##### 









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 September 30, 2001

or



|  |                                                                                           
|- | ------------------------------------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934.

For the Transition period from
               to

               .

Commission File Number 333-40907

TOWN SPORTS INTERNATIONAL, INC.

(Exact name of registrant as specified in its
charter)


|                                                                |  |                                         
|--------------------------------------------------------------- |  | ----------------------------------------
|New York                                                        |  | 13-2749906                              
|                                                               
|                                                               
|                                                               
|                                                               
|(State or other Jurisdiction of
	Incorporation or organization) |  | (I.R.S. Employer
	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.

x
Yes               
o No

Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date. 1,005,698.



---






---



##### 



TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES

FORM 10-Q


FOR THE QUARTER ENDED SEPTEMBER 30, 2001


INDEX

|                              |                                                                                                |                                                                                                                      |    |    |   | 
|----------------------------- | ---------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | -- | -- | - | 
|                              |                                                                                                | Page                                                                                                                
|                              |                                                                                                |                                                                                                                     
|PART I. FINANCIAL INFORMATION |                                                                                                |                                                                                                                      |    |   
|                              | Item 1. Financial Statements (Unaudited)                                                       |                                                                                                                      |    |    |  
|                             
|                             
|                             
|                             
|                              |                                                                                                | a) Condensed Consolidated Balance Sheets as
	of December  31, 2000 and September 30, 2001                            |    |    | 2 | 
|                             
|                             
|                             
|                             
|                              |                                                                                                | b) Condensed Consolidated Statements of
	Operations for the three and nine months ended
	September 30, 2000 and 2001 |    |    | 3 | 
|                             
|                             
|                             
|                             
|                              |                                                                                                | c) Condensed Consolidated Statements of Cash
	Flow for the nine months ended September 30, 2000 and 2001             |    |    | 4 | 
|                             
|                             
|                             
|                             
|                              |                                                                                                | d) Notes to Condensed Consolidated Financial
	Statements                                                             |    |    | 5 | 
|                             
|                             
|                             
|                             
|                              | Item 2. Managements Discussion
	and Analysis of Financial Condition and Results of Operations |                                                                                                                      |    | 8  |  
|PART II. OTHER INFORMATION    |                                                                                                |                                                                                                                      |    |   
|                             
|                             
|                             
|                             
|                              | Item 1. Legal Proceedings                                                                      |                                                                                                                      |    | 13 |  
|                             
|                             
|                             
|                             
|                              | Item 2. Changes in Securities                                                                  |                                                                                                                      |    | 13 |  
|                             
|                             
|                             
|                             
|                              | Item 3. Defaults upon Senior Securities                                                        |                                                                                                                      |    | 13 |  
|                             
|                             
|                             
|                             
|                              | Item 4. Submission of Matters to a Vote
	of Security Holders                                   |                                                                                                                      |    | 13 |  
|                             
|                             
|                             
|                             
|                              | Item 5. Other Information                                                                      |                                                                                                                      |    | 13 |  
|                             
|                             
|                             
|                             
|                              | Item 6. Exhibits and Reports on
	Form 8-K                                                      |                                                                                                                      |    | 13 |  
|                             
|                             
|                             
|                             
|SIGNATURES                    |                                                                                                |                                                                                                                      | 14 |   

1



---



##### 



TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2000 and September 30, 2001


All figures $000, except share data


|                                                                                                                                                                                                                                                                        |                                                                                        |                                             |         |               |         |   |         |         |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ------------------------------------------- | ------- | ------------- | ------- | - | ------- | ------- | ------- | -
|                                                                                                                                                                                                                                                                        |                                                                                        | December 31,                                |         | September 30,
|                                                                                                                                                                                                                                                                        |                                                                                        | 2000                                        |         | 2001         
|                                                                                                                                                                                                                                                                        |                                                                                        |                                             |         |              
|                                                                                                                                                                                                                                                                        |                                                                                        | (Unaudited)                                 |         | (Unaudited)  
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|ASSETS                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Current assets:                                                                                                                                                                                                                                                         |                                                                                        |                                             |         |               |         |   |         |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Cash and cash equivalents                                                              |                                             | $       | 3,365         |         |   | $       | 2,160   |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Accounts receivable                                                                    |                                             |         | 678           |         |   |         | 783     |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Inventory                                                                              |                                             |         | 893           |         |   |         | 1,243   |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Prepaid corporate income taxes                                                         |                                             |         | 1,828         |         |   |         |        |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Prepaid expenses and other current assets                                              |                                             |         | 2,018         |         |   |         | 3,124   |        
|                                                                                                                                                                                                                                                                        |                                                                                        |                                             |         |               |         |   |         |        
|                                                                                                                                                                                                                                                                        |                                                                                        | Total current assets                        |         |               | 8,782   |   |         |         | 7,310   |  
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Fixed assets, net of accumulated depreciation of
	$54,146 and $71,480 at December 31, 2000 and
	September 30, 2001, respectively                                                                                                                                        |                                                                                        |                                             | 161,510 |               |         |   | 183,086 |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Intangible assets, net of accumulated
	amortization of $20,408 and $26,787 at December 31, 2000
	and September 30, 2001, respectively                                                                                                                                   |                                                                                        |                                             | 55,399  |               |         |   | 50,690  |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Deferred tax asset                                                                                                                                                                                                                                                      |                                                                                        |                                             | 14,566  |               |         |   | 17,737  |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Deferred membership costs                                                                                                                                                                                                                                               |                                                                                        |                                             | 13,586  |               |         |   | 15,383  |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Other assets                                                                                                                                                                                                                                                            |                                                                                        |                                             | 2,242   |               |         |   | 2,153   |        
|                                                                                                                                                                                                                                                                        |                                                                                        |                                             |         |               |         |   |         |        
|                                                                                                                                                                                                                                                                        |                                                                                        | Total assets                                |         | $             | 256,085 |   |         | $       | 276,359 |  
|                                                                                                                                                                                                                                                                        |                                                                                        |                                             |         |               |         |   |         |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|LIABILITIES, REDEEMABLE SENIOR PREFERRED STOCK
	AND STOCKHOLDERS DEFICIT                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Current liabilities:                                                                                                                                                                                                                                                    |                                                                                        |                                             |         |               |         |   |         |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Current portion of long-term debt and capital
	lease obligations                       |                                             | $       | 3,411         |         |   | $       | 4,015   |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Accounts payable                                                                       |                                             |         | 2,550         |         |   |         | 4,365   |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Accrued expenses and corporate income taxes
	payable                                   |                                             |         | 18,284        |         |   |         | 24,701  |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Deferred revenue                                                                       |                                             |         | 22,951        |         |   |         | 24,958  |        
|                                                                                                                                                                                                                                                                        |                                                                                        |                                             |         |               |         |   |         |        
|                                                                                                                                                                                                                                                                        |                                                                                        | Total current liabilities                   |         |               | 47,196  |   |         |         | 58,039  |  
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Long-term debt and capital lease obligations                                                                                                                                                                                                                            |                                                                                        |                                             | 141,087 |               |         |   | 139,280 |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Deferred lease liabilities                                                                                                                                                                                                                                              |                                                                                        |                                             | 17,044  |               |         |   | 19,547  |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Deferred revenue                                                                                                                                                                                                                                                        |                                                                                        |                                             | 2,736   |               |         |   | 3,904   |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Other liabilities                                                                                                                                                                                                                                                       |                                                                                        |                                             | 3,904   |               |         |   | 4,054   |        
|                                                                                                                                                                                                                                                                        |                                                                                        |                                             |         |               |         |   |         |        
|                                                                                                                                                                                                                                                                        |                                                                                        | Total liabilities                           |         |               | 211,967 |   |         |         | 224,824 |  
|                                                                                                                                                                                                                                                                        |                                                                                        |                                             |         |               |         |   |         |        
|Redeemable senior preferred stock, $1.00 par
	value; liquidation value $51,100 and $55,775 at
	December 31, 2000, and September 30, 2001,
	respectively; authorized 100,000 shares; 40,000 shares issued
	and outstanding at December  31, 2000 and
	September 30, 2001 |                                                                                        |                                             | 48,029  |               |         |   | 52,960  |        
|                                                                                                                                                                                                                                                                        |                                                                                        |                                             |         |               |         |   |         |        
|Stockholders deficit:                                                                                                                                                                                                                                                  |                                                                                        |                                             |         |               |         |   |         |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Series A preferred stock, at liquidation
	value                                        |                                             |         | 26,580        |         |   |         | 29,436  |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Series B preferred stock, at liquidation
	value                                        |                                             |         | 232           |         |   |         | 257     |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Class A voting common stock, $.001 par
	value; 1,005,698 shares issued and outstanding |                                             |         | 1             |         |   |         | 1       |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Paid-in capital                                                                        |                                             |         | 10,280        |         |   |         | 11,443  |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Unearned compensation                                                                  |                                             |         | (156          | )       |   |         | (422    | )      
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Foreign currency translation adjustment                                                |                                             |         | 12            |         |   |         | 24      |        
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                        | Accumulated deficit                                                                    |                                             |         | (40,860       | )       |   |         | (42,164 | )      
|                                                                                                                                                                                                                                                                        |                                                                                        |                                             |         |               |         |   |         |        
|                                                                                                                                                                                                                                                                        |                                                                                        | Total stockholders deficit                 |         |               | (3,911  | ) |         |         | (1,425  | )
|                                                                                                                                                                                                                                                                        |                                                                                        |                                             |         |               |         |   |         |        
|                                                                                                                                                                                                                                                                        |                                                                                        | Total liabilities and stockholders deficit |         | $             | 256,085 |   |         | $       | 276,359 |  
|                                                                                                                                                                                                                                                                        |                                                                                        |                                             |         |               |         |   |         |        

