##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-Q


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the period ended September 30, 2005                                                     
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-13997


BALLY TOTAL FITNESS HOLDING CORPORATION


(Exact name of registrant as specified in its charter)


|                                                                                          |  |                                         
|----------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                  |  | 36-3228107                              
|(State or other jurisdiction of
    incorporation)                                        |  | (I.R.S. Employer
    Identification No.)
|                                                                                         
|8700 West Bryn Mawr Avenue,
    Chicago, Illinois(Address of principal executive offices) |  | 60631(Zip Code)                         

Registrants telephone number, including area code:


(773) 380-3000


SEE TABLE OF ADDITIONAL REGISTRANTS


o þ


þ o


o þ


o þ












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##### Table of Contents



TABLE OF ADDITIONAL REGISTRANTS


|                                                |  |                 |  |                       |            | 
|----------------------------------------------- |  | --------------- |  | --------------------- | ---------- | 
|                                                |  | Jurisdiction of |  | I.R.S. Employer       |           
|Exact Name of Additional Registrants            |  | Incorporation   |  | Identification Number |           
|                                                |  |                 |  |                       |           
|59thStreet
    Gym LLC                          |  | New York        |  |                       | 36-4474644 | 
|708 Gym LLC                                     |  | New York        |  |                       | 36-4474644 | 
|Ace, LLC                                        |  | New York        |  |                       | 36-4474644 | 
|Bally Fitness Franchising, Inc.                 |  | Illinois        |  |                       | 36-4029332 | 
|Bally Franchise RSC, Inc.                       |  | Illinois        |  |                       | 36-4028744 | 
|Bally Franchising Holdings, Inc.                |  | Illinois        |  |                       | 36-4024133 | 
|Bally Sports Clubs, Inc.                        |  | New York        |  |                       | 36-3407784 | 
|Bally Total Fitness Corporation                 |  | Delaware        |  |                       | 36-2762953 | 
|Bally Total Fitness International, Inc.         |  | Michigan        |  |                       | 36-1692238 | 
|Bally Total Fitness of California, Inc.         |  | California      |  |                       | 36-2763344 | 
|Bally Total Fitness of Colorado, Inc.           |  | Colorado        |  |                       | 84-0856432 | 
|Bally Total Fitness of Connecticut Coast, Inc.  |  | Connecticut     |  |                       | 36-3209546 | 
|Bally Total Fitness of Connecticut Valley, Inc. |  | Connecticut     |  |                       | 36-3209543 | 
|Bally Total Fitness of Greater New York, Inc.   |  | New York        |  |                       | 95-3445399 | 
|Bally Total Fitness of the Mid-Atlantic, Inc.   |  | Delaware        |  |                       | 52-0820531 | 
|Bally Total Fitness of the Midwest, Inc.        |  | Ohio            |  |                       | 34-1114683 | 
|Bally Total Fitness of Minnesota, Inc.          |  | Ohio            |  |                       | 84-1035840 | 
|Bally Total Fitness of Missouri, Inc.           |  | Missouri        |  |                       | 36-2779045 | 
|Bally Total Fitness of Upstate New York, Inc.   |  | New York        |  |                       | 36-3209544 | 
|Bally Total Fitness of Philadelphia, Inc.       |  | Pennsylvania    |  |                       | 36-3209542 | 
|Bally Total Fitness of Rhode Island, Inc.       |  | Rhode Island    |  |                       | 36-3209549 | 
|Bally Total Fitness of the Southeast, Inc.      |  | South Carolina  |  |                       | 52-1230906 | 
|Bally Total Fitness of Toledo, Inc.             |  | Ohio            |  |                       | 38-1803897 | 
|Ballys Fitness and Racquet Clubs, Inc.         |  | Florida         |  |                       | 36-3496461 | 
|BFIT Rehab of West Palm Beach, Inc.             |  | Florida         |  |                       | 36-4154170 | 
|Crunch Fitness International, Inc.              |  | Delaware        |  |                       | 36-4474644 | 
|Crunch LA LLC                                   |  | New York        |  |                       | 36-4474644 | 
|Crunch World LLC                                |  | New York        |  |                       | 36-4474644 | 
|Flambe LLC                                      |  | New York        |  |                       | 36-4474644 | 
|Greater Philly No. 1 Holding Company            |  | Pennsylvania    |  |                       | 36-3209566 | 
|Greater Philly No. 2 Holding Company            |  | Pennsylvania    |  |                       | 36-3209557 | 
|Health & Tennis Corporation of New York         |  | Delaware        |  |                       | 36-3628768 | 
|Holiday Health Clubs of the East Coast, Inc.    |  | Delaware        |  |                       | 52-1271028 | 
|Holiday/ Southeast Holding Corp.                |  | Delaware        |  |                       | 52-1289694 | 
|Jack La Lanne Holding Corp.                     |  | New York        |  |                       | 95-3445400 | 
|Mission Impossible, LLC                         |  | California      |  |                       | 36-4474644 | 
|New Fitness Holding Co., Inc.                   |  | New York        |  |                       | 36-3209555 | 
|Nycon Holding Co., Inc.                         |  | New York        |  |                       | 36-3209533 | 
|Rhode Island Holding Company                    |  | Rhode Island    |  |                       | 36-3261314 | 
|Soho Ho LLC                                     |  | New York        |  |                       | 36-4474644 | 
|Tidelands Holiday Health Clubs, Inc.            |  | Virginia        |  |                       | 52-1229398 | 
|U.S. Health, Inc.                               |  | Delaware        |  |                       | 52-1137373 | 
|West Village Gym at the Archives LLC            |  | New York        |  |                       | 36-4474644 | 

nd




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BALLY TOTAL FITNESS HOLDING CORPORATION


INDEX


|                                             |  |                                                                                                                                                    |    |        |    | 
|-------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ------ | -- | 
|                                             |  |                                                                                                                                                    |    | Page   |   
|                                             |  |                                                                                                                                                    |    | Number |   
|                                             |  |                                                                                                                                                    |    |        |   
|FORWARD-LOOKING STATEMENTS                   |  |                                                                                                                                                    |    |       
|PART I. FINANCIAL INFORMATION                |  |                                                                                                                                                    |    |       
|Item 1.                                      |  | Financial statements:                                                                                                                              |    |        |    | 
|                                             |  | Condensed consolidated balance sheets
    (unaudited) September 30, 2005 and December 31,
    2004                                                 |    |        | 1  | 
|                                             |  | Consolidated statements of operations
    (unaudited) Three months ended September 30, 2005 and
    2004                                           |    |        | 2  | 
|                                             |  | Consolidated statements of operations
    (unaudited) Nine months ended September 30, 2005 and
    2004                                            |    |        | 3  | 
|                                             |  | Consolidated statements of
    stockholders equity (deficit) and comprehensive income
    (loss) (unaudited) Nine months ended September 30, 2005 |    |        | 4  | 
|                                             |  | Consolidated statements of cash flows
    (unaudited) Nine months ended September 30, 2005 and
    2004                                            |    |        | 5  | 
|                                             |  | Notes to condensed consolidated financial
    statements (unaudited)                                                                               |    |        | 7  | 
|Item 2.                                      |  | Managements discussion and analysis
    of financial condition and results of operations                                                          |    |        | 24 | 
|Item 3.                                      |  | Quantitative and qualitative disclosures
    about market risk                                                                                     |    |        | 32 | 
|Item 4.                                      |  | Controls and Procedures                                                                                                                            |    |        | 33 | 
|                                            
|PART II. OTHER INFORMATION                   |  |                                                                                                                                                    |    |       
|Item 1.                                      |  | Legal Proceedings                                                                                                                                  |    |        | 34 | 
|Item 2.                                      |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                                                                                    |    |        | 34 | 
|Item 3.                                      |  | Defaults Upon Senior Securities                                                                                                                    |    |        | 35 | 
|Item 4.                                      |  | Submission of Matters to a Vote of Security
    Holders                                                                                            |    |        | 35 | 
|Item 5.                                      |  | Other information                                                                                                                                  |    |        | 35 | 
|Item 6.                                      |  | Exhibits                                                                                                                                           |    |        | 36 | 
|SIGNATURE PAGE                               |  |                                                                                                                                                    | 38 |       
|Certification of the Chief Executive Officer
|Certification of the Chief Financial Officer
|Certification of the CEO and CFO            





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##### Table of Contents



FORWARD-LOOKING STATEMENTS






| |   |                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the outcome of the SEC and Department of Justice investigations;                                                                                                         
|
| |  | the disclosure by the Companys management and independent
    auditors of the existence of material weaknesses in internal
    controls over financial reporting;       
|
| |  | general economic and business conditions;                                                                                                                                
|
| |  | competition;                                                                                                                                                             
|
| |  | success of operating initiatives, advertising and promotional
    efforts;                                                                                               
|
| |  | existence of adverse publicity or litigation (including various
    stockholder litigations) and the outcome thereof and the costs
    and expenses associated therewith;
|
| |  | acceptance of new product and service offerings;                                                                                                                         
|
| |  | changes in business strategy or plans;                                                                                                                                   
|
| |  | availability, terms and development of capital;                                                                                                                          
|
| |  | ability to satisfy long-term obligations as they become due;                                                                                                             
|
| |  | business abilities and judgment of personnel;                                                                                                                            
|
| |  | changes in, or the failure to comply with, government
    regulations;                                                                                                   
|
| |  | ability to remain in compliance with, or obtain waivers under,
    the Companys loan agreements and indentures;                                                         
|
| |  | ability to maintain existing or obtain new sources of financing,
    on acceptable terms or at all, to satisfy the Companys
    cash needs and obligations; and         
|
| |  | other factors described in this Quarterly Report on
    Form 10-Q and prior filings of the Company with the SEC.                                                         




PART I: FINANCIAL INFORMATION







|        |                     
|------- | --------------------
|Item 1. | Financial Statements







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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION





Condensed Consolidated Balance Sheets


(In thousands)


|                                                                                                    |                                      |                           |            |         |             |   |            |         |         | 
|--------------------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------- | ---------- | ------- | ----------- | - | ---------- | ------- | ------- | 
|                                                                                                    |                                      | September 30              |            |         | December 31 |  
|                                                                                                    |                                      | 2005                      |            |         | 2004        |  
|                                                                                                    |                                      |                           |            |         |             |  
|                                                                                                    |                                      | (Unaudited)               |            |         |            
|ASSETS                                                                                             
|Current assets:                                                                                     |                                      |                           |            |         |             |   |            |        
|                                                                                                    | Cash                                 |                           | $          | 12,763  |             |   | $          | 19,177  |        
|                                                                                                    | Deferred income taxes                |                           |            |        |             |   |            | 471     |        
|                                                                                                    | Other current assets                 |                           |            | 33,975  |             |   |            | 30,239  |        
|                                                                                                    |                                      |                           |            |         |             |  
|                                                                                                    |                                      | Total current assets      |            |         | 46,738      |   |            |         | 49,887  | 
|Property and equipment, less accumulated depreciation and
    amortization of $754,599 and $713,222 |                                      |                           | 335,217    |         |             |   | 361,863    |        
|Goodwill, net                                                                                       |                                      |                           | 41,732     |         |             |   | 41,698     |        
|Trademarks, net                                                                                     |                                      |                           | 9,537      |         |             |   | 9,933      |        
|Intangible assets, less accumulated amortization of $22,759 and
    $21,565                         |                                      |                           | 6,706      |         |             |   | 7,909      |        
|Other assets                                                                                        |                                      |                           | 46,165     |         |             |   | 28,279     |        
|                                                                                                    |                                      |                           |            |         |             |  
|                                                                                                    |                                      | $                         | 486,095    |         |             | $ | 499,569    |        
|                                                                                                    |                                      |                           |            |         |             |  
|                                                                                                   
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                     
|Current liabilities:                                                                                |                                      |                           |            |         |             |   |            |        
|                                                                                                    | Accounts payable                     |                           | $          | 47,425  |             |   | $          | 51,373  |        
|                                                                                                    | Income taxes payable                 |                           |            | 1,702   |             |   |            | 1,399   |        
|                                                                                                    | Deferred income taxes                |                           |            | 681     |             |   |            |        |        
|                                                                                                    | Accrued liabilities                  |                           |            | 97,351  |             |   |            | 111,226 |        
|                                                                                                    | Current maturities of long-term debt |                           |            | 15,707  |             |   |            | 22,127  |        
|                                                                                                    | Deferred revenues                    |                           |            | 325,403 |             |   |            | 323,271 |        
|                                                                                                    |                                      |                           |            |         |             |  
|                                                                                                    |                                      | Total current liabilities |            |         | 488,269     |   |            |         | 509,396 | 
|Long-term debt, less current maturities                                                             |                                      |                           | 743,816    |         |             |   | 737,432    |        
|Deferred rent liability                                                                             |                                      |                           | 102,874    |         |             |   | 101,911    |        
|Deferred income taxes                                                                               |                                      |                           | 800        |         |             |   | 1,637      |        
|Other liabilities                                                                                   |                                      |                           | 29,940     |         |             |   | 21,580     |        
|Deferred revenues                                                                                   |                                      |                           | 583,786    |         |             |   | 601,889    |        
|                                                                                                    |                                      |                           |            |         |             |  
|Total liabilities                                                                                   |                                      |                           | 1,949,485  |         |             |   | 1,973,845  |        
|                                                                                                    |                                      |                           |            |         |             |  
|Stockholders equity (deficit)                                                                      |                                      |                           | (1,463,390 | )       |             |   | (1,474,276 | )      
|                                                                                                    |                                      |                           |            |         |             |  
|                                                                                                    |                                      | $                         | 486,095    |         |             | $ | 499,569    |        
|                                                                                                    |                                      |                           |            |         |             |  



