to the launch during the quarter of the Off Road Impact tradeshow and conference which complements our 2004 launches of Dirt Sports and Off Road Retailer magazines. Off Road Impact generated revenue of $0.4 million in the first quarter of 2005. Our IMS consumer motorcycle tour declined $0.5 million or 5.7% due to holding seven events in the first quarter of 2005 compared with eight in the same period last year and from the impact of a snowstorm on our IMS New York event for which we have filed a claim under our expo cancellation insurance policy. Revenue generated from these tradeshows and conferences was also partially offset by the effect of holding two fewer events serving the East Coast fashion and technology markets.

Revenue from publications in the first quarter of 2005 declined 2.0%, or $0.9 million, to $46.2 million from $47.1 million in the first quarter of 2004. Advertising pages declined by 453 pages or 5.0% in the first quarter of 2005 compared to the first quarter of 2004. The decline in revenue and advertising pages is due primarily to a shift in issue timing due to tradeshow timing shifts, continued weakness in the traveling nursing market, a softening pace of market spending in the veterinary markets, a decline in our healthcare special projects, and continued softness in the technology and travel markets. These revenue declines were partially offset by improved results from our publications serving the automotive market, including Motor Age, Aftermarket Business, Dealernews and Auto Body Repair News, and the launch in September 2004 of Dirt Sports and Off Road Retailer magazines.

In the first quarter of 2005, revenue from our direct marketing products and other segment increased 28.1%, or $1.3 million, to $5.8 million from $4.5 million in the first quarter of 2004. Approximately $1.0 million of this increase is due to the adoption of FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities," which required us to consolidate the results of our affiliate, Advanstar.com, effective January 1, 2005.

Cost of production and selling expenses in the first quarter of 2005 declined 1.6% to $65.1 million from $66.2 million in the first quarter of 2004.

Expenses of tradeshows and conferences in the first quarter of 2005 decreased 12.1%, or $3.5 million, to $25.8 million from $29.3 million in the first quarter of 2003. The shift in timing of the

five events discussed above resulted in a decline in tradeshow and conference expenses of approximately $3.6 million.

Expenses of trade publications in the first quarter of 2005 increased 3.3%, or $1.1 million, to $35.0 million from $33.9 million in the first quarter of 2004. The increase is primarily due to increased paper, printing and selling costs. Paper prices increased 14% and printing costs increased 2% compared to the first quarter of 2004. Selling costs increased as a result of the launch of Dirt Sports and Off Road Retailer as discussed above.

Expenses of direct marketing products and other in the first quarter of 2005 increased 45.0%, or $1.4 million, to $4.4 million from $3.0 million in the first quarter of 2004. Approximately $0.3 million of this increase is due to the consolidation of the results of Advanstar.com upon the adoption of FASB Interpretation No. 46R, as discussed above. We also incurred an additional $0.7 million in staffing and consulting costs related to a realignment of our project business and the launches of publications and tradeshows serving the powersports markets.

General and administrative costs increased 25.7%, or $2.9 million, to $14.1 million in the first quarter of 2005 from $11.2 million in the first quarter of 2004 due to $0.7 million of investments in our group management team, primarily related to our Life Sciences group, $0.6 million of costs related to strategic consulting and marketing initiatives, $0.4 million of foreign exchange losses, a $0.3 million contingent employee compensation payment related to the IVT acquisition and an increase of $0.4 million for audit, tax and Sarbanes-Oxley consulting services.

As described above, on January 1, 2005 we began consolidating the operations of Advanstar.com with our operations upon adoption of FASB Interpretation No. 46R and therefore we are no longer recording a separate operating expense related to our funding of Advanstar.com. Expense associated with our funding of Advanstar.com in the first quarter of 2004 was $0.5 million.

Interest expense in the first quarter of 2005 declined $0.7 million, or 4.0%, to $17.4 million from $18.1 million in the first quarter of 2004 due to a reduction in cash payments on our interest rate collar agreement. In the first quarter of 2004 we made payments of $0.9 million on this agreement, which expired in February 2004. We currently have no plans to hedge our remaining floating rate debt.

At March 31, 2005, $460.8 million, or 76%, of our total debt is at a fixed rate with the balance subject to interest rate fluctuations. A 100 basis point increase in interest rates on our current variable rate debt would result in an increase in annual interest expense of $1.5 million.

The decline in other income is due to a first quarter 2004 gain of $1.3 million related to our interest rate protection agreements, which expired in February 2004.