See notes to the condensed consolidated financial statements.

2



---



##### 



TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three and nine months ended September 30, 2000
and 2001


All figures $000


|                                      |                                                        |                    |        |                   |   |             |        |             |   |  |         |         |   |  |         |         |  
|------------------------------------- | ------------------------------------------------------ | ------------------ | ------ | ----------------- | - | ----------- | ------ | ----------- | - |  | ------- | ------- | - |  | ------- | ------- | -
|                                      |                                                        |                    |        |                  
|                                      |                                                        | Three months ended |        | Nine months ended
|                                      |                                                        | September 30,      |        | September 30,    
|                                      |                                                        |                    |        |                  
|                                      |                                                        | 2000               |        | 2001              |   | 2000        |        | 2001       
|                                      |                                                        |                    |        |                   |   |             |        |            
|                                      |                                                        | (Unaudited)        |        | (Unaudited)       |   | (Unaudited) |        | (Unaudited)
|                                     
|                                     
|                                     
|                                     
|Revenues:                             |                                                        |                    |        |                   |   |             |        |             |   |  |         |         |   |  |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Club operations                                        |                    | $      | 60,544            |   |             | $      | 71,269      |   |  | $       | 161,362 |   |  | $       | 208,150 |  
|                                     
|                                     
|                                     
|                                     
|                                      | Fees and other                                         |                    |        | 683               |   |             |        | 1,119       |   |  |         | 1,877   |   |  |         | 2,743   |  
|                                      |                                                        |                    |        |                   |   |             |        |             |   |  |         |         |   |  |         |        
|                                      |                                                        |                    | 61,227 |                   |   |             | 72,388 |             |   |  | 163,239 |         |   |  | 210,893 |        
|                                      |                                                        |                    |        |                   |   |             |        |             |   |  |         |         |   |  |         |        
|                                     
|Operating expenses:                   |                                                        |                    |        |                   |   |             |        |             |   |  |         |         |   |  |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Payroll and related                                    |                    |        | 24,461            |   |             |        | 28,461      |   |  |         | 65,076  |   |  |         | 82,468  |  
|                                     
|                                     
|                                     
|                                     
|                                      | Club operating                                         |                    |        | 18,790            |   |             |        | 23,455      |   |  |         | 49,955  |   |  |         | 65,854  |  
|                                     
|                                     
|                                     
|                                     
|                                      | General and administrative                             |                    |        | 3,876             |   |             |        | 5,033       |   |  |         | 10,979  |   |  |         | 14,034  |  
|                                     
|                                     
|                                     
|                                     
|                                      | Depreciation and amortization                          |                    |        | 6,995             |   |             |        | 8,047       |   |  |         | 19,151  |   |  |         | 23,802  |  
|                                     
|                                     
|                                     
|                                     
|                                      | Compensation expense in connection with stock
	options |                    |        | 924               |   |             |        | 263         |   |  |         | 1,343   |   |  |         | 898     |  
|                                      |                                                        |                    |        |                   |   |             |        |             |   |  |         |         |   |  |         |        
|                                      |                                                        |                    | 55,046 |                   |   |             | 65,259 |             |   |  | 146,504 |         |   |  | 187,056 |        
|                                      |                                                        |                    |        |                   |   |             |        |             |   |  |         |         |   |  |         |        
|                                      | Operating income                                       |                    |        | 6,181             |   |             |        | 7,129       |   |  |         | 16,735  |   |  |         | 23,837  |  
|                                     
|                                     
|                                     
|                                     
|Interest expense                      |                                                        |                    | 3,612  |                   |   |             | 3,713  |             |   |  | 10,414  |         |   |  | 11,278  |        
|                                     
|                                     
|                                     
|                                     
|Interest income                       |                                                        |                    | (190   | )                 |   |             | (84    | )           |   |  | (931    | )       |   |  | (347    | )      
|                                      |                                                        |                    |        |                   |   |             |        |             |   |  |         |         |   |  |         |        
|                                      | Income before provision for corporate
	income tax      |                    |        | 2,759             |   |             |        | 3,500       |   |  |         | 7,252   |   |  |         | 12,906  |  
|                                     
|                                     
|                                     
|                                     
|Provision for corporate income tax    |                                                        |                    | 1,525  |                   |   |             | 1,856  |             |   |  | 3,760   |         |   |  | 6,398   |        
|                                      |                                                        |                    |        |                   |   |             |        |             |   |  |         |         |   |  |         |        
|                                      | Net Income                                             |                    |        | 1,234             |   |             |        | 1,644       |   |  |         | 3,492   |   |  |         | 6,508   |  
|                                     
|                                     
|                                     
|                                     
|Accreted dividends on preferred stock |                                                        |                    | (2,309 | )                 |   |             | (2,612 | )           |   |  | (6,677  | )       |   |  | (7,555  | )      
|                                      |                                                        |                    |        |                   |   |             |        |             |   |  |         |         |   |  |         |        
|                                      | Net loss attributable to common stockholders           |                    | $      | (1,075            | ) |             | $      | (968        | ) |  | $       | (3,185  | ) |  | $       | (1,047  | )
|                                      |                                                        |                    |        |                   |   |             |        |             |   |  |         |         |   |  |         |        

