United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                    Form 10-Q

(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934 for the quarterly period ended February 28, 1998

                                       or

( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act   of   1934   for   the   Transition   period   from   ________________   to
____________________.


                        Commission file number 333-40907


                         TOWN SPORTS INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

NEW YORK                                               13-2749906
(State or other Jurisdiction of                          (I.R.S. Employer
Incorporation or organization)                         Identification Number)

                               888 SEVENTH AVENUE
                            NEW YORK, NEW YORK 10106
                            TELEPHONE: (212) 246-6700
               (Address, zip code, and telephone number, including
             area code, of registrants principal executive office.)


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

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.   1,015,714.



<PAGE>


                TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
                                    FORM 10-Q
                        FOR THE QUARTER ENDED FEBRUARY 28
                                      INDEX


PART I. FINANCIAL INFORMATION

     Item 1.  Financial Statements (Unaudited)                              PAGE

          a)   Condensed Consolidated Statements of Operations for the
               three and nine months ended February 28, 1997 and 1998.        1

          b)   Condensed  Consolidated  Balance  Sheets  as of May 31,
               1997 and February 28, 1998                                     2

          c)   Condensed Consolidated  Statements of Cash Flow for the
               nine months ended February 28, 1997 and 1998                   3

          d)   Notes to Condensed Consolidated Financial Statements           4

     Item 2.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations                             7

PART II.  OTHER INFORMATION

     Item 1.  Legal Proceedings                                              12

     Item 2.  Changes in Securities                                          12

     Item 3.  Defaults upon Senior Securities                                12

     Item 4.  Submission of Matters to a Vote of Security Holders            12

     Item 5.  Other Information                                              12

     Item 6.  Exhibits and Reports on Form 8-K                               12

SIGNATURE                                                                    13

Exhibit Index                                                                14




<PAGE>


           TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENTS of OPERATIONS
           For the three and nine months ended February 28,
                    1997 and 1998 All figures $'000

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                                              FEBRUARY 28                        FEBRUARY  28
                                                                          1997             1998            1997              1998
                                                                      (Unaudited)      (Unaudited)     (Unaudited)       (Unaudited)
<S>                                                                    <C>              <C>              <C>              <C>
Revenues:

     Club operations                                                   $ 14,251         $ 20,920         $ 38,919         $ 55,975
     Management fees                                                        168              445              806            1,168
     Rental Income                                                          255              258              682              715
     Share of net income (loss) in affiliated
       companies                                                            (30)             (12)             135               70
                                                                       --------         --------         --------         --------
                                                                         14,644           21,611           40,542           57,928
                                                                       --------         --------         --------         --------

Operating expenses

     Payroll and related                                                  6,446            8,621           16,892           23,421
     Compensation expense incurred in connection
       with stock options                                                 5,333              180            5,933              519
     Club operating                                                       4,577            6,580           12,761           17,847
     General and administrative                                             948            1,619            2,853            3,858
     Depreciation and amortization                                        1,173            2,000            3,120            5,361
                                                                       --------         --------         --------         --------
                                                                         18,477           19,000           41,559           51,006
                                                                       --------         --------         --------         --------

          Operating income (loss)                                        (3,833)           2,611           (1,017)           6,922

Interest expense                                                          1,001            2,316            1,420            5,284
Interest income                                                             (40)            (540)             (85)            (871)
                                                                       --------         --------         --------         --------

          Income (loss) before provision for
            corporate income taxes                                       (4,794)             835           (2,352)           2,509
Provision (benefit) for corporate income taxes                           (2,237)             384           (1,066)           1,229
                                                                       --------         --------         --------         --------
     Income (loss) before extraordinary item                             (2,557)             451           (1,286)           1,280

     Extraordinary item, net of related
       income tax of $647                                                  --               --               --               (730)

                                                                       --------         --------         --------         --------
Net income (loss)                                                        (2,557)             451           (1,286)             550
Accreted dividends on preferred stock                                      (480)            (613)            (480)          (1,763)
                                                                       --------         --------         --------         --------