The provision for income taxes was $3.4 million in the first quarter of 2005 compared to $3.2 million in the first quarter of 2004. The provision relates to income taxes in certain foreign jurisdictions and a deferred tax provision related to the basis of goodwill for tax purposes being less than the carrying value of goodwill for financial reporting purposes. We recorded no income tax benefit related to the net operating losses we generated during 2005 or 2004 because we have established a

valuation allowance to offset any related tax benefits due to uncertainty about realization of these benefits.

In March 2004, we sold the Art Group, which included three tradeshows and two publications, for $19.6 million in cash. We recorded an after tax gain on the sale of $3.4 million.

See further information regarding discontinued operations of the Art Group, SeCA and DMS in "—Presentation of Financial Information- Acquisitions, Joint Ventures and Divestitures."

Due to the proposed divestiture of the Portfolio Group, we expect our future cash flows to differ materially from the historical cash flows presented below. See "—Recent Developments" and "—Debt Service" for further information.

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

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

Operating cash flows may be significantly affected by the working capital fluctuations of our business, in particular the tradeshows and conferences business. Deferred revenue increases on the balance sheet in the quarters immediately preceding our busy first quarter tradeshow season as we collect deposits for booth space several months in advance of the tradeshows. Revenue and contribution margin are recognized in the quarter that the events are held, releasing the deferred revenue from the balance sheet, which results in a reduction to our operating cash flow.

We anticipate that our operating cash flow, together with borrowings under the credit facility (assuming continued compliance with the covenants contained therein or a modification thereof) and other future financings and refinancings, will be sufficient to fund our anticipated future operating expenses, capital expenditures, debt service and other obligations as they become due. However, our ability to make scheduled payments of principal, to pay interest on or to refinance our indebtedness and to satisfy our other debt obligations will depend upon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control.

As of March 31, 2005, we had cash and cash equivalents of $39.1 million. The following table shows our cash flow activity for the three months ended March 31, 2005 and 2004, and should be read in conjunction with the condensed consolidated statements of cash flows (in thousands):

The $1.9 million increase in cash provided by operating activities in the first quarter of 2005 as compared to the first quarter of 2004 was primarily due to the increased cash collections in 2005 attributable to tradeshow timing. Cash provided by operating activities in the first quarter of 2005 was negatively impacted by a decline in net income less non-cash expenses. Cash inflows generated by net income in the first quarter of 2005 less non-cash expenses were used primarily to pay cash interest of $13.5 million, to pay debt principal of $4.9 million and to fund capital purchases of $1.5 million. Cash provided by operating activities in the first quarter of 2004 was negatively impacted by tradeshow timing as cash for events held in the first quarter of 2004 was collected in the fourth quarter of 2003.

Net cash used in investing activities decreased $11.2 million to a use of $1.5 million in the first quarter of 2005, from $9.7 million provided by investing activities in the first quarter of 2004. This decrease was principally due to the proceeds received in the first quarter of 2004 from the sale of the Art Group for $19.5 million in cash, partially offset by $8.0 million in cash used for the acquisition of IVT in the first quarter of 2004. We consummated no acquisitions in the first quarter of 2005. Our business strategy includes the consummation of strategic acquisitions. In connection with any future acquisitions, we may require additional funding, which may be provided in the form of additional debt or equity financing or a combination thereof. There can be no assurance that any additional financing will be available to us on acceptable terms or in a manner that complies with the restrictive covenants in our debt instruments. Consistent with our longstanding strategy, we continue to pursue potential acquisitions of complementary businesses.

We incurred capital expenses of $1.5 million and $1.7 million in the first quarter of 2005 and 2004, respectively. We anticipate that we will spend less than $10.0 million on capital expenditures in 2005, which will be funded by cash flows from operations. The majority of these expenditures are related to expansions and enhancements to our IT and communications infrastructure and management and operating group information systems. We believe that this amount of capital expenditure will be adequate to grow our business according to our business strategy and to maintain the key tradeshows, publications and business that will remain following the sale of the Portfolio Group.

Cash used in financing activities in the first quarter of 2005 was $4.9 million compared to $9.1 million in the first quarter of 2004. We repaid $4.9 million of our Term Loan B and Second Priority Senior Secured Notes during the first quarter of 2005. During the first quarter of 2004 we repaid $8.0 million on our revolving credit facility and $0.8 million of our Second Priority Senior Secured Notes.