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BALLY TOTAL FITNESS HOLDING CORPORATION





Consolidated Statements of Operations


(In thousands, except per share data)


(Unaudited)


|                                       |                               |                    |         |         |      |   |         |         | 
|-------------------------------------- | ----------------------------- | ------------------ | ------- | ------- | ---- | - | ------- | ------- | 
|                                       |                               | Three Months Ended |        
|                                       |                               | September 30       |        
|                                       |                               |                    |        
|                                       |                               | 2005               |         |         | 2004 |  
|                                       |                               |                    |         |         |      |  
|Net revenues:                          |                               |                    |         |         |      |   |         |        
|                                       | Membership services           |                    | $       | 245,375 |      |   | $       | 247,048 | 
|                                       | Retail products               |                    |         | 12,366  |      |   |         | 12,594  | 
|                                       | Miscellaneous                 |                    |         | 4,012   |      |   |         | 5,140   | 
|                                       |                               |                    |         |         |      |  
|                                       |                               |                    | 261,753 |         |      |   | 264,782 |        
|Operating costs and expenses:          |                               |                    |         |         |      |   |         |        
|                                       | Membership services           |                    |         | 177,553 |      |   |         | 180,307 | 
|                                       | Retail products               |                    |         | 13,133  |      |   |         | 12,168  | 
|                                       | Advertising                   |                    |         | 13,241  |      |   |         | 13,597  | 
|                                       | General and administrative    |                    |         | 22,579  |      |   |         | 18,024  | 
|                                       | Depreciation and amortization |                    |         | 16,488  |      |   |         | 17,713  | 
|                                       |                               |                    |         |         |      |  
|                                       |                               |                    | 242,994 |         |      |   | 241,809 |        
|                                       |                               |                    |         |         |      |  
|Operating income                       |                               |                    | 18,759  |         |      |   | 22,973  |        
|Interest expense                       |                               |                    | (21,421 | )       |      |   | (16,730 | )      
|Foreign exchange gain                  |                               |                    | 1,141   |         |      |   | 879     |        
|Other, net                             |                               |                    | 133     |         |      |   | (62     | )      
|                                       |                               |                    |         |         |      |  
|                                       |                               |                    | (20,147 | )       |      |   | (15,913 | )      
|                                       |                               |                    |         |         |      |  
|Income (loss) before income taxes      |                               |                    | (1,388  | )       |      |   | 7,060   |        
|Income tax provision                   |                               |                    | (259    | )       |      |   | (213    | )      
|                                       |                               |                    |         |         |      |  
|Net income (loss)                      |                               | $                  | (1,647  | )       |      | $ | 6,847   |        
|                                       |                               |                    |         |         |      |  
|Basic income (loss) per common share   |                               | $                  | (0.05   | )       |      | $ | 0.21    |        
|                                       |                               |                    |         |         |      |  
|Diluted income (loss) per common share |                               | $                  | (0.05   | )       |      | $ | 0.21    |        
|                                       |                               |                    |         |         |      |  



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BALLY TOTAL FITNESS HOLDING CORPORATION





Consolidated Statements of Operations


(In thousands, except per share data)


(Unaudited)


|                                       |                               |                   |         |         |      |   |         |         | 
|-------------------------------------- | ----------------------------- | ----------------- | ------- | ------- | ---- | - | ------- | ------- | 
|                                       |                               | Nine Months Ended |        
|                                       |                               | September 30      |        
|                                       |                               |                   |        
|                                       |                               | 2005              |         |         | 2004 |  
|                                       |                               |                   |         |         |      |  
|Net revenues:                          |                               |                   |         |         |      |   |         |        
|                                       | Membership services           |                   | $       | 754,574 |      |   | $       | 732,533 | 
|                                       | Retail products               |                   |         | 40,251  |      |   |         | 42,048  | 
|                                       | Miscellaneous                 |                   |         | 12,664  |      |   |         | 14,720  | 
|                                       |                               |                   |         |         |      |  
|                                       |                               |                   | 807,489 |         |      |   | 789,301 |        
|Operating costs and expenses:          |                               |                   |         |         |      |   |         |        
|                                       | Membership services           |                   |         | 546,195 |      |   |         | 561,057 | 
|                                       | Retail products               |                   |         | 40,561  |      |   |         | 40,399  | 
|                                       | Advertising                   |                   |         | 45,795  |      |   |         | 49,352  | 
|                                       | General and administrative    |                   |         | 62,844  |      |   |         | 49,857  | 
|                                       | Depreciation and amortization |                   |         | 50,397  |      |   |         | 52,232  | 
|                                       |                               |                   |         |         |      |  
|                                       |                               |                   | 745,792 |         |      |   | 752,897 |        
|                                       |                               |                   |         |         |      |  
|Operating income                       |                               |                   | 61,697  |         |      |   | 36,404  |        
|Interest expense                       |                               |                   | (60,588 | )       |      |   | (49,266 | )      
|Foreign exchange gain                  |                               |                   | 1,187   |         |      |   | 473     |        
|Other, net                             |                               |                   | 272     |         |      |   | (232    | )      
|                                       |                               |                   |         |         |      |  
|                                       |                               |                   | (59,129 | )       |      |   | (49,025 | )      
|                                       |                               |                   |         |         |      |  
|Income (loss) before income taxes      |                               |                   | 2,568   |         |      |   | (12,621 | )      
|Income tax provision                   |                               |                   | (776    | )       |      |   | (638    | )      
|                                       |                               |                   |         |         |      |  
|Net income (loss)                      |                               | $                 | 1,792   |         |      | $ | (13,259 | )      
|                                       |                               |                   |         |         |      |  
|Basic income (loss) per common share   |                               | $                 | 0.05    |         |      | $ | (0.40   | )      
|                                       |                               |                   |         |         |      |  
|Diluted income (loss) per common share |                               | $                 | 0.05    |         |      | $ | (0.40   | )      
|                                       |                               |                   |         |         |      |  



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BALLY TOTAL FITNESS HOLDING CORPORATION


Consolidated Statement of Stockholders Equity (Deficit)
and Comprehensive Income (Loss)


(In thousands, except share data)


(Unaudited)


|                                                               |  |              |            |     |       |   |             |         |  |             |         |             |          |               |            |          |               |   |        |        |  |        |           |   |  |   |        |   |  |   |            |  
|-------------------------------------------------------------- |  | ------------ | ---------- | --- | ----- | - | ----------- | ------- |  | ----------- | ------- | ----------- | -------- | ------------- | ---------- | -------- | ------------- | - | ------ | ------ |  | ------ | --------- | - |  | - | ------ | - |  | - | ---------- | -
|                                                               |  |              |            |     |       |   |             |         |  |             |         | Accumulated |          |               |           
|                                                               |  | Common Stock |            |     |       |   |             |         |  |             |         |             | Other    |               |            | Total    |              
|                                                               |  |              |            |     |       |   |             |         |  |             | Common  |             |          | Comprehensive |            |          | Stockholders |  
|                                                               |  |              |            | Par |       |   | Contributed |         |  | Accumulated |         |             | Unearned |               |            | Stock in |               |   | Income |        |  | Equity |          
|                                                               |  | Shares       |            |     | Value |   |             | Capital |  |             | Deficit |             |          | Compensation  |            |          | Treasury      |   |        | (Loss) |  |        | (Deficit) |  
|                                                               |  |              |            |     |       |   |             |         |  |             |         |             |          |               |            |          |               |   |        |        |  |        |           |  
|Balance at December 31, 2004                                   |  |              | 34,013,805 |     |       | $ | 347         |         |  | $           | 647,367 |             |          | $             | (2,106,391 | )        |               | $ | (1,567 | )      |  | $      | (11,635   | ) |  | $ | (2,397 | ) |  | $ | (1,474,276 | )
|Net income                                                     |  |              |            |     |       |   |             |         |  |             |         |             |          |               | 1,792      |          |               |   |        |        |  |        |           |   |  |   |        |   |  |   | 1,792      |  
|Cumulative translation adjustment                              |  |              |            |     |       |   |             |         |  |             |         |             |          |               |            |          |               |   |        |        |  |        |           |   |  |   | (631   | ) |  |   | (631       | )
|Restricted stock activity                                      |  |              | 580,000    |     |       |   | 6           |         |  |             | 3,384   |             |          |               |            |          |               |   | 1,567  |        |  |        |           |   |  |   |        |   |  |   | 4,957      |  
|Issuance of common stock under stock purchase and option plans |  |              | 28,328     |     |       |   |             |         |  |             | 93      |             |          |               |            |          |               |   |        |        |  |        |           |   |  |   |        |   |  |   | 93         |  
|Shares issued to senior note holders                           |  |              | 1,438,427  |     |       |   | 14          |         |  |             | 4,661   |             |          |               |            |          |               |   |        |        |  |        |          |   |  |   |        |   |  |   | 4,675      |  
|                                                               |  |              |            |     |       |   |             |         |  |             |         |             |          |               |            |          |               |   |        |        |  |        |           |  
|Balance at September 30, 2005                                  |  |              | 36,060,560 |     |       | $ | 367         |         |  | $           | 655,505 |             |          | $             | (2,104,599 | )        |               | $ |       |        |  | $      | (11,635   | ) |  | $ | (3,028 | ) |  | $ | (1,463,390 | )
|                                                               |  |              |            |     |       |   |             |         |  |             |         |             |          |               |            |          |               |   |        |        |  |        |           |  



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BALLY TOTAL FITNESS HOLDING CORPORATION


Consolidated Statements of Cash Flows


(In thousands)


(Unaudited)


|                                                |                                                                                  |                                                                                        |        |         |         |   |        |         |        |  
|----------------------------------------------- | -------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ------ | ------- | ------- | - | ------ | ------- | ------ | -
|                                                |                                                                                  | Nine Months Ended                                                                      |       
|                                                |                                                                                  | September 30                                                                           |       
|                                                |                                                                                  |                                                                                        |       
|                                                |                                                                                  | 2005                                                                                   |        |         | 2004    |  
|                                                |                                                                                  |                                                                                        |        |         |         |  
|CASH FLOWS FROM OPERATING ACTIVITIES:           |                                                                                  |                                                                                        |        |         |         |   |        |        
|                                                | Net income (loss)                                                                |                                                                                        | $      | 1,792   |         |   | $      | (13,259 | )     
|                                                | Adjustments to reconcile to cash provided by operating
    activities           |                                                                                        |        |         |         |   |        |         |       
|                                                |                                                                                  | Depreciation and amortization, including amortization included
    in interest expense |        |         | 54,543  |   |        |         | 54,691 |  
|                                                |                                                                                  | Change in operating assets and liabilities                                             |        |         | (38,050 | ) |        |         | (4,087 | )
|                                                |                                                                                  | Deferred income taxes, net                                                             |        |         | 315     |   |        |         | 315    |  
|                                                |                                                                                  | Loss on write-off of assets                                                            |        |         | 78      |   |        |         | 822    |  
|                                                |                                                                                  | Foreign currency translation gain                                                      |        |         | (1,187  | ) |        |         | (473   | )
|                                                |                                                                                  | Stock-based compensation                                                               |        |         | 4,957   |   |        |         | 1,008  |  
|                                                |                                                                                  |                                                                                        |        |         |         |  
|                                                | Cash provided by operating activities                                            |                                                                                        |        | 22,448  |         |   |        | 39,017  |       
|CASH FLOWS FROM INVESTING ACTIVITIES:           |                                                                                  |                                                                                        |        |         |         |   |        |        
|                                                | Purchases and construction of property and equipment                             |                                                                                        |        | (24,648 | )       |   |        | (38,561 | )     
|                                                | Proceeds from sale of land                                                       |                                                                                        |        | 1,455   |         |   |        |        |       
|                                                | Acquisitions of business, net of cash acquired                                   |                                                                                        |        |        |         |   |        | (117    | )     
|                                                |                                                                                  |                                                                                        |        |         |         |  
|                                                | Cash used in investing activities                                                |                                                                                        |        | (23,193 | )       |   |        | (38,678 | )     
|CASH FLOWS FROM FINANCING ACTIVITIES:           |                                                                                  |                                                                                        |        |         |         |   |        |        
|                                                | Net borrowings under revolving credit agreement                                  |                                                                                        |        | 18,688  |         |   |        | 34,000  |       
|                                                | Net repayments of other long-term debt                                           |                                                                                        |        | (13,867 | )       |   |        | (23,760 | )     
|                                                | Debt issuance and refinancing costs                                              |                                                                                        |        | (10,944 | )       |   |        | (251    | )     
|                                                | Proceeds from issuance of common stock under stock purchase and
    option plans |                                                                                        |        | 93      |         |   |        | 593     |       
|                                                |                                                                                  |                                                                                        |        |         |         |  
|                                                | Cash provided by (used in) financing activities                                  |                                                                                        |        | (6,030  | )       |   |        | 10,582  |       
|                                                |                                                                                  |                                                                                        |        |         |         |  
|Increase (decrease) in cash                     |                                                                                  |                                                                                        | (6,775 | )       |         |   | 10,921 |        
|Effect of exchange rate changes on cash balance |                                                                                  |                                                                                        | 361    |         |         |   | 629    |        
|Cash, beginning of period                       |                                                                                  |                                                                                        | 19,177 |         |         |   | 13,640 |        
|                                                |                                                                                  |                                                                                        |        |         |         |  
|Cash, end of period                             |                                                                                  | $                                                                                      | 12,763 |         |         | $ | 25,190 |        
|                                                |                                                                                  |                                                                                        |        |         |         |  