          Net loss to common
           stockholders                                                ($ 3,037)        ($   162)        ($ 1,766)        ($ 1,213)
                                                                       ========         ========         ========         ========
</TABLE>


 See accompanying notes to the condensed consolidated financial statements


                                   1


<PAGE>


           TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES
                 CONDENSED CONSOLIDATED BALANCE SHEETS
                  May 31, 1997 and February 28, 1998
                 All figures $'000, except share data

<TABLE>
<CAPTION>
                                                                                     MAY 31,          February 28,
                                ASSETS:                                               1997                1998
                                                                                  (Unaudited)         (Unaudited)
<S>                                                                                <C>                <C>
Current assets:

     Cash and cash equivalents                                                     $   2,468          $  38,291
     Accounts receivable                                                                 228                302
     Inventory                                                                           327                556
     Prepaid expenses                                                                    448                538
     Prepaid corporate income taxes                                                      202                 --
     Advances to, and amounts due from, affiliated companies                             129                227
                                                                                   ---------          ---------
         Total current assets                                                          3,802             39,914

Fixed assets, net of accumulated depreciation of $13,112 and
     $16,486 at May 31, 1997 and February 28, 1998                                    34,214             44,602
Investments in, and amounts due from, affiliated companies                               420                 28
Intangible assets, net of accumulated amortization of $857 and
     $1,671 at May 31, 1997 and February 28, 1998                                      4,425             12,125
Deferred tax asset                                                                     5,972              7,325
Deferred membership costs                                                              3,530              4,576
Other assets                                                                             456                567
                                                                                   ---------          ---------

         Total assets                                                              $  52,819          $ 109,137
                                                                                   =========          =========

                       LIABILITIES and STOCKHOLDERS' DEFICIT:

Current liabilities:

     Current portion of long-term debt and capital lease obligations               $   1,924          $   2,289
     Accounts payable and accrued expenses                                             5,715              9,498
     Deferred revenue                                                                  4,599              5,714
                                                                                   ---------          ---------
         Total current liabilities                                                    12,238             17,501

Long-term debt and capital lease obligations                                          39,147             86,446
Deferred lease liabilities                                                             6,625              8,437
Deferred revenue                                                                       1,036              1,815
Other liabilities                                                                        724                696
                                                                                   ---------          ---------
         Total liabilities                                                            59,770            114,895
                                                                                   ---------          ---------

Stockholders' deficit:
     Series A preferred stock, $1.00 par value; at liquidation value; authorized
       200,000 shares, 152,455 and 153,637 shares
       issued and outstanding at May 31, 1997 and February 28,1998                    16,250             18,116
     Series B preferred stock, $1.00 par value; at liquidation value;
       authorized 200,000 shares, 3,857 shares issued and
       outstanding at May 31, 1997 and February 28, 1998                                 144                159
     Class A voting common stock, $0.001 par value; authorized
       1,150,000 shares, 1,010,000 and 1,015,714 issued and
       outstanding at May 31, 1997 and February 28, 1998                                   1                  1
     Class B non-voting common stock, $0.01 par value; authorized
       500,000 shares, none issued and outstanding
     Paid-in capital                                                                    --                  525
     Accumulated deficit                                                             (23,346)           (24,559)
                                                                                   ---------          ---------
                       Total stockholders' deficit                                    (6,951)            (5,758)
                                                                                   ---------          ---------

                       Total liabilities and stockholders' deficit                 $  52,819          $ 109,137
                                                                                   =========          =========
</TABLE>

    See accompanying notes to the condensed consolidated financial statements



                                   2
<PAGE>


           TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENTS of CASH FLOW
                       For the nine months ended
                      February 28, 1997 and 1998
                           All figures $'000
                 Increase in Cash and Cash Equivalents

