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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-Q

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

| |  |                                             
| |  | --------------------------------------------
| |  | For the quarterly period ended June 30, 2003

|   |  | 
|-- |  | 
|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.

Yes   þ   No   o

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).

Yes   o   No    þ

As of August 4, 2003 date there were 1,176,043 shares of Class A Common
Stock of the Company outstanding.



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TABLE OF CONTENTS



|                           |                                                                                               |                                                 |  |  |  |  |  | 
|-------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|                           |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS          
|                           |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|                           |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|                           | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                           | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                           | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION
|                           | Item 1. Legal Proceedings.                                                                   
|                           | Item 2. Changes in Securities.                                                               
|                           | Item 3. Defaults Upon Senior Securities.                                                     
|                           | Item 4. Submission of Matters to a Vote of Security Holders.                                 
|                           | Item 5. Other Information.                                                                   
|                           | Item 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURES                
|CERTIFICATION             
|CERTIFICATION             
|CERTIFICATION             
|CERTIFICATION             
|CERTIFICATION             



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##### Table of Contents



TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2003

INDEX



|                              |                                                                                                |                                                                                                              |    |    |   | 
|----------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | -- | -- | - | 
|                              |                                                                                                | Page                                                                                                        
|                              |                                                                                                |                                                                                                             
|PART I. FINANCIAL INFORMATION |                                                                                                |                                                                                                              |    |   
|                              | Item 1. Financial Statements (Unaudited)                                                       |                                                                                                              |    |    |  
|                              |                                                                                                | a) Condensed Consolidated Balance Sheets as of December 31, 2002 and June 30, 2003                           |    |    | 2 | 
|                              |                                                                                                | b) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2003 |    |    | 3 | 
|                              |                                                                                                | c) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2003           |    |    | 4 | 
|                              |                                                                                                | d) Notes to Condensed Consolidated Financial Statements                                                      |    |    | 5 | 
|                              | Item 2. Managements Discussion and Analysis of Financial Conditions and Results of Operations |                                                                                                              |    | 17 |  
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                             |                                                                                                              |    | 21 |  
|                              | Item 4. Controls and Procedures                                                                |                                                                                                              |    | 21 |  
|PART II. OTHER INFORMATION    |                                                                                                |                                                                                                              |    |   
|                              | Item 1. Legal Proceedings                                                                      |                                                                                                              |    | 23 |  
|                              | Item 2. Change in Securities                                                                   |                                                                                                              |    | 23 |  
|                              | Item 3. Defaults upon Senior Securities                                                        |                                                                                                              |    | 23 |  
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                    |                                                                                                              |    | 23 |  
|                              | Item 5. Other Information                                                                      |                                                                                                              |    | 23 |  
|                              | Item 6. Exhibits and Reports on Form-8-K                                                       |                                                                                                              |    | 23 |  
|SIGNATURES                    |                                                                                                |                                                                                                              | 24 |   

1



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##### Table of Contents






TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
All figures $000, except share data
December 31, 2002 and June 30, 2003

|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         |              |         |          |         |             |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------- | ------------ | ------- | -------- | ------- | ----------- | ------- | -
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         | December 31, |         | June 30,
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         | 2002         |         | 2003    
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         |              |         |         
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         |              |         |          |         | (Unaudited)
|Assets                                                                                                                                                                                   |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|Current assets:                                                                                                                                                                          |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|                                                                                                                                                                                         | Cash and cash equivalents                                                                                                                    |                                                                         | $       | 5,551        |         |          | $       | 49,556      |        
|                                                                                                                                                                                         | Accounts receivable, net of allowance for doubtful accounts of $120 and $337 at December 31, 2002
and June 30, 2003, respectively            |                                                                         |         | 1,333        |         |          |         | 905         |        
|                                                                                                                                                                                         | Inventory                                                                                                                                    |                                                                         |         | 1,132        |         |          |         | 927         |        
|                                                                                                                                                                                         | Prepaid corporate income taxes                                                                                                               |                                                                         |         | 3,012        |         |          |         | 2,318       |        
|                                                                                                                                                                                         | Prepaid expenses and other current assets                                                                                                    |                                                                         |         | 4,430        |         |          |         | 4,369       |        
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|                                                                                                                                                                                         |                                                                                                                                              | Total current assets                                                    |         |              | 15,458  |          |         |             | 58,075  |  
|Fixed assets, net of accumulated depreciation of $104,488 and $120,532 at December 31, 2002 and
June 30, 2003, respectively                                                              |                                                                                                                                              |                                                                         | 210,823 |              |         |          | 213,273 |            
|Goodwill                                                                                                                                                                                 |                                                                                                                                              |                                                                         | 45,531  |              |         |          | 45,671  |            
|Intangible assets, net of accumulated amortization of $10,478 and $10,956 at December 31, 2002 and
June 30, 2003, respectively                                                           |                                                                                                                                              |                                                                         | 1,675   |              |         |          | 1,061   |            
|Deferred tax asset, net                                                                                                                                                                  |                                                                                                                                              |                                                                         | 20,254  |              |         |          | 17,939  |            
|Deferred membership costs                                                                                                                                                                |                                                                                                                                              |                                                                         | 14,408  |              |         |          | 14,023  |            
|Other assets                                                                                                                                                                             |                                                                                                                                              |                                                                         | 6,101   |              |         |          | 10,547  |            
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|                                                                                                                                                                                         |                                                                                                                                              | Total assets                                                            |         | $            | 314,250 |          |         | $           | 360,589 |  
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         |              |         |          |         |             |        
|Liabilities, Redeemable Preferred Stock and Stockholders
Deficit                                                                                                                        |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|Current liabilities:                                                                                                                                                                     |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|                                                                                                                                                                                         | Current portion of long-term debt and capital lease obligations                                                                              |                                                                         | $       | 5,178        |         |          | $       | 4,607       |        
|                                                                                                                                                                                         | Accounts payable                                                                                                                             |                                                                         |         | 5,328        |         |          |         | 3,626       |        
|                                                                                                                                                                                         | Accrued expenses                                                                                                                             |                                                                         |         | 21,634       |         |          |         | 22,177      |        
|                                                                                                                                                                                         | Deferred revenue                                                                                                                             |                                                                         |         | 26,510       |         |          |         | 31,638      |        
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|                                                                                                                                                                                         |                                                                                                                                              | Total current liabilities                                               |         |              | 58,650  |          |         |             | 62,048  |  
|Long-term debt and capital lease obligations                                                                                                                                             |                                                                                                                                              |                                                                         | 155,765 |              |         |          | 259,914 |            
|Deferred lease liabilities                                                                                                                                                               |                                                                                                                                              |                                                                         | 23,644  |              |         |          | 24,828  |            
|Deferred revenue                                                                                                                                                                         |                                                                                                                                              |                                                                         | 3,435   |              |         |          | 3,575   |            
|Other liabilities                                                                                                                                                                        |                                                                                                                                              |                                                                         | 7,530   |              |         |          | 7,597   |            
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|                                                                                                                                                                                         |                                                                                                                                              | Total liabilities                                                       |         |              | 249,024 |          |         |             | 357,962 |  
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|Redeemable preferred stock:                                                                                                                                                              |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|Redeemable senior preferred stock, $1.00 par value; liquidation value $64,512 at December 31,
2002; authorized 100,000 shares; 40,000 shares issued and outstanding at December 31, 2002 |                                                                                                                                              |                                                                         | 62,125  |              |         |          |        |            
|Series A preferred stock, at liquidation value 153,637 shares issued and outstanding at December 31,
2002 and June 30, 2003                                                              |                                                                                                                                              |                                                                         | 34,841  |              |         |          | 37,280  |            
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         | 96,966  |              |         |          | 37,280  |            
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|Stockholders deficit:                                                                                                                                                                   |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|                                                                                                                                                                                         | Series B preferred stock, at liquidation value issued and outstanding 3,822 and 109,541 at December
31, 2002 and June 30, 2003, respectively |                                                                         |         | 303          |         |          |         | 9,310       |        
|                                                                                                                                                                                         | Class A voting common stock, $.001 par value; issued and outstanding 1,176,043 shares                                                        |                                                                         |         | 1            |         |          |         | 1           |        
|                                                                                                                                                                                         | Paid-in capital                                                                                                                              |                                                                         |         | (32,149      | )       |          |         | (41,130     | )      
|                                                                                                                                                                                         | Unearned compensation                                                                                                                        |                                                                         |         | (278         | )       |          |         | (258        | )      
|                                                                                                                                                                                         | Accumulated other comprehensive income (currency translation adjustment)                                                                     |                                                                         |         | 293          |         |          |         | 338         |        
|                                                                                                                                                                                         | Retained earnings (Accumulated deficit)                                                                                                      |                                                                         |         | 90           |         |          |         | (2,914      | )      
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|                                                                                                                                                                                         |                                                                                                                                              | Total stockholders deficit                                             |         |              | (31,740 | )        |         |             | (34,653 | )
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         |              |         |          |         |            
|                                                                                                                                                                                         |                                                                                                                                              | Total liabilities, redeemable preferred stock and stockholders deficit |         | $            | 314,250 |          |         | $           | 360,589 |  
|                                                                                                                                                                                         |                                                                                                                                              |                                                                         |         |              |         |          |         |             |        

See notes to the condensed consolidated financial statements.

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TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 2002 and 2003
All figures $000
(Unaudited)

|                                                                                                                                               |                                                                                                |  |                    |        |                  |  |        |        |      |  |         |         |   |  |         |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ------ | ------ | ---- |  | ------- | ------- | - |  | ------- | ------- | -
|                                                                                                                                               |                                                                                                |  | Three Months Ended |        | Six Months Ended
|                                                                                                                                               |                                                                                                |  | June 30,           |        | June 30,        
|                                                                                                                                               |                                                                                                |  |                    |        |                 
|                                                                                                                                               |                                                                                                |  | 2002               |        | 2003             |  | 2002   |        | 2003
|                                                                                                                                               |                                                                                                |  |                    |        |                  |  |        |        |     
|Revenues:                                                                                                                                      |                                                                                                |  |                    |        |                  |  |        |        |      |  |         |         |   |  |         |        
|                                                                                                                                               | Club operations                                                                                |  | $                  | 79,098 |                  |  | $      | 85,093 |      |  | $       | 155,039 |   |  | $       | 169,783 |  
|                                                                                                                                               | Fees and other                                                                                 |  |                    | 908    |                  |  |        | 964    |      |  |         | 1,842   |   |  |         | 3,177   |  
|                                                                                                                                               |                                                                                                |  |                    |        |                  |  |        |        |      |  |         |         |   |  |         |        
|                                                                                                                                               |                                                                                                |  | 80,006             |        |                  |  | 86,057 |        |      |  | 156,881 |         |   |  | 172,960 |        
|                                                                                                                                               |                                                                                                |  |                    |        |                  |  |        |        |      |  |         |         |   |  |         |        
|Operating expenses:                                                                                                                            |                                                                                                |  |                    |        |                  |  |        |        |      |  |         |         |   |  |         |        
|                                                                                                                                               | Payroll and related                                                                            |  |                    | 32,928 |                  |  |        | 33,206 |      |  |         | 63,962  |   |  |         | 65,976  |  
|                                                                                                                                               | Club operating                                                                                 |  |                    | 23,881 |                  |  |        | 26,691 |      |  |         | 48,030  |   |  |         | 53,354  |  
|                                                                                                                                               | General and administrative                                                                     |  |                    | 4,862  |                  |  |        | 5,219  |      |  |         | 9,804   |   |  |         | 10,240  |  
|                                                                                                                                               | Depreciation and amortization                                                                  |  |                    | 7,877  |                  |  |        | 8,454  |      |  |         | 15,734  |   |  |         | 16,753  |  
|                                                                                                                                               |                                                                                                |  |                    |        |                  |  |        |        |      |  |         |         |   |  |         |        
|                                                                                                                                               |                                                                                                |  | 69,548             |        |                  |  | 73,570 |        |      |  | 137,530 |         |   |  | 146,323 |        
|                                                                                                                                               |                                                                                                |  |                    |        |                  |  |        |        |      |  |         |         |   |  |         |        
|                                                                                                                                               | Operating income                                                                               |  |                    | 10,458 |                  |  |        | 12,487 |      |  |         | 19,351  |   |  |         | 26,637  |  
|Loss on extinguishment of debt                                                                                                                 |                                                                                                |  |                   |        |                  |  | 7,773  |        |      |  |        |         |   |  | 7,773   |        
|Interest expense                                                                                                                               |                                                                                                |  | 4,160              |        |                  |  | 6,114  |        |      |  | 8,284   |         |   |  | 10,347  |        
|Interest income                                                                                                                                |                                                                                                |  | (38                | )      |                  |  | (195   | )      |      |  | (77     | )       |   |  | (218    | )      
|                                                                                                                                               |                                                                                                |  |                    |        |                  |  |        |        |      |  |         |         |   |  |         |        
|                                                                                                                                               | Income (loss) from continuing operations before provision (benefit)
for corporate income taxes |  |                    | 6,336  |                  |  |        | (1,205 | )    |  |         | 11,144  |   |  |         | 8,735   |  
|Provision (benefit) for corporate income taxes                                                                                                 |                                                                                                |  | 2,826              |        |                  |  | (84    | )      |      |  | 5,214   |         |   |  | 4,015   |        
|                                                                                                                                               |                                                                                                |  |                    |        |                  |  |        |        |      |  |         |         |   |  |         |        
|                                                                                                                                               | Income (loss) from continuing operations                                                       |  |                    | 3,510  |                  |  |        | (1,121 | )    |  |         | 5,930   |   |  |         | 4,720   |  
|Loss on discontinued operations, net of income tax benefit of $36 and
$84 for the three months and six months ended June 30, 2002
respectively |                                                                                                |  | (50                | )      |                  |  |       |        |      |  | (116    | )       |   |  |        |        
|Cumulative effect of a change in accounting principle, net of income
tax benefit of $612                                                       |                                                                                                |  |                   |        |                  |  |       |        |      |  | (689    | )       |   |  |        |        
|                                                                                                                                               |                                                                                                |  |                    |        |                  |  |        |        |      |  |         |         |   |  |         |        
|                                                                                                                                               | Net income (loss)                                                                              |  |                    | 3,460  |                  |  |        | (1,121 | )    |  |         | 5,125   |   |  |         | 4,720   |  
|Accreted dividends on preferred stock                                                                                                          |                                                                                                |  | (2,815             | )      |                  |  | (4,412 | )      |      |  | (5,594  | )       |   |  | (7,638  | )      
|                                                                                                                                               |                                                                                                |  |                    |        |                  |  |        |        |      |  |         |         |   |  |         |        
|                                                                                                                                               | Net income (loss) attributable to
common stockholders                                          |  | $                  | 645    |                  |  | $      | (5,533 | )    |  | $       | (469    | ) |  | $       | (2,918  | )
|                                                                                                                                               |                                                                                                |  |                    |        |                  |  |        |        |      |  |         |         |   |  |         |         |  

See notes to the condensed consolidated financial statements.