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BALLY TOTAL FITNESS HOLDING CORPORATION


Consolidated Statements of Cash
Flows  (continued)


(In thousands)


(Unaudited)


|                                                                                     |                                                                             |                   |         |         |      |   |        |        |  
|------------------------------------------------------------------------------------ | --------------------------------------------------------------------------- | ----------------- | ------- | ------- | ---- | - | ------ | ------ | -
|                                                                                     |                                                                             | Nine Months Ended |        
|                                                                                     |                                                                             | September 30      |        
|                                                                                     |                                                                             |                   |        
|                                                                                     |                                                                             | 2005              |         |         | 2004 |  
|                                                                                     |                                                                             |                   |         |         |      |  
|SUPPLEMENTAL CASH FLOWS INFORMATION:                                                 |                                                                             |                   |         |         |      |   |        |       
|Changes in operating assets and liabilities:                                         |                                                                             |                   |         |         |      |   |        |       
|                                                                                     | (Decrease) increase in other current and other assets                       |                   | $       | (8,424  | )    |   | $      | 17,303 |  
|                                                                                     | Decrease in accounts payable                                                |                   |         | (3,988  | )    |   |        | (6,082 | )
|                                                                                     | Increase in income taxes payable                                            |                   |         | 303     |      |   |        | 784    |  
|                                                                                     | Decrease in accrued and other liabilities                                   |                   |         | (9,970  | )    |   |        | (7,261 | )
|                                                                                     | Decrease in deferred revenues                                               |                   |         | (15,971 | )    |   |        | (8,831 | )
|                                                                                     |                                                                             |                   |         |         |      |  
|Change in operating assets and liabilities                                           |                                                                             | $                 | (38,050 | )       |      | $ | (4,087 | )     
|                                                                                     |                                                                             |                   |         |         |      |  
|Cash payments for interest and income taxes were as
    follows                     |                                                                             |                   |         |         |      |   |        |       
|                                                                                     | Interest paid                                                               |                   | $       | 53,773  |      |   | $      | 47,584 |  
|                                                                                     | Interest capitalized                                                        |                   |         | (198    | )    |   |        | (898   | )
|                                                                                     | Income taxes paid, net                                                      |                   |         | 158     |      |   |        | 911    |  
|Investing and financing activities exclude the following
    non-cash transactions  |                                                                             |                   |         |         |      |   |        |       
|                                                                                     | Acquisition of property and equipment through capital
    leases/borrowings |                   | $       | 390     |      |   | $      | 4,651  |  
|                                                                                     | Payments of consents with common stock                                      |                   |         | 4,675   |      |   |        |       |  



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BALLY TOTAL FITNESS HOLDING CORPORATION





Notes to Condensed Consolidated Financial Statements








|       |                      
|------ | ---------------------
|Note 1 | Basis of presentation









| |                 
| | ----------------
| | Seasonal factors





| |            
| | -----------
| | Market risk





Note 2     Debt




1 2 7 8


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BALLY TOTAL FITNESS HOLDING CORPORATION


Notes to Condensed Consolidated Financial
Statements  (continued)




















8



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BALLY TOTAL FITNESS HOLDING CORPORATION


Notes to Condensed Consolidated Financial
Statements  (continued)








|       |                 
|------ | ----------------
|Note 3 | Deferred Revenue

|                                                    |                                                         |                                              |         |         |           |   |            |            |  |   |               |          |   |   |         |         | 
|--------------------------------------------------- | ------------------------------------------------------- | -------------------------------------------- | ------- | ------- | --------- | - | ---------- | ---------- |  | - | ------------- | -------- | - | - | ------- | ------- | 
|                                                    |                                                         | For the nine months ended September 30, 2005 |        
|                                                    |                                                         |                                              |        
|                                                    |                                                         | Balance at                                   |         |         |           |   | Balance at |           
|                                                    |                                                         | December 31,                                 |         |         | Cash      |   |            | Revenue    |  |   | September 30, |         
|                                                    |                                                         | 2004                                         |         |         | Additions |   |            | Recognized |  |   | 2005          |         
|                                                    |                                                         |                                              |         |         |           |   |            |            |  |   |               |         
|Deferral of receipts from financed members:         |                                                         |                                              |         |         |           |   |            |            |  |   |               |          |   |   |         |        
|                                                    | Initial term payments                                   |                                              | $       | 542,886 |           |   | $          | 251,627    |  |   | $             | (259,209 | ) |   | $       | 535,304 | 
|                                                    | Down payments                                           |                                              |         | 105,482 |           |   |            | 41,138     |  |   |               | (42,660  | ) |   |         | 103,960 | 
|Deferral of receipts representing advance payments: |                                                         |                                              |         |         |           |   |            |            |  |   |               |          |   |   |         |        
|                                                    | Paid-in-full membership fees collected upon origination |                                              |         | 124,884 |           |   |            | 31,770     |  |   |               | (33,920  | ) |   |         | 122,734 | 
|                                                    | Advance payments of periodic dues and membership fees   |                                              |         | 130,399 |           |   |            | 312,241    |  |   |               | (321,751 | ) |   |         | 120,889 | 
|Deferral of receipts for personal training services |                                                         |                                              | 21,509  |         |           |   | 101,827    |            |  |   | (97,034       | )        |   |   | 26,302  |        
|                                                    |                                                         |                                              |         |         |           |   |            |            |  |   |               |         
|                                                    |                                                         | $                                            | 925,160 |         |           | $ | 738,603    |            |  | $ | (754,574      | )        |   | $ | 909,189 |        
|                                                    |                                                         |                                              |         |         |           |   |            |            |  |   |               |         

|                                                    |                                                         |                                              |         |         |           |   |            |            |  |   |               |          |   |   |         |         | 
|--------------------------------------------------- | ------------------------------------------------------- | -------------------------------------------- | ------- | ------- | --------- | - | ---------- | ---------- |  | - | ------------- | -------- | - | - | ------- | ------- | 
|                                                    |                                                         | For the nine months ended September 30, 2004 |        
|                                                    |                                                         |                                              |        
|                                                    |                                                         | Balance at                                   |         |         |           |   | Balance at |           
|                                                    |                                                         | December 31,                                 |         |         | Cash      |   |            | Revenue    |  |   | September 30, |         
|                                                    |                                                         | 2003                                         |         |         | Additions |   |            | Recognized |  |   | 2004          |         
|                                                    |                                                         |                                              |         |         |           |   |            |            |  |   |               |         
|Deferral of receipts from financed members:         |                                                         |                                              |         |         |           |   |            |            |  |   |               |          |   |   |         |        
|                                                    | Initial term payments                                   |                                              | $       | 535,392 |           |   | $          | 257,511    |  |   | $             | (250,060 | ) |   | $       | 542,843 | 
|                                                    | Down payments                                           |                                              |         | 111,656 |           |   |            | 42,206     |  |   |               | (44,391  | ) |   |         | 109,471 | 
|Deferral of receipts representing advance payments: |                                                         |                                              |         |         |           |   |            |            |  |   |               |          |   |   |         |        
|                                                    | Paid-in-full membership fees collected upon origination |                                              |         | 135,082 |           |   |            | 25,022     |  |   |               | (33,248  | ) |   |         | 126,856 | 
|                                                    | Advance payments of periodic dues and membership fees   |                                              |         | 145,938 |           |   |            | 301,487    |  |   |               | (311,275 | ) |   |         | 136,150 | 
|Deferral of receipts for personal training services |                                                         |                                              | 19,818  |         |           |   | 97,476     |            |  |   | (93,559       | )        |   |   | 23,735  |        
|                                                    |                                                         |                                              |         |         |           |   |            |            |  |   |               |         
|                                                    |                                                         | $                                            | 947,886 |         |           | $ | 723,702    |            |  | $ | (732,533      | )        |   | $ | 939,055 |        
|                                                    |                                                         |                                              |         |         |           |   |            |            |  |   |               |         



|       |                            
|------ | ---------------------------
|Note 4 | Membership Services Revenue

|                  |  |                    |         |  |                   |   |         |      |  |   |         |  |  |   |         | 
|----------------- |  | ------------------ | ------- |  | ----------------- | - | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                  |  | Three Months Ended |         |  | Nine Months Ended |  
|                  |  | September 30,      |         |  | September 30,     |  
|                  |  |                    |         |  |                   |  
|                  |  | 2005               |         |  | 2004              |   |         | 2005 |  |   | 2004    | 
|                  |  |                    |         |  |                   |   |         |      |  |   |         | 
|Membership        |  | $                  | 212,184 |  |                   | $ | 215,640 |      |  | $ | 657,540 |  |  | $ | 638,974 | 
|Personal training |  |                    | 33,191  |  |                   |   | 31,408  |      |  |   | 97,034  |  |  |   | 93,559  | 
|                  |  |                    |         |  |                   |   |         |      |  |   |         | 
|                  |  | $                  | 245,375 |  |                   | $ | 247,048 |      |  | $ | 754,574 |  |  | $ | 732,533 | 
|                  |  |                    |         |  |                   |   |         |      |  |   |         | 



|       |                               
|------ | ------------------------------
|Note 5 | Income (loss) per Common Share

Earnings per Share.


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BALLY TOTAL FITNESS HOLDING CORPORATION


Notes to Condensed Consolidated Financial
Statements  (continued)








|                                                                                                                                                                                                               |  |                    |            |  |                   |   |            |      |  |   |            |  |  |   |            | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- |  | ----------------- | - | ---------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                                                                                                                                                                                                               |  | Three Months Ended |            |  | Nine Months Ended |  
|                                                                                                                                                                                                               |  | September 30,      |            |  | September 30,     |  
|                                                                                                                                                                                                               |  |                    |            |  |                   |  
|                                                                                                                                                                                                               |  | 2005               |            |  | 2004              |   |            | 2005 |  |   | 2004       | 
|                                                                                                                                                                                                               |  |                    |            |  |                   |   |            |      |  |   |            | 
|Weighted average number of common shares outstanding                                                                                                                                                           |  |                    | 33,334,240 |  |                   |   | 32,870,301 |      |  |   | 33,085,668 |  |  |   | 32,807,239 | 
|Effect of outstanding stock options and warrants                                                                                                                                                               |  |                    | 487,042    |  |                   |   | 301,535    |      |  |   | 447,719    |  |  |   | 496,797    | 
|                                                                                                                                                                                                               |  |                    |            |  |                   |   |            |      |  |   |            | 
|Diluted weighted average number of common shares outstanding                                                                                                                                                   |  |                    | 33,821,282 |  |                   |   | 33,171,836 |      |  |   | 33,533,387 |  |  |   | 33,304,036 | 
|                                                                                                                                                                                                               |  |                    |            |  |                   |   |            |      |  |   |            | 
|Options and warrants excluded from the computation of diluted
    weighted average number of common shares because the exercise
    prices were greater than the average market prices of the common
    stock |  |                    | 5,324,223  |  |                   |   | 4,218,306  |      |  |   | 5,324,223  |  |  |   | 3,978,306  | 
|Range of exercise price per share:                                                                                                                                                                             |  |                    |            |  |                   |   |            |      |  |   |            |  |  |   |            | 
|High                                                                                                                                                                                                           |  | $                  | 36.00      |  |                   | $ | 36.00      |      |  | $ | 36.00      |  |  | $ | 36.00      | 
|Low                                                                                                                                                                                                            |  | $                  | 3.63       |  |                   | $ | 4.97       |      |  | $ | 3.63       |  |  | $ | 6.04       | 



|       |             
|------ | ------------
|Note 6 | Income Taxes

Accounting for
Income Taxes,




|       |            
|------ | -----------
|Note 7 | Stock Plans

Stock-based Compensation Plans


Accounting for Stock Issued to
Employees, Accounting for StockBased
CompensationTransition and Disclosure,