See notes to the condensed consolidated financial statements.

3



---



##### 



TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2000 and 2001


All figures $000


|                                                                                                 |                                                                              |                                                      |        |             |         |   |       |         |         |  
|------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------- | ---------------------------------------------------- | ------ | ----------- | ------- | - | ----- | ------- | ------- | -
|                                                                                                 |                                                                              |                                                     
|                                                                                                 |                                                                              | Nine months ended                                   
|                                                                                                 |                                                                              | September 30,                                       
|                                                                                                 |                                                                              |                                                     
|                                                                                                 |                                                                              | 2000                                                 |        | 2001       
|                                                                                                 |                                                                              |                                                      |        |            
|                                                                                                 |                                                                              | (Unaudited)                                          |        | (Unaudited)
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Cash flows from operating activities:                                                            |                                                                              |                                                      |        |             |         |   |       |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Net income                                                                   |                                                      | $      | 3,492       |         |   | $     | 6,508   |        
|                                                                                                 |                                                                              |                                                      |        |             |         |   |       |        
|Adjustments to reconcile net income to net cash
	provided by operating activities:               |                                                                              |                                                      |        |             |         |   |       |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Depreciation and amortization                                                |                                                      |        | 19,151      |         |   |       | 23,802  |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Compensation expense in connection with stock
	options                       |                                                      |        | 1,343       |         |   |       | 898     |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Noncash rental expense, net of noncash rental
	income                        |                                                      |        | 2,740       |         |   |       | 2,330   |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Share of net income in affiliated companies                                  |                                                      |        | (188        | )       |   |       | (581    | )      
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Amortization of debt issuance costs                                          |                                                      |        | 1,096       |         |   |       | 1,412   |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Change in certain working capital components                                 |                                                      |        | 14,013      |         |   |       | 10,295  |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Increase in deferred tax asset                                               |                                                      |        | (3,352      | )       |   |       | (3,171  | )      
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Increase in deferred membership costs                                        |                                                      |        | (2,175      | )       |   |       | (1,797  | )      
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Other                                                                        |                                                      |        | (36         | )       |   |       | 96      |        
|                                                                                                 |                                                                              |                                                      |        |             |         |   |       |        
|                                                                                                 |                                                                              | Total adjustments                                    |        |             | 32,592  |   |       |         | 33,284  |  
|                                                                                                 |                                                                              |                                                      |        |             |         |   |       |        
|                                                                                                 |                                                                              | Net cash provided by operating activities            |        |             | 36,084  |   |       |         | 39,792  |  
|                                                                                                 |                                                                              |                                                      |        |             |         |   |       |        
|Cash flows from investing activities:                                                            |                                                                              |                                                      |        |             |         |   |       |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Capital expenditures, net of effects of acquired
	businesses                 |                                                      |        | (40,036     | )       |   |       | (36,494 | )      
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Acquisition of businesses, net of cash acquired                              |                                                      |        | (22,324     | )       |   |       | (1,201  | )      
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Intangible and other assets                                                  |                                                      |        | 37          |         |   |       | (245    | )      
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Investment in affiliate                                                      |                                                      |        | (210        | )       |   |       |        |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Landlord contributions                                                       |                                                      |        | 1,723       |         |   |       | 275     |        
|                                                                                                 |                                                                              |                                                      |        |             |         |   |       |        
|                                                                                                 |                                                                              | Net cash used in investing activities                |        |             | (60,810 | ) |       |         | (37,665 | )
|                                                                                                 |                                                                              |                                                      |        |             |         |   |       |        
|Cash Flows from Financing Activities:                                                            |                                                                              |                                                      |        |             |         |   |       |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Proceeds from borrowings, net of effects of
	acquired businesses             |                                                      |        | 8,677       |         |   |       | 47,088  |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Repayments of borrowings                                                     |                                                      |        | (2,315      | )       |   |       | (50,420 | )      
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Repurchase of stock and other                                                |                                                      |        | (391        | )       |   |       |        |        
|                                                                                                 |                                                                              |                                                      |        |             |         |   |       |        
|                                                                                                 |                                                                              | Net cash (used in) provided by financing
	activities |        |             | 5,971   |   |       |         | (3,332  | )
|                                                                                                 |                                                                              |                                                      |        |             |         |   |       |        
|                                                                                                 |                                                                              | Net (decrease) in cash and cash equivalents          |        |             | (18,755 | ) |       |         | (1,205  | )
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Cash and cash equivalents at beginning of period                                                 |                                                                              |                                                      | 27,125 |             |         |   | 3,365 |        
|                                                                                                 |                                                                              |                                                      |        |             |         |   |       |        
|                                                                                                 |                                                                              | Cash and cash equivalents at end of period           |        | $           | 8,370   |   |       | $       | 2,160   |  
|                                                                                                 |                                                                              |                                                      |        |             |         |   |       |        
|Summary of change in certain working capital
	components, net of effects of acquired businesses: |                                                                              |                                                      |        |             |         |   |       |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | (Increase) in accounts receivable                                            |                                                      | $      | (578        | )       |   |       | (105    | )      
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | (Increase) decrease in inventory                                             |                                                      |        | 176         |         |   |       | (350    | )      
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Decrease in prepaid expenses, prepaid income
	taxes and other current assets |                                                      |        | 509         |         |   |       | 1,303   |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Increase in accounts payable and accrued expenses                            |                                                      |        | 9,596       |         |   |       | 6,310   |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Increase in deferred revenue                                                 |                                                      |        | 4,310       |         |   |       | 3,137   |        
|                                                                                                 |                                                                              |                                                      |        |             |         |   |       |        
|                                                                                                 |                                                                              | Net changes in working capital                       |        | $           | 14,013  |   |       | $       | 10,295  |  
|                                                                                                 |                                                                              |                                                      |        |             |         |   |       |        
|                                                                                                 | Supplemental disclosures of cash flow information:                           |                                                      |        |             |         |   |       |         |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Cash paid for interest                                                       |                                                      | $      | 6,847       |         |   | $     | 7,252   |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Cash paid for taxes                                                          |                                                      | $      | 6,201       |         |   | $     | 8,372   |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |                                                                              | Noncash investing and financing activities:          |        |             |         |   |       |         |         |  

The Company assumed $210 and $1,138 of long term debt in
connection with club acquisitions during the nine month periods
ended September 30, 2001 and 2000 respectively.