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TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2002 and 2003
All figures $000
(Unaudited)

|                                                                                                |                                                                                         |                                                      |       |                  |         |      |       |          |         |  
|----------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----- | ---------------- | ------- | ---- | ----- | -------- | ------- | -
|                                                                                                |                                                                                         |                                                      |       | Six Months Ended
|                                                                                                |                                                                                         |                                                      |       | June 30,        
|                                                                                                |                                                                                         |                                                      |       |                 
|                                                                                                |                                                                                         |                                                      |       | 2002             |         | 2003
|                                                                                                |                                                                                         |                                                      |       |                  |         |     
|Cash flows from operating activities:                                                           |                                                                                         |                                                      |       |                  |         |      |       |         
|                                                                                                | Net income                                                                              |                                                      | $     | 5,125            |         |      | $     | 4,720    |        
|                                                                                                |                                                                                         |                                                      |       |                  |         |      |       |          |        
|Adjustments to reconcile net income to net cash provided by
operating activities:               |                                                                                         |                                                      |       |                  |         |      |       |         
|                                                                                                | Depreciation and amortization                                                           |                                                      |       | 15,944           |         |      |       | 16,753   |        
|                                                                                                | Goodwill impairment write-off                                                           |                                                      |       | 1,301            |         |      |       |         |        
|                                                                                                | Compensation expense in connection with stock options                                   |                                                      |       | 601              |         |      |       | 197      |        
|                                                                                                | Noncash rental expense, net of noncash rental income                                    |                                                      |       | 904              |         |      |       | 920      |        
|                                                                                                | Share of net income in affiliated companies                                             |                                                      |       | (324             | )       |      |       | (431     | )      
|                                                                                                | Loss on extinguishment of debt                                                          |                                                      |       |                 |         |      |       | 7,773    |        
|                                                                                                | Amortization of debt issuance costs                                                     |                                                      |       | 946              |         |      |       | 962      |        
|                                                                                                | Change in certain working capital components                                            |                                                      |       | 6,356            |         |      |       | 5,981    |        
|                                                                                                | Decrease (increase) in deferred tax asset                                               |                                                      |       | (2,075           | )       |      |       | 2,315    |        
|                                                                                                | Decrease (increase) in deferred membership costs                                        |                                                      |       | (489             | )       |      |       | 385      |        
|                                                                                                | Other                                                                                   |                                                      |       | 130              |         |      |       | 186      |        
|                                                                                                |                                                                                         |                                                      |       |                  |         |      |       |         
|                                                                                                |                                                                                         | Total adjustments                                    |       |                  | 23,294  |      |       |          | 35,041  |  
|                                                                                                |                                                                                         |                                                      |       |                  |         |      |       |         
|                                                                                                |                                                                                         | Net cash provided by operating activities            |       |                  | 28,419  |      |       |          | 39,761  |  
|                                                                                                |                                                                                         |                                                      |       |                  |         |      |       |         
|Cash flows from investing activities:                                                           |                                                                                         |                                                      |       |                  |         |      |       |         
|                                                                                                | Capital expenditures, net of effects of acquired
businesses in 2002                     |                                                      |       | (27,533          | )       |      |       | (18,549  | )      
|                                                                                                | Acquisition of business                                                                 |                                                      |       | (348             | )       |      |       |         |        
|                                                                                                | Intangible and other assets                                                             |                                                      |       | 220              |         |      |       |         |        
|                                                                                                | Landlord contributions                                                                  |                                                      |       | 3,452            |         |      |       | 103      |        
|                                                                                                |                                                                                         |                                                      |       |                  |         |      |       |         
|                                                                                                |                                                                                         | Net cash used in investing activities                |       |                  | (24,209 | )    |       |          | (18,446 | )
|                                                                                                |                                                                                         |                                                      |       |                  |         |      |       |         
|Cash flows from financing activities:                                                           |                                                                                         |                                                      |       |                  |         |      |       |         
|                                                                                                | Proceeds from 9 5/8% Senior Note Offering                                               |                                                      |       |                 |         |      |       | 255,000  |        
|                                                                                                | Repayment of 9 3/4% Senior Notes                                                        |                                                      |       |                 |         |      |       | (125,000 | )      
|                                                                                                | Premium paid on extinguishment of debt and other costs                                  |                                                      |       |                 |         |      |       | (4,064   | )      
|                                                                                                | Redemption of redeemable senior preferred stock                                         |                                                      |       |                 |         |      |       | (66,977  | )      
|                                                                                                | Transaction costs related to 9 5/8% Senior Notes                                        |                                                      |       |                 |         |      |       | (9,264   | )      
|                                                                                                | Net line of credit repayment                                                            |                                                      |       | (5,000           | )       |      |       | (14,500  | )      
|                                                                                                | Net subordinated credit (repayments) borrowings                                         |                                                      |       | 2,810            |         |      |       | (9,000   | )      
|                                                                                                | Repurchase of Series B preferred stock                                                  |                                                      |       |                 |         |      |       | (583     | )      
|                                                                                                | Repayments of borrowings                                                                |                                                      |       | (2,647           | )       |      |       | (2,922   | )      
|                                                                                                |                                                                                         |                                                      |       |                  |         |      |       |         
|                                                                                                |                                                                                         | Net cash provided by (used in) financing activities  |       |                  | (4,837  | )    |       |          | 22,690  |  
|                                                                                                |                                                                                         |                                                      |       |                  |         |      |       |         
|                                                                                                |                                                                                         | Net increase (decrease) in cash and cash equivalents |       |                  | (627    | )    |       |          | 44,005  |  
|Cash and cash equivalents at beginning of period                                                |                                                                                         |                                                      | 5,458 |                  |         |      | 5,551 |         
|                                                                                                |                                                                                         |                                                      |       |                  |         |      |       |         
|                                                                                                |                                                                                         | Cash and cash equivalents at end of period           |       | $                | 4,831   |      |       |          | 49,556  |  
|                                                                                                |                                                                                         |                                                      |       |                  |         |      |       |          |        
|Summary of change in certain working capital components, net
of effects of acquired businesses: |                                                                                         |                                                      |       |                  |         |      |       |         
|                                                                                                | Decrease in accounts receivable                                                         |                                                      |       | 201              |         |      |       | 628      |        
|                                                                                                | Decrease (increase) in inventory                                                        |                                                      |       | (94              | )       |      |       | 205      |        
|                                                                                                | Decrease (increase) in prepaid expenses, prepaid income taxes, and
other current assets |                                                      |       | (289             | )       |      |       | 1,186    |        
|                                                                                                | (Decrease) increase in accounts payable and accrued
expenses                            |                                                      |       | 547              |         |      |       | (1,306   | )      
|                                                                                                | Increase in deferred revenue                                                            |                                                      |       | 5,991            |         |      |       | 5,268    |        
|                                                                                                |                                                                                         |                                                      |       |                  |         |      |       |         
|                                                                                                |                                                                                         | Net changes in working capital                       |       | $                | 6,356   |      |       | $        | 5,981   |  
|                                                                                                |                                                                                         |                                                      |       |                  |         |      |       |          |        

Supplemental Disclosures of cash flow information:

Noncash investing and financing activities:

The Company assumed $445 of long term debt in connection with a club
acquisition during the six month period ended June 30, 2002.

The Company acquired $1,889 of club equipment financed by lessors during
the six month period ended June 30, 2002.

See also Note 7 for cashless stock option exercises in 2003.

See notes to the condensed consolidated financial statements.

4



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TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and June 30, 2003
(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, 2002
consolidated financial statements and notes thereto, included in 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, except for the cumulative effect of a change in
accounting principle, discontinued operations, and loss on extinguishment of
debt are of a normal and recurring nature. The results for the three and six
months ended June 30, 2003 are not necessarily indicative of the results for
the entire fiscal year ending December 31, 2003.

2. Long-Term Debt and Capital Lease Obligations

|                                          |  |              |         |          |  |   |         | 
|----------------------------------------- |  | ------------ | ------- | -------- |  | - | ------- | 
|                                          |  | December 31, |         | June 30,
|                                          |  | 2002         |         | 2003    
|                                          |  |              |         |         
|                                          |  | ($000's)     |         | ($000's)
|                                          |  |              |         |         
|9 3/4% Senior Notes, due 2004             |  | $            | 125,000 |          |  | $ |        | 
|9 5/8% Senior Notes, due 2011             |  |              |        |          |  |   | 255,000 | 
|Line of Credit borrowings                 |  |              | 14,500  |          |  |   |        | 
|Subordinated credit borrowings            |  |              | 9,000   |          |  |   |        | 
|Notes payable for acquired businesses     |  |              | 6,230   |          |  |   | 5,323   | 
|Capital lease obligations                 |  |              | 6,213   |          |  |   | 4,198   | 
|                                          |  |              |         |          |  |   |         | 
|                                          |  |              | 160,943 |          |  |   | 264,521 | 
|Less, Current portion due within one year |  |              | 5,178   |          |  |   | 4,607   | 
|                                          |  |              |         |          |  |   |         | 
|Long-term portion                         |  | $            | 155,765 |          |  | $ | 259,914 | 
|                                          |  |              |         |          |  |   |         | 

On April 16, 2003 the Company successfully completed a refinancing of its
debt. This refinancing included an offering of $255.0 million of 9 5/8% Senior
Notes (Notes) that will mature April 15, 2011, and the entering into of a new
$50.0 million senior secured revolving credit facility (the Senior Credit
Facility) that will expire April 15, 2008. The Notes accrue interest at 9 5/8%
per annum and interest is payable semiannually on April 15, and October 15. The
Company has effected a registration statement with the Securities and Exchange
Commission for notes having substantially identical terms as the Notes as part
of an offer to exchange freely tradable exchange notes for the Notes. In
connection with this refinancing, the Company wrote-off $3.7 million of
deferred financing costs related to extinguished debt, paid a call premium of
$3.0 million and incurred $1.0 million of interest on the 9 3/4% Notes
representing the interest incurred during the 30 day redemption notification
period. The use of proceeds from the 9 5/8% Note offering is as follows:

|                                                                   |  |          |         | 
|------------------------------------------------------------------ |  | -------- | ------- | 
|                                                                   |  | ($000's)
|                                                                   |  |         
|Redemption of existing 9 3/4% Senior Notes, principal and interest |  | $        | 126,049 | 
|Call premium on existing 9 3/4% Senior Notes                       |  |          | 3,048   | 
|Redemption of senior preferred stock, at liquidation value         |  |          | 66,977  | 
|Repayment of line of credit principal borrowings and interest      |  |          | 4,013   | 
|Repayment of subordinated credit principal borrowings and interest |  |          | 9,060   | 
|Underwriting fees and other closing costs                          |  |          | 9,264   | 
|Available for general corporate purposes                           |  |          | 36,589  | 
|                                                                   |  |          |         | 
|Total use of funds                                                 |  | $        | 255,000 | 
|                                                                   |  |          |         | 

5



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##### Table of Contents



The Senior Credit Facility contains various covenants including limits on
capital expenditures, the maintenance of a consolidated interest coverage ratio
of not less than 2.25:1.00 during 2003, and a maximum permitted total leverage
ratio of 4.00:1.00 during 2003. Loans under the Senior Credit Facility will, at
our option, bear interest at either the banks prime rate plus 3.0% or the
Eurodollar rate plus 4.0%, as defined. There were no borrowings outstanding at
June 30, 2003 and outstanding letters of credit issued totaled $2.0 million.
The unutilized portion of the Senior Credit Facility as of June 30, 2003 was
$48.0 million.

3. September 11, 2001 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 clubs located in downtown Manhattan.
Three of the affected four clubs were back in operation by October 2001, while
the fourth club reopened in September 2002.

The Company carries business interruption insurance to mitigate certain
lost revenue and profits experienced with the September 11 events. In this
regard, in the third quarter of 2001 a $175,000 insurance receivable was
recorded representing an estimate of costs incurred in September 2001. Such
costs included rent, payroll benefits, and other club operating costs incurred
during period of closure. In 2002, we collected this $175,000 receivable and
received additional on-account payments of $1.0 million. In January 2003, we
received and recorded a $1.3 million on-account payment. In July 2003, the
Company entered into a settlement agreement with its insurer resulting in a
final settlement payment of $1.5 million. These on-account and final payments
are classified with fees and other revenues when received.