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BALLY TOTAL FITNESS HOLDING CORPORATION


Notes to Condensed Consolidated Financial
Statements  (continued)






Accounting for Stock-Based Compensation,


|                               |                                                                                     |                    |        |        |                   |   |       |        |   |   |       |        |   |   |         |        |  
|------------------------------ | ----------------------------------------------------------------------------------- | ------------------ | ------ | ------ | ----------------- | - | ----- | ------ | - | - | ----- | ------ | - | - | ------- | ------ | -
|                               |                                                                                     | Three Months Ended |        |        | Nine Months Ended |  
|                               |                                                                                     | September 30,      |        |        | September 30,     |  
|                               |                                                                                     |                    |        |        |                   |  
|                               |                                                                                     | 2005               |        |        | 2004              |   |       | 2005   |   |   | 2004  |       
|                               |                                                                                     |                    |        |        |                   |   |       |        |   |   |       |       
|Net income (loss), as reported |                                                                                     | $                  | (1,647 | )      |                   | $ | 6,847 |        |   | $ | 1,792 |        |   | $ | (13,259 | )     
|                               | Plus: stock-based compensation expense included in net loss                         |                    |        | 618    |                   |   |       | 134    |   |   |       | 4,952  |   |   |         | 1,074  |  
|                               | Less: stock-based compensation expense determined under fair
    value based method |                    |        | (1,270 | )                 |   |       | (1,366 | ) |   |       | (6,952 | ) |   |         | (5,143 | )
|                               |                                                                                     |                    |        |        |                   |   |       |        |   |   |       |       
|Pro forma net gain (loss)      |                                                                                     | $                  | (2,299 | )      |                   | $ | 5,615 |        |   | $ | (208  | )      |   | $ | (17,328 | )     
|                               |                                                                                     |                    |        |        |                   |   |       |        |   |   |       |       
|Basic loss per common share    |                                                                                     |                    |        |        |                   |   |       |        |   |   |       |        |   |   |         |       
|                               | As reported                                                                         |                    | $      | (0.05  | )                 |   | $     | 0.21   |   |   | $     | 0.05   |   |   | $       | (0.40  | )
|                               | Pro forma                                                                           |                    |        | (0.07  | )                 |   |       | 0.17   |   |   |       | (0.01  | ) |   |         | (0.53  | )
|Diluted loss per common share  |                                                                                     |                    |        |        |                   |   |       |        |   |   |       |        |   |   |         |       
|                               | As reported                                                                         |                    | $      | (0.05  | )                 |   | $     | 0.21   |   |   | $     | 0.05   |   |   | $       | (0.40  | )
|                               | Pro forma                                                                           |                    |        | (0.07  | )                 |   |       | 0.17   |   |   |       | (0.01  | ) |   |         | (0.53  | )





| |                       
| | ----------------------
| | Equity Inducement Plan





|       |           
|------ | ----------
|Note 8 | Guarantees



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BALLY TOTAL FITNESS HOLDING CORPORATION


Notes to Condensed Consolidated Financial
Statements  (continued)








|       |                                               
|------ | ----------------------------------------------
|Note 9 | Investigations, Disputes and Legal Proceedings













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BALLY TOTAL FITNESS HOLDING CORPORATION


Notes to Condensed Consolidated Financial
Statements  (continued)










|        |                          
|------- | -------------------------
|Note 10 | Crunch Purchase Agreement

sm sm




|        |                  
|------- | -----------------
|Note 11 | Subsequent Events

Adoption of Rights Plan






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BALLY TOTAL FITNESS HOLDING CORPORATION


Notes to Condensed Consolidated Financial
Statements  (continued)










Net Operating Loss Carryforwards




Insurance Lawsuit


Travelers Indemnity Company and ACE
American Insurance Company v. Bally Total Fitness Holding
Corporation; Holiday Universal, Inc, n/k/a Bally Total Fitness
of the Mid-Atlantic, Inc; George N. Aronoff; Paul Toback; John
W. Dwyer; Lee S. Hillman; Stephen C. Swid; James McAnally; J.
Kenneth Looloian; Liza M. Walsh; Annie P. Lewis, as Executor of
the Estate of Aubrey C. Lewis, Deceased; Theodore Noncek; Geoff
Scheitlin; John H. Wildman; John W. Rogers, Jr.; and Martin E.
Franklin,


Amendments to Employment Agreements




Director Compensation




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BALLY TOTAL FITNESS HOLDING CORPORATION


Notes to Condensed Consolidated Financial
Statements  (continued)








Engagement of J.P. Morgan Securities Inc.






|        |                                             
|------- | --------------------------------------------
|Note 12 | Condensed Consolidating Financial Statements

1 2






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 59th Street
    Gym LLC; 708 Gym LLC; Ace LLC; Bally Fitness Franchising, Inc.;
    Bally Franchise RSC, Inc.; Bally Franchising Holdings, Inc.;
    Bally Total Fitness Corporation; Bally Total Fitness
    International, Inc.; Bally Total Fitness of Missouri, Inc.;
    Bally Total Fitness of Toledo, Inc.; Ballys Fitness and
    Racquet Clubs, Inc.; BFIT Rehab of West Palm Beach, Inc.;
    Connecticut Coast Fitness Centers, Inc. (N/K/A Bally Total
    Fitness of Connecticut Coast, Inc.); Connecticut Valley Fitness
    Centers, Inc. (N/K/A/ Bally Total Fitness of Connecticut Valley,
    Inc.); Crunch LA LLC; Crunch World LLC; Flambe LLC; Greater
    Philly No. 1 Holding Company; Greater Philly No. 2
    Holding Company; Health & Tennis Corporation of New
    York; Holiday Health Clubs of the East Coast, Inc.; Holiday
    Health & Fitness Centers of New York, Inc. (N/K/A Bally
    Total Fitness of Upstate New York, Inc.); Holiday
    Health Clubs and Fitness Centers, Inc. (N/K/A Bally Total
    Fitness of Colorado, Inc.); Holiday Health Clubs of the
    Southeast, Inc. (N/K/A Bally Total Fitness of the Southeast,
    Inc.); Holiday/ Southeast Holding Corp.; Holiday Spa Health
    Clubs of California (N/K/A Bally Total Fitness of California,
    Inc.); Holiday Universal, Inc. (N/K/A Bally Total Fitness of the
    Mid-Atlantic, Inc); Crunch Fitness International, Inc.; Jack
    La Lanne Fitness Centers, Inc. (N/K/A Bally Total Fitness
    of Greater New York, Inc.); Jack La Lanne Holding Corp.;
    Manhattan Sports Club, Inc. (N/K/A Bally Sports Clubs, Inc.);
    Mission Impossible, LLC; New Fitness Holding Co., Inc.; Nycon
    Holding Co., Inc.; Physical Fitness Centers of Philadelphia,
    Inc. (N/K/A Bally Total Fitness of Philadelphia, Inc.);
    Providence Fitness Centers, Inc. (N/K/A Bally Total Fitness of
    Rhode Island, Inc.); Rhode Island Holding Company;
    Scandinavian Health Spa, Inc. (N/K/A Bally Total Fitness of the
    Midwest, Inc.); Scandinavian US Swim & Fitness, Inc.
    (N/K/A Bally Total Fitness of Minnesota, Inc.), Soho Ho LLC;
    Sportslife, Inc. (N/K/A Crunch Fitness International, Inc.);
    Sportslife Gwinnett, Inc. (N/K/A Crunch Fitness International,
    Inc.); Sportslife Roswell, Inc. (N/K/A Crunch Fitness
    International, Inc.); Sportslife Stone Mountain, Inc. (N/K/A
    Crunch Fitness International, Inc.); Sportslife Town
    Center II, Inc. (N/K/A Crunch Fitness International,
    Inc.); Tidelands Holiday Health Clubs, Inc.;
    U.S. Health, Inc.; and West Village Gym at the
    Archives LLC.



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BALLY TOTAL FITNESS HOLDING CORPORATION








CONDENSED CONSOLIDATING BALANCE SHEET


|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |           |   |   |   |            |         |         | 
|---------------------------------------------- | ------------------------------------ | ------------------------- | ---------- | --------- | ------------ | - | ------------- | ------------ | ------- | - | ------------ | ------------ | ------ | ----- | --------- | - | - | - | ---------- | ------- | ------- | 
|                                               |                                      | September 30, 2005        |           
|                                               |                                      |                           |           
|                                               |                                      |                           |            | Guarantor |              |   | Non-Guarantor |              |         |   |              | Consolidated |       
|                                               |                                      | Parent                    |            |           | Subsidiaries |   |               | Subsidiaries |         |   | Eliminations |              |        | Total |          
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          
|ASSETS                                         |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |           |   |   |   |            |        
|Current assets:                                |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |           |   |   |   |            |        
|                                               | Cash                                 |                           | $          |          |              |   | $             | 11,399       |         |   | $            | 1,364        |        |       | $         |  |   |   | $          | 12,763  |        
|                                               | Other current assets                 |                           |            |          |              |   |               | 32,617       |         |   |              | 1,358        |        |       |           |  |   |   |            | 33,975  |        
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          
|                                               |                                      | Total current assets      |            |           |             |   |               |              | 44,016  |   |              |              | 2,722  |       |           |   |  |   |            |         | 46,738  | 
|Property and equipment, net                    |                                      |                           |           |           |              |   | 317,627       |              |         |   | 17,590       |              |        |       |          |   |   |   | 335,217    |        
|Goodwill, net                                  |                                      |                           |           |           |              |   | 40,199        |              |         |   | 1,533        |              |        |       |          |   |   |   | 41,732     |        
|Trademarks, net                                |                                      |                           | 6,507      |           |              |   | 2,568         |              |         |   | 462          |              |        |       |          |   |   |   | 9,537      |        
|Intangible assets, net                         |                                      |                           |           |           |              |   | 5,939         |              |         |   | 767          |              |        |       |          |   |   |   | 6,706      |        
|Investment in and advances to subsidiaries     |                                      |                           | (740,439   | )         |              |   | 221,315       |              |         |   |             |              |        |       | 519,124   |   |   |   |           |        
|Other assets                                   |                                      |                           | 32,566     |           |              |   | 9,534         |              |         |   | 4,065        |              |        |       |          |   |   |   | 46,165     |        
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          
|                                               |                                      | $                         | (701,366   | )         |              | $ | 641,198       |              |         | $ | 27,139       |              |        | $     | 519,124   |   |   | $ | 486,095    |        
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          
|                                              
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|Current liabilities:                           |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |           |   |   |   |            |        
|                                               | Accounts payable                     |                           | $          |          |              |   | $             | 47,113       |         |   | $            | 312          |        |       | $         |  |   |   | $          | 47,425  |        
|                                               | Income taxes payable                 |                           |            |          |              |   |               | 1,702        |         |   |              |             |        |       |           |  |   |   |            | 1,702   |        
|                                               | Deferred income taxes                |                           |            |          |              |   |               | 681          |         |   |              |             |        |       |           |  |   |   |            | 681     |        
|                                               | Accrued liabilities                  |                           |            | 22,395    |              |   |               | 66,082       |         |   |              | 8,874        |        |       |           |  |   |   |            | 97,351  |        
|                                               | Current maturities of long-term debt |                           |            | 7,735     |              |   |               | 2,730        |         |   |              | 5,242        |        |       |           |  |   |   |            | 15,707  |        
|                                               | Deferred revenues                    |                           |            |          |              |   |               | 319,366      |         |   |              | 6,037        |        |       |           |  |   |   |            | 325,403 |        
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          
|                                               |                                      | Total current liabilities |            |           | 30,130       |   |               |              | 437,674 |   |              |              | 20,465 |       |           |   |  |   |            |         | 488,269 | 
|Long-term debt, less current maturities        |                                      |                           | 731,894    |           |              |   | 4,623         |              |         |   | 7,299        |              |        |       |          |   |   |   | 743,816    |        
|Net affiliate payable                          |                                      |                           |           |           |              |   | 519,046       |              |         |   | 57,989       |              |        |       | (577,035  | ) |   |   |           |        
|Other liabilities                              |                                      |                           |           |           |              |   | 131,255       |              |         |   | 2,359        |              |        |       |          |   |   |   | 133,614    |        
|Deferred revenues                              |                                      |                           |           |           |              |   | 572,574       |              |         |   | 11,212       |              |        |       |          |   |   |   | 583,786    |        
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          
|Stockholders equity (deficit)                 |                                      |                           | (1,463,390 | )         |              |   | (1,023,974    | )            |         |   | (72,185      | )            |        |       | 1,096,159 |   |   |   | (1,463,390 | )      
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          
|                                               |                                      | $                         | (701,366   | )         |              | $ | 641,198       |              |         | $ | 27,139       |              |        | $     | 519,124   |   |   | $ | 486,095    |        
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          