As of March 31, 2005, we had total indebtedness of $609.3 million and $59.1 million of borrowings available under our revolving credit facility. Our principal debt obligations are described below.

We have entered into a definitive purchase agreement to sell certain of our assets for $185 million, less a $7 million working capital adjustment, and a post-closing distribution to us from our Brazilian subsidiary, subject to regulatory approval. We expect the sale to close by the end of May 2005. We have not yet determined how we will apply the proceeds and cannot assure you that we will apply them in a manner you may deem optimal. Under each of our indentures and the indenture governing our parent company's notes, we are required to either a) reinvest such proceeds in our business or in assets useful to our business within 365 days of the closing of the sale or b) use such proceeds to repay debt. If we do not reinvest the proceeds, we must offer to repurchase the notes, pursuant to their respective terms, issued under the second priority senior secured notes and our parent's senior subordinated notes indentures at 100% plus accrued interest.

Our credit facility requires us to have a fixed charge coverage ratio as of the end of each fiscal quarter of at least 1.00 to 1. The fixed charge coverage ratio, as defined in the credit facility, generally measures the ratio of our EBITDA (as defined in the credit facility) to the sum of our capital expenditures, cash interest expense, debt principal payments and taxes paid or payable in the preceding four fiscal quarters, subject to certain adjustments, including an adjustment to exclude from the calculation any portion of the ratio components that are attributable to any business or assets disposed of during the four fiscal quarters preceding the measurement date. Assuming the sale of the Portfolio Group closes by June 30, 2005 as currently anticipated, we will be required to exclude any portion of our EBITDA (as defined) related to the Portfolio Group when we calculate our compliance with the fixed charge coverage ratio as of June 30, 2005. As a result, our fixed charge coverage ratio may be below the required level unless we either reinvest the proceeds from the sale in EBITDA (as defined) generating assets or pay down debt prior to June 30, 2005. If we do not comply with this debt coverage ratio, we will need to request a waiver of this financial covenant from our lenders under our credit facility. We can provide no assurance that we will be able to obtain such waiver, which could lead to an event of default under the credit agreement.

Our credit facility consists of a $60.0 million revolving credit facility and $20.4 million outstanding under the Term Loan B facility. The revolving credit facility will terminate in April 2007 and the Term Loan B matures in October 2008. Borrowings under the credit facility generally bear interest based on a margin over, at our option, the base rate or LIBOR. The applicable margin for revolving credit loans varies based upon our ratio of consolidated debt to EBITDA (as defined) and is currently 3.75% over LIBOR and 2.50% over the base rate. The applicable margin for the Term Loan B varies based upon the rating assigned by S&P and Moody's to our credit facility and is currently 4.50% over LIBOR and 3.25% over the base rate. Our obligations under the credit facility are guaranteed by Advanstar Holdings Corp. ("Advanstar Holdings"), our ultimate parent company, Advanstar, Inc., our direct parent company, and all of our existing and future domestic subsidiaries. Our obligations under the credit facility are collateralized by substantially all of the assets of our company and the subsidiary

guarantors, including a pledge of the capital stock of all our existing and future domestic subsidiaries, a pledge of no more than 65% of the voting stock of any foreign subsidiary directly owned by our company or any domestic subsidiary, a pledge of all intercompany indebtedness in favor of our company and our domestic subsidiaries, a pledge of our company's and Advanstar IH, Inc.'s capital stock held by our direct parent company, and a pledge of our direct parent company's capital stock held by Advanstar Holdings. Our credit facility contains restrictive covenants, which require us to, among other things, maintain a minimum fixed charge coverage ratio as described above.

Our $128.1 million of floating rate notes mature in 2008 and our $300 million of fixed rate notes mature in 2010. The notes of each series are guaranteed by each of our existing and future domestic restricted subsidiaries and collateralized by second-priority liens on the assets collateralizing our credit facility (other than certain subsidiary stock and assets of our parent companies). The fixed rate notes bear interest at an annual rate of 10.75% and the floating rate notes bear interest at an annual rate equal to the three-month LIBOR, which is reset quarterly, plus 7.50%. Interest on the fixed rate notes is payable semi-annually in cash and interest on the floating rate notes, along with amortization of 0.25% of the principal of such floating rate notes, is payable quarterly in cash. The notes contain restrictive covenants that, among other things, limit our ability to incur debt, pay dividends and make investments.