The Company acquired $1,939 of club equipment financed by
lessors during the nine month period ended September 30,
2001. The Company acquired $1,750 of fixed assets included in
accounts payable during the nine month period ended
September 30, 2001.

See notes to the condensed consolidated financial statements.

4



---



##### 



TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2000 and September 30, 2001


(Unaudited)


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
December 31, 2000 consolidated financial statements and
notes thereto, included on Form 10-K. The year-end
condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of
America. 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 quarter and the nine months ended
September 30, 2001 are not necessarily indicative of the
results for the entire fiscal year ending December 31, 2001.

2.  Long-Term Debt and Capital Lease Obligations

|                                          |  |              |         |               |  |   |         | 
|----------------------------------------- |  | ------------ | ------- | ------------- |  | - | ------- | 
|                                          |  | December 31, |         | September 30,
|                                          |  | 2000         |         | 2001         
|                                          |  | ($000)      |         | ($000)      
|                                          |  |              |         |              
|Series B 9 3/4% Senior Notes, due 2004    |  | $            | 125,000 |               |  | $ | 125,000 | 
|                                         
|                                         
|                                         
|                                         
|Line of credit borrowings                 |  |              | 9,000   |               |  |   | 8,000   | 
|                                         
|                                         
|                                         
|                                         
|Notes payable for acquired businesses     |  |              | 4,129   |               |  |   | 3,601   | 
|                                         
|                                         
|                                         
|                                         
|Capital lease obligations                 |  |              | 6,369   |               |  |   | 6,694   | 
|                                          |  |              |         |               |  |   |         | 
|                                          |  |              | 144,498 |               |  |   | 143,295 | 
|                                         
|                                         
|                                         
|                                         
|Less, Current portion due within one year |  |              | 3,411   |               |  |   | 4,015   | 
|                                          |  |              |         |               |  |   |         | 
|Long-term portion                         |  | $            | 141,087 |               |  | $ | 139,280 | 
|                                          |  |              |         |               |  |   |         | 

The Company has a line of credit, with its principal banks for
direct borrowings and letters of credit of up to $25.0 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. As of
September 30, 2001 $8.0 million of loans are
outstanding and accrue interest based on the Eurodollar rate
(5.25%). Outstanding letters of credit issued totaled
$1.8 million at September 30, 2001. The unutilized
portion of the line of credit as of September 30, 2001, was
$15.2 million. In May 2001, the Credit Agreement was
amended to extend the maturity date to July 15, 2004. The
company paid $188,000 in bank structuring fees related to this
amendment.

The line of credit contains various covenants including interest
coverage and a leverage ratio as well as restrictions on the
payment of dividends.

The capital lease obligations are collateralized by club
equipment. The amounts are generally payable in monthly
installments over three to four years with effective interest
rates between 8.0% and 10.0%.

In November 2000, the Company entered into a Subordinated Credit
Agreement (the Agreement) which provides for up to
$20.0 million of principal borrowings and expires
December 31, 2004. Interest on principal borrowings accrues
at 13% per annum; 10% of which is payable on a monthly basis and
the remaining 3% is accruable, at the option of the Company
through maturity. There were no outstanding borrowings under

5



---



##### 





3.  Acquisition of Health Development
Corporation

In July 2000, the Company acquired Health Development
Corporation, (HDC) a Massachusetts Corporation. HDC
was purchased for $18.7 million in cash. Including $525,000
of transaction costs the aggregate purchase price amounted to
approximately $19.2 million.

For financial reporting purposes the acquisition has been
accounted for under the purchase method, and accordingly, the
purchase price has been assigned to the assets and liabilities
acquired on the basis of their respective fair values on the
date of the acquisition. The excess of the purchase price over
the net tangible assets acquired has been allocated to
membership lists and goodwill.

The following unaudited pro forma information has been prepared
assuming the HDC acquisition had taken place at the beginning of
the nine month period ended September 30, 2000. The pro
forma adjustments give effect to revenue, amortization of
goodwill, amortization of membership lists, interest expense on
acquisition debt, adjustments to rent expense and the related
income tax effects. Immediately prior to the acquisition, HDC
sold the land and buildings related to two of its fitness clubs
and entered into leases with the new landlords of these clubs.
Rent expense, interest on mortgages and building depreciation
related to these two clubs have also been adjusted.

|                                          |  |                     |         |  
|----------------------------------------- |  | ------------------- | ------- | -
|                                          |  | For the Nine Months
|                                          |  | ended September 30,
|                                          |  |                    
|                                          |  | 2000               
|                                          |  |                    
|                                          |  | ($000)            
|                                          |  | (Unaudited)        
|                                         
|                                         
|                                         
|                                         
|Pro forma revenues                        |  | $                   | 172,957 |  
|                                         
|                                         
|                                         
|                                         
|Pro forma net income                      |  |                     | 3,083   |  
|                                         
|                                         
|                                         
|                                         
|Pro forma net loss to common shareholders |  |                     | (3,594  | )

This unaudited pro forma financial information is presented for
informational purposes only and may not be indicative of the
results of operations as they would have been if the Company and
HDC had been a single entity during the first nine months of
2000, nor is it indicative of the results of operations which
may occur in the future. Anticipated efficiencies from the
consolidation of HDC and the Company have been excluded from the
amounts included in the pro forma summary presented above.

4.  September 11 Events

The terrorist attacks of September 11, 2001 (the
September 11 events), resulted in a tremendous loss
of life and property. Secondarily, those events have interrupted
the operations at four of our clubs located in downtown
Manhattan. Two of the effected four clubs were reopened and back
in operation prior to the end of September and a third reopened
in the first week of October. Because of its close proximity to
the World Trade Center the fourth club, although not thought to
be damaged, is still closed. Membership dues credits in the
amount of $314,000 have been recorded in the quarter ended
September 30, 2001 due to the September 11 events.
These credits represent a pro rata share of the September
membership dues previously collected for which members were not
able to utilize club services.