16



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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION


Notes to Condensed Consolidated Financial
Statements  (continued)




CONDENSED CONSOLIDATING BALANCE SHEET


|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |           |   |   |   |            |         |         | 
|---------------------------------------------- | ------------------------------------ | ------------------------- | ---------- | --------- | ------------ | - | ------------- | ------------ | ------- | - | ------------ | ------------ | ------ | ----- | --------- | - | - | - | ---------- | ------- | ------- | 
|                                               |                                      | December 31, 2004         |           
|                                               |                                      |                           |           
|                                               |                                      |                           |            | Guarantor |              |   | Non-Guarantor |              |         |   |              | Consolidated |       
|                                               |                                      | Parent                    |            |           | Subsidiaries |   |               | Subsidiaries |         |   | Eliminations |              |        | Total |          
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          
|ASSETS                                        
|Current assets:                                |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |           |   |   |   |            |        
|                                               | Cash                                 |                           | $          |          |              |   | $             | 18,726       |         |   | $            | 451          |        |       | $         |  |   |   | $          | 19,177  |        
|                                               | Other current assets                 |                           |            |          |              |   |               | 29,365       |         |   |              | 1,345        |        |       |           |  |   |   |            | 30,710  |        
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          
|                                               |                                      | Total current assets      |            |           |             |   |               |              | 48,091  |   |              |              | 1,796  |       |           |   |  |   |            |         | 49,887  | 
|Property and equipment, net                    |                                      |                           |           |           |              |   | 342,946       |              |         |   | 18,917       |              |        |       |          |   |   |   | 361,863    |        
|Goodwill, net                                  |                                      |                           |           |           |              |   | 40,157        |              |         |   | 1,541        |              |        |       |          |   |   |   | 41,698     |        
|Trademarks, net                                |                                      |                           | 6,507      |           |              |   | 2,875         |              |         |   | 551          |              |        |       |          |   |   |   | 9,933      |        
|Intangible assets, net                         |                                      |                           |           |           |              |   | 6,953         |              |         |   | 956          |              |        |       |          |   |   |   | 7,909      |        
|Investment in and advances to subsidiaries     |                                      |                           | (743,351   | )         |              |   | 221,315       |              |         |   |             |              |        |       | 522,036   |   |   |   |           |        
|Other assets                                   |                                      |                           | 14,248     |           |              |   | 10,859        |              |         |   | 3,172        |              |        |       |          |   |   |   | 28,279     |        
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          
|                                               |                                      | $                         | (722,596   | )         |              | $ | 673,196       |              |         | $ | 26,933       |              |        | $     | 522,036   |   |   | $ | 499,569    |        
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          
|                                              
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|Current liabilities:                           |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |           |   |   |   |            |        
|                                               | Accounts payable                     |                           | $          |          |              |   | $             | 49,965       |         |   | $            | 1,408        |        |       | $         |  |   |   | $          | 51,373  |        
|                                               | Income taxes payable                 |                           |            |          |              |   |               | 1,399        |         |   |              |             |        |       |           |  |   |   |            | 1,399   |        
|                                               | Accrued liabilities                  |                           |            | 21,403    |              |   |               | 83,247       |         |   |              | 6,576        |        |       |           |  |   |   |            | 111,226 |        
|                                               | Current maturities of long-term debt |                           |            | 11,899    |              |   |               | 3,382        |         |   |              | 6,846        |        |       |           |  |   |   |            | 22,127  |        
|                                               | Deferred revenues                    |                           |            |          |              |   |               | 317,197      |         |   |              | 6,074        |        |       |           |  |   |   |            | 323,271 |        
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          
|                                               |                                      | Total current liabilities |            |           | 33,302       |   |               |              | 455,190 |   |              |              | 20,904 |       |           |   |  |   |            |         | 509,396 | 
|Long-term debt, less current maturities        |                                      |                           | 718,378    |           |              |   | 10,097        |              |         |   | 8,957        |              |        |       |          |   |   |   | 737,432    |        
|Net affiliate payable                          |                                      |                           |           |           |              |   | 577,456       |              |         |   | 58,012       |              |        |       | (635,468  | ) |   |   |           |        
|Other liabilities                              |                                      |                           |           |           |              |   | 122,769       |              |         |   | 2,359        |              |        |       |          |   |   |   | 125,128    |        
|Deferred revenues                              |                                      |                           |           |           |              |   | 590,610       |              |         |   | 11,279       |              |        |       |          |   |   |   | 601,899    |        
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          
|Stockholders equity (deficit)                 |                                      |                           | (1,474,276 | )         |              |   | (1,082,926    | )            |         |   | (74,578      | )            |        |       | 1,157,504 |   |   |   | (1,474,276 | )      
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          
|                                               |                                      | $                         | (722,596   | )         |              | $ | 673,196       |              |         | $ | 26,933       |              |        | $     | 522,036   |   |   | $ | 499,569    |        
|                                               |                                      |                           |            |           |              |   |               |              |         |   |              |              |        |       |          

17



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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION


Notes to Condensed Consolidated Financial
Statements  (continued)






CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |         |   |  |   |         |         | 
|------------------------------------ | ----------------------------- | ------------------------------------- | ------- | --------- | ------------ | - | ------------- | ------------ |  | - | ------------ | ------------ |  | ----- | ------- | - |  | - | ------- | ------- | 
|                                     |                               | Three Months Ended September 30, 2005 |        
|                                     |                               |                                       |        
|                                     |                               |                                       |         | Guarantor |              |   | Non-Guarantor |              |  |   |              | Consolidated | 
|                                     |                               | Parent                                |         |           | Subsidiaries |   |               | Subsidiaries |  |   | Eliminations |              |  | Total |        
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        
|Net revenues:                        |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |         |   |  |   |         |        
|                                     | Membership services           |                                       | $       |          |              |   | $             | 235,962      |  |   | $            | 9,413        |  |       | $       |  |  |   | $       | 245,375 | 
|                                     | Retail products               |                                       |         |          |              |   |               | 12,019       |  |   |              | 347          |  |       |         |  |  |   |         | 12,366  | 
|                                     | Miscellaneous                 |                                       |         |          |              |   |               | 3,606        |  |   |              | 406          |  |       |         |  |  |   |         | 4,012   | 
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        
|                                     |                               |                                       |        |           |              |   | 251,587       |              |  |   | 10,166       |              |  |       |        |   |  |   | 261,753 |        
|Operating costs and expenses:        |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |         |   |  |   |         |        
|                                     | Membership services           |                                       |         |          |              |   |               | 170,116      |  |   |              | 7,437        |  |       |         |  |  |   |         | 177,553 | 
|                                     | Retail products               |                                       |         |          |              |   |               | 12,781       |  |   |              | 352          |  |       |         |  |  |   |         | 13,133  | 
|                                     | Advertising                   |                                       |         |          |              |   |               | 12,949       |  |   |              | 292          |  |       |         |  |  |   |         | 13,241  | 
|                                     | General and administrative    |                                       |         | 1,215     |              |   |               | 21,032       |  |   |              | 332          |  |       |         |  |  |   |         | 22,579  | 
|                                     | Depreciation and amortization |                                       |         |          |              |   |               | 15,771       |  |   |              | 717          |  |       |         |  |  |   |         | 16,488  | 
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        
|                                     |                               |                                       | 1,215   |           |              |   | 232,649       |              |  |   | 9,130        |              |  |       |        |   |  |   | 242,994 |        
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        
|Operating income (loss)              |                               |                                       | (1,215  | )         |              |   | 18,938        |              |  |   | 1,036        |              |  |       |        |   |  |   | 18,759  |        
|Equity in net income of subsidiaries |                               |                                       | 19,687  |           |              |   |              |              |  |   |             |              |  |       | (19,687 | ) |  |   |        |        
|Interest expense                     |                               |                                       | (20,629 | )         |              |   | (404          | )            |  |   | (947         | )            |  |       | 559     |   |  |   | (21,421 | )      
|Foreign exchange gain                |                               |                                       |        |           |              |   |              |              |  |   | 1,141        |              |  |       |        |   |  |   | 1,141   |        
|Other, net                           |                               |                                       | 510     |           |              |   | 115           |              |  |   | 67           |              |  |       | (559    | ) |  |   | 133     |        
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        
|                                     |                               |                                       | (432    | )         |              |   | (289          | )            |  |   | 261          |              |  |       | (19,687 | ) |  |   | (20,147 | )      
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        
|Income (loss) before income taxes    |                               |                                       | (1,647  | )         |              |   | 18,649        |              |  |   | 1,297        |              |  |       | (19,687 | ) |  |   | (1,388  | )      
|Income tax provision                 |                               |                                       |        |           |              |   | (259          | )            |  |   |             |              |  |       |        |   |  |   | (259    | )      
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        
|Net income (loss)                    |                               | $                                     | (1,647  | )         |              | $ | 18,390        |              |  | $ | 1,297        |              |  | $     | (19,687 | ) |  | $ | (1,647  | )      
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        

18



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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION


Notes to Condensed Consolidated Financial
Statements  (continued)






CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |         |   |  |   |         |         | 
|------------------------------------ | ----------------------------- | ------------------------------------- | ------- | --------- | ------------ | - | ------------- | ------------ |  | - | ------------ | ------------ |  | ----- | ------- | - |  | - | ------- | ------- | 
|                                     |                               | Three Months Ended September 30, 2004 |        
|                                     |                               |                                       |        
|                                     |                               |                                       |         | Guarantor |              |   | Non-Guarantor |              |  |   |              | Consolidated | 
|                                     |                               | Parent                                |         |           | Subsidiaries |   |               | Subsidiaries |  |   | Eliminations |              |  | Total |        
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        
|Net revenues:                        |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |         |   |  |   |         |        
|                                     | Membership services           |                                       | $       |          |              |   | $             | 237,683      |  |   | $            | 9,365        |  |       | $       |  |  |   | $       | 247,048 | 
|                                     | Retail products               |                                       |         |          |              |   |               | 12,233       |  |   |              | 361          |  |       |         |  |  |   |         | 12,594  | 
|                                     | Miscellaneous                 |                                       |         |          |              |   |               | 4,694        |  |   |              | 446          |  |       |         |  |  |   |         | 5,140   | 
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        
|                                     |                               |                                       |        |           |              |   | 254,610       |              |  |   | 10,172       |              |  |       |        |   |  |   | 264,782 |        
|Operating costs and expenses:        |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |         |   |  |   |         |        
|                                     | Membership services           |                                       |         |          |              |   |               | 172,265      |  |   |              | 8,042        |  |       |         |  |  |   |         | 180,307 | 
|                                     | Retail products               |                                       |         |          |              |   |               | 11,833       |  |   |              | 335          |  |       |         |  |  |   |         | 12,168  | 
|                                     | Advertising                   |                                       |         |          |              |   |               | 13,355       |  |   |              | 242          |  |       |         |  |  |   |         | 13,597  | 
|                                     | General and administrative    |                                       |         | 957       |              |   |               | 16,505       |  |   |              | 562          |  |       |         |  |  |   |         | 18,024  | 
|                                     | Depreciation and amortization |                                       |         |          |              |   |               | 17,233       |  |   |              | 480          |  |       |         |  |  |   |         | 17,713  | 
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        
|                                     |                               |                                       | 957     |           |              |   | 231,191       |              |  |   | 9,661        |              |  |       |        |   |  |   | 241,809 |        
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        
|Operating income (loss)              |                               |                                       | (957    | )         |              |   | 23,419        |              |  |   | 511          |              |  |       |        |   |  |   | 22,973  |        
|Equity in net income of subsidiaries |                               |                                       | 21,711  |           |              |   |              |              |  |   |             |              |  |       | (21,711 | ) |  |   |        |        
|Interest expense                     |                               |                                       | (14,601 | )         |              |   | (1,590        | )            |  |   | (2,671       | )            |  |       | 2,132   |   |  |   | (16,730 | )      
|Foreign exchange gain                |                               |                                       |        |           |              |   |              |              |  |   | 879          |              |  |       |        |   |  |   | 879     |        
|Other, net                           |                               |                                       | 694     |           |              |   | 30            |              |  |   | 1,346        |              |  |       | (2,132  | ) |  |   | (62     | )      
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        
|                                     |                               |                                       | 7,804   |           |              |   | (1,560        | )            |  |   | (446         | )            |  |       | (21,711 | ) |  |   | (15,913 | )      
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        
|Income before income taxes           |                               |                                       | 6,847   |           |              |   | 21,859        |              |  |   | 65           |              |  |       | (21,711 | ) |  |   | 7,060   |        
|Income tax provision                 |                               |                                       |        |           |              |   | (213          | )            |  |   |             |              |  |       |        |   |  |   | (213    | )      
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        
|Net income                           |                               | $                                     | 6,847   |           |              | $ | 21,646        |              |  | $ | 65           |              |  | $     | (21,711 | ) |  | $ | 6,847   |        
|                                     |                               |                                       |         |           |              |   |               |              |  |   |              |              |  |       |        