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

Our parent, Advanstar, Inc., issued 15% senior discount notes due October 2011 with a principal amount at maturity of $171.8 million. These discount notes do not require cash interest payments until 2006 and contain restrictive covenants that, among other things, limit the ability of Advanstar, Inc. and its subsidiaries (including us) to incur debt, pay dividends and make investments. Neither we nor any of our subsidiaries have guaranteed the discount notes. Advanstar, Inc., however, is a holding company and its ability to pay interest on these discount notes will be dependent upon the receipt of dividends from its direct and indirect subsidiaries, principally dividends from us. However, the terms of our borrowing arrangements significantly restrict our ability to pay dividends to Advanstar, Inc. and Advanstar, Inc.'s failure to pay these notes would be a default under our credit facility.

For example, the restricted payments covenants in our senior secured notes indenture and our senior subordinated notes indenture, provide that we can pay dividends only if our leverage ratio (as defined) is 6.00 to 1 or better and only from the amount by which our cumulative EBITDA (as defined) since January 1, 2001 exceeds 150% of our cumulative interest expense in that same period. Assuming the sale of the Portfolio Group closes by June 30, 2005 as anticipated, for purposes of computing our leverage ratio, we will be required to exclude any EBITDA (as defined) related to the Portfolio Group and under the senior subordinated notes indenture, and we will not be permitted to net any proceeds from the sale of the Portfolio Group assets against the amount of our outstanding indebtedness. As a result, unless we use the proceeds from the sale of the Portfolio Group to repay indebtedness or invest in a business that generates additional EBITDA (as defined), we do not currently anticipate that our leverage ratio will meet the requirements for us to be permitted to pay dividends.

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

We have no material capital lease obligations or purchase obligations. Our contingent obligations are primarily composed of $0.9 million of letters of credit and our interest rate and foreign currency derivatives discussed more fully below in Item 3. "Quantitative and Qualitative Disclosure About Market Risk."

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R, "Share-Based Payment" which revises SFAS 123 and supersedes APB 25. This statement establishes standards relating to accounting for transactions in which equity instruments are exchanged for goods or services. Under this statement, the Company must measure the cost of employee services received in exchange for an award of equity instruments based upon the fair value of the award on the date of grant. This cost must be recognized over the period during which an employee is required to provide the service (usually the vesting period). We are required to adopt the provisions of this standard effective January 1, 2006. We are currently evaluating the impact of this standard. The adoption of this standard will result in an increase in compensation expense.

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

At March 31, 2005, we had fixed rate debt of $460.0 million and variable rate debt of $148.5 million. The annual pre-tax earnings and cash flows impact resulting from a 100 basis point

increase in interest rates on variable rate debt, holding other variables constant would be approximately $1.5 million per year.

Outside of the United States, we maintain assets and operations in Europe, South America and Asia. The results of operations and financial position of our foreign operations are principally measured in their respective currency and translated into U.S. dollars. As a result, exposure to foreign currency gains and losses exists. The reported income of these subsidiaries will be higher or lower depending on a weakening or strengthening of the U.S. dollar against the respective foreign currency. Our subsidiaries and affiliates also purchase and sell products and services in various currencies. As a result, we may be exposed to cost increases relative to the local currencies in the markets in which we sell.

A portion of our assets are based in our foreign locations and are translated into U.S. dollars at foreign currency exchange rates in effect as of the end of each period, with the effect of such translation reflected in other comprehensive income (loss). Accordingly, our consolidated stockholder's equity will fluctuate depending upon the weakening or strengthening of the U.S. dollar against the respective foreign currency.

Our strategy for management of currency risk relies primarily on conducting our operations in a country's respective currency and may, from time to time, involve currency derivatives, primarily forward exchange contracts, to reduce our exposure to currency fluctuations. As of March 31, 2005, we had no open foreign exchange derivative contracts.

Evaluation of disclosure controls and procedures. Advanstar's Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report (the "Evaluation Date"), have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective and designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

Changes in internal controls. There were no changes during the first fiscal quarter in our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect the Company's internal controls over financial reporting.