The Company carries business interruption insurance to mitigate
certain lost revenue and profits experienced with the
September 11 events. In this regard we have recorded a
$175,000 insurance receivable representing our estimate of costs
incurred in September 2001, which we believe is probable of
recovery from our insurance carrier. Such costs include rent,
payroll, benefits, and other club operating costs incurred
during periods of club closure.

At this time management does not have adequate information to
assess when the aforementioned fourth club will reopen for
business. Although the Company has business interruption
insurance to cover lost profits at this location, we can not
predict with any degree of certainty what future amounts will
actually be received

6



---



##### 





5.  Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board
(FASB) issued Statement No. 141, Business
Combinations and Statement No. 142, Goodwill and
Other Intangible Assets (SFAS 142). These
statements will significantly affect the financial accounting
and the reporting for business combinations, goodwill and
intangible assets. SFAS 142 requires that goodwill be
allocated to reporting units and that goodwill and intangibles
assets with indefinite useful lives not be amortized over their
useful lives, but rather be tested for impairment upon
implementation of this standard and at least annually
thereafter. Amortizable intangible assets will continue to be
subject to the impairment provisions of Statement No 121
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.Consequently, there is
no transitional impairment test for these assets. However, the
SFAS 142 requires that the useful lives of these
amortizable intangible assets be reassessed. The transitional
impairment test should be completed in the first interim period
(or in case of goodwill in the first six months) of the fiscal
year in which SFAS 142 is adopted, and any resulting
impairment loss should be recognized as the effect of a change
in accounting principle in accordance with Accounting Principles
Board Opinion No. 20, Accounting Changes. Any
subsequent impairment losses resulting from events or
circumstances that occur after the first day of the fiscal year
in which SFAS 142 is adopted should be reported as a
component of income from continuing or discontinued operations,
as appropriate. These statements apply to all business
combinations that are initiated or completed after June 30,
2001 and the effective date of these pronouncements for the
Company is January 1, 2002.

In August 2001, the FASB issued Statement No. 143,
Accounting for Asset Retirement Obligations
(SFAS 143). This statement addresses the
diversity in practice for recognizing asset retirement
obligations. SFAS 143 requires that obligations associated
with the retirement of a tangible long-lived asset be recorded
as a liability when those obligations are incurred, with the
amount of the liability initially measured at fair value.
SFAS 143 is effective for financial statements for fiscal
years beginning after June 15,2002 (early application is
encouraged).

In October 2001, the FASB issued Statement No. 144,
Accounting for the Impairment of Disposal of Long-Lived
Assets (SFAS 144). SFAS 144 applies to
all long-lived assets (including discontinued operations).
SFAS 144 develops one accounting model for long-lived
assets that are to be disposed of by sale. FAS 144 requires
that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less cost to
sell.

Management is currently evaluating the impact the adoption of
SFAS 141, SFAS 142, SFAS 143, and SFAS 144
will have on the Companys financial position and results
of operations.

Effective January 1, 2000, the Company adopted Securities
and Exchange Commission Staff Accounting Bulletin 101
Revenue Recognition in Financial Statements, and such
adoption did not have a material effect on the Companys
financial statements.

Effective January 1, 2000, the Company adopted FASB
Statement No. 133 Accounting for Derivative Instruments
and Hedging Activities, and such adoption did not have a
material effect on the Companys financial statements.

7



---



##### 





|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
	Condition and Results of Operations

Introduction

We are one of the two leading owners and operators of fitness
clubs in the Northeast and Mid-Atlantic regions of the United
States. As of September 30, 2001, we operated
112 clubs that collectively served approximately 311,000
members. We develop clusters of clubs to serve densely populated
major metropolitan regions in which a high percentage of the
population commutes to work. We service such populations by
clustering clubs near the highest concentrations of its target
customers areas of both employment and residence. Our
target customer is college-educated, typically between the ages
of 18 and 54 and earns an annual income in excess of fifty
thousand dollars.

Our goal is to develop the premier health club network in each
of the major metropolitan regions we enter. We believe that
clustering clubs allows us to achieve strategic operating
advantages that enhance our ability to achieve this goal. In
entering new regions, we develop these clusters by initially
opening or acquiring clubs located in the more central urban
markets of the region and then branching out from these urban
centers to suburban commuter communities. Capitalizing on this
clustering of clubs, as of September 30, 2001,
approximately half of our members participated in a membership
plan that allows unlimited access to all of our clubs for a
higher membership fee.

We have executed this strategy successfully in the New York
region through the network of clubs we operate under our New
York Sports Club NYSC brand name. We are the largest
fitness club operator in Manhattan with 32 locations and operate
a total of 75 clubs under the NYSC name within a defined
radius of New York City. We operate 17 clubs in the Boston
region and 13 clubs in the Washington, DC region under our
Boston Sports Club (BSC) and Washington Sports Club
(WSC) brand names, respectively and have begun
establishing a similar cluster in the Philadelphia region with
five clubs under our Philadelphia Sports Club (PSC)
brand name. In addition we operate two clubs in Switzerland. We
employ localized brand names for our clubs to create an image
and atmosphere consistent with the local community, and to
foster the recognition as a local network of quality fitness
clubs rather than a national chain.

On July 13, 2000 we purchased Health Development
Corporation HDC, significantly, increasingly our
presence in the greater Boston market. HDC operated nine health
clubs and provided management services at three health clubs in
the greater Boston market.

Our operating and selling expenses are comprised of both fixed
and variable costs. The fixed costs include salary expense,
rent, utilities, janitorial expenses and depreciation. Variable
costs are primarily related to sales commissions, advertising
and supplies. As clubs mature and increase their membership
base, fixed costs are typically spread over an increasing
revenue base and operating margins tend to improve.

Historical Club Growth

The following table sets for our club growth during each of the
quarters in 2000 and each of the three quarters ended
September 30, 2001.