We have determined, based on discounted future cash flows, that the assets
related to the club locations affected by the September 11 events have not been
impaired.

4. Goodwill and Other Intangibles

Effective January 1, 2002 the Company implemented the Financial Accounting
Standards Board (FASB) Statement No. 141 Business Combinationsand Statement
No. 142, Goodwill and Other Intangible Assets(SFAS 142). In connection with
the SFAS 142 transition impairment test the Company recorded a $1.3 million
write-off of goodwill in the quarter ended March 31, 2002. A deferred tax
benefit of $612,000 was recorded with this goodwill write-off, resulting in a
net cumulative effect of change in accounting principle of $689,000, in the
first quarter of 2002. The write-off of goodwill related to four, remote
underperforming clubs. The impairment test was performed with discounted
estimated future cash flows as the criteria for determining fair market value.
Goodwill has been allocated to reporting units that closely reflect the regions
served by the four trade names; New York Sports Club, Boston Sports Club,
Washington Sports Club and Philadelphia Sports Club, with certain more remote
clubs that do not benefit from a regional cluster being considered a single
reporting unit. The Company performed an impairment test in the quarter ended
March 31, 2003 and determined that goodwill was not impaired.

Below is a summary of the Companys acquired goodwill and intangible
assets as of December 31, 2002 and June 30, 2003.

|                           |  |                         |        |                          |  |                 |         |   |  |   |        | 
|-------------------------- |  | ----------------------- | ------ | ------------------------ |  | --------------- | ------- | - |  | - | ------ | 
|                           |  | As of December 31, 2002
|                           |  | ($000's)               
|                           |  |                        
|Acquired Intangible Assets |  | Gross Carrying Amount   |        | Accumulated Amortization |  | Net Intangibles
|                           |  |                         |        |                          |  |                
|Membership Lists           |  | $                       | 11,054 |                          |  | $               | (9,605  | ) |  | $ | 1,449  | 
|Covenants-not-to-compete   |  |                         | 876    |                          |  |                 | (711    | ) |  |   | 165    | 
|Beneficial Lease           |  |                         | 223    |                          |  |                 | (162    | ) |  |   | 61     | 
|                           |  |                         |        |                          |  |                 |         |   |  |   |        | 
|                           |  | $                       | 12,153 |                          |  | $               | (10,478 | ) |  | $ | 1,675  | 
|                           |  |                         |        |                          |  |                 |         |   |  |   |        | 
|Goodwill                   |  | $                       | 58,557 |                          |  | $               | (13,026 | ) |  | $ | 45,531 | 
|                           |  |                         |        |                          |  |                 |         |   |  |   |        | 

|                         |  |                       |        |                          |  |                 |         |   |  |   |        | 
|------------------------ |  | --------------------- | ------ | ------------------------ |  | --------------- | ------- | - |  | - | ------ | 
|                         |  | As of June 30, 2003  
|                         |  | ($'000's)            
|                         |  |                      
|                         |  | Gross Carrying Amount |        | Accumulated Amortization |  | Net Intangibles
|                         |  |                       |        |                          |  |                
|Membership Lists         |  | $                     | 10,917 |                          |  | $               | (9,989  | ) |  | $ | 928    | 
|Covenants-not-to-compete |  |                       | 876    |                          |  |                 | (798    | ) |  |   | 78     | 
|Beneficial Lease         |  |                       | 223    |                          |  |                 | (168    | ) |  |   | 55     | 
|                         |  |                       |        |                          |  |                 |         |   |  |   |        | 
|                         |  | $                     | 12,016 |                          |  | $               | (10,955 | ) |  | $ | 1,061  | 
|                         |  |                       |        |                          |  |                 |         |   |  |   |        | 
|Goodwill                 |  | $                     | 58,732 |                          |  | $               | (13,061 | ) |  | $ | 45,671 | 
|                         |  |                       |        |                          |  |                 |         |   |  |   |        | 

6



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The amortization expense of the above acquired intangible assets for each
of the five years ended December 31, 2007 is as follows:

|                               |  |          |       | 
|------------------------------ |  | -------- | ----- | 
|Aggregate Amortization Expense |  | ($000')
|                               |  |         
|For the year ended 12/31/03(a) |  | $        | 933   | 
|For the year ended 12/31/04    |  |          | 591   | 
|For the year ended 12/31/05    |  |          | 11    | 
|For the year ended 12/31/06    |  |          | 11    | 
|For the year ended 12/31/07    |  |          | 11    | 
|                               |  |          |       | 
|                               |  | $        | 1,557 | 
|                               |  |          |       | 



---

|(a) |  | Amortization expense for the three and six months ended June 30, 2003
amounted to $248,000 and $496,000 respectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------

5. Stock-Based Employee Compensation

For financial reporting purposes, the Company accounts for stock-based
compensation in accordance with the intrinsic value method (APB No. 25). In
accordance with this method, no compensation expense is recognized in the
accompanying financial statements in connection with the awarding of stock
option grants to employees provided that, as of the grant date, all terms
associated with the award are fixed and the fair value of the Companys stock
is not greater than the amount an employee must pay to acquire the stock as
defined; however, to the extent that stock options are granted to employees
with variable terms or if the fair value of the Companys stock as of the
measurement date is greater than the amount an employee must pay to acquire the
stock, then the Company will recognize compensation expense. The fair value of
options or warrants granted to nonemployees for financing are recorded as
deferred financing costs and amortized into interest expense using the interest
method.

The following table illustrates the effect on net income (loss) attributed
to common stockholders if the Company had applied the fair value recognition
provisions of Financial Accounting Standards Board issued Statement No. 123,
(SFAS 123) Accounting for Stock-Based Compensation, to stock-based employee
compensation.

|                                                                 |                                                                                                                                                 |   |                    |    |                  |   |        |    |      |   |      |     |   |   |      |     |  
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | -- | ---------------- | - | ------ | -- | ---- | - | ---- | --- | - | - | ---- | --- | -
|                                                                 |                                                                                                                                                 |   | Three Months Ended |    | Six Months Ended
|                                                                 |                                                                                                                                                 |   | June 30,           |    | June 30,        
|                                                                 |                                                                                                                                                 |   | ($'000's)          |    | ($'000's)       
|                                                                 |                                                                                                                                                 |   |                    |    |                 
|                                                                 |                                                                                                                                                 |   | 2002               |    | 2003             |   | 2002   |    | 2003
|                                                                 |                                                                                                                                                 |   |                    |    |                  |   |        |    |     
|Net income (loss) attributed to common stockholders, as reported |                                                                                                                                                 | $ | 645                |    |                  | $ | (3,231 | )  |      | $ | (469 | )   |   | $ | (616 | )  
|Add:                                                             |                                                                                                                                                 |   |                    |    |                  |   |        |    |      |   |      |     |   |   |      |    
|                                                                 | Stock-based employee compensation expense included in reported net
income (loss) attributed to common stockholders, net of related
tax effects  |   |                    | 13 |                  |   |        | 10 |      |   |      | 49  |   |   |      | 22  |  
|Deduct:                                                          |                                                                                                                                                 |   |                    |    |                  |   |        |    |      |   |      |     |   |   |      |    
|                                                                 | Total stock-based employee compensation expense determined under
fair value based method for all stock option awards net of related
tax effects |   |                    | (7 | )                |   |        | (5 | )    |   |      | (25 | ) |   |      | (11 | )
|                                                                 |                                                                                                                                                 |   |                    |    |                  |   |        |    |      |   |      |     |   |   |      |    
|Pro forma net income (loss) attributed to common stockholders    |                                                                                                                                                 | $ | 651                |    |                  | $ | 3,226  |    |      | $ | (445 | )   |   | $ | (605 | )  
|                                                                 |                                                                                                                                                 |   |                    |    |                  |   |        |    |      |   |      |     |   |   |      |    

Since option grants vest over several years and additional grants are
expected in the future, the pro forma results noted above are not likely to be
representative of the effects on future years of the application of the fair
value based method.

For the purposes of the above pro forma information, the fair value of
each option granted was estimated on the date of grant using the Black-Scholes
option pricing model. For the years ended December 31, 2000 and 2001, the
weighted-average fair value of the option grants was approximately $47.11 and
$111.89, respectively. The following weighted-average assumptions were used in
computing the fair value of options grants: expected volatility of 69% for the
year ended December 31, 2000 and 72% for the year ended December 31, 2001,
risk-free interest rate of approximately 6.6% and 4.6% for December 31, 2000
and 2001, respectively, expected lives of five years for December 31, 2000 and
2001, and a zero divided yield for all periods. There were no option grants
over the eighteen months ended June 30, 2003.

6. Discontinued Operations

In the fourth quarter of 2002, the Company sold or closed two remote
underperforming, wholly-owned clubs. The Company has accounted for these two
clubs as discontinued operations and, accordingly, the results of their
operations have been classified as discontinued in the consolidated statement
of operations, and prior periods have been reclassified in accordance with the
Financial

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##### Table of Contents



Accounting Standards Board issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets. Revenues and pre-tax losses for
these discontinued clubs were $448,000 and $86,000 respectively for the three
months ended June 30, 2002 and $881,000 and $200,000 respectively for the six
months ended June 30, 2002.

7. Exercise of Stock Options

In January 2003, an executive officer of the Company exercised 9,530
Series B preferred stock options, and in turn these newly issues shares were
repurchased by the Company for $540,000 and were retired. In addition, the same
officer sold 548 previously held shares of Series B preferred stock back to the
Company for $43,000 which were also retired. On February 24, 2003, several
executives of the Company exercised and converted 148,775 Series B preferred
stock options into 106,267 shares of Series B preferred stock. The difference
between the 148,775 options exercised and the 106,267 shares issued is due to
the remittance of these shares to the Company to cover the purchase price of
the stock. The remitted shares were subsequently retired by the Company. The
executives sold all of Series B preferred stock issued in connection with these
February exercises to an affiliate of Rosewood Capital L.P., a stockholder of
the Company.

8. Contingencies

On February 13, 2003, an individual filed suit against the Company in the
Supreme Court, New York County, alleging that on January 14, 2003, he sustained
an injury at one of the Companys club locations resulting in serious bodily
injury. His complaint seeks $250.0 million in damages for personal injuries, in
addition to $250.0 million of punitive damages. The Company has in force $51.0
million of insurance coverage to cover claims of this nature. The Company
intends to vigorously contest this lawsuit and presently anticipates that these
matters will be covered by insurance.

In addition, the Company is a party to various lawsuits arising in the
normal course of business. Management believes that the ultimate outcome of
these matters will not have a material effect on the Companys consolidated
financial position, results of operations or cash flows.

9. Recent Accounting Pronouncements

In May 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liability and Equity (SFAS
150), which establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. As of June 30, 2003 the
Company does not have financial instruments within the scope of this
pronouncement.

10. Guarantors

The Company and all of its domestic subsidiaries have unconditionally
guaranteed the $255.0 million 9 5/8% Senior Notes. However the Companys
foreign subsidiaries have not provided guarantees for these Senior Notes.

The following schedules set forth condensed consolidating financial
information as required by Rule 3-10 of Securities and Exchange Commission
Regulation S-X for the three and six month periods ending June 30, 2002 and
2003. The financial information illustrates the composition of the combined
guarantors.

8



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##### Table of Contents



TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

All figures in $000
December 31, 2002
(Unaudited)