	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

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

(Mark One)
ý	Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934.
For the quarterly period ended: March 31, 2005
OR
o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

New York (State or other jurisdiction of incorporation or organization)		59-2757389 (I.R.S. Employer Identification No.)
One Park Avenue, New York, NY (Address of principal executive offices)		10016 (Zip Code)
Registrant's Telephone Number, Including Area Code: (212) 951-6600

			March 31, 2005			December 31, 2004
			(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	39,105		$	41,223
	Accounts receivable, net of allowance of $736 and $798 at March 31, 2005 and December 31, 2004			30,173			26,941
	Prepaid expenses			9,653			8,828
	Other			3,520			2,476

		Total current assets		82,451			79,468
Due from parent				1,166			—
Property, plant and equipment, net				24,273			24,539
Intangible and other assets:
	Goodwill			707,080			707,756
	Intangibles and other, net			91,071			101,174

		Total intangible and other assets, net		798,151			808,930

			$	906,041		$	912,937

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
	Current maturities of long-term debt		$	1,300		$	1,300
	Accounts payable			17,153			13,940
	Accrued compensation			5,518			8,652
	Other accrued expenses			35,355			34,101
	Deferred revenue			43,249			52,356

		Total current liabilities		102,575			110,349
Long-term debt, net of current maturities				607,993			612,919
Deferred income taxes				21,250			18,250
Other long-term liabilities				3,472			4,277
Due to parent				—			2,698
Minority interests				4,225			3,579
Commitments and contingencies
Stockholder's equity:
	Common stock, $.01 par value, 3,500,000 shares authorized; 1,000,000 shares issued and outstanding at March 31, 2005 and December 31, 2004			10			10
	Capital in excess of par value			447,367			447,367
	Accumulated deficit			(286,612	)		(292,757	)
	Accumulated other comprehensive income			5,761			6,245

		Total stockholder's equity		166,526			160,865

			$	906,041		$	912,937

	Three Months Ended March 31,
	2005			2004
Net income—as reported	$	6,145		$	16,100
Less: pro forma stock-based employee compensation		(835	)		(677	)

Net income—pro forma	$	5,310		$	15,423

	Trade Shows and Conferences			Trade Publications			Direct Marketing Products and Other			Totals
Balance as of December 31, 2004	$	460,430		$	216,455		$	30,871		$	707,756
Foreign currency translation		(280	)		(381	)		(15	)		(676	)

Balance as of March 31, 2005	$	460,150		$	216,074		$	30,856		$	707,080

	2005			2004
(Loss) income before income taxes (including gain on sale)	$	(44	)	$	8,487
Income tax provision		—			2,364
Minority interests		—			57

Net (loss) income	$	(44	)	$	6,180

	Interest Rate Collar Agreements		Foreign Exchange Contracts		Total
Three months ended March 31, 2005	$	26	$	—	$	26

Three months ended March 31, 2004	$	1,273	$	7	$	1,280

			Communications			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Revenue			$	68,606		$	36,663	$	8,737		$	—		$	114,006
Operating expenses:
	Cost of production and selling, editorial and circulation			47,041			12,459		5,648			—			65,148
	General and administrative			12,661			340		1,101			—			14,102
	Restructuring charge			—			—		—			—			—
	Funding of affiliated company operations			—			—		—			—			—
	Depreciation and amortization			7,660			3,603		357			—			11,620

		Total operating expenses		67,362			16,402		7,106			—			90,870

Operating income				1,244			20,261		1,631			—			23,136
Other income (expense):
	Interest expense, net			(17,500	)		—		100			—			(17,400	)
	Other income, net			(195	)		—		125			—			(70	)

(Loss) income from continuing operations before income taxes, minority interests and cumulative effect of accounting change				(16,451	)		20,261		1,856			—			5,666
(Benefit) provision for income taxes				(4,578	)		7,584		443			—			3,449
Minority interests				(646	)		—		—			—			(646	)
Equity in earnings of subsidiaries				14,090			—		—			(14,090	)		—

Income (loss) from continuing operations				1,571			12,677		1,413			(14,090	)		1,571
Discontinued operations:
(Loss) income from operations of discontinued businesses				(44	)		—		(44	)		44			(44	)

Income (loss) before cumulative effect of accounting change				1,527			12,677		1,369			(14,046	)		1,527
Cumulative effect of accounting change				4,618			—		—			—			4,618

Net income (loss)			$	6,145		$	12,677	$	1,369		$	(14,046	)	$	6,145

(in thousands of dollars)			Communications			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Assets
Current assets
	Cash and cash equivalents		$	33,956		$	—	$	7,267		$	—		$	41,223
	Accounts receivable, net			25,685			—		1,256			—			26,941
	Prepaid expenses			5,646			1,265		1,917			—			8,828
	Other			2,400			—		76			—			2,476
	Current assets of discontinued operations			—			—		—			—			—