|                                                                   |  |      |    |      |  |    |    |    |  |       |     |    |  |    |     |    |  |  |     |   |  |  |     |  |  |  |     |  |  |  |     | 
|------------------------------------------------------------------ |  | ---- | -- | ---- |  | -- | -- | -- |  | ----- | --- | -- |  | -- | --- | -- |  |  | --- | - |  |  | --- |  |  |  | --- |  |  |  | --- | 
|                                                                   |  |      |    |     
|                                                                   |  | 2000 |    | 2001
|                                                                   |  |      |    |     
|                                                                   |  | Q1   |    | Q2   |  | Q3 |    | Q4 |  | Total |     | Q1 |  | Q2 |     | Q3
|                                                                   |  |      |    |      |  |    |    |    |  |       |     |    |  |    |     |   
|Clubs at beginning of period                                       |  |      | 86 |      |  |    | 86 |    |  |       | 91  |    |  |    | 103 |    |  |  | 86  |   |  |  | 105 |  |  |  | 108 |  |  |  | 110 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Greenfield clubs(a)                                                |  |      |   |      |  |    | 5  |    |  |       | 3   |    |  |    | 1   |    |  |  | 9   |   |  |  | 2   |  |  |  | 2   |  |  |  | 1   | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Acquired clubs                                                     |  |      | 1  |      |  |    |   |    |  |       | 9   |    |  |    | 1   |    |  |  | 11  |   |  |  | 1   |  |  |  |    |  |  |  | 1   | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Relocated clubs                                                    |  |      | (1 | )    |  |    |   |    |  |       |    |    |  |    |    |    |  |  | (1  | ) |  |  |    |  |  |  |    |  |  |  |    | 
|                                                                   |  |      |    |      |  |    |    |    |  |       |     |    |  |    |     |    |  |  |     |   |  |  |     |  |  |  |     |  |  |  |     | 
|Clubs at end of period                                             |  |      | 86 |      |  |    | 91 |    |  |       | 103 |    |  |    | 105 |    |  |  | 105 |   |  |  | 108 |  |  |  | 110 |  |  |  | 112 | 
|                                                                   |  |      |    |      |  |    |    |    |  |       |     |    |  |    |     |    |  |  |     |   |  |  |     |  |  |  |     |  |  |  |     | 
|Number of partly owned clubs included at the end
	of the period(b) |  |      | 2  |      |  |    | 2  |    |  |       | 2   |    |  |    | 2   |    |  |  | 2   |   |  |  | 2   |  |  |  | 2   |  |  |  | 2   | 




|    |                                                                   
|--- | ------------------------------------------------------------------
|(a) | A Greenfield club is a new location
	constructed by the Company.



|    |                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | In March 2000, we purchased two clubs
	previously managed by the Company. Including these two clubs,
	the total number of clubs opened or acquired in 2000 totals 22.



|      |                                                                                                                                                                                                                                                                           
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note: | The Company includes in the club count wholly
	owned and partly owned clubs. In addition to the above count, as
	of September  30, 2001 and December 31, 2000 the
	Company managed two and three additional clubs respectively, in
	which it did not have an equity stake.

8



---



##### 



Results of Operations

The following table sets forth certain operating data as a
percentage of revenue for the periods indicated:

|                                      |                                                        |               |       |               |    |      |       |      |    |  |       |      |    |  |       |      |   
|------------------------------------- | ------------------------------------------------------ | ------------- | ----- | ------------- | -- | ---- | ----- | ---- | -- |  | ----- | ---- | -- |  | ----- | ---- | --
|                                      |                                                        |               |       |              
|                                      |                                                        | Three Months  |       | Nine Months  
|                                      |                                                        | Ended         |       | Ended        
|                                      |                                                        | September 30, |       | September 30,
|                                      |                                                        |               |       |              
|                                      |                                                        | 2000          |       | 2001          |    | 2000 |       | 2001
|                                      |                                                        |               |       |               |    |      |       |     
|Revenue                               |                                                        |               | 100.0 | %             |    |      | 100.0 | %    |    |  | 100.0 | %    |    |  | 100.0 | %   
|                                      |                                                        |               |       |               |    |      |       |      |    |  |       |      |    |  |       |     
|Operating expenses                    |                                                        |               |       |               |    |      |       |      |    |  |       |      |    |  |       |     
|                                     
|                                     
|                                     
|                                     
|                                      | Payroll and related                                    |               |       | 40.0          |    |      |       | 39.3 |    |  |       | 39.9 |    |  |       | 39.1 |   
|                                     
|                                     
|                                     
|                                     
|                                      | Club operating                                         |               |       | 30.7          |    |      |       | 32.4 |    |  |       | 30.6 |    |  |       | 31.2 |   
|                                     
|                                     
|                                     
|                                     
|                                      | General and administrative                             |               |       | 6.3           |    |      |       | 7.0  |    |  |       | 6.7  |    |  |       | 6.7  |   
|                                     
|                                     
|                                     
|                                     
|                                      | Depreciation and amortization                          |               |       | 11.4          |    |      |       | 11.1 |    |  |       | 11.7 |    |  |       | 11.3 |   
|                                     
|                                     
|                                     
|                                     
|                                      | Compensation expense in connection with stock
	options |               |       | 1.5           |    |      |       | 0.4  |    |  |       | 0.8  |    |  |       | 0.4  |   
|                                      |                                                        |               |       |               |    |      |       |      |    |  |       |      |    |  |       |     
|                                      | Operating income                                       |               |       | 10.1          |    |      |       | 9.8  |    |  |       | 10.3 |    |  |       | 11.3 |   
|                                     
|                                     
|                                     
|                                     
|Interest expense                      |                                                        |               | 5.9   |               |    |      | 5.1   |      |    |  | 6.4   |      |    |  | 5.3   |     
|                                     
|                                     
|                                     
|                                     
|Interest income                       |                                                        |               | (0.3  | )             |    |      | (0.1  | )    |    |  | (0.6  | )    |    |  | (0.2  | )   
|                                      |                                                        |               |       |               |    |      |       |      |    |  |       |      |    |  |       |     
|                                      | Income before provision for corporate income tax       |               |       | 4.5           |    |      |       | 4.8  |    |  |       | 4.5  |    |  |       | 6.2  |   
|                                     
|                                     
|                                     
|                                     
|Provision for corporate income tax    |                                                        |               | 2.5   |               |    |      | 2.6   |      |    |  | 2.3   |      |    |  | 3.0   |     
|                                      |                                                        |               |       |               |    |      |       |      |    |  |       |      |    |  |       |     
|                                      | Net income                                             |               |       | 2.0           |    |      |       | 2.2  |    |  |       | 2.2  |    |  |       | 3.2  |   
|                                     
|                                     
|                                     
|                                     
|Accreted dividends on preferred stock |                                                        |               | (3.8  | )             |    |      | (3.6  | )    |    |  | (4.1  | )    |    |  | (3.6  | )   
|                                      |                                                        |               |       |               |    |      |       |      |    |  |       |      |    |  |       |     
|                                      | Net (loss) attributable to common stockholders         |               |       | (1.8          | )% |      |       | (1.4 | )% |  |       | (1.9 | )% |  |       | (0.4 | )%
|                                      |                                                        |               |       |               |    |      |       |      |    |  |       |      |    |  |       |     

Three Months Ended September 30, 2001
Compared to Three Months Ended September 30, 2000

Revenues.Revenues increased approximately
$11.2 million, or 18.2%, to $72.4 million during the
quarter ended September 30, 2001 from $61.2 million in the
quarter ended September 30, 2000. This increase resulted
from the three clubs opened or acquired in the last quarter of
1999 (approximately $0.2 million), 22 opened or
acquired during 2000 (approximately $4.4 million) and the
seven clubs opened or acquired in the first nine months of 2001
(approximately $1.7 million). In addition, revenues
increased during the quarter by approximately $4.7 million
or 9.3%, at the Companys mature clubs (clubs owned and
operated for at least 24 months). The increase at mature
clubs was principally due to increased membership and increased
ancilliary revenue.