|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |         |         |  
|------------------------------------------------------------------ | --------------------------------------------------------------- | ------------------------------------------------------------------------ | ------- | ------- | ------- | ---------- | ------- | ------------ | ------- | ------------ | ----- | ------------ | ------ | - | -------- | -------- | -------- | - | ------- | ------- | ------- | -
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       | Non-         |        |   |          |          |          |   |         |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         | Subsidiary   |         | Guarantor    |       |              |        |   |          |          |          |  
|                                                                   |                                                                 |                                                                          |         | Parent  |         | Guarantors |         | Subsidiaries |         | Eliminations |       | Consolidated
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |             
|Assets                                                             |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |        
|Current assets:                                                    |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |        
|                                                                   | Cash and cash equivalents                                       |                                                                          | $       | 1,575   |         |            | $       | 3,635        |         |              | $     | 341          |        |   | $        |         |          |   | $       | 5,551   |        
|                                                                   | Accounts receivable, net                                        |                                                                          |         | 1,840   |         |            |         | 1,173        |         |              |       | 99           |        |   |          | (1,779   | )        |   |         | 1,333   |        
|                                                                   | Inventory                                                       |                                                                          |         |        |         |            |         | 1,106        |         |              |       | 26           |        |   |          |         |          |   |         | 1,132   |        
|                                                                   | Prepaid corporate income taxes                                  |                                                                          |         | 3,012   |         |            |         |             |         |              |       |             |        |   |          |         |          |   |         | 3,012   |        
|                                                                   | Intercompany receivable (payable)                               |                                                                          |         | (18,996 | )       |            |         | 20,469       |         |              |       | (1,473       | )      |   |          |         |          |   |         |        |        
|                                                                   | Prepaid expenses and other current assets                       |                                                                          |         | 5,837   |         |            |         | 2,093        |         |              |       |             |        |   |          | (3,500   | )        |   |         | 4,430   |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |        
|                                                                   |                                                                 | Total current assets                                                     |         |         | (6,732  | )          |         |              | 28,476  |              |       |              | (1,007 | ) |          |          | (5,279   | ) |         |         | 15,458  |  
|Investment in subsidiaries                                         |                                                                 |                                                                          | 206,413 |         |         |            |        |              |         |              |      |              |        |   | (206,413 | )        |          |   |        |        
|Fixed assets, net                                                  |                                                                 |                                                                          | 11,273  |         |         |            | 198,050 |              |         |              | 1,500 |              |        |   |         |          |          |   | 210,823 |        
|Goodwill, net                                                      |                                                                 |                                                                          |        |         |         |            | 44,927  |              |         |              | 604   |              |        |   |         |          |          |   | 45,531  |        
|Intangible assets, net                                             |                                                                 |                                                                          |        |         |         |            | 1,569   |              |         |              | 106   |              |        |   |         |          |          |   | 1,675   |        
|Deferred tax assets, net                                           |                                                                 |                                                                          | 20,866  |         |         |            | (490    | )            |         |              | (122  | )            |        |   |         |          |          |   | 20,254  |        
|Deferred membership costs                                          |                                                                 |                                                                          |        |         |         |            | 14,408  |              |         |              |      |              |        |   |         |          |          |   | 14,408  |        
|Other assets                                                       |                                                                 |                                                                          | 5,038   |         |         |            | 1,063   |              |         |              |      |              |        |   |         |          |          |   | 6,101   |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |        
|                                                                   |                                                                 | Total assets                                                             |         | $       | 236,858 |            |         | $            | 288,003 |              |       | $            | 1,081  |   |          | $        | (211,692 | ) |         | $       | 314,250 |  
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |         |        
|Liabilities, Redeemable Preferred Stock,
and Stockholders Deficit |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |        
|Current liabilities:                                               |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |        
|                                                                   | Current portion of long-term debt and
capital lease obligations |                                                                          | $       | 5,178   |         |            | $       |             |         |              | $     |             |        |   | $        |         |          |   | $       | 5,178   |        
|                                                                   | Accounts payable                                                |                                                                          |         | 214     |         |            |         | 5,114        |         |              |       |             |        |   |          |         |          |   |         | 5,328   |        
|                                                                   | Accrued expenses                                                |                                                                          |         | 9,470   |         |            |         | 13,398       |         |              |       | 545          |        |   |          | (1,779   | )        |   |         | 21,634  |        
|                                                                   | Deferred revenue                                                |                                                                          |         |        |         |            |         | 26,510       |         |              |       |             |        |   |          |         |          |   |         | 26,510  |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |        
|                                                                   |                                                                 | Total current liabilities                                                |         |         | 14,862  |            |         |              | 45,022  |              |       |              | 545    |   |          |          | (1,779   | ) |         |         | 58,650  |  
|Long-term debt and capital lease
obligations                       |                                                                 |                                                                          | 155,765 |         |         |            | 3,500   |              |         |              |      |              |        |   | (3,500   | )        |          |   | 155,765 |        
|Deferred lease liabilities                                         |                                                                 |                                                                          | 625     |         |         |            | 23,019  |              |         |              |      |              |        |   |         |          |          |   | 23,644  |        
|Deferred revenue                                                   |                                                                 |                                                                          | 7       |         |         |            | 3,345   |              |         |              | 83    |              |        |   |         |          |          |   | 3,435   |        
|Other liabilities                                                  |                                                                 |                                                                          | 373     |         |         |            | 7,157   |              |         |              |      |              |        |   |         |          |          |   | 7,530   |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |        
|                                                                   |                                                                 | Total liabilities                                                        |         |         | 171,632 |            |         |              | 82,043  |              |       |              | 628    |   |          |          | (5,279   | ) |         |         | 249,024 |  
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |        
|Redeemable Preferred Stock                                         |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |        
|Redeemable senior preferred stock                                  |                                                                 |                                                                          | 62,125  |         |         |            |        |              |         |              |      |              |        |   |         |          |          |   | 62,125  |        
|Series A preferred stock                                           |                                                                 |                                                                          | 34,841  |         |         |            |        |              |         |              |      |              |        |   |         |          |          |   | 34,841  |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |        
|                                                                   |                                                                 |                                                                          | 96,966  |         |         |            |        |              |         |              |      |              |        |   |         |          |          |   | 96,966  |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |        
|Stockholders deficit
Series B preferred stock                     |                                                                 |                                                                          | 303     |         |         |            |        |              |         |              |      |              |        |   |         |          |          |   | 303     |        
|                                                                   | Common stockholders deficit                                    |                                                                          |         | (32,336 | )       |            |         | 205,960      |         |              |       | 160          |        |   |          | (206,120 | )        |   |         | (32,336 | )      
|                                                                   | Accumulated other comprehensive income                          |                                                                          |         | 293     |         |            |         |             |         |              |       | 293          |        |   |          | (293     | )        |   |         | 293     |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |        
|                                                                   |                                                                 | Total stockholders deficit                                              |         |         | (31,740 | )          |         |              | 205,960 |              |       |              | 453    |   |          |          | (206,413 | ) |         |         | (31,740 | )
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |        
|                                                                   |                                                                 | Total liabilities, redeemable preferred
stock and stockholders deficit: |         | $       | 236,858 |            |         | $            | 288,003 |              |       | $            | 1,081  |   |          | $        | (211,692 | ) |         | $       | 314,250 |  
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |        |   |          |          |          |   |         |         |        

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##### Table of Contents



TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET
All figures in $000
June 30, 2003
(Unaudited)

|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |         |         |  
|------------------------------------------------------------------ | --------------------------------------------------------------- | ------------------------------------------------------------------------ | ------- | ------- | ------- | ---------- | ------- | ------------ | ------- | ------------ | ----- | ------------ | ----- | - | -------- | -------- | -------- | - | ------- | ------- | ------- | -
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       | Non-         |       |   |          |          |          |   |         |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         | Subsidiary   |         | Guarantor    |       |              |       |   |          |          |          |  
|                                                                   |                                                                 |                                                                          |         | Parent  |         | Guarantors |         | Subsidiaries |         | Eliminations |       | Consolidated
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |             
|Assets                                                             |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |        
|Current assets:                                                    |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |        
|                                                                   | Cash and cash equivalents                                       |                                                                          | $       | 366     |         |            | $       | 48,431       |         |              | $     | 759          |       |   | $        |         |          |   | $       | 49,556  |        
|                                                                   | Accounts receivable, net                                        |                                                                          |         | 2,023   |         |            |         | 737          |         |              |       | 99           |       |   |          | (1,954   | )        |   |         | 905     |        
|                                                                   | Inventory                                                       |                                                                          |         |        |         |            |         | 901          |         |              |       | 26           |       |   |          |         |          |   |         | 927     |        
|                                                                   | Prepaid corporate income taxes                                  |                                                                          |         | 2,318   |         |            |         |             |         |              |       |             |       |   |          |         |          |   |         | 2,318   |        
|                                                                   | Intercompany receivable (payable)                               |                                                                          |         | 12,757  |         |            |         | (11,161      | )       |              |       | (1,596       | )     |   |          |         |          |   |         |        |        
|                                                                   | Prepaid expenses and other current assets                       |                                                                          |         | 5,649   |         |            |         | 2,220        |         |              |       |             |       |   |          | (3,500   | )        |   |         | 4,369   |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |         |        
|                                                                   |                                                                 | Total current assets                                                     |         |         | 23,113  |            |         |              | 41,128  |              |       |              | (712  | ) |          |          | (5,454   | ) |         |         | 58,075  |  
|Investment in subsidiaries                                         |                                                                 |                                                                          | 224,658 |         |         |            |        |              |         |              |      |              |       |   | (224,658 | )        |          |   |        |        
|Fixed assets, net                                                  |                                                                 |                                                                          | 12,819  |         |         |            | 199,063 |              |         |              | 1,391 |              |       |   |         |          |          |   | 213,273 |        
|Goodwill, net                                                      |                                                                 |                                                                          | 25      |         |         |            | 44,908  |              |         |              | 738   |              |       |   |         |          |          |   | 45,671  |        
|Intangible assets, net                                             |                                                                 |                                                                          |        |         |         |            | 1,074   |              |         |              | (13   | )            |       |   |         |          |          |   | 1,061   |        
|Deferred tax assets, net                                           |                                                                 |                                                                          | 18,555  |         |         |            | (491    | )            |         |              | (125  | )            |       |   |         |          |          |   | 17,939  |        
|Deferred membership costs                                          |                                                                 |                                                                          |        |         |         |            | 14,023  |              |         |              |      |              |       |   |         |          |          |   | 14,023  |        
|Other assets                                                       |                                                                 |                                                                          | 9,473   |         |         |            | 1,074   |              |         |              |      |              |       |   |         |          |          |   | 10,547  |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |         |        
|                                                                   |                                                                 | Total assets                                                             |         | $       | 288,643 |            |         | $            | 300,779 |              |       | $            | 1,279 |   |          | $        | (230,112 | ) |         | $       | 360,589 |  
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |         |        
|Liabilities, Redeemable Preferred Stock, and Stockholders Deficit |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |        
|Current liabilities:                                               |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |        
|                                                                   | Current portion of long-term debt and capital lease obligations |                                                                          | $       | 4,607   |         |            | $       |             |         |              | $     |             |       |   | $        |         |          |   | $       | 4,607   |        
|                                                                   | Accounts payable                                                |                                                                          |         | 204     |         |            |         | 3,422        |         |              |       |             |       |   |          |         |          |   |         | 3,626   |        
|                                                                   | Accrued expenses                                                |                                                                          |         | 10,625  |         |            |         | 13,110       |         |              |       | 396          |       |   |          | (1,954   | )        |   |         | 22,177  |        
|                                                                   | Deferred revenue                                                |                                                                          |         |        |         |            |         | 31,638       |         |              |       |             |       |   |          |         |          |   |         | 31,638  |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |         |        
|                                                                   |                                                                 | Total current liabilities                                                |         |         | 15,436  |            |         |              | 48,170  |              |       |              | 396   |   |          |          | (1,954   | ) |         |         | 62,048  |  
|Long-term debt and capital lease obligations                       |                                                                 |                                                                          | 269,608 |         |         |            | (6,194  | )            |         |              |      |              |       |   | (3,500   | )        |          |   | 259,914 |        
|Deferred lease liabilities                                         |                                                                 |                                                                          | 596     |         |         |            | 24,232  |              |         |              |      |              |       |   |         |          |          |   | 24,828  |        
|Deferred revenue                                                   |                                                                 |                                                                          | 14      |         |         |            | 3,476   |              |         |              | 85    |              |       |   |         |          |          |   | 3,575   |        
|Other liabilities                                                  |                                                                 |                                                                          | 362     |         |         |            | 7,235   |              |         |              |      |              |       |   |         |          |          |   | 7,597   |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |         |        
|                                                                   |                                                                 | Total liabilities                                                        |         |         | 286,016 |            |         |              | 76,919  |              |       |              | 481   |   |          |          | (5,454   | ) |         |         | 357,962 |  
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |         |        
|Redeemable Preferred Stock                                         |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |        
|Series A preferred stock                                           |                                                                 |                                                                          | 37,280  |         |         |            |        |              |         |              |      |              |       |   |         |          |          |   | 37,280  |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |         |        
|Stockholders deficit
Series B preferred stock                     |                                                                 |                                                                          | 9,310   |         |         |            |        |              |         |              |      |              |       |   |         |          |          |   | 9,310   |        
|                                                                   | Common stockholders deficit                                    |                                                                          |         | (44,301 | )       |            |         | 223,860      |         |              |       | 460          |       |   |          | (224,320 | )        |   |         | (44,301 | )      
|                                                                   | Accumulated other comprehensive income                          |                                                                          |         | 338     |         |            |         |             |         |              |       | 338          |       |   |          | (338     | )        |   |         | 338     |        
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |         |        
|                                                                   |                                                                 | Total stockholders deficit                                              |         |         | (34,653 | )          |         |              | 223,860 |              |       |              | 798   |   |          |          | (224,658 | ) |         |         | (34,653 | )
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |         |        
|                                                                   |                                                                 | Total liabilities, redeemable preferred
stock and stockholders deficit: |         | $       | 288,643 |            |         | $            | 300,779 |              |       | $            | 1,279 |   |          | $        | (230,112 | ) |         | $       | 360,589 |  
|                                                                   |                                                                 |                                                                          |         |         |         |            |         |              |         |              |       |              |       |   |          |          |          |   |         |         |        