		Total current assets		67,687			1,265		10,516			—			79,468
Noncurrent assets
	Property, plant and equipment, net			22,401			1,624		514			—			24,539
	Deferred tax asset			8,438			292		—			(8,730	)		—
	Intangible and other assets, net			493,545			269,500		45,885			—			808,930
	Investments in subsidiaries			514,479			—		10,421			(524,900	)		—
	Intercompany receivable			—			228,779		(4,274	)		(224,505	)		—
	Non-current assets of discontinued operations			—			—		—			—			—

			$	1,106,550		$	501,460	$	63,062		$	(758,135	)	$	912,937

Liabilities and Stockholder's Equity
Current liabilities
	Current maturities of long-term debt		$	1,300		$	—	$	—		$	—		$	1,300
	Accounts payable			11,580			699		1,661			—			13,940
	Accrued liabilities			34,424			7,275		1,054			—			42,753
	Deferred revenue			32,456			15,554		4,346			—			52,356
	Current liabilities of discontinued operations			—			—		—			—			—

		Total current liabilities		79,760			23,528		7,061			—			110,349
Long-term debt, net of current maturities				612,919			—		—			—			612,919
Deferred income taxes and other long-term liabilities				22,224			8,730		303			(8,730	)		22,527
Intercompany payable				224,505			—		—			(224,505	)		—
Due to parent				2,698			—		—			—			2,698
Minority interests				3,579			—		—			—			3,579
Long-term liabilities of discontinued operations				—			—		—			—			—
Stockholder's equity
	Common stock			10			3		959			(962	)		10
	Capital in excess of par value			447,367			438,117		86,882			(524,999	)		447,367
	(Accumulated deficit) retained earnings			(292,757	)		31,082		(38,286	)		7,204			(292,757	)
	Accumulated other comprehensive income (loss)			6,245			—		6,143			(6,143	)		6,245

		Total stockholder's equity		160,865			469,202		55,698			(524,900	)		160,865

			$	1,106,550		$	501,460	$	63,062		$	(758,135	)	$	912,937

			Communications			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Revenue			$	78,927		$	32,762	$	8,162		$	—		$	119,851
Operating expenses:
	Cost of production and selling, editorial and circulation			50,161			11,199		4,862			—			66,222
	General and administrative			9,866			354		995			—			11,215
	Funding of affiliated company operations			538			—		—			—			538
	Depreciation and amortization			7,626			3,470		349			—			11,445

		Total operating expenses		68,191			15,023		6,206			—			89,420

Operating (loss) income				10,736			17,739		1,956			—			30,431
Other income (expense):
	Interest expense, net			(18,219	)		—		96			—			(18,123	)
	Other income, net			942			—		385			—			1,327

(Loss) income from continuing operations before income taxes and minority interests				(6,541	)		17,739		2,437			—			13,635
(Benefit) provision for income taxes				(3,567	)		6,656		76			—			3,165
Minority interests				(550	)		—		—			—			(550	)
Equity in earnings of subsidiaries				13,444			—		—			(13,444	)		—

Net (loss) income from continuing operations				9,920			11,083		2,361			(13,444	)		9,920
Discontinued operations:
(Loss) income from operations of discontinued businesses				6,180			—		(593	)		593			6,180

Net (loss) income			$	16,100		$	11,083	$	1,768		$	(12,851	)	$	16,100

		Payments Due By Period
		2005(1)		2006		2007		2008		2009		2010		After 2010		Total
Indebtedness		$	1.0	$	1.3	$	1.3	$	144.9	$	—	$	300.0	$	160.0	$	608.5
Interest on indebtedness(2)			54.1		67.1		67.0		62.7		51.5		53.0		28.8		384.2
Operating lease obligations			5.2		6.3		5.1		4.6		3.0		1.2		0.5		25.9

	Total contractual cash obligations	$	60.3	$	74.7	$	73.4	$	212.2	$	54.5	$	354.2	$	189.3	$	1,018.6


		ADVANSTAR COMMUNICATIONS INC.
May 16, 2005		/s/ DAVID W. MONTGOMERY David W. Montgomery Vice President-Finance, Secretary and Chief Financial Officer (Principal Financial Officer and Authorized Representative of the Registrant)

2005	$	27,190
2006		25,871
2007		10,835
2008		7,052
2009		3,109
2010		934