<TABLE>
<CAPTION>
                                                                                                       Nine months ended
                                                                                                          February 28
                                                                                                    1997                1998
                                                                                                    ----                ----
                                                                                                 (Unaudited)        (Unaudited)
<S>                                                                                                <C>               <C>
Cash flows from operating activities:

     Net Income (loss)                                                                             ($ 1,286)         $    550
                                                                                                   --------          --------
     Adjustments  to  reconcile  net income (loss) to net cash  provided  by  operating
     activities:
     Depreciation and amortization                                                                    3,120             5,361
     Compensation expense incurred in connection with stock options                                   5,933               519
     Noncash rental expense, net of noncash rental income                                             1,084             1,809
     Share of net income in affiliated companies                                                       (135)              (70)
     Amortization of debt issuance costs                                                                 69               351
     Change in certain working capital components                                                       979             5,368
     Increase in deferred tax asset                                                                  (1,561)           (1,353)
     Increase in deferred membership costs                                                             (665)           (1,046)
     Write-off of deferred financing costs - extraordinary item                                          --             1,377
     Other                                                                                              (20)                8
                                                                                                   --------          --------
                     Total adjustments                                                                8,804            12,324
                                                                                                   --------          --------
                     Net cash provided by operating activities                                        7,518            12,874
                                                                                                   --------          --------

Cash flows from investing activities:
     Capital expenditures, net of effects of acquired businesses                                     (8,521)           (8,363)
     Acquisition of businesses                                                                       (1,688)          (10,033)
     Intangible and other assets                                                                       (280)             (382)
                                                                                                   --------          --------
                     Net cash used in investing activities                                          (10,489)          (18,778)
                                                                                                   --------          --------

Cash flows from financing activities:
     Proceeds from borrowings, net of expenses of issuance                                           37,393            85,642
     Repayments of borrowings                                                                         9,795           (44,039)
     Redemption of stock, including expenses                                                        (38,820)               --
     Issuance of stock net of expenses                                                               15,155               124
                                                                                                   --------          --------
                     Net cash provided by financing activities                                        3,933            41,727
                                                                                                   --------          --------

                     Net increase in cash and cash equivalents                                          962            35,823

Cash and cash equivalents at beginning of period                                                        928             2,468

                                                                                                   ========          ========
     Cash and cash equivalents at end of period                                                    $  1,890          $ 38,291
                                                                                                   ========          ========


Summary of the change in certain working capital  components,  net of effects of
acquired businesses:
     Decrease (increase) in accounts receivable                                                         317               (74)
     Increase in inventory                                                                              (68)             (229)
     Decrease in prepaid expenses                                                                      (600)              (90)
     Decrease in prepaid corporate income taxes                                                          --               202
     Increase in amounts due from affiliated companies                                                  497               364
     Increase (decrease) in accounts payable and accrued expenses                                      (908)            3,301
     Increase in deferred revenue                                                                     1,741             1,894
                                                                                                   ========          ========
                     Net changes in working capital                                                     979             5,368
                                                                                                   ========          ========
Supplemental disclosures of cash flow information

     Fixed assets included in accounts payable                                                     $     69          $    482
                                                                                                   ========          ========
</TABLE>

 See accompanying notes to the condensed consolidated financial statements


                                   3
<PAGE>


                    TOWN SPORTS INTERNATIONAL, INC.
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  MAY 31, 1997 AND FEBRUARY 28, 1998

                           All figures $'000

1.   BASIS OF PRESENTATION

The  condensed  consolidated  financial  statements  included  herein  have been
prepared by the Company  pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"). The condensed consolidated financial statements
should be read in  conjunction  with the  Company's  May 31,  1997  consolidated
financial  statements and notes  thereto,  included on Form S-4 (SEC File Number
333-40907).  The year-end  condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting  principles.  Certain  information and footnote  disclosures
which are normally included in financial  statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to SEC rules and regulations. The Company believes that the disclosures made are
adequate to make the  information  presented  not  misleading.  The  information
reflects all adjustments which, in the opinion of Management,  are necessary for
a fair presentation of the financial  position and results of operations for the
interim  periods  set forth  herein.  All such  adjustments  are of a normal and
recurring  nature.  The  results  for the three- and  nine-month  periods  ended
February 28, 1998, are not necessarily  indicative of the results for the entire
fiscal year ending May 31, 1998.