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##### Table of Contents



TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
All figures in $000
For the three months ended June 30, 2003
(Unaudited)

|                                   |                                                  |   |        |         |            |   |              |        |              |   |              |       |  |   |        |        |   |   |        |        |  
|---------------------------------- | ------------------------------------------------ | - | ------ | ------- | ---------- | - | ------------ | ------ | ------------ | - | ------------ | ----- |  | - | ------ | ------ | - | - | ------ | ------ | -
|                                   |                                                  |   |        |         |            |   |              |        |              |   | Non-         |       |  |   |        |        |   |   |       
|                                   |                                                  |   |        |         |            |   | Subsidiary   |        | Guarantor    |   |              |       |  |   |        |        |  
|                                   |                                                  |   | Parent |         | Guarantors |   | Subsidiaries |        | Eliminations |   | Consolidated
|                                   |                                                  |   |        |         |            |   |              |        |              |   |             
|Revenues:                          |                                                  |   |        |         |            |   |              |        |              |   |              |       |  |   |        |        |   |   |        |       
|                                   | Club operations                                  |   | $      | 29      |            |   | $            | 83,913 |              |   | $            | 1,151 |  |   | $      |       |   |   | $      | 85,093 |  
|                                   | Fees and other                                   |   |        | 267     |            |   |              | 1,769  |              |   |              |      |  |   |        | (1,072 | ) |   |        | 964    |  
|                                   |                                                  |   |        |         |            |   |              |        |              |   |              |       |  |   |        |        |   |   |        |        |  
|                                   |                                                  | $ | 296    |         |            | $ | 85,682       |        |              | $ | 1,151        |       |  | $ | (1,072 | )      |   | $ | 86,057 |       
|                                   |                                                  |   |        |         |            |   |              |        |              |   |              |       |  |   |        |        |   |   |        |        |  
|Operating expenses:                |                                                  |   |        |         |            |   |              |        |              |   |              |       |  |   |        |        |   |   |        |       
|                                   | Payroll and related                              |   |        | 5,684   |            |   |              | 27,098 |              |   |              | 424   |  |   |        |       |   |   |        | 33,206 |  
|                                   | Club operating                                   |   |        | (673    | )          |   |              | 27,980 |              |   |              | 316   |  |   |        | (932   | ) |   |        | 26,691 |  
|                                   | General and administrative                       |   |        | (259    | )          |   |              | 5,520  |              |   |              | 98    |  |   |        | (140   | ) |   |        | 5,219  |  
|                                   | Depreciation and amortization                    |   |        | 954     |            |   |              | 7,408  |              |   |              | 92    |  |   |        |       |   |   |        | 8,454  |  
|                                   |                                                  |   |        |         |            |   |              |        |              |   |              |       |  |   |        |        |   |   |        |        |  
|                                   |                                                  | $ | 5,706  |         |            | $ | 68,006       |        |              | $ | 930          |       |  | $ | (1,072 | )      |   | $ | 73,570 |       
|                                   |                                                  |   |        |         |            |   |              |        |              |   |              |       |  |   |        |        |   |   |        |        |  
|                                   | Operating income                                 |   |        | (5,410  | )          |   |              | 17,676 |              |   |              | 221   |  |   |        |       |   |   |        | 12,487 |  
|Loss on extinguishment of debt     |                                                  |   | 7,773  |         |            |   |             |        |              |   |             |       |  |   |       |        |   |   | 7,773  |       
|Interest expense                   |                                                  |   | 6,174  |         |            |   | 28           |        |              |   |             |       |  |   | (88    | )      |   |   | 6,114  |       
|Interest income                    |                                                  |   | (283   | )       |            |   |             |        |              |   |             |       |  |   | 88     |        |   |   | (195   | )     
|                                   |                                                  |   |        |         |            |   |              |        |              |   |              |       |  |   |        |        |   |   |        |        |  
|                                   | Income before benefit for
corporate income taxes |   |        | (19,074 | )          |   |              | 17,648 |              |   |              | 221   |  |   |        |       |   |   |        | (1,205 | )
|Benefit for corporate income
taxes |                                                  |   | (9,544 | )       |            |   | 9,387        |        |              |   | 73           |       |  |   |       |        |   |   | (84    | )     
|                                   |                                                  |   |        |         |            |   |              |        |              |   |              |       |  |   |        |        |   |   |        |        |  
|                                   | Loss before Equity earnings                      |   | $      | (9,530  | )          |   | $            | 8,261  |              |   | $            | 148   |  |   | $      |       |   |   | $      | (1,121 | )
|Equity earnings from subsidiaries  |                                                  |   | 8,409  |         |            |   |             |        |              |   |             |       |  |   | (8,409 | )      |   |   |       |       
|                                   |                                                  |   |        |         |            |   |              |        |              |   |              |       |  |   |        |        |   |   |        |        |  
|                                   | Net loss                                         |   | $      | (1,121  | )          |   | $            | 8,261  |              |   | $            | 148   |  |   | $      | (8,409 | ) |   | $      | (1,121 | )
|                                   |                                                  |   |        |         |            |   |              |        |              |   |              |       |  |   |        |        |   |   |        |        |  

11



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##### Table of Contents



TOWN SPORTS INTERNATIONAL, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
All figures in $000
For the three months ended June 30, 2002
(Unaudited)

|                                     |                                                                               |  |        |        |            |  |              |        |              |  |              |     |  |  |        |        |   |  |        |        |  
|------------------------------------ | ----------------------------------------------------------------------------- |  | ------ | ------ | ---------- |  | ------------ | ------ | ------------ |  | ------------ | --- |  |  | ------ | ------ | - |  | ------ | ------ | -
|                                     |                                                                               |  |        |        |            |  |              |        |              |  | Non-         |     |  |  |        |        |   |  |       
|                                     |                                                                               |  |        |        |            |  | Subsidiary   |        | Guarantor    |  |              |     |  |  |        |        |  
|                                     |                                                                               |  | Parent |        | Guarantors |  | Subsidiaries |        | Eliminations |  | Consolidated
|                                     |                                                                               |  |        |        |            |  |              |        |              |  |             
|Revenues:                            |                                                                               |  |        |        |            |  |              |        |              |  |              |     |  |  |        |        |   |  |        |       
|                                     | Club operations                                                               |  | $      | 42     |            |  | $            | 78,146 |              |  | $            | 910 |  |  | $      |       |   |  | $      | 79,098 |  
|                                     | Fees and other                                                                |  |        | 289    |            |  |              | 1,579  |              |  |              |    |  |  |        | (960   | ) |  |        | 908    |  
|                                     |                                                                               |  |        |        |            |  |              |        |              |  |              |     |  |  |        |        |   |  |        |        |  
|                                     |                                                                               |  | 331    |        |            |  | 79,725       |        |              |  | 910          |     |  |  | (960   | )      |   |  | 80,006 |       
|                                     |                                                                               |  |        |        |            |  |              |        |              |  |              |     |  |  |        |        |   |  |        |        |  
|Operating expenses:                  |                                                                               |  |        |        |            |  |              |        |              |  |              |     |  |  |        |        |   |  |        |       
|                                     | Payroll and related                                                           |  |        | 5,122  |            |  |              | 27,448 |              |  |              | 358 |  |  |        |       |   |  |        | 33,928 |  
|                                     | Club operating                                                                |  |        | 184    |            |  |              | 24,293 |              |  |              | 224 |  |  |        | (820   | ) |  |        | 23,881 |  
|                                     | General and administrative                                                    |  |        | (414   | )          |  |              | 5,334  |              |  |              | 82  |  |  |        | (140   | ) |  |        | 4,862  |  
|                                     | Depreciation and amortization                                                 |  |        | 566    |            |  |              | 7,221  |              |  |              | 90  |  |  |        |       |   |  |        | 7,877  |  
|                                     |                                                                               |  |        |        |            |  |              |        |              |  |              |     |  |  |        |        |   |  |        |        |  
|                                     |                                                                               |  | 5,458  |        |            |  | 64,296       |        |              |  | 754          |     |  |  | (960   | )      |   |  | 69,548 |       
|                                     |                                                                               |  |        |        |            |  |              |        |              |  |              |     |  |  |        |        |   |  |        |        |  
|                                     | Operating income                                                              |  |        | (5,127 | )          |  |              | 15,429 |              |  |              | 156 |  |  |        |       |   |  |        | 10,458 |  
|Interest expense                     |                                                                               |  | 4,157  |        |            |  | 88           |        |              |  | 3            |     |  |  | (88    | )      |   |  | 4,160  |       
|Interest income                      |                                                                               |  | (126   | )      |            |  |             |        |              |  |             |     |  |  | 88     |        |   |  | (38    | )     
|                                     |                                                                               |  |        |        |            |  |              |        |              |  |              |     |  |  |        |        |   |  |        |        |  
|                                     | Income from continuing operations
before provision for corporate
income taxes |  |        | (9,158 | )          |  |              | 15,341 |              |  |              | 153 |  |  |        |       |   |  |        | 6,336  |  
|Provision for corporate income
taxes |                                                                               |  | (4,001 | )      |            |  | 6,798        |        |              |  | 29           |     |  |  |       |        |   |  | 2,826  |       
|                                     |                                                                               |  |        |        |            |  |              |        |              |  |              |     |  |  |        |        |   |  |        |        |  
|                                     | Income from continuing operations                                             |  |        | (5,157 | )          |  |              | 8,543  |              |  |              | 124 |  |  |        |       |   |  |        | 3,510  |  
|Equity earnings from subsidiaries    |                                                                               |  | 8,677  |        |            |  |             |        |              |  |             |     |  |  | (8,677 | )      |   |  |       |       
|                                     | Loss on discontinued operations,
net of income tax benefit                    |  |        | (50    | )          |  |              | (50    | )            |  |              |    |  |  |        | 50     |   |  |        | (50    | )
|                                     |                                                                               |  |        |        |            |  |              |        |              |  |              |     |  |  |        |        |   |  |        |        |  
|                                     | Net Income                                                                    |  |        | 3,460  |            |  |              | 8,493  |              |  |              | 124 |  |  |        | (8,617 | ) |  |        | 3,460  |  
|                                     |                                                                               |  |        |        |            |  |              |        |              |  |              |     |  |  |        |        |   |  |        |        |  

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TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
All figures in $000
For the six months ended June 30, 2003
(Unaudited)

|                                     |                                                    |  |         |         |            |  |              |         |              |  |              |       |  |  |        |         |   |  |         |         | 
|------------------------------------ | -------------------------------------------------- |  | ------- | ------- | ---------- |  | ------------ | ------- | ------------ |  | ------------ | ----- |  |  | ------ | ------- | - |  | ------- | ------- | 
|                                     |                                                    |  |         |         |            |  |              |         |              |  | Non-         |       |  |  |        |         |   |  |        
|                                     |                                                    |  |         |         |            |  | Subsidiary   |         | Guarantor    |  |              |       |  |  |        |         |  
|                                     |                                                    |  | Parent  |         | Guarantors |  | Subsidiaries |         | Eliminations |  | Consolidated
|                                     |                                                    |  |         |         |            |  |              |         |              |  |             
|Revenues:                            |                                                    |  |         |         |            |  |              |         |              |  |              |       |  |  |        |         |   |  |         |        
|                                     | Club operations                                    |  | $       | 54      |            |  | $            | 167,388 |              |  | $            | 2,341 |  |  | $      |        |   |  | $       | 169,783 | 
|                                     | Fees and other                                     |  |         | 1,867   |            |  |              | 3,387   |              |  |              |      |  |  |        | (2,077  | ) |  |         | 3,177   | 
|                                     |                                                    |  |         |         |            |  |              |         |              |  |              |       |  |  |        |         |   |  |         |         | 
|                                     |                                                    |  | 1,921   |         |            |  | 170,775      |         |              |  | 2,341        |       |  |  | (2,077 | )       |   |  | 172,960 |        
|                                     |                                                    |  |         |         |            |  |              |         |              |  |              |       |  |  |        |         |   |  |         |         | 
|Operating expenses:                  |                                                    |  |         |         |            |  |              |         |              |  |              |       |  |  |        |         |   |  |         |        
|                                     | Payroll and related                                |  |         | 11,165  |            |  |              | 53,962  |              |  |              | 849   |  |  |        |        |   |  |         | 65,976  | 
|                                     | Club operating                                     |  |         | (1,611  | )          |  |              | 56,122  |              |  |              | 640   |  |  |        | (1,797  | ) |  |         | 53,354  | 
|                                     | General and administrative                         |  |         | (679    | )          |  |              | 11,003  |              |  |              | 196   |  |  |        | (280    | ) |  |         | 10,240  | 
|                                     | Depreciation and amortization                      |  |         | 1,764   |            |  |              | 14,808  |              |  |              | 181   |  |  |        |        |   |  |         | 16,753  | 
|                                     |                                                    |  |         |         |            |  |              |         |              |  |              |       |  |  |        |         |   |  |         |         | 
|                                     |                                                    |  | 10,639  |         |            |  | 135,895      |         |              |  | 1,866        |       |  |  | (2,077 | )       |   |  | 146,323 |        
|                                     |                                                    |  |         |         |            |  |              |         |              |  |              |       |  |  |        |         |   |  |         |         | 
|                                     | Operating income                                   |  |         | (8,718  | )          |  |              | 34,880  |              |  |              | 475   |  |  |        |        |   |  |         | 26,637  | 
|Loss on extinguishment of debt       |                                                    |  | 7,773   |         |            |  |             |         |              |  |             |       |  |  |       |         |   |  | 7,773   |        
|Interest expense                     |                                                    |  | 10,446  |         |            |  | 76           |         |              |  |             |       |  |  | (175   | )       |   |  | 10,347  |        
|Interest income                      |                                                    |  | (393    | )       |            |  |             |         |              |  |             |       |  |  | 175    |         |   |  | (218    | )      
|                                     |                                                    |  |         |         |            |  |              |         |              |  |              |       |  |  |        |         |   |  |         |         | 
|                                     | Income before provision for corporate income taxes |  |         | (26,544 | )          |  |              | 34,804  |              |  |              | 475   |  |  |        |        |   |  |         | 8,735   | 
|Provision for corporate income taxes |                                                    |  | (13,063 | )       |            |  | 16,932       |         |              |  | 146          |       |  |  |       |         |   |  | 4,015   |        
|                                     |                                                    |  |         |         |            |  |              |         |              |  |              |       |  |  |        |         |   |  |         |         | 
|                                     | Income from operations before equity earnings      |  |         | (13,481 | )          |  |              | 17,872  |              |  |              | 329   |  |  |        |        |   |  |         | 4,720   | 
|                                     | Equity earnings from subsidiaries                  |  |         | 18,201  |            |  |              |        |              |  |              |      |  |  |        | (18,201 | ) |  |         |        | 
|                                     |                                                    |  |         |         |            |  |              |         |              |  |              |       |  |  |        |         |   |  |         |         | 
|                                     | Net income                                         |  | $       | 4,720   |            |  | $            | 17,872  |              |  | $            | 329   |  |  | $      | (18,201 | ) |  | $       | 4,720   | 
|                                     |                                                    |  |         |         |            |  |              |         |              |  |              |       |  |  |        |         |   |  |         |         | 