19



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##### Table of Contents



BALLY TOTAL FITNESS HOLDING CORPORATION








CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |         |   |  |   |         |         | 
|------------------------------------ | ----------------------------- | ------------------------------------ | ------- | --------- | ------------ | - | ------------- | ------------ |  | - | ------------ | ------------ |  | ----- | ------- | - |  | - | ------- | ------- | 
|                                     |                               | Nine Months Ended September 30, 2005 |        
|                                     |                               |                                      |        
|                                     |                               |                                      |         | Guarantor |              |   | Non-Guarantor |              |  |   |              | Consolidated | 
|                                     |                               | Parent                               |         |           | Subsidiaries |   |               | Subsidiaries |  |   | Eliminations |              |  | Total |        
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        
|Net revenues:                        |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |         |   |  |   |         |        
|                                     | Membership services           |                                      | $       |          |              |   | $             | 725,496      |  |   | $            | 29,078       |  |       | $       |  |  |   | $       | 754,574 | 
|                                     | Retail products               |                                      |         |          |              |   |               | 39,183       |  |   |              | 1,068        |  |       |         |  |  |   |         | 40,251  | 
|                                     | Miscellaneous                 |                                      |         |          |              |   |               | 11,313       |  |   |              | 1,351        |  |       |         |  |  |   |         | 12,664  | 
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        
|                                     |                               |                                      |        |           |              |   | 775,992       |              |  |   | 31,497       |              |  |       |        |   |  |   | 807,489 |        
|Operating costs and expenses:        |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |         |   |  |   |         |        
|                                     | Membership services           |                                      |         |          |              |   |               | 524,169      |  |   |              | 22,026       |  |       |         |  |  |   |         | 546,195 | 
|                                     | Retail products               |                                      |         |          |              |   |               | 39,527       |  |   |              | 1,034        |  |       |         |  |  |   |         | 40,561  | 
|                                     | Advertising                   |                                      |         |          |              |   |               | 44,861       |  |   |              | 934          |  |       |         |  |  |   |         | 45,795  | 
|                                     | General and administrative    |                                      |         | 3,256     |              |   |               | 58,648       |  |   |              | 940          |  |       |         |  |  |   |         | 62,844  | 
|                                     | Depreciation and amortization |                                      |         |          |              |   |               | 48,201       |  |   |              | 2,196        |  |       |         |  |  |   |         | 50,397  | 
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        
|                                     |                               |                                      | 3,256   |           |              |   | 715,406       |              |  |   | 27,130       |              |  |       |        |   |  |   | 745,792 |        
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        
|Operating income (loss)              |                               |                                      | (3,256  | )         |              |   | 60,586        |              |  |   | 4,367        |              |  |       |        |   |  |   | 61,697  |        
|Equity in net income of subsidiaries |                               |                                      | 61,976  |           |              |   |              |              |  |   |             |              |  |       | (61,976 | ) |  |   |        |        
|Interest expense                     |                               |                                      | (58,326 | )         |              |   | (1,087        | )            |  |   | (2,719       | )            |  |       | 1,544   |   |  |   | (60,588 | )      
|Foreign exchange gain                |                               |                                      |        |           |              |   |              |              |  |   | 1,187        |              |  |       |        |   |  |   | 1,187   |        
|Other, net                           |                               |                                      | 1,398   |           |              |   | 229           |              |  |   | 189          |              |  |       | (1,544  | ) |  |   | 272     |        
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        
|                                     |                               |                                      | 5,048   |           |              |   | (858          | )            |  |   | (1,343       | )            |  |       | (61,976 | ) |  |   | (59,129 | )      
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        
|Income before income taxes           |                               |                                      | 1,792   |           |              |   | 59,728        |              |  |   | 3,024        |              |  |       | (61,976 | ) |  |   | 2,568   |        
|Income tax provision                 |                               |                                      |        |           |              |   | (776          | )            |  |   |             |              |  |       |        |   |  |   | (776    | )      
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        
|Net income                           |                               | $                                    | 1,792   |           |              | $ | 58,952        |              |  | $ | 3,024        |              |  | $     | (61,976 | ) |  | $ | 1,792   |        
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        

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BALLY TOTAL FITNESS HOLDING CORPORATION








CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |         |   |  |   |         |         | 
|------------------------------------ | ----------------------------- | ------------------------------------ | ------- | --------- | ------------ | - | ------------- | ------------ |  | - | ------------ | ------------ |  | ----- | ------- | - |  | - | ------- | ------- | 
|                                     |                               | Nine Months Ended September 30, 2004 |        
|                                     |                               |                                      |        
|                                     |                               |                                      |         | Guarantor |              |   | Non-Guarantor |              |  |   |              | Consolidated | 
|                                     |                               | Parent                               |         |           | Subsidiaries |   |               | Subsidiaries |  |   | Eliminations |              |  | Total |        
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        
|Net revenues:                        |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |         |   |  |   |         |        
|                                     | Membership services           |                                      | $       |          |              |   | $             | 704,486      |  |   | $            | 28,047       |  |       | $       |  |  |   | $       | 732,533 | 
|                                     | Retail products               |                                      |         |          |              |   |               | 40,876       |  |   |              | 1,172        |  |       |         |  |  |   |         | 42,048  | 
|                                     | Miscellaneous                 |                                      |         |          |              |   |               | 13,350       |  |   |              | 1,370        |  |       |         |  |  |   |         | 14,720  | 
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        
|                                     |                               |                                      |        |           |              |   | 758,712       |              |  |   | 30,589       |              |  |       |        |   |  |   | 789,301 |        
|Operating costs and expenses:        |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |         |   |  |   |         |        
|                                     | Membership services           |                                      |         |          |              |   |               | 539,280      |  |   |              | 21,777       |  |       |         |  |  |   |         | 561,057 | 
|                                     | Retail products               |                                      |         |          |              |   |               | 39,365       |  |   |              | 1,034        |  |       |         |  |  |   |         | 40,399  | 
|                                     | Advertising                   |                                      |         |          |              |   |               | 48,418       |  |   |              | 934          |  |       |         |  |  |   |         | 49,352  | 
|                                     | General and administrative    |                                      |         | 2,871     |              |   |               | 45,472       |  |   |              | 1,514        |  |       |         |  |  |   |         | 49,857  | 
|                                     | Depreciation and amortization |                                      |         |          |              |   |               | 50,672       |  |   |              | 1,560        |  |       |         |  |  |   |         | 52,232  | 
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        
|                                     |                               |                                      | 2,871   |           |              |   | 723,207       |              |  |   | 26,819       |              |  |       |        |   |  |   | 752,897 |        
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        
|Operating income (loss)              |                               |                                      | (2,871  | )         |              |   | 35,505        |              |  |   | 3,770        |              |  |       |        |   |  |   | 36,404  |        
|Equity in net income of subsidiaries |                               |                                      | 30,054  |           |              |   |              |              |  |   |             |              |  |       | (30,054 | ) |  |   |        |        
|Interest expense                     |                               |                                      | (42,425 | )         |              |   | (5,245        | )            |  |   | (7,840       | )            |  |       | 6,244   |   |  |   | (49,266 | )      
|Foreign exchange gain                |                               |                                      |        |           |              |   |              |              |  |   | 473          |              |  |       |        |   |  |   | 473     |        
|Other, net                           |                               |                                      | 1,983   |           |              |   | 61            |              |  |   | 3,968        |              |  |       | (6,244  | ) |  |   | (232    | )      
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        
|                                     |                               |                                      | (10,388 | )         |              |   | (5,184        | )            |  |   | (3,399       | )            |  |       | (30,054 | ) |  |   | (49,025 | )      
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        
|Income (loss) before income taxes    |                               |                                      | (13,259 | )         |              |   | 30,321        |              |  |   | 371          |              |  |       | (30,054 | ) |  |   | (12,621 | )      
|Income tax provision                 |                               |                                      |        |           |              |   | (638          | )            |  |   |             |              |  |       |        |   |  |   | (638    | )      
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        
|Net income (loss)                    |                               | $                                    | (13,259 | )         |              | $ | 29,683        |              |  | $ | 371          |              |  | $     | (30,054 | ) |  | $ | (13,259 | )      
|                                     |                               |                                      |         |           |              |   |               |              |  |   |              |              |  |       |        

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BALLY TOTAL FITNESS HOLDING CORPORATION








CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


|                                                 |                                                      |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |   |         |        |   |        |         |         |  
|------------------------------------------------ | ---------------------------------------------------- | -------------------------------------------------------------------------------------- | - | --------- | ------------ | - | ------------- | ------------ | ------- | - | ------------ | ------------ | ------ | ----- | - | ------- | ------ | - | ------ | ------- | ------- | -
|                                                 |                                                      | Nine Months Ended September 30, 2005                                                   |  
|                                                 |                                                      |                                                                                        |  
|                                                 |                                                      |                                                                                        |   | Guarantor |              |   | Non-Guarantor |              |         |   |              | Consolidated |       
|                                                 |                                                      | Parent                                                                                 |   |           | Subsidiaries |   |               | Subsidiaries |         |   | Eliminations |              |        | Total |  
|                                                 |                                                      |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |  
|CASH FLOWS FROM OPERATING ACTIVITIES:            |                                                      |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |   |         |        |   |        |        
|                                                 | Net income                                           |                                                                                        | $ | 1,792     |              |   | $             | 58,952       |         |   | $            | 3,024        |        |       | $ | (61,976 | )      |   | $      | 1,792   |        
|                                                 | Adjustments to reconcile to cash provided           |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |   |         |        |   |        |         |        
|                                                 |                                                      | Depreciation and amortization, including amortization included
    in interest expense |   |           | 3,250        |   |               |              | 49,097  |   |              |              | 2,196  |       |   |         |       |   |        |         | 54,543  |  
|                                                 |                                                      | Change in operating assets and liabilities                                             |   |           | (4,957       | ) |               |              | (33,372 | ) |              |              | 279    |       |   |         |       |   |        |         | (38,050 | )
|                                                 |                                                      | Changes in net affiliate balances                                                      |   |           |             |   |               |              | (58,473 | ) |              |              | 40     |       |   |         | 58,433 |   |        |         |        |  
|                                                 |                                                      | Other, net                                                                             |   |           | 4,957        |   |               |              | 393     |   |              |              | (1,187 | )     |   |         |       |   |        |         | 4,163   |  
|                                                 |                                                      |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |  
|                                                 |                                                      | Cash provided by operating activities                                                  |   |           | 5,042        |   |               |              | 16,597  |   |              |              | 4,352  |       |   |         | (3,543 | ) |        |         | 22,448  |  
|CASH FLOWS FROM INVESTING ACTIVITIES:            |                                                      |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |   |         |        |   |        |        
|                                                 | Purchases and construction of property and equipment |                                                                                        |   |          |              |   |               | (23,892      | )       |   |              | (756         | )      |       |   |        |        |   |        | (24,648 | )      
|                                                 | Proceeds from sale of land                           |                                                                                        |   |          |              |   |               | 1,455        |         |   |              |             |        |       |   |        |        |   |        | 1,455   |        
|                                                 | Investment in and advances to subsidiaries           |                                                                                        |   | (3,543    | )            |   |               |             |         |   |              |             |        |       |   | 3,543   |        |   |        |        |        
|                                                 |                                                      |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |  
|                                                 |                                                      | Cash used in investing activities                                                      |   |           | (3,543       | ) |               |              | (22,437 | ) |              |              | (756   | )     |   |         | 3,543  |   |        |         | (23,193 | )
|CASH FLOWS FROM FINANCING ACTIVITIES:            |                                                      |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |   |         |        |   |        |        
|                                                 | Net borrowings under revolving credit agreement      |                                                                                        |   | 18,688    |              |   |               |             |         |   |              |             |        |       |   |        |        |   |        | 18,688  |        
|                                                 |                                                      | Net repayments of other long-term debt                                                 |   |           | (9,336       | ) |               |              | (1,487  | ) |              |              | (3,044 | )     |   |         |       |   |        |         | (13,867 | )
|                                                 |                                                      | Debt issuance and refinancing costs                                                    |   |           | (10,944      | ) |               |              |        |   |              |              |       |       |   |         |       |   |        |         | (10,944 | )
|                                                 |                                                      | Stock purchase and options plans                                                       |   |           | 93           |   |               |              |        |   |              |              |       |       |   |         |       |   |        |         | 93      |  
|                                                 |                                                      |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |  
|                                                 |                                                      | Cash used in financing activities                                                      |   |           | (1,499       | ) |               |              | (1,487  | ) |              |              | (3,044 | )     |   |         |       |   |        |         | (6,030  | )
|Increase (decrease) in cash                      |                                                      |                                                                                        |  |           |              |   | (7,327        | )            |         |   | 552          |              |        |       |  |         |        |   | (6,775 | )      
|Effect of exchange rate changes on cash balances |                                                      |                                                                                        |  |           |              |   |              |              |         |   | 361          |              |        |       |  |         |        |   | 361    |        
|Cash, beginning of year                          |                                                      |                                                                                        |  |           |              |   | 18,726        |              |         |   | 451          |              |        |       |  |         |        |   | 19,177 |        
|                                                 |                                                      |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |  
|Cash, end of year                                |                                                      | $                                                                                      |  |           |              | $ | 11,399        |              |         | $ | 1,364        |              |        | $     |  |         |        | $ | 12,763 |        
|                                                 |                                                      |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |  