2.   LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

                                            MAY 31, 1997    FEBRUARY 28, 1998


9 3/4% Senior Notes payable                         --           $85,000

Term loan - Bank                               $30,000                --

Subordinated Note payable                        7,384                --

Capital lease obligations                        2,317             1,560

Notes payable -Seller finance                    1,370             2,176
                                               -------           -------
                                                41,071            88,735
                                               -------           -------
     Less, current portion due within
     one year                                    1,924             2,289
                                               -------           -------

     Long-term portion                         $39,147           $86,446
                                               =======           =======


                                   4



<PAGE>


As of February  28,  1998,  the Company has a line of credit with its  principal
bank for direct  borrowings  and letters of credit of up to $15.0  million.  The
line  of  credit  carries  interest  at the  Company's  option  based  upon  the
Eurodollar  borrowing  rate plus 2.50% or the bank's  prime rate plus 1.50%,  as
defined.  There were no outstanding borrowings against this line of credit as of
February 28, 1998;  however,  there were  outstanding  letters of credit of $1.4
million.  The unutilized  portion of the line of credit as of November 30, 1997,
was $13.6 million. This line of credit expires on October 15, 2002.

On October 16, 1997,  the Company  issued  $85.0  million of senior  notes.  The
senior notes bear interest at an annual rate of 9 3/4%,  payable  semi-annually,
due October 2004.  The senior notes are  uncollateralized.  Approximately  $41.5
million of the proceeds from the issuance of the senior notes were used to repay
existing indebtedness.

Certain credit facilities contain various covenants  including interest coverage
(as  defined)  and a leverage  ratio as well as  restrictions  on the payment of
dividends.

3.   ASSET ACQUISITIONS AND COMMITMENTS

During the quarter ended February 28, 1998,  the Company  executed five purchase
agreements  thereby  acquiring five fitness clubs. The aggregate  purchase price
totaled  $6.1 million  which  included  $5.8 million  payable at closing and the
issuance of notes  payable  totaling  $0.3  million.  In  connection  with these
fitness clubs as well as certain  future  facilities,  the Company  entered into
noncancelable  operating  leases  expiring  on or before  May 31,  2014.  Future
minimum rental payments  required under these leases total  approximately  $16.1
million.

During the quarter ended  November 30, 1997,  the Company  executed two purchase
agreements  thereby  acquiring two fitness clubs.  The aggregate  purchase price
totaled  $2.4 million  which  included  $2.1 million  payable at closing and the
issuance of notes  payable  totaling  $0.3  million.  In  connection  with these
fitness  clubs as well as certain  expansions  in  preexisting  facilities,  the
Company entered into  noncancelable  operating  leases expiring on or before May
31, 2018.  Future  minimum  rental  payments  required  under these leases total
approximately $15.4 million.

4.   SUBSEQUENT EVENTS

In March 1998,  the Company  acquired the assets of a fitness club. The purchase
price  totaled $2.4 million which  included $2.1 million  payable at closing and
the assumption of certain equipment lease obligations  totaling $0.3 million. In
connection with this club and future club  facilities,  the Company entered into
noncancelable  operating  leases  expiring  on or before  May 31,  2013.  Future
minimum rental  payments  required under these leases total  approximately  $7.4
million.

5.   EXTRAORDINARY ITEM

During the nine months ended February 28, 1998,  the Company  completed an $85.0
million  Senior Note  financing.  As part of this  financing,  the existing term
loan, line of credit and subordinated note were repaid. Accordingly,  previously
capitalized  fees and expenses  relating to the repaid debt of $1.4 million were
written off net of taxes of $0.7 million.