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TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
All figures in $000
For the six months ended June 30, 2002
(Unaudited)

|                                                                                         |                                                                               |  |        |         |            |  |              |         |              |  |              |       |  |  |         |         |   |  |         |         | 
|---------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- |  | ------ | ------- | ---------- |  | ------------ | ------- | ------------ |  | ------------ | ----- |  |  | ------- | ------- | - |  | ------- | ------- | 
|                                                                                         |                                                                               |  |        |         |            |  |              |         |              |  | Non-         |       |  |  |         |         |   |  |        
|                                                                                         |                                                                               |  |        |         |            |  | Subsidiary   |         | Guarantor    |  |              |       |  |  |         |         |  
|                                                                                         |                                                                               |  | Parent |         | Guarantors |  | Subsidiaries |         | Eliminations |  | Consolidated
|                                                                                         |                                                                               |  |        |         |            |  |              |         |              |  |             
|Revenues:                                                                                |                                                                               |  |        |         |            |  |              |         |              |  |              |       |  |  |         |         |   |  |         |        
|                                                                                         | Club operations                                                               |  | $      | 46      |            |  | $            | 153,213 |              |  | $            | 1,780 |  |  | $       |        |   |  | $       | 155,039 | 
|                                                                                         | Fees and other                                                                |  |        | 758     |            |  |              | 2,993   |              |  |              |      |  |  |         | (1,909  | ) |  |         | 1,842   | 
|                                                                                         |                                                                               |  |        |         |            |  |              |         |              |  |              |       |  |  |         |         |   |  |         |         | 
|                                                                                         |                                                                               |  | 804    |         |            |  | 156,206      |         |              |  | 1,780        |       |  |  | (1,909  | )       |   |  | 156,881 |        
|                                                                                         |                                                                               |  |        |         |            |  |              |         |              |  |              |       |  |  |         |         |   |  |         |         | 
|Operating expenses:                                                                      |                                                                               |  |        |         |            |  |              |         |              |  |              |       |  |  |         |         |   |  |         |        
|                                                                                         | Payroll and related                                                           |  |        | 10,740  |            |  |              | 52,520  |              |  |              | 702   |  |  |         |        |   |  |         | 63,962  | 
|                                                                                         | Club operating                                                                |  |        | 273     |            |  |              | 48,943  |              |  |              | 443   |  |  |         | (1,629  | ) |  |         | 48,030  | 
|                                                                                         | General and administrative                                                    |  |        | (435    | )          |  |              | 10,349  |              |  |              | 170   |  |  |         | (280    | ) |  |         | 9,804   | 
|                                                                                         | Depreciation and amortization                                                 |  |        | 1,294   |            |  |              | 14,224  |              |  |              | 216   |  |  |         |        |   |  |         | 15,734  | 
|                                                                                         |                                                                               |  |        |         |            |  |              |         |              |  |              |       |  |  |         |         |   |  |         |         | 
|                                                                                         |                                                                               |  | 11,872 |         |            |  | 126,036      |         |              |  | 1,531        |       |  |  | (1,909  | )       |   |  | 137,530 |        
|                                                                                         |                                                                               |  |        |         |            |  |              |         |              |  |              |       |  |  |         |         |   |  |         |         | 
|                                                                                         | Operating income                                                              |  |        | (11,068 | )          |  |              | 30,170  |              |  |              | 249   |  |  |         |        |   |  |         | 19,351  | 
|Interest expense                                                                         |                                                                               |  | 8,279  |         |            |  | 175          |         |              |  | 5            |       |  |  | (175    | )       |   |  | 8,284   |        
|Interest income                                                                          |                                                                               |  | (252   | )       |            |  |             |         |              |  |             |       |  |  | 175     |         |   |  | (77     | )      
|                                                                                         |                                                                               |  |        |         |            |  |              |         |              |  |              |       |  |  |         |         |   |  |         |         | 
|                                                                                         | Income from continuing operations before provision for
corporate income taxes |  |        | (19,095 | )          |  |              | 29,995  |              |  |              | 244   |  |  |         |        |   |  |         | 11,144  | 
|Provision for corporate income taxes                                                     |                                                                               |  | (8,934 | )       |            |  | 14,092       |         |              |  | 56           |       |  |  |        |         |   |  | 5,214   |        
|                                                                                         |                                                                               |  |        |         |            |  |              |         |              |  |              |       |  |  |         |         |   |  |         |         | 
|                                                                                         | Income from continuing operations                                             |  |        | (10,161 | )          |  |              | 15,903  |              |  |              | 188   |  |  |         |        |   |  |         | 5,930   | 
|Equity earnings from subsidiaries                                                        |                                                                               |  | 16,091 |         |            |  |             |         |              |  |             |       |  |  | (16,091 | )       |   |  |        |        
|Loss on discontinued operations, net
of income tax benefit of $48                        |                                                                               |  | (116   | )       |            |  | (116         | )       |              |  |             |       |  |  | 116     |         |   |  | (116    | )      
|Cumulative effect of a change in accounting principle, net of
income tax benefit of $612 |                                                                               |  | (689   | )       |            |  | (689         | )       |              |  |             |       |  |  | 689     |         |   |  | (689    | )      
|                                                                                         |                                                                               |  |        |         |            |  |              |         |              |  |              |       |  |  |         |         |   |  |         |         | 
|                                                                                         | Net income                                                                    |  | $      | 5,125   |            |  | $            | 15,098  |              |  | $            | 188   |  |  | $       | (15,286 | ) |  | $       | 5,125   | 
|                                                                                         |                                                                               |  |        |         |            |  |              |         |              |  |              |       |  |  |         |         |   |  |         |         | 

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TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
All figures in $000
For the six months ended June 30, 2003
(Unaudited)

|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |     |              |    |   |   |         |        |   |         |        |        | 
|--------------------------------------------------------------------------------- | ----------------------------------------------------- | ----------------- | ------ | ------- | ------ | ---------- | ------- | ------------ | ------ | ------------ | --- | ------------ | -- | - | - | ------- | ------ | - | ------- | ------ | ------ | 
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |     | Non-         |    |   |   |         |        |   |         |       
|                                                                                  |                                                       |                   |        |         |        |            |         | Subsidiary   |        | Guarantor    |     |              |    |   |   |         |        |  
|                                                                                  |                                                       |                   |        | Parent  |        | Guarantors |         | Subsidiaries |        | Eliminations |     | Consolidated
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |     |             
|Cash flows from operating activities:                                             |                                                       |                   |        |         |        |            |         |              |        |              |     |              |    |   |   |         |        |   |         |       
|                                                                                  | Net income                                            |                   | $      | 4,720   |        |            | $       | 17,872       |        |              | $   | 329          |    |   | $ | (18,201 | )      |   | $       | 4,720  |       
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |     |              |    |   |   |         |        |   |         |        |       
|Adjustments to reconcile net income to
net cash provided by operating
activities: |                                                       |                   |        |         |        |            |         |              |        |              |     |              |    |   |   |         |        |   |         |       
|                                                                                  | Depreciation and amortization                         |                   |        | 1,764   |        |            |         | 14,808       |        |              |     | 181          |    |   |   |        |        |   |         | 16,753 |       
|                                                                                  | Compensation expense in connection with stock options |                   |        | 197     |        |            |         |             |        |              |     |             |    |   |   |        |        |   |         | 197    |       
|                                                                                  | Noncash rental expense, net of noncash rental income  |                   |        | (40     | )      |            |         | 960          |        |              |     |             |    |   |   |        |        |   |         | 920    |       
|                                                                                  | Loss on extinguishment of debt                        |                   |        | 7,773   |        |            |         |             |        |              |     |             |    |   |   |        |        |   |         | 7,773  |       
|                                                                                  | Share of net income in affiliated companies           |                   |        | (431    | )      |            |         |             |        |              |     |             |    |   |   |        |        |   |         | (431   | )     
|                                                                                  | Amortization of debt issuance costs                   |                   |        | 962     |        |            |         |             |        |              |     |             |    |   |   |        |        |   |         | 962    |       
|                                                                                  | Changes in operating assets and liabilities           |                   |        | 4,593   |        |            |         | 4,232        |        |              |     | (144         | )  |   |   |        |        |   |         | 8,681  |       
|                                                                                  | Other                                                 |                   |        | (18,132 | )      |            |         | 117          |        |              |     |             |    |   |   | 18,201  |        |   |         | 186    |       
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |     |              |    |   |   |         |        |   |         |        |       
|                                                                                  |                                                       | Total adjustments |        |         | (3,314 | )          |         |              | 20,117 |              |     |              | 37 |   |   |         | 18,201 |   |         |        | 35,041 | 
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |     |              |    |   |   |         |        |   |         |        |       
|Net cash provided by operating activities                                         |                                                       |                   | 1,406  |         |        |            | 37,989  |              |        |              | 366 |              |    |   |  |         |        |   | 39,761  |       
|Net cash used in investing activities                                             |                                                       |                   | (3,300 | )       |        |            | (15,075 | )            |        |              | (71 | )            |    |   |  |         |        |   | (18,446 | )     
|Net cash used in financing activities                                             |                                                       |                   | 685    |         |        |            | 21,882  |              |        |              | 123 |              |    |   |  |         |        |   | 22,690  |       
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |     |              |    |   |   |         |        |   |         |        |       
|Net change in cash and cash equivalents                                           |                                                       |                   | (1,209 | )       |        |            | 44,796  |              |        |              | 418 |              |    |   |  |         |        |   | 44,005  |       
|Cash and cash equivalents at beginning of period                                  |                                                       |                   | 1,575  |         |        |            | 3,635   |              |        |              | 341 |              |    |   |  |         |        |   | 5,551   |       
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |     |              |    |   |   |         |        |   |         |        |       
|Cash and cash equivalents at end of period                                        |                                                       | $                 | 366    |         |        | $          | 48,431  |              |        | $            | 759 |              |    | $ |  |         |        | $ | 49,556  |       
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |     |              |    |   |   |         |        |   |         |        |       

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TOWN SPORTS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
All figures in $000
For the six months ended June 30, 2002
(Unaudited)

|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |      |              |     |   |   |         |        |   |         |        |        | 
|--------------------------------------------------------------------------------- | ----------------------------------------------------- | ----------------- | ------ | ------- | ------ | ---------- | ------- | ------------ | ------ | ------------ | ---- | ------------ | --- | - | - | ------- | ------ | - | ------- | ------ | ------ | 
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |      | Non-         |     |   |   |         |        |   |         |       
|                                                                                  |                                                       |                   |        |         |        |            |         | Subsidiary   |        | Guarantor    |      |              |     |   |   |         |        |  
|                                                                                  |                                                       |                   |        | Parent  |        | Guarantors |         | Subsidiaries |        | Eliminations |      | Consolidated
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |      |             
|Cash flows from operating activities:                                             |                                                       |                   |        |         |        |            |         |              |        |              |      |              |     |   |   |         |        |   |         |       
|                                                                                  | Net income                                            |                   | $      | 5,125   |        |            | $       | 15,098       |        |              | $    | 188          |     |   | $ | (15,286 | )      |   | $       | 5,125  |       
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |      |              |     |   |   |         |        |   |         |        |       
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                                       |                   |        |         |        |            |         |              |        |              |      |              |     |   |   |         |        |   |         |       
|                                                                                  | Depreciation and amortization                         |                   |        | 1,294   |        |            |         | 14,434       |        |              |      | 216          |     |   |   |        |        |   |         | 15,944 |       
|                                                                                  | Goodwill impairment write-off and club closure costs  |                   |        |        |        |            |         | 1,301        |        |              |      |             |     |   |   |        |        |   |         | 1,301  |       
|                                                                                  | Compensation expense in connection with stock options |                   |        | 601     |        |            |         |             |        |              |      |             |     |   |   |        |        |   |         | 601    |       
|                                                                                  | Noncash rental expense, net of noncash rental income  |                   |        | (30     | )      |            |         | 934          |        |              |      |             |     |   |   |        |        |   |         | 904    |       
|Share of net income in affiliated
companies                                       |                                                       |                   | (324   | )       |        |            |        |              |        |              |     |              |     |   |  |         |        |   | (324    | )     
|                                                                                  | Amortization of debt issuance costs                   |                   |        | 946     |        |            |         |             |        |              |      |             |     |   |   |        |        |   |         | 946    |       
|                                                                                  | Change in operating assets and liabilities            |                   |        | 3,527   |        |            |         | 190          |        |              |      | 75           |     |   |   |        |        |   |         | 3,792  |       
|                                                                                  | Other                                                 |                   |        | (15,286 | )      |            |         | (16          | )      |              |      | 146          |     |   |   | 15,286  |        |   |         | 130    |       
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |      |              |     |   |   |         |        |   |         |        |       
|                                                                                  |                                                       | Total adjustments |        |         | (9,272 | )          |         |              | 16,843 |              |      |              | 437 |   |   |         | 15,286 |   |         |        | 23,294 | 
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |      |              |     |   |   |         |        |   |         |        |       
|Net cash provided by operating activities                                         |                                                       |                   | (4,147 | )       |        |            | 31,941  |              |        |              | 625  |              |     |   |  |         |        |   | 28,419  |       
|Net cash used in investing activities                                             |                                                       |                   | (1,830 | )       |        |            | (22,087 | )            |        |              | (292 | )            |     |   |  |         |        |   | (24,209 | )     
|Net cash used in financing activities                                             |                                                       |                   | 6,133  |         |        |            | (10,786 | )            |        |              | (184 | )            |     |   |  |         |        |   | (4,837  | )     
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |      |              |     |   |   |         |        |   |         |        |       
|Net decrease in cash and cash equivalents                                         |                                                       |                   | 156    |         |        |            | (932    | )            |        |              | 149  |              |     |   |  |         |        |   | (627    | )     
|Cash and cash equivalents at beginning of period                                  |                                                       |                   | 190    |         |        |            | 5,192   |              |        |              | 76   |              |     |   |  |         |        |   | 5,458   |       
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |      |              |     |   |   |         |        |   |         |        |       
|Cash and cash equivalents at end of period                                        |                                                       | $                 | 346    |         |        | $          | 4,260   |              |        | $            | 225  |              |     | $ |  |         |        | $ | 4,831   |       
|                                                                                  |                                                       |                   |        |         |        |            |         |              |        |              |      |              |     |   |   |         |        |   |         |        |       

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##### Table of Contents






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 June 30, 2003,
we operated 129 clubs that collectively served approximately 358,000 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
our target customers areas of both employment and residence. Our target
customer is college-educated, typically between the ages of 21 and 50 and earns
an annual income of between $50,000 and $150,000.