Operating Expenses.Operating expenses increased
$10.2 million, or 18.6%, to $65.3 million in the
quarter ended September 30, 2001, from $55.0 million
in the quarter ended September 30, 2000. The increase was
primarily due to a 9.2% increase in total months of club
operations (the aggregate number of full months of operation
during a given period for the clubs open at the end of such
period) to 328 in the quarter ended September 30, 2001 from
300 in the quarter ended September 30, 2000, in addition to
the following factors:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Payroll and related increased by $4.0 million, or 16.4% to
	$28.5 million in the quarter ended September 30, 2001,
	from $24.5 million in the quarter ended September 30,
	2000. This increase was attributable to the acquisition or
	opening of 22 clubs in 2000 and the seven opened or acquired
	clubs in the first nine months of 2001 as well as an increase in
	the amount of programming for children offered at selected
	clubs. Payroll also increased due to increases in personal
	training, sales commissions and other payroll costs that are
	incremental with increases in revenue.
|
| | Club operating increased by $4.7 million or 24.8% to
	$23.5 million in the quarter ended September 30, 2001,
	from $18.8 million in the quarter ended September 30,
	2000. This increase is attributable to the acquisition or
	opening of 22 clubs in 2000 and seven opened or acquired clubs
	in the first nine months of 2001.                                                                                                                                                                                                                                                                  

9



---



##### 





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | General and administrative increased by $1.1 million, or
	29.9% to $5.0 million in the quarter ended
	September 30, 2001, from $3.9 million, in the quarter
	ended September 30, 2000. This increase is attributable to
	a $523,000 increase in liability insurance, a $286,000 increase
	in donations related to the September 11 events and
	expenses associated with the Companys expansion.                                                                                                     
|
| | Depreciation and amortization increased by $1.0 million, or
	15.0% to $8.0 million in the quarter ended September 30,
	2001, from $7.0 million in the quarter ended September 30,
	2000. This increase is attributable primarily to a full period
	of depreciation and amortization for fixed asset additions,
	acquisitions and club openings made during 2000 and the
	increased fixed and intangible assets arising from the seven
	clubs opened or acquired during the first nine months of 2001.
|
| | Compensation expense in connection with stock options decreased
	$661,000 to $263,000 in the quarter ended September 30,
	2001 from $924,000 in the quarter ended September 30, 2000.
	This decrease is principally due to stock options deemed vested
	in the third quarter of 2000 and no such options vested in 2001.                                                                                                                                                                             

Interest Expense.Interest expense increased $101,000 to
$3.7 million during the quarter ended September 30,
2001, from $3.6 million in the quarter ended September 30,
2000. This increase was primarily due to increased credit
borrowings under the line of credit associated with the
Companys expansion. This increase was slightly offset by
lower rates charged on line of credit borrowings in 2001.

Interest Income.Interest income decreased $106,000 to
$84,000 during the quarter ended September 30, 2001 from
$190,000 in the quarter ended September 30, 2000. The
decrease in interest income was due to lower levels of cash on
hand and lower interest rates earned during the quarter ended
September 30, 2001 when compared to the same period of 2000.

Provision for Corporate Income Tax.The income tax
provision for the quarter ended September 30, 2001 was $1.9
million compared to $1.5 million for the quarter ended
September 30, 2000.

Accreted Dividends on Preferred Stock.Accreted dividends
on the preferred stock increased $303,000 to $2.6 million during
the quarter ended September 30, 2001, from
$2.3 million in the quarter ended September 30, 2000.
This increase is a result of the compounding of accreted
dividends.

Nine Months Ended September 30, 2001
Compared to Nine Months Ended September 30, 2000

Revenues.Revenues increased approximately
$47.7 million, or 29.2%, to $210.9 million for the
nine months ended September 30, 2001 from
$163.2 million for the nine months ended September 30,
2000. This increase resulted from the three clubs opened or
acquired the last quarter of 1999 (approximately
$1.0 million), 22 opened or acquired during 2000
(approximately $24.0 million) and the seven clubs opened or
acquired in the first nine months of 2001 (approximately
$2.9 million). In addition, revenues increased during the
nine months by approximately $19.5 million or 13.3%, at the
Companys mature clubs (clubs owned and operated for at
least 24 months). The increase at mature clubs was
principally due to increased membership and increased ancilliary
revenue.

Operating Expenses.Operating expenses increased
$40.6 million, or 27.7%, to $187.1 million for the
nine months ended September 30, 2001, from $146.5 million
for the nine months ended September 30, 2000. The increase
was primarily due to a 19.5% increase in total months of club
operations to 963 for the nine months ended September 30,
2001 from 805 for the nine months ended September 30, 2000,
in addition to the following factors:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Payroll and related increased by $17.4 million, or 26.7% to
	$82.5 million for the nine months ended September 30,
	2001, from $65.1 million for the nine months ended
	September 30, 2000. This increase was principally
	attributable to the acquisition or opening of 22 clubs in 2000
	and the seven opened or acquired clubs in the first nine months
	of 2001 as well as an increase in the amount of programming for
	children offered at selected clubs. This increase was also
	attributable to an increases in personal training, sales
	commissions and other payroll costs that are incremental with
	increases in revenue.

10



---



##### 





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Club operating increased by $15.9 million or 31.8% to
	$65.9 million for the nine months ended September 30,
	2001, from $50.0 million for the nine months ended
	September 30, 2000. This increase is attributable to the
	acquisition or opening of 22 clubs in 2000 and seven opened or
	acquired clubs in the first nine months of 2001.                                                                                                                                                                      
|
| | General and administrative increased by $3.0 million, or
	27.8% to $14.0 million for the nine months ended
	September 30, 2001, from $11.0 million, for the nine
	months ended September 30, 2000. This increase is
	attributable to a $1.0 million increase in liability
	insurance, a $286,000 increase in donations related to the
	September 11 events and expenses associated with the
	Companys expansion.                                                                                                 
|
| | Depreciation and amortization increased by $4.7 million, or
	24.3% to $23.8 million for the nine months ended
	September 30, 2001, from $19.2 million for the nine months
	ended September 30, 2000. This increase is primarily
	attributable to a full period of depreciation and amortization
	for fixed asset additions, acquisitions and club openings made
	during 2000 and the increased fixed and intangible assets
	arising from the seven clubs opened or acquired during the first
	nine months of 2001.
|
| | Compensation expense in connection with stock options decreased
	$445,000 or 33.0% to $898,000 for the nine months ended
	September 30, 2001 from $1.3 million for the nine months
	ended September 30, 2000. This decrease is due to less
	stock options deemed vested during the nine months ended
	September 30, 2001 when compared to the same period in 2000.                                                                                                                                                

Interest Expense.Interest expense increased $864,000 to
$11.3 million for the nine months ended September 30, 2001,
from $10.4 million for the nine months ended September 30,
2000. This increase was primarily due to increased borrowings
under the line of credit associated with the Companys
expansion slightly offset by lower rates charged on line of
credit borrowings in 2001.