                                   5


<PAGE>


6.   IMPACT OF THE ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS

For the three- and nine-months  ended February 28, 1998, the Company adopted the
provision of statement of Financial  Accounting Standards No. 128, "Earnings per
share" ("SFAS 128"). SFAS 128 requires  companies who have outstanding  publicly
traded  equity  securities  to disclose  basic and  diluted per share data.  The
Company has no publicly  traded equity  securities and,  accordingly,  per share
data has been omitted.

The Financial  Accounting  Standard Board ("FASB") issued  Financial  Accounting
Standard  No. 130,  Reporting  Comprehensive  Income  ("SFAS 130") in June 1997.
Comprehensive  Income  represents  the  change  in  net  assets  of  a  business
enterprise  as a result of nonowner  transactions.  Management  does not believe
that the  future  adoption  of SFAS  130  will  have a  material  effect  on the
Company's  financial position and results of operations.  The Company will adopt
SFAS 130 for the year ending May 31, 1999.

Also in June 1997,  the FASB  issued  Financial  Accounting  Standard  No.  131,
Disclosures  about  Segments of an  Enterprise  and Related  Information  ("SFAS
131"). SFAS 131 requires that a business  enterprise report certain  information
about operating segments, products and services,  geographic areas of operation,
and major  customers.  Management  does not believe that the future  adoption of
SFAS 131 will have a material effect on the Company's financial statements.  The
Company is required to adopt this  standard for the year ending May 31, 1999.

In  February  1998,  the FASB  issued  Financial  Accounting  Standard  No. 132,
Employers'  Disclosures about Pensions and Other Postretirement  Benefits.  This
statement modifies financial statement  disclosures related to pension and other
postretirement  plans,  and will not have an effect on the  Company's  financial
position  or results  of  operations.  The  Company  is  required  to adopt this
standard for the year ending May 31, 1999.


                                        6


<PAGE>




ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The  following  discussion  should  be read in  conjunction  with the  condensed
consolidated  financial statements and notes thereto appearing elsewhere in this
Form 10-Q.

In December  1996, the Company  consummated a merger (the "Merger")  pursuant to
which, among other things,  Bruckmann,  Rosser, Sherrill & Co., L.P. and certain
of its employees and affiliates  (collectively "BRS") and certain  institutional
investors and certain members of the Company  management  acquired the Company's
newly authorized  Common Stock,  Series A Preferred Stock and Series B Preferred
Stock. In addition,  pursuant to the Merger, the Company instituted a new option
plan granting certain members of management  options to acquire newly authorized
Series B Preferred Stock and Common Stock.

RESULTS OF OPERATION

THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THREE MONTHS ENDED FEBRUARY 28,
1997

REVENUES.  Revenues  increased  $7.0  million,  or 48% to $21.6  million for the
quarter ended February 28, 1998 from $14.6 million in the quarter ended February
28, 1997. This increase resulted primarily from the continued  maturation of the
three clubs opened or acquired in fiscal 1996 (approximately  $0.7 million,  all
due to  membership  growth),  the six clubs  opened or  acquired  in fiscal 1997
(approximately $1.9 million, of which $1.6 million is due to membership growth),
and the ten clubs acquired in fiscal 1998  (approximately $2.9 million, of which
$2.5 million is due to membership  growth).  In addition,  revenues increased by
$1.3 million during the quarter ended February 28, 1998 at the Company's  mature
clubs primarily resulting from membership growth.

OPERATING  EXPENSES.  Operating expenses increased $0.5 million,  or 3% to $19.0
million  for the  quarter  ended  February  28,  1998 from $18.5  million in the
quarter  ended  February 28,  1997.  The  increase in total  operating  expenses
resulted  primarily from increases in: payroll related  expenses ($2.2 million);
club operating expenses ($2.0 million);  and depreciation and amortization ($0.8
million),  offset by a substantial reduction in compensation expense incurred in
connection  with stock options of $5.2 million which was caused by the Merger in
December 1996. The increases were primarily attributable to the six clubs opened
or  acquired  in fiscal  1997  (approximately  $1.0  million)  and the ten clubs
acquired in fiscal 1998 (approximately $3.5 million). General and administrative
expenses  increased  $0.7  million to support the  increased  number of clubs in
operation during the quarter.