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 June 30, 2003,
approximately 47% 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 37 locations
and operate a total of 85 clubs under the NYSC name within a defined radius of
New York City. We operate 20 clubs in the Boston region and 15 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 six clubs under our
Philadelphia Sports Club (PSC) brand name. In addition we operate three 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.

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 forth our club growth during each of the quarters
in 2002 and the first two quarters of 2003.

|                                                                  |  |      |     |      |  |    |     |    |  |       |     |    |  |    |     |   |  |  |     |   |  |  |     |  |  |  |     | 
|----------------------------------------------------------------- |  | ---- | --- | ---- |  | -- | --- | -- |  | ----- | --- | -- |  | -- | --- | - |  |  | --- | - |  |  | --- |  |  |  | --- | 
|                                                                  |  | 2002 |     | 2003
|                                                                  |  |      |     |     
|                                                                  |  | Q1   |     | Q2   |  | Q3 |     | Q4 |  | Total |     | Q1 |  | Q2
|                                                                  |  |      |     |      |  |    |     |    |  |       |     |    |  |   
|Clubs at beginning of period                                      |  |      | 119 |      |  |    | 126 |    |  |       | 127 |    |  |    | 128 |   |  |  | 119 |   |  |  | 129 |  |  |  | 129 | 
|Greenfield clubs(a)                                               |  |      | 6   |      |  |    | 1   |    |  |       | 1   |    |  |    |    |   |  |  | 8   |   |  |  |    |  |  |  |    | 
|Acquired clubs                                                    |  |      | 1   |      |  |    |    |    |  |       |    |    |  |    | 3   |   |  |  | 4   |   |  |  |    |  |  |  |    | 
|Sold or closed clubs                                              |  |      |    |      |  |    |    |    |  |       |    |    |  |    | (2  | ) |  |  | (2  | ) |  |  |    |  |  |  |    | 
|                                                                  |  |      |     |      |  |    |     |    |  |       |     |    |  |    |     |   |  |  |     |   |  |  |     |  |  |  |     | 
|Clubs at end of period(b)                                         |  |      | 126 |      |  |    | 127 |    |  |       | 128 |    |  |    | 129 |   |  |  | 129 |   |  |  | 129 |  |  |  | 129 | 
|                                                                  |  |      |     |      |  |    |     |    |  |       |     |    |  |    |     |   |  |  |     |   |  |  |     |  |  |  |     | 
|Number of partly-owned clubs included at the end of the period(c) |  |      | 2   |      |  |    | 2   |    |  |       | 2   |    |  |    | 2   |   |  |  | 2   |   |  |  | 2   |  |  |  | 2   | 



---

|(a) |  | A Greenfield club is a new location constructed by us.                                                                                                                                                                                                      
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | As described in the September 11 2001 Events discussion, a single club
was closed from September 2001 through August 2002 due to its proximity to
the World Trade Center. This club is included in the total clubs at end of
period for all periods presented.
|   
|(c) |  | We include in the club count wholly and partly-owned clubs. In addition
to the above count, as of December 31, 2002 and June 30, 2003 we managed
two additional clubs, in which we did not have an equity stake.                                              

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##### Table of Contents



Results of Operations

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

|                                                                                 |                                                                                                |  |              |      |            |  |       |      |      |  |       |      |    |  |       |      |   
|-------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- |  | ------------ | ---- | ---------- |  | ----- | ---- | ---- |  | ----- | ---- | -- |  | ----- | ---- | --
|                                                                                 |                                                                                                |  | Three Months |      | Six Months
|                                                                                 |                                                                                                |  | Ended        |      | Ended     
|                                                                                 |                                                                                                |  | June 30,     |      | June 30,  
|                                                                                 |                                                                                                |  |              |      |           
|                                                                                 |                                                                                                |  | 2002         |      | 2003       |  | 2002  |      | 2003
|                                                                                 |                                                                                                |  |              |      |            |  |       |      |     
|Revenue                                                                          |                                                                                                |  | 100.0        | %    |            |  | 100.0 | %    |      |  | 100.0 | %    |    |  | 100.0 | %   
|                                                                                 |                                                                                                |  |              |      |            |  |       |      |      |  |       |      |    |  |       |     
|Operating expenses:                                                              |                                                                                                |  |              |      |            |  |       |      |      |  |       |      |    |  |       |     
|                                                                                 | Payroll and related                                                                            |  |              | 41.2 |            |  |       | 38.6 |      |  |       | 40.8 |    |  |       | 38.1 |   
|                                                                                 | Club operating                                                                                 |  |              | 29.8 |            |  |       | 31.0 |      |  |       | 30.6 |    |  |       | 30.8 |   
|                                                                                 | General and administrative                                                                     |  |              | 6.1  |            |  |       | 6.1  |      |  |       | 6.3  |    |  |       | 5.9  |   
|                                                                                 | Depreciation and amortization                                                                  |  |              | 9.8  |            |  |       | 9.8  |      |  |       | 10.1 |    |  |       | 9.7  |   
|                                                                                 |                                                                                                |  |              |      |            |  |       |      |      |  |       |      |    |  |       |     
|                                                                                 | Operating income                                                                               |  |              | 13.1 |            |  |       | 14.5 |      |  |       | 12.2 |    |  |       | 15.5 |   
|Loss on extinguishment of debt                                                   |                                                                                                |  |             |      |            |  | 9.0   |      |      |  |      |      |    |  | 4.5   |     
|Interest expense                                                                 |                                                                                                |  | 5.2          |      |            |  | 7.1   |      |      |  | 5.3   |      |    |  | 6.0   |     
|Interest income                                                                  |                                                                                                |  |             |      |            |  | (0.2  | )    |      |  |      |      |    |  | (0.1  | )   
|                                                                                 |                                                                                                |  |              |      |            |  |       |      |      |  |       |      |    |  |       |     
|                                                                                 | Income (loss) from continuing operations before provision (benefit)
for corporate income taxes |  |              | 7.9  |            |  |       | (1.4 | )    |  |       | 6.9  |    |  |       | 5.1  |   
|Provision (benefit) for corporate income taxes                                   |                                                                                                |  | 3.5          |      |            |  | (0.1  | )    |      |  | 3.2   |      |    |  | 2.3   |     
|                                                                                 |                                                                                                |  |              |      |            |  |       |      |      |  |       |      |    |  |       |     
|                                                                                 | Income (loss) from continuing operations                                                       |  |              | 4.4  |            |  |       | (1.3 | )    |  |       | 3.7  |    |  |       | 2.8  |   
|Loss on discontinued operations, net of income tax benefit                       |                                                                                                |  |             |      |            |  |      |      |      |  |      |      |    |  |      |     
|Cumulative effect of a change in accounting
principle, net of income tax benefit |                                                                                                |  | (0.1         | )    |            |  |      |      |      |  | 0.4   |      |    |  |      |     
|                                                                                 |                                                                                                |  |              |      |            |  |       |      |      |  |       |      |    |  |       |     
|                                                                                 | Net income (loss)                                                                              |  |              | 4.3  |            |  |       | (1.3 | )    |  |       | 3.3  |    |  |       | 2.8  |   
|Accreted dividend on preferred stock                                             |                                                                                                |  | (3.5         | )    |            |  | (5.1  | )    |      |  | (3.5  | )    |    |  | (4.5  | )   
|                                                                                 |                                                                                                |  |              |      |            |  |       |      |      |  |       |      |    |  |       |     
|                                                                                 | Net income (loss) attributable to common stockholders                                          |  |              | 0.8  | %          |  |       | (6.4 | )%   |  |       | (0.2 | )% |  |       | (1.7 | )%
|                                                                                 |                                                                                                |  |              |      |            |  |       |      |      |  |       |      |    |  |       |     

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30,
2002

Revenues.Revenues increased approximately $6.1 million, or 7.6%, to
$86.1 million during the quarter ended June 30, 2003 from $80.0 million in the
quarter ended June 30, 2002. This increase resulted from the nine clubs opened
or acquired during the last two quarters of 2001 (approximately $1.5 million),
twelve opened or acquired during 2002 (approximately $4.6 million). Revenues
decreased during the quarter by approximately $146,000 or 0.2% at the Companys
mature clubs (clubs owned and operated for at least 24 months).

Operating Expenses.Operating expenses increased $4.1 million, or 5.8%,
to $73.6 million in the quarter ended June 30, 2003, from $69.5 million in the
quarter ended June 30, 2002. The increase was primarily due to a 3.3% 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 381 in the quarter ended June 30, 2003 from 369 in the quarter ended June
30, 2002, in addition to the following factors:

Payroll and related increased by $278,000, or 0.8% to $33.2 million in
the quarter ended June 30, 2003, from $32.9 million in the quarter ended June
30, 2002. This increase in payroll and related was principally attributable
to the acquisition or opening of twelve clubs in 2002 and was partially
offset by a decrease in non-cash compensation expense. Non-cash compensation
expense decreased $310,000 from the quarter ended June 30, 2002 when compared
to the quarter ended June 30, 2003. The non-cash compensation expense
incurred during the 2002 period principally related to outstanding Series B
stock options, and such stock options were exercised during the first quarter
of 2003.

Club operating increased by $2.8 million or 11.8% to $26.7 million in
the quarter ended June 30, 2003, from $23.9 million in the quarter ended June
30, 2002. This increase is primarily attributable to the acquisition or
opening of twelve clubs in 2002.

General and administrative increased by $357,000, or 7.3% to $5.2
million in the quarter ended June 30, 2003. This is principally due to
increased information technology and related costs.

Depreciation and amortization increased by $577,000, or 7.3% to $8.5
million in the quarter ended June 30, 2003, from $7.9 million in the quarter
ended June 30, 2002. This increase is principally due to a full period of
depreciation and amortization for fixed asset additions, acquisitions or club
openings since the quarter ended June 30, 2002.

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##### Table of Contents



Loss on extinguishment of debt.The $7.7 million loss on extinguishment
of debt is a result of the refinancing of our debt on April 16, 2003. In
connection with this refinancing, we wrote-off $3.7 million of deferred
financing costs related to extinguished debt, paid a $3.0 million call premium,
and incurred $1.0 million of additional interest on the 9 3/4% Notes
representing interest incurred during the 30 day redemption notification
period.

Interest Expense.Interest expense increased $2.0 million to $6.2 million
during the quarter ended June 30, 2003, from $4.2 million in the quarter ended
June 30, 2002. Interest increased $2.5 million due to the increase in Senior
Notes outstanding from $125.0 million to $255.0 million. This increase was
offset by a $445,000 decrease in interest on credit line and subordinated
credit borrowings, which were repaid in connection with the refinancing.

Interest Income.Interest income increased $157,000 to $195,000 during
the quarter ended June 30, 2003 from $38,000 in the quarter ended June 30,
2002. This increase is due to an increase in cash and cash equivalents on hand.
Cash and cash equivalents on hand increased from $5.6 million in June 2002 to
$49.6 million in June 2003 as a result of the refinancing transactions.

Provision (benefit) for Income Tax.We recorded an income tax benefit of
$84,000 in the quarter ended June 30, 2003 compared to a provision for income
taxes of $2.8 million recorded in the quarter ended June 30, 2002. Our income
tax benefit for the quarter ended June 30, 2003 was reduced by New York State
and City income tax charges that were recorded in connection with newly passed
legislation.

Loss on Discontinued Operations.In the fourth quarter of 2002, we closed
two remote underperforming, wholly-owned clubs. We have accounted for these two
clubs as discontinued operations and, accordingly, the results of their
operations have been classified as discontinued in the consolidated statement
of operations and prior periods have been reclassified in accordance with the
Financial Accounting Standards Board issued Statement No. 144, Accounting for
the Impairment or Disposal of Long-lived Assets. The net loss related to these
two clubs was $50,000 for the quarter ended June 30, 2002. Revenues and pre-tax
losses for these discontinued clubs were $448,000 and $86,000 respectively in
the second quarter ended June 30, 2002.

Accreted Dividends on Preferred Stock.Accreted dividends on preferred
stock increased $1.6 million to $4.4 million during the quarter ended June 30,
2003, from $2.8 million in the quarter ended June 30, 2002. This increase is
principally due to the acceleration of the accretion to liquidation value of
the redeemable senior preferred stock in connection with its redemption as part
of the April 16, 2003 refinancing transactions.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Revenues.Revenues increased approximately $16.1 million, or 10.2%, to
$173.0 million for the six months ended June 30, 2003 from $156.9 for the six
months ended June 30, 2002. This increase resulted from the nine clubs opened
or acquired during the last two quarters of 2001 (approximately $3.4 million),
twelve opened or acquired during 2002 (approximately $9.8 million). In
addition, revenues increased during the quarter by approximately $1.4 million
or 1.0% at the Companys mature clubs (clubs owned and operated for at least 24
months). Fees and other revenue increased $1.3 million principally due to an
on-account business interruption insurance payment received in January 2003.