Interest Income.Interest income decreased $584,000 to
$347,000 for the nine months ended September 30, 2001 from
$931,000 for the nine months ended September 30, 2000. This
decrease is due to lower levels of cash on hand and lower
interest rates earned during the nine months ended
September 30, 2001.

Provision for Corporate Income Tax.The income tax
provision for the nine months ended September 30, 2001 was
$6.4 million compared to a tax provision of $3.8 million for the
nine months ended September 30, 2000.

Accreted Dividends on Preferred Stock.Accreted dividends
on the preferred stock increased $878,000 to $7.6 million during
the nine months ended September 30, 2001, from $6.7 million
during the nine months ended September 30, 2000. This
increase is a result of the compounding of accreted dividends.

September 11 Events

The terrorist attacks of September 11, 2001, resulted in a
tremendous loss of life and property. Secondarily, those events
have interrupted the operations at four of our clubs located in
downtown Manhattan. Two of the effected four clubs were reopened
and back in operation prior to the end of September and a third
reopened in the first week of October. Because of its close
proximity to the World Trade Center the fourth club, although
not thought to be damaged, is still closed. Membership dues
credits in the amount of $300,000 have been recorded in the
quarter ended September 30, 2001 due to the
September 11 events. These credits represent a pro rata
share of the September membership dues previously collected for
which members were not able to utilize club services.

The Company carries business interruption insurance to mitigate
certain lost revenue and profits experienced with the
September 11 events. In this regard we have recorded a
$175,000 insurance receivable representing our estimate of costs
incurred in September 2001, which we believe is probable of
recovery from our insurance carrier. Such costs include rent,
payroll, benefits, and other club operating costs incurred
during periods of club closure.

At this time management does not have adequate information to
assess when the aforementioned fourth club will reopen for
business. Although the Company has business interruption
insurance to cover lost profits at this location, we can not
predict with any degree of certainty what future amounts will
actually be received

11



---



##### 





Liquidity and Capital Resources

Historically, the Company has satisfied its liquidity needs
through cash from operations and various borrowing arrangements.
Principal liquidity needs have included the acquisition and
development of new clubs, debt service requirements and other
capital expenditures necessary to maintain existing clubs.

Operating Activities.Net cash provided by operating
activities for the nine months ended September 30, 2001 was
$39.8 million compared to $36.1 million for the nine months
ended September 30, 2000, an increase of $3.7 million. Cash
flows from operations has improved as the profitability of the
mature club base and the clubs opened or acquired during the
last three quarters of 1999, continues to improve. The HDC clubs
acquired in July 2000 have also contributed to this
increase.

Excluding cash and cash equivalents, the Company normally
operates with a working capital deficit because it receives dues
or fee revenue either (i) during the month services are
rendered, or (ii) when paid-in-full, in advance. As a
result, the Company has no material accounts receivable. In
addition, because initiation fees are received at enrollment and
are recognized over the estimated average term of membership,
the Company records a deferred revenue liability. Management
believes that the Companys working capital deficit is an
important source of cash flow from operating activities that it
believes will continue to grow as the Companys membership
revenues increase.

Investing Activities.The Company invested $37.7 million
in capital expenditures and business acquisitions during the
nine months ended September 30, 2001. The Company currently
estimates total capital expenditure and asset acquisition
requirements for the remaining three months of 2001 to
approximate $26.6 million, which includes $4.2 million
that management intends to renovate and expand certain existing
clubs, $1.2 million to maintain certain existing clubs and
$1.5 million to further upgrade its management information
systems. $19.7 million will be expended on new greenfield club
construction. The Company currently estimates total capital
expenditure requirements for the year ended December 31,
2002 to approximate $39.0.

Financing Activities.During the nine months ended
September 30, 2001 net line of credit borrowings decreased
by $1.0 million. The Companys line of credit with its
principal bank provides for direct borrowings and letters of
credit of up to $25.0 million. The line of credit contains
restrictive covenants, including a leverage ratio and interest
coverage ratio and dividend payment restrictions and is
collateralized by all the assets of the Company. As of
September 30, 2001 $8.0 million of loans are outstanding
and accrue interest based on the Eurodollar rate (5.25%).
Outstanding letters of credit totaled $1.8 million at
September 30, 2001. As of September 30, 2001, the
Company has approximately $15.2 million available under the line
of credit. In May 2001, the Credit Agreement was amended to
extend the maturity date to July 15, 2004. The Company paid
$188,000 in bank structuring fees related to this amendment. The
Company also has a $20.0 million subordinated credit
facility under which there are no outstanding borrowings as of
September 30, 2001.

Although management believes that the Company will be able to
obtain or generate sufficient funds to finance the
Companys current operating and growth plans through the
end of 2002, any material acceleration or expansion of that plan
through additional greenfields or acquisitions (to the extent
such acquisitions include cash payments) may require the Company
to pursue additional sources of financing prior to the end of
2002. There can be no assurance that such financing will be
available or that it will be available on acceptable terms. The
inability to finance such further or accelerated expansion on
acceptable terms may negatively impact the Companys
competitive position and/or materially adversely affect the
Companys business, results of

12



---



##### 





Forward-Looking Statements

Certain statements in this report on Form 10-Q of the
Company for the nine month period ended September 30, 2001
are forward-looking statements, including, without limitation,
statements regarding future financial results and performance,
and potential sales revenue. These statements are subject to
various risks and uncertainties, many of which are outside the
control of the Company, including the level of market demand for
the Companys services, competitive pressures, the ability
to achieve reductions in operating costs and to continue to
integrate acquisitions, the application of Federal and state tax
laws and regulations, and other specific factors discussed
herein and in other Securities and Exchange Commission filings
by the Company. The information contained herein represents
managements best judgement as of the date hereof based on
information currently available; however, the Company does not
intend to update this information, except as required by law to
reflect development or information obtained after the date
hereof and disclaims any legal obligation to the contrary.

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



| |               
| | --------------
| | Not applicable

b)  Reports on Form 8-K

Not applicable

13



---



##### 



SIGNATURES

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: November 13, 2001 |  | By: /s/ RICHARD PYLE    Richard Pyle
	    Chief Financial Officer
	    (principal financial and accounting
	officer)
|                       
|DATE: November 13, 2001 |  | By: /s/ MARK SMITH    Mark Smith
	    Chief Executive Officer
	    (principal executive officer)                    

14