OPERATING  INCOME.  Operating  income increased $6.4 million to $2.6 million for
the quarter  ended  February 28, 1998 from a loss of $3.8 million in the quarter
ended  February 28, 1997.  The increase in operating  income  during the quarter
ended  February 28, 1998 is primarily  attributable  to revenue growth at the 19
clubs  opened  or  acquired  since the end of  fiscal  1995 and the  substantial
reduction in compensation  expense incurred in connection with the stock options
caused by the Merger in December 1996.


                                        7


<PAGE>


EARNINGS  BEFORE  DEPRECIATION,  INTEREST,  TAXES,  NONCASH  RENTAL  EXPENSE AND
NONCASH  COMPENSATION  EXPENSE  IN  CONNECTION  WITH  STOCK  OPTIONS  ("Adjusted
Ebitda") Adjusted Ebitda increased $2.4 million,  or 76% to $5.5 million for the
quarter ended February 28, 1998 from $3.1 million for the quarter ended February
28, 1997.  Adjusted Ebitda as a percentage of revenues increased to 25% from 21%
in the  comparable  period of the  previous  fiscal  year.  The  improvement  in
adjusted  ebitda  margin is  principally  attributable  to the mix of mature and
immature  clubs  operated by the Company.  Because  there is  relatively  little
incremental  cost  associated  with  increasing  revenues,  there  is a  greater
proportionate  increase in profitability as clubs mature.  Since the Company has
acquired ten relatively more mature operations during this fiscal year, this mix
has changed.

INTEREST  EXPENSE.  Interest expense  increased $1.3 million to $2.3 million for
the  quarter  ended  February  28, 1998 from $1.0  million in the quarter  ended
February  28,  1997.  This is  primarily  as a result of the new debt  financing
structure  put in place due to the Merger  during the 1997  fiscal  year and the
refinancing  of that debt by the $85.0 million  Senior Note placement in October
1997.

INTEREST INCOME.  Interest income increased $0.5 million to $0.5 million for the
quarter ended February 28, 1998 primarily  because of increased  interest income
from the investment of surplus cash subsequent to the October 1997 refinancing.

INCOME TAX  PROVISION.  The income tax provision for the quarter ended  February
28, 1998 was $0.4  million  compared  to a tax  benefit of $2.2  million for the
quarter ended  February 28, 1997,  primarily as a result of increased  operating
income  and the  substantial  reduction  in  compensation  expense  incurred  in
connection with stock options caused by the Merger in December 1996.


NINE MONTHS ENDED  FEBRUARY 28, 1998 COMPARED TO NINE MONTHS ENDED  FEBRUARY 28,
1997

REVENUES. Revenues increased $17.4 million, or 43% to $57.9 million for the nine
months  ended  February  28, 1998 from $40.5  million in the nine  months  ended
February  28,  1997.  These  increases  resulted  primarily  from the  continued
maturation  of the three clubs opened or acquired in fiscal 1996  (approximately
$2.4  million,  of which $2.1 was related to membership  growth),  the six clubs
opened or acquired in fiscal 1997 (approximately $7.0 million, of which $6.0 was
related to  membership  growth and $1.0  million  was  related to  increases  in
ancillary  revenue),  and the ten clubs  acquired in fiscal 1998  (approximately
$4.9 million of which $4.2 was related to membership growth and $0.7 million was
related to increases in ancillary revenue).  In addition,  revenues increased by
$3.1  million  during the nine months ended  February 28, 1998 at the  Company's
mature clubs, of which $2.5 million was due to membership growth.