Operating Expenses.Operating expenses increased $8.8 million, or 6.4%,
to $146.3 million for the six months ended June 30, 2003, from $137.5 million
for the six months ended June 30, 2002. The increase was primarily due to a
4.7% 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 762 for the six months ended June 30, 2003 from 728 for the six
months ended June 30, 2002, in addition to the following factors:

Payroll and related increased by $2.0 million, or 3.1% to $66.0 million
for the six months ended June 30, 2003, from $64.0 million for the six months
ended June 30, 2002. This increase was principally attributable to the
acquisition or opening of twelve clubs in 2002, and was partially offset by a
decrease in non-cash compensation expense. Non-cash compensation expense
decreased $404,000 from the six months ended June 30, 2002 when compared to
the six months ended June 30, 2003. The non-cash compensation expense
incurred during the 2002 period principally related to outstanding Series B
stock options, and such options were exercised during the first quarter of
2003.

Club operating increased by $5.3 million or 11.1% to $53.3 million for
the six months ended June 30, 2003, from $48.0 million for the six months
ended June 30, 2002. This increase is primarily attributable to the
acquisition or opening of twelve clubs in 2002.

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General and administrative increased by $436,000, or 4.4% to $10.2
million for the six months ended June 30, 2003 from $9.8 million for the six
months ended June 30, 2002. This is principally due to increased information
technology and related costs.

Depreciation and amortization increased by $1.0 million, or 6.5% to
$16.8 million for the six months ended June 30, 2003, from $15.7 million for
the six months ended June 30, 2002. This increase is principally due to a
full period of depreciation and amortization for fixed asset additions,
acquisitions or club openings since for the six months ended June 30, 2002.

Loss on extinguishment of debt.The $7.7 million loss on extinguishment
of debt is a result of the refinancing of our debt on April 16, 2003. In
connection with this refinancing, we wrote-off $3.7 million of deferred
financing costs related to extinguished debt, paid a $3.0 million call premium,
and incurred $1.0 million of additional interest on the 9 3/4% Notes
representing interest incurred during the 30 day redemption notification
period.

Interest Expense.Interest expense increased $2.1 million to $10.4
million for the six months ended June 30, 2003, from $8.3 million for the six
months ended June 30, 2002. Interest increased $2.5 million due to the increase
in Senior Notes outstanding from $125.0 million to $255.0 million. This
increase was offset by a $458,000 decrease in interest on credit line and
subordinated credit borrowings, which were repaid in connection with the
refinancing.

Interest Income.Interest income increased $141,000 to $218,000 for the
six months ended June 30, 2003 from $77,000 for the six months ended June 30,
2002. This increase is due to an increase in cash and cash equivalents on hand
during the second quarter 2003 when compared to 2002.

Provision for Income Tax.The income tax provision for the six months
ended June 30, 2003 was $4.0 million compared to $5.2 million for the six
months ended June 30, 2002. The effective tax rate for the six months ended
June 30, 2003 is consistent with the tax rate for the six months ended June 30,
2002.

Loss on Discontinued Operations.In the fourth quarter of 2002, we closed
two remote underperforming, wholly-owned clubs. We have accounted for these two
clubs as discontinued operations and, accordingly, the results of their
operations have been classified as discontinued in the consolidated statement
of operations and prior periods have been reclassified in accordance with the
Financial Accounting Standards Board issued Statement No. 144, Accounting for
the Impairment or Disposal of Long-lived Assets. The net loss related to these
two clubs was $116,000 for the six months ended June 30, 2002. Revenues and
pre-tax losses for these discontinued clubs were $881,000 and $200,000
respectively for the six months ended June 30, 2002.

Cumulative Effect of Change in Accounting Principle.In connection with
the January 2002 implementation of SFAS 142 we recorded a goodwill write-off of
$1.3 million. A deferred tax benefit of $612,000 was recorded in connection
with this goodwill write-off resulting in a net cumulative effect of change in
Accounting Principle of $689,000 during the six months ended June 30, 2002.

Accreted Dividends on Preferred Stock.Accreted dividends on preferred
stock increased $2.0 million to $7.6 million during the six months ended June
30, 2003, from $5.6 million in the six months ended June 30, 2002. This
increase is principally due to the acceleration of the accretion to liquidation
value of the redeemable senior preferred stock in connection with its
redemption as part of the April 16, 2003 refinancing transactions.

Liquidity and Capital Resources

Historically, we have satisfied our 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
six months June 30, 2003 was $39.8 million compared to $28.4 million for the
six months ended June 30, 2002. Cash flows from operations have improved with
our increase in operating income, and in addition, because of the favorable
impact of managements exercise of stock options in February 2003, which
provided us with a current tax deduction of approximately $8.6 million.

Investing Activities.We invested $18.5 million in capital expenditures
during the six months ended June 30, 2003. We currently estimate total capital
expenditure and asset acquisition requirements for the remaining two quarters
of 2003 to approximate $31.5 million, which includes $10.6 million to renovate
and expand certain existing clubs, $5.3 million to equip and maintain certain
existing clubs, $14.8 million to construct new clubs and $750,000 to further
upgrade our management information systems.

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##### Table of Contents



Financing Activities.On April 16, 2003 we successfully completed a
refinancing of our debt. This refinancing included an offering of $255.0
million of 9 5/8% Senior Notes (Notes) that will mature April 15, 2011, and
the entering into of a new $50.0 million senior secured revolving credit
facility (the Senior Credit Facility) that will expire April 15, 2008. The
Notes accrue interest at 9 5/8% per annum and interest is payable semiannually
on April 15, and October 15. In connection with this refinancing, we wrote-off
$3.7 million of deferred financing costs related to extinguished debt, paid a
call premium of $3.0 million and incurred $1.0 million of interest on the 9
3/4% Notes representing the interest incurred during the 30 day redemption
notification period. The use of proceeds from the Note offering is as follows:

|                                                                   |  |          |         | 
|------------------------------------------------------------------ |  | -------- | ------- | 
|                                                                   |  | ($000's)
|Redemption of existing 9 3/4% Senior Notes, principal and interest |  | $        | 126,049 | 
|Call premium on existing 9 3/4% Senior Notes                       |  |          | 3,048   | 
|Redemption of senior preferred stock, at liquidation value         |  |          | 66,977  | 
|Repayment of line of credit principal borrowings and interest      |  |          | 4,013   | 
|Repayment of subordinated credit principal borrowings and interest |  |          | 9,060   | 
|Underwriting fees and other closing costs                          |  |          | 9,264   | 
|Available for general corporate purposes                           |  |          | 36,589  | 
|                                                                   |  |          |         | 
|Total use of funds                                                 |  | $        | 255,000 | 
|                                                                   |  |          |         | 

In January 2003, an executive officer of the Company exercised 9,530
Series B preferred stock, and in turn these newly issues shares were
repurchased by the Company for $540,000 and were retired. In addition, the same
officer sold 548 previously held shares of Series B preferred stock back to the
Company for $43,000, which were also retired. On February 24, 2003, several
executives of the Company exercised and converted 148,775 Series B preferred
stock options into 106,267 shares of Series B preferred stock. The difference
between the 148,775 options exercised and the 106,267 shares issued is due to
the surrender of these shares to the Company to cover the purchase price of the
stock. The remitted shares were subsequently retired by the Company. The
executives sold all of Series B preferred stock issued in connection with these
February exercises to an affiliate of Rosewood Capital L.P., a stockholder to
the Company.

Management believes that the Company has sufficient funds to finance the
Companys current operating and growth plans through the end of 2004.

We currently have a substantial amount of debt. As of June 30, 2003, our
total consolidated debt is $264.5 million. Our substantial debt could have
important consequences, including:



| |  |  | Making it more difficult to satisfy our obligations;                                                                                                                                                                                                                   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Increasing our vulnerability to general adverse economic and industry conditions;                                                                                                                                                                                      
|
| |  |  | Limiting our ability to obtain additional financing to fund future
working capital, capital expenditures, acquisitions of new clubs and
other general corporate requirements;                                                                                          
|
| |  |  | Requiring a substantial portion of our cash flow from operations for
the payment of interest on our debt and reducing our ability to use our
cash flow to fund working capital, capital expenditures, acquisitions of
new clubs and general corporate requirements; and
|
| |  |  | Limiting our flexibility in planning for, or reacting to, changes in
our business and the industry in which we operate.                                                                                                                                                

These limitations and consequences may place us at a competitive
disadvantage to other less-leveraged competitors.

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##### Table of Contents



Contractual and Commercial Commitments Summary.The aggregate long-term
debt, capital lease and operating lease obligations as of June 30, 2003 are as
follows:

|                                   |  |                        |         |        |  |           |        |           |  |         |         |  |  |   |        |       |  |   |         | 
|---------------------------------- |  | ---------------------- | ------- | ------ |  | --------- | ------ | --------- |  | ------- | ------- |  |  | - | ------ | ----- |  | - | ------- | 
|                                   |  | Payments Due by Period
|                                   |  |                       
|                                   |  |                        |         |        |  | Less than |        |           |  |         |         |  |  |   |        | After
|                                   |  | Total                  |         | 1 year |  | 1-3 years |        | 4-5 years |  | 5 years
|Contractual Obligations            |  |                        |         |        |  |           |        |           |  |        
|Long-term debt (1)                 |  | $                      | 260,323 |        |  | $         | 1,487  |           |  | $       | 1,825   |  |  | $ | 1,058  |       |  | $ | 255,953 | 
|Capital lease obligations (2)      |  |                        | 4,198   |        |  |           | 3,120  |           |  |         | 1,078   |  |  |   |       |       |  |   |        | 
|Operating lease obligations (3)    |  |                        | 611,971 |        |  |           | 48,492 |           |  |         | 99,362  |  |  |   | 95,057 |       |  |   | 369,060 | 
|Redeemable preferred stock (4)     |  |                        | 37,280  |        |  |           |       |           |  |         | 37,280  |  |  |   |       |       |  |   |        | 
|                                   |  |                        |         |        |  |           |        |           |  |         |         |  |  |   |        |       |  |   |         | 
|Total contractual cash obligations |  | $                      | 913,772 |        |  | $         | 53,099 |           |  | $       | 139,545 |  |  | $ | 96,115 |       |  | $ | 625,013 | 
|                                   |  |                        |         |        |  |           |        |           |  |         |         |  |  |   |        |       |  |   |         | 

(1)  The long-term debt contractual cash obligations include principal
payment requirements only. Interest on our 9 5/8% Senior Notes amounts to
$24.5 million annually.

(2)  Capital lease obligations represent principal and interest payments.

(3)  Operating lease obligations include base rent only. Certain leases
provide for additional rent based on increases in real estate tax indexation,
utilities, and defined amounts based on the operating results of the lessee.

(4)  The redeemable preferred stock is not redeemable on a specific date,
but rather at our option or possibly upon sale of the company. For purposes of
this schedule we consider this to be redeemable in one to three years.

Forward-Looking Statements

Certain statements in this report on Form 10-Q of the Company for the
three and six month period ended June 30, 2003 are forward-looking statements,
including, without limitation, statements regarding future financial results
and performance, capital expenditures, 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 maintain current
operating margins 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 judgment
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.




Item 3.Quantitative and Qualitative Disclosures About Market Risk

Not applicable.




Item 4.Controls and Procedures

(a)  As required by Rule 13a  15(b), the Company carried out an evaluation
as of the end of the period covered by this report, under the supervision and
with the participation of the Companys management, including the Chairman,
Chief Executive Officer along with the Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures pursuant to Exchange Act Rule 13a-15(d). Based upon that
evaluation, the Companys disclosure controls and procedures were effective as
of the end of the period covered by this report, in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Companys periodic SEC filings.
The Company continuously considers opportunities to enhance controls and
procedures. In the second quarter of 2003 the Company began the rollout of a
new point of sale club management system. This system provides for operating
efficiencies at the club level and enhances the Companys ability to bill
members electronically as well as monitor club usage and revenue at the member
level. The Company expects this rollout to be complete in the fourth quarter of
2003.



| | (b) |  | There have been no significant changes in the Companys internal
control over financial reporting identified in connection with the
evaluation described in paragraph (a) above that have materially
affected or are reasonably likely to materially affects the Companys
internal control over financial reporting.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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PART II. OTHER INFORMATION




Item 1.Legal Proceedings.

On February 13, 2003, an individual filed suit against the Company in the
Supreme Court, New York County, alleging that on January 14, 2003, he sustained
an injury at one of our club locations resulting in serious bodily injury. His
complaint seeks $250.0 million in damages for personal injuries, in addition to
$250.0 million of punitive damages. The Company has in force $51.0 million of
insurance coverage to cover claims of this nature. The Company intends to
vigorously contest this lawsuit and presently anticipates that these matters
will be covered by insurance.

In addition, the Company is party to various lawsuits arising in the
normal course of business. Management believes that the ultimate outcome of
these matters will not have a material effect on the Companys consolidated
financial position, results of operations or cash flows.




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



| |  |  | Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002                                               
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002                                               
|
| |  |  | Exhibit 31.3 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002                                               
|
| |  |  | Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
| |  |  | Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)  Reports on Form 8-K



| |     
| | ----
| | None

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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: August 5, 2003 |  | By:            /s/ RICHARD PYLE                                                                        
|                     |  |                                                                                                        
|                     |  | Richard Pyle
Chief Financial Officer, Office of the President
(principal financial, accounting officer)
|                     |  |                                                                                                        
|DATE: August 5, 2003 |  | By:            /s/ ROBERT GIARDINA                                                                     
|                     |  |                                                                                                        
|                     |  | Robert Giardina
Chief Executive Officer
(principal executive officer)                                  

24