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BALLY TOTAL FITNESS HOLDING CORPORATION








CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


|                                                 |                                                            |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |   |         |         |   |        |         |         |  
|------------------------------------------------ | ---------------------------------------------------------- | -------------------------------------------------------------------------------------- | - | --------- | ------------ | - | ------------- | ------------ | ------- | - | ------------ | ------------ | ------ | ----- | - | ------- | ------- | - | ------ | ------- | ------- | -
|                                                 |                                                            | Nine Months Ended September 30, 2004                                                   |  
|                                                 |                                                            |                                                                                        |  
|                                                 |                                                            |                                                                                        |   | Guarantor |              |   | Non-Guarantor |              |         |   |              | Consolidated |       
|                                                 |                                                            | Parent                                                                                 |   |           | Subsidiaries |   |               | Subsidiaries |         |   | Eliminations |              |        | Total |  
|                                                 |                                                            |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |  
|CASH FLOWS FROM OPERATING ACTIVITIES:            |                                                            |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |   |         |         |   |        |        
|                                                 | Net income (loss)                                          |                                                                                        | $ | (13,259   | )            |   | $             | 29,683       |         |   | $            | 371          |        |       | $ | (30,054 | )       |   | $      | (13,259 | )      
|                                                 | Adjustments to reconcile to cash provided                 |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |   |         |         |   |        |         |        
|                                                 |                                                            | Depreciation and amortization, including amortization included
    in interest expense |   |           | 1,149        |   |               |              | 51,298  |   |              |              | 2,244  |       |   |         |        |   |        |         | 54,691  |  
|                                                 |                                                            | Change in operating assets and liabilities                                             |   |           | 691          |   |               |              | (5,534  | ) |              |              | 756    |       |   |         |        |   |        |         | (4,087  | )
|                                                 |                                                            | Changes in affiliate balances                                                          |   |           |             |   |               |              | (16,528 | ) |              |              | 1,186  |       |   |         | 15,342  |   |        |         |        |  
|                                                 |                                                            | Other, net                                                                             |   |           | 1,008        |   |               |              | 1,137   |   |              |              | (473   | )     |   |         |        |   |        |         | 1,672   |  
|                                                 |                                                            |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |  
|                                                 |                                                            | Cash provided by (used in) operating activities                                        |   |           | (10,411      | ) |               |              | 60,056  |   |              |              | 4,084  |       |   |         | (14,712 | ) |        |         | 39,017  |  
|CASH FLOWS FROM INVESTING ACTIVITIES:            |                                                            |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |   |         |         |   |        |        
|                                                 | Purchases and construction of property and equipment       |                                                                                        |   |          |              |   |               | (38,561      | )       |   |              |             |        |       |   |        |         |   |        | (38,561 | )      
|                                                 | Acquisitions of businesses, net of cash acquired and other |                                                                                        |   |          |              |   |               | (117         | )       |   |              |             |        |       |   |        |         |   |        | (117    | )      
|                                                 | Investment in and advances to subsidiaries                 |                                                                                        |   | (14,712   | )            |   |               |             |         |   |              |             |        |       |   | 14,712  |         |   |        |        |        
|                                                 |                                                            |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |  
|                                                 |                                                            | Cash used in investing activities                                                      |   |           | (14,712      | ) |               |              | (38,678 | ) |              |              |       |       |   |         | 14,712  |   |        |         | (38,678 | )
|CASH FLOWS FINANCING ACTIVITIES:                 |                                                            |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |   |         |         |   |        |        
|                                                 | Net borrowings under revolving credit agreement            |                                                                                        |   | 34,000    |              |   |               |             |         |   |              |             |        |       |   |        |         |   |        | 34,000  |        
|                                                 | Net repayments of other long-term debt                     |                                                                                        |   | (9,219    | )            |   |               | (10,579      | )       |   |              | (3,962       | )      |       |   |        |         |   |        | (23,760 | )      
|                                                 | Debt issuance and refinancing costs                        |                                                                                        |   | (251      | )            |   |               |             |         |   |              |             |        |       |   |        |         |   |        | (251    | )      
|                                                 | Stock purchase and options plans                           |                                                                                        |   | 593       |              |   |               |             |         |   |              |             |        |       |   |        |         |   |        | 593     |        
|                                                 |                                                            |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |  
|                                                 |                                                            | Cash provided by (used in) financing activities                                        |   |           | 25,123       |   |               |              | (10,579 | ) |              |              | (3,962 | )     |   |         |        |   |        |         | 10,582  |  
|                                                 |                                                            |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |  
|Increase in cash                                 |                                                            |                                                                                        |  |           |              |   | 10,799        |              |         |   | 122          |              |        |       |  |         |         |   | 10,921 |        
|Effect of exchange rate changes on cash balances |                                                            |                                                                                        |  |           |              |   |              |              |         |   | 629          |              |        |       |  |         |         |   | 629    |        
|Cash, beginning of year                          |                                                            |                                                                                        |  |           |              |   | 13,394        |              |         |   | 246          |              |        |       |  |         |         |   | 13,640 |        
|                                                 |                                                            |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |  
|Cash, end of year                                |                                                            | $                                                                                      |  |           |              | $ | 24,193        |              |         | $ | 997          |              |        | $     |  |         |         | $ | 25,190 |        
|                                                 |                                                            |                                                                                        |   |           |              |   |               |              |         |   |              |              |        |       |  

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



Executive Summary of Business








SM








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th












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Industry Data Survey of the Health and Fitness Club
Industry


Critical Accounting Policies




Results of Operations




|                                 |  |                    |         |  |                   |   |         |      |  |   |         |  |  |   |         | 
|-------------------------------- |  | ------------------ | ------- |  | ----------------- | - | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                                 |  | Three Months Ended |         |  | Nine Months Ended |  
|                                 |  | September 30,      |         |  | September 30,     |  
|                                 |  |                    |         |  |                   |  
|                                 |  | 2005               |         |  | 2004              |   |         | 2005 |  |   | 2004    | 
|                                 |  |                    |         |  |                   |   |         |      |  |   |         | 
|Net revenues                     |  |                    |         |  |                   |   |         |      |  |   |         |  |  |   |         | 
|Membership                       |  | $                  | 212,184 |  |                   | $ | 215,640 |      |  | $ | 657,540 |  |  | $ | 638,974 | 
|Personal training                |  |                    | 33,191  |  |                   |   | 31,408  |      |  |   | 97,034  |  |  |   | 93,559  | 
|                                 |  |                    |         |  |                   |   |         |      |  |   |         | 
|Membership services revenue      |  |                    | 245,375 |  |                   |   | 247,048 |      |  |   | 754,574 |  |  |   | 732,533 | 
|Retail products                  |  |                    | 12,366  |  |                   |   | 12,594  |      |  |   | 40,251  |  |  |   | 42,048  | 
|Miscellaneous                    |  |                    | 4,012   |  |                   |   | 5,140   |      |  |   | 12,664  |  |  |   | 14,720  | 
|                                 |  |                    |         |  |                   |   |         |      |  |   |         | 
|Net revenues                     |  |                    | 261,753 |  |                   |   | 264,782 |      |  |   | 807,489 |  |  |   | 789,301 | 
|Operating costs and expenses     |  |                    |         |  |                   |   |         |      |  |   |         |  |  |   |         | 
|Membership services              |  |                    | 177,553 |  |                   |   | 180,307 |      |  |   | 546,195 |  |  |   | 561,057 | 
|Retail products                  |  |                    | 13,133  |  |                   |   | 12,168  |      |  |   | 40,561  |  |  |   | 40,399  | 
|Advertising                      |  |                    | 13,241  |  |                   |   | 13,597  |      |  |   | 45,795  |  |  |   | 49,352  | 
|Information technology           |  |                    | 5,681   |  |                   |   | 5,415   |      |  |   | 17,373  |  |  |   | 14,256  | 
|Other general and administrative |  |                    | 16,898  |  |                   |   | 12,609  |      |  |   | 45,471  |  |  |   | 35,601  | 
|Depreciation and amortization    |  |                    | 16,488  |  |                   |   | 17,713  |      |  |   | 50,397  |  |  |   | 52,232  | 
|                                 |  |                    |         |  |                   |   |         |      |  |   |         | 
|                                 |  |                    | 242,994 |  |                   |   | 241,809 |      |  |   | 745,792 |  |  |   | 752,897 | 
|                                 |  |                    |         |  |                   |   |         |      |  |   |         | 
|Operating income                 |  | $                  | 18,759  |  |                   | $ | 22,973  |      |  | $ | 61,697  |  |  | $ | 36,404  | 
|                                 |  |                    |         |  |                   |   |         |      |  |   |         | 

27



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##### Table of Contents



|                                              |  |                    |       |  |                   |   |       |      |  |   |       |  |  |   |       | 
|--------------------------------------------- |  | ------------------ | ----- |  | ----------------- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                                              |  | Three Months Ended |       |  | Nine Months Ended |  
|                                              |  | September 30,      |       |  | September 30,     |  
|                                              |  |                    |       |  |                   |  
|                                              |  | 2005               |       |  | 2004              |   |       | 2005 |  |   | 2004  | 
|                                              |  |                    |       |  |                   |   |       |      |  |   |       | 
|Operating data                                |  |                    |       |  |                   |   |       |      |  |   |       |  |  |   |       | 
|Average monthly membership revenue per member |  | $                  | 19.10 |  |                   | $ | 19.31 |      |  | $ | 19.70 |  |  | $ | 19.17 | 
|Average number of members during the period   |  |                    | 3,704 |  |                   |   | 3,723 |      |  |   | 3,708 |  |  |   | 3,704 | 
|Number of members at end of period            |  |                    | 3,676 |  |                   |   | 3,708 |      |  |   | 3,676 |  |  |   | 3,708 | 
|Number of members joined during period        |  |                    | 270   |  |                   |   | 271   |      |  |   | 951   |  |  |   | 911   | 
|Fitness centers operating at end of period    |  |                    | 412   |  |                   |   | 414   |      |  |   | 412   |  |  |   | 414   | 

Summary of Revenue Recognition Method












| |                                                                     
| | --------------------------------------------------------------------
| | Comparison of the Three Months Ended September 30, 2005 and
    2004







| |   |                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Membership revenue decreased to $212.2 million from
    $215.6 million in 2004, a decrease of $3.4 million
    (2%) from the prior year. The decrease in membership revenue in
    the current year is primarily the result of a 1% decrease in the
    average number of members to 3.7 million for the 2005
    quarter.                             
|
| |  | Cash collections of membership revenue during the three months
    ended September 30, 2005 were $238.5 million, an
    increase of $8.9 million (3.9%). This increase is primarily
    the result of more members choosing the pay-as-you-go membership
    plan. See Note 3 to the Condensed Consolidated Financial
    Statements, Deferred Revenue.