OPERATING  EXPENSES.  Operating expenses increased $9.4 million, or 23% to $51.0
million for the nine months ended  February  28, 1997 from $41.6  million in the
nine months ended  February 28, 1997. The increase in total  operating  expenses
resulted primarily from increases in: payroll related expenses ($6.5 million);


                                        8


<PAGE>


club operating expenses ($5.1 million);  and depreciation and amortization ($2.2
million),  offset by a substantial reduction in compensation expense incurred in
connection  with stock options of $5.4 million which was caused by the Merger in
December 1996. The increases were primarily attributable to the six clubs opened
or acquired in fiscal 1997  (approximately $4.8 million) and the ten acquired in
fiscal 1998  (approximately $7.0 million).  General and administrative  expenses
increased  $1.0  million to support the  increased  number of clubs in operation
during the period.

OPERATING  INCOME.  Operating  income increased $7.9 million to $6.9 million for
the nine months ended  February 28, 1998 from a loss of $1.0 million in the nine
months ended February 28, 1997. The increase in operating income during the nine
months ended  February 28, 1998 is primarily  attributable  to revenue growth at
the 19 clubs  opened or  acquired  since 1995 and the  absence  of  compensation
expenses incurred in connection with stock options of $5.4 million.

EARNINGS  BEFORE  DEPRECIATION,  INTEREST,  TAXES,  NONCASH  RENTAL  EXPENSE AND
NONCASH  COMPENSATION  EXPENSE  IN  CONNECTION  WITH  STOCK  OPTIONS  ("Adjusted
Ebitda") Adjusted Ebitda increased $5.5 million, or 60% to $14.6 million for the
nine months  ended  February 28, 1998 from $9.1 million in the nine months ended
February 28, 1997.  Adjusted Ebitda as a percentage of revenues increased to 25%
from 22% in the comparable  period of the previous  fiscal year. The improvement
in adjusted  ebitda margin is principally  attributable to the mix of mature and
immature  clubs  operated by the Company.  Because  there is  relatively  little
incremental  cost  associated  with  increasing  revenues,  there  is a  greater
proportionate  increase in profitability as clubs mature.  Since the Company has
acquired ten relatively more mature operations during this fiscal year, this mix
has changed.

INTEREST  EXPENSE.  Interest expense  increased $3.9 million to $5.3 million for
the nine months  ended  February  28, 1998 from $1.4  million in the nine months
ended February 28, 1997. This is primarily as a result of the new debt financing
structure  put in place due to the Merger  during the 1997  fiscal  year and the
refinancing  of that debt by the $85.0 million  Senior Note placement in October
1997.

INTEREST INCOME.  Interest income increased $0.8 million to $0.9 million for the
nine months ended  February 28, 1998,  primarily  because of increased  interest
income from the  investment  of surplus  cash  subsequent  to the  October  1997
refinancing.

INCOME TAX  PROVISION.  The  income  tax  provision  for the nine  months  ended
February 28, 1998 was $1.2 million compared to a tax benefit of $1.1 million for
the nine months  ended  February  28,  1998,  primarily as a result of increased
operating income and the substantial  reduction in compensation expense incurred
in connection with stock options caused by the Merger in December 1996.

EXTRAORDINARY  ITEM.  During the nine months ended February 28, 1998 the Company
undertook an $85.0 million Senior Note financing.  As part of this financing the
existing  term  loan,  line  of  credit  and  subordinated   note  were  repaid.
Accordingly previously capitalized fees and expenses relating to the repaid debt
of $1.4 million were written off net of tax effect of $0.7 million.


                                       9


<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

On October 16, 1997,  the Company  completed an $85.0 million 9 3/4% Senior Note
placement, the "Offering," and put in place a $15.0 million credit facility, the
"New Credit Facility". After repayment of existing indebtedness of $41.5 million
and payment of fees and  expenses of $3.3  million,  $40.2  million net proceeds
were received by the Company.

The Company believes that cash generated from operations,  together with the net
proceeds of the Offering and amounts  available  under the New Credit  Facility,
will be adequate to meet its  currently  envisaged  capital  expenditures,  debt
service requirements, and working capital needs for the medium term. The Company
has approximately  $13.6 million in availability  under the New Credit Facility.
The New Credit  Facility  will mature on October  15, 2002 and has no  scheduled
interim amortization requirements.

The Company's future  operating  performance and ability to service or refinance
the Notes and to extend or refinance the New Credit  Facility will be subject to
future  economic  conditions  generally  and to  financial,  business  and other
factors, many of which are beyond the Company's control.

Net cash  provided  by  operating  activities  in the nine  month  period  ended
February 28, 1998 was $12.9  million as compared  with $7.6 million  provided by
operating  activities  in the nine month  period ended  February  28, 1997.  The
increase reflects the continued maturation of recently opened facilities as well
as improved performance at its mature clubs.

The  Company   invested  $19.3  million  in  capital   expenditures   and  asset
acquisitions  during the nine  months  ended  February  28,  1998.  The  Company
estimates that it will invest a total of approximately  $45.0 million in capital
expenditures during the balance of fiscal 1998 and during fiscal 1999 to open or
acquire  additional  clubs.  It is estimated that a further $0.8 million will be
expended  during the balance of fiscal 1998 and $3.5 million  during fiscal 1999
to maintain, upgrade and expand certain existing clubs.

The Company is in the process of  assessing  whether its  computer  systems will
function  properly  with  respect  to  dates  in 2000  and  thereafter,  and has
determined  that  certain  software  applications  will require  upgrading.  The
estimated cost of such upgrades is approximately $0.2 million.


FORWARD-LOOKING STATEMENTS

Forward-looking  statements  in this Form 10-Q  including,  without  limitation,
statements   relating   to  the   Company's   plans,   strategies,   objectives,
expectations,  intentions  and adequacy of  resources,  are made pursuant to the
safe harbor provisions of the Private Securities  Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties,
and  other  factors  which  may  cause  the  actual   results,   performance  or
achievements of the Company to be materially  different from any future results,
performance  or  achievements  expressed  or  implied  by  such  forward-looking
statements. These factors include, among others, the following: general economic
and business conditions; competition; success of operating initiatives,


                                       10


<PAGE>


advertising  and  promotional   efforts;   existence  of  adverse  publicity  or
litigation; acceptance of new service offerings; changes in business strategy or
plans;  quality  of  management;  availability  and terms of  capital;  business
abilities and judgment of personnel;  changes in, or the failure to comply with,
government  regulations;  and other factors  described in filings of the Company
with  the  Securities  and  Exchange  Commission.   The  Company  undertakes  no
obligation to publicly update or revise any forward-looking statements,  whether
as a result of new information, future events or otherwise.


                                       11


<PAGE>





PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.
Not applicable.

ITEM 2.   CHANGES IN SECURITIES.
Not applicable.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.
Not applicable.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.

ITEM 5.   OTHER INFORMATION.
Not applicable.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  EXHIBITS

          (27) Financial Data Schedule (to be filed electronically).

     (b)  REPORTS ON FORM 8-K

          No reports on Form 8-K were filed  during the third  quarter of fiscal
          1998.


                                       12


<PAGE>


                                    SIGNATURE

Pursuant to 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.

                                   TOWN SPORTS INTERNATIONAL, INC.
                                     (Registrant)







DATE:   APRIL 1, 1998              BY:  /S/ RICHARD PYLE
                                        ---------------------------------------
                                   Richard Pyle
                                   Chief Financial Officer
                                   (principal financial and accounting officer)


DATE:   APRIL 1, 1998              BY:  /S/ MARK SMITH
                                        ---------------------------------------
                                   Mark Smith
                                   Chief Executive Officer
                                   (principal executive officer)


                                       13


<PAGE>



                                  EXHIBIT INDEX



EXHIBIT NUMBER      DESCRIPTION OF EXHIBIT


(27)                Financial Data Schedule (to be filed electronically).




                                       14