28



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##### Table of Contents





| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Personal training revenue increased to $33.2 million from
    $31.4 million in 2004, an increase of
    $1.8 million (6%), primarily reflecting the
    Companys emphasis on growth in personal training services.
|
| |  | Retail products revenue decreased to $12.4 million from
    $12.6 million in 2004, a decrease of $.2 million (2%),
    due to reduced sales volume.                                                                
|
| |  | Miscellaneous revenue decreased to $4.0 million in 2005
    from $5.1 million in 2004. This was due to a reduction in
    sponsorship revenue.                                                                     





| |   |                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Membership services expenses for the three months ended
    September 30, 2005 decreased $2.7 million (1%) from
    2004, reflecting increases in occupancy and insurance costs
    offset by a reduction in personnel costs as a result of the
    Companys cost reduction initiatives. Membership services
    expenses also declined as a percentage of revenue from the
    comparable period.        
|
| |  | Retail products costs and expenses for the three months ended
    September 30, 2005 increased $0.9 million (7%) from
    2004. This was due to a write-down of retail inventory.                                                                                                                                                                                                                          
|
| |  | Advertising expenses for the three months ended September 30,
    2005 decreased $.4 million (3%) from 2004, as a result
    of cost controls and improved purchasing efficiencies with a new
    media firm.                                                                                                                                                                                              
|
| |  | Information technology expenses for the three months ended
    September 30, 2005 increased $.3 million (5%) from
    2004, as a result of costs associated with improved controls,
    the Sarbanes-Oxley Act of 2002 compliance and security
    enhancements.                                                                                                                                           
|
| |  | Other general and administrative expenses for the three months
    ended September 30, 2005 increased $4.3 million (34%)
    from 2004, primarily as a result of costs incurred in connection
    with the investigations and litigation related to the
    restatement of the Companys financial statements, as well
    as an increase in insurance costs.                                              
|
| |  | Depreciation expense for the three months ended September 30,
    2005 decreased $1.2 million (7%) to $16.5 from 2004,
    reflecting reduced capital expenditures, the impact of asset
    impairments and an increasing proportion of the Companys
    facilities that are in excess of 15 years old, which is the
    longest period over which the Company depreciates its leasehold
    improvements.







29



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##### Table of Contents





| |                                                                    
| | -------------------------------------------------------------------
| | Comparison of the Nine Months Ended September 30,
    2005 and 2004





| |   |                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Membership revenue increased to $657.5 million from
    $639.0 million in 2004, an increase of
    $18.5 million (3%) from the prior year. The increase
    in membership revenue in the current year is the result of a 3%
    increase in the average monthly membership revenue per member to
    $19.70 for 2005.
|
| |  | Cash collections of membership revenue during the nine months
    ended September 30, 2005 were $636.8 million, an
    increase of $10.6 million (2%). This increase is primarily
    the result of more members choosing the pay-as-you-go membership
    plan, Note 3, Deferred Revenue.                           
|
| |  | Personal training revenue increased to $97.0 million from
    $93.6 million in 2004, an increase of
    $3.4 million (4%), primarily reflecting the
    Companys emphasis on growth in personal training services.                                                                                                  
|
| |  | Retail products revenue decreased to $40.3 million from
    $42.0 million in 2004, a decrease of $1.7 million
    (4%), due to reduced sales volume.                                                                                                                                                                 
|
| |  | Miscellaneous revenue decreased to $12.7 million in 2005
    from $14.7 million in 2004, a decrease of
    $2.0 million (14%), primarily due to lower sponsorship
    revenue.                                                                                                                                       





| |   |                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Membership services expenses for the nine months ended
    September 30, 2005 decreased $14.9 million (3%)
    from 2004 due to a reduction in personnel costs as a result of
    the Companys cost reduction initiatives, partially offset
    by increases in occupancy and insurance costs.                                                                                                         
|
| |  | Retail products costs and expenses for the nine months ended
    September 30, 2005 increased $.2 million from 2004.
    This was due to a write down of retail inventory.                                                                                                                                                                                                                              
|
| |  | Advertising expenses for the nine months ended
    September 30, 2005 decreased $3.6 million (7%)
    from 2004 as a result of planned reductions in media spending
    and improved purchasing efficiencies with a new media firm.                                                                                                                                                                     
|
| |  | Information technology expenses for the nine months ended
    September 30, 2005 increased $3.1 million (22%) from
    2004 as a result of costs associated with improved controls, the
    Sarbanes-Oxley Act of 2002 compliance and security enhancements.                                                                                                                                            
|
| |  | Other general and administrative expenses for the nine months
    ended September 30, 2005 increased
    $9.9 million (28%) from 2004, primarily as a result of
    costs incurred in connection with the investigations and
    litigation related to the restatement of the Companys
    financial statements, increase in insurance costs, and costs
    related to the vesting of restricted stock.
|
| |  | Depreciation expense for the nine months ended
    September 30, 2005 decreased $1.8 million (3%)
    from 2004, reflecting reduced capital expenditures, the impact
    of asset impairments and an increasing proportion of the
    Companys facilities that are in excess of 15 years
    old, which is the longest period over which the Company
    depreciates its leasehold improvements.       



30



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##### Table of Contents









| |                                
| | -------------------------------
| | Liquidity and Capital Resources



|                                                |  |                    |         |   |                   |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                |  | Three Months Ended |         |   | Nine Months Ended |  
|                                                |  | September 30       |         |   | September 30      |  
|                                                |  |                    |         |   |                   |  
|                                                |  | 2005               |         |   | 2004              |   |         | 2005 |  |   | 2004    |  
|                                                |  |                    |         |   |                   |   |         |      |  |   |         |  
|Cash provided by operating activities           |  | $                  | (10,953 | ) |                   | $ | 5,076   |      |  | $ | 22,448  |   |  | $ | 39,017  |  
|Cash used in investing activities               |  | $                  | (10,172 | ) |                   | $ | (11,651 | )    |  | $ | (23,193 | ) |  | $ | (38,678 | )
|Cash provided by (used in) financing activities |  |                    | 4,293   |   |                   |   | 19,386  |      |  |   | (6,030  | ) |  |   | 10,582  |  
|                                                |  |                    |         |   |                   |   |         |      |  |   |         |  
|Increase (decrease) in cash and equivalents     |  | $                  | (16,832 | ) |                   | $ | 12,811  |      |  | $ | (6,775  | ) |  | $ | 10,921  |  
|                                                |  |                    |         |   |                   |   |         |      |  |   |         |  

7 8




| |     
| | ----
| | Debt



1 2 7 8




31



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##### Table of Contents













Risk Factors









|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures about Market
    Risk

Interest Rate Risk and Market Risk






Foreign Exchange Risk




32



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Disclosure Controls and Procedures


Controls and
Procedures








Changes in Internal Controls over Financial Reporting
(ICFR)




33



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##### Table of Contents






PART II. OTHER INFORMATION







|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

Litigation




| |                                  
| | ---------------------------------
| | Arbitration Action with Household









| |      
| | -----
| | Other










|        |                                                                
|------- | ---------------------------------------------------------------
|Item 2. | Unregistered Sales of Equity Securities and Use of
    Proceeds

Recent Sales of Unregistered Securities






34



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##### Table of Contents







7 8


Repurchases of Common Stock









|        |                                
|------- | -------------------------------
|Item 3. | Defaults Upon Senior Securities








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders

7 8 1 2 7 8 7 8 1 2 7 8


|                                             |  |                  |             |  |                  |  |             |                   |  |  |                  |  |  |  |            | 
|-------------------------------------------- |  | ---------------- | ----------- |  | ---------------- |  | ----------- | ----------------- |  |  | ---------------- |  |  |  | ---------- | 
|                                             |  | Principal Amount |             |  | Principal Amount |  |             | Principal Amount  |  |  | Principal Amount | 
|Notes                                        |  | Outstanding ($)  |             |  | Voted For ($)    |  |             | Voted Against ($) |  |  | Abstained ($)    | 
|                                             |  |                  |             |  |                  |  |             |                   |  |  |                  | 
|97/8%
    Senior Subordinated Notes due 2007 |  |                  | 299,764,000 |  |                  |  | 277,810,000 |                   |  |  | N/A              |  |  |  | 21,954,000 | 
|101/2%
    Senior Notes due 2011             |  |                  | 235,000,000 |  |                  |  | 228,870,000 |                   |  |  | N/A              |  |  |  | 6,130,000  | 






|        |                  
|------- | -----------------
|Item 5. | Other Information



35



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##### Table of Contents








|        |         
|------- | --------
|Item 6. | Exhibits

Exhibits:


| |    |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2  | .1 |  | Purchase Agreement, dated September 16, 2005, among Bally
    Total Fitness Holding Corporation, Bally Total Fitness
    Corporation, Crunch Fitness International, Inc.,
    Health & Tennis Corporation of New York, Inc.,
    Jack La Lanne Fitness Centers, Inc., Soho Ho, LLC, Crunch
    L.A. LLC, 708 Gym, LLC, West Village Gym at the Archives
    LLC, 59th Street Gym, LLC, Flambe LLC, Ace, LLC, Crunch
    World, LLC, Crunch CFI, LLC, and AGT Crunch Acquisition LLC
    (incorporated by reference to Exhibit 2.2 to the
    Companys Current Report on Form 8-K, file no.
    001-13997, dated September 19, 2005).                                           
|
| | 4  | .1 |  | Supplemental Indenture, dated as of September 2, 2005,
    among Bally Total Fitness Holding Corporation and U.S. Bank
    National Association, as trustee for the Registrants
    101/2% Senior
    Notes due 2011 (incorporated by reference to Exhibit 4.1 to
    the Companys Current Report on Form 8-K, file
    no. 001-13997, dated September 7, 2005).                                                                                                                                                                                                                                                                                                              
|
| | 4  | .2 |  | Supplemental Indenture, dated as of September 2, 2005,
    among Bally Total Fitness Holding Corporation and U.S. Bank
    National Association, as trustee for the Registrants
    97/8%
    Senior Subordinated Notes due 2007 (incorporated by reference to
    Exhibit 4.2 to the Companys Current Report on
    Form 8-K, file no. 001-13997, dated September 7,
    2005).                                                                                                                                                                                                                                                                                              
|
| | 10 | .1 |  | Consent dated as of August 9, 2005, under the Credit
    Agreement, dated as of November 18, 1997, as amended and
    restated as of October 14, 2004, as amended by the First
    Amendment and Waiver dated March 31, 2005, among Bally
    Total Fitness Holding Corporation, a Delaware corporation, the
    lenders parties thereto, JPMorgan Chase Bank, N.A., as agent for
    the lenders, Deutsche Bank Securities, Inc., as syndication
    agent, and LaSalle Bank National Association, as documentation
    agent (incorporated by reference to Exhibit 10.1 to the
    Companys Current Report on Form 8-K, file no.
    001-13997, dated as of August 12, 2005).
|
| | 10 | .2 |  | Second Amendment and Waiver dated as of August 24, 2005,
    under the Credit Agreement, dated as of November 18, 1997,
    as amended and restated as of October 14, 2004, among Bally
    Total Fitness Holding Corporation, the lenders parties thereto,
    JPMorgan Chase Bank, N.A., as agent for the lenders, Deutsche
    Bank Securities, Inc., as syndication agent, and LaSalle Bank
    National Association, as documentation agent (incorporated by
    reference to Exhibit 10.1 to the Companys Current
    Report on Form 8-K, file no. 001-13997, dated as of
    August 25, 2005).                                                                          
|
| | 10 | .3 |  | Consent Agreement dated as of August 24, 2005 by and
    between Bally Total Fitness Holding Corporation and Special
    Value Bond Fund II, LLC, Special Value Absolute Return
    Fund, LLC, Special Value Opportunities Fund, LLC and Special
    Value Expansion Fund, LLC. (incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K, file no. 001-13997, dated November 14, 2005).                                                                                                                                                                                                                                                   
|
| | 10 | .4 |  | Consent Agreement dated as of August 24, 2005 by and
    between Bally Total Fitness Holding Corporation and Cascade
    Investment, LLC (incorporated by reference to Exhibit 10.2
    to the Companys Current Report on Form 8-K, file no.
    001-13997, dated November 14, 2005).                                                                                                                                                                                                                                                                                                                                                                                          
|
| | 10 | .5 |  | Consent Agreement dated as of August 24, 2005 by and
    between Bally Total Fitness Holding Corporation and Arrow
    Investment Partners (incorporated by reference to
    Exhibit 10.3 to the Companys Current Report on
    Form 8-K, file no. 001-13997, dated November 14, 2005).                                                                                                                                                                                                                                                                                                                                                                                        
|
| | 10 | .6 |  | Consent Agreement dated as of August 24, 2005 by and
    between Bally Total Fitness Holding Corporation and
    Bill & Melinda Gates Foundation (incorporated by
    reference to Exhibit 10.4 to the Companys Current
    Report on Form 8-K, file no. 001-13997, dated
    November 14, 2005).                                                                                                                                                                                                                                                                                                                                                                              
|
| | 10 | .7 |  | Consent Agreement dated as of August 24, 2005 by and
    between Bally Total Fitness Holding Corporation and Everest
    Capital Limited as agent for HFR ED Advantage Master Trust,
    Everest Capital Event Fund, LP, GMAM Investment Funds
    Trust II and Everest Capital Senior Debt Fund, LP
    (incorporated by reference to Exhibit 10.5 to the
    Companys Current Report on Form 8-K, file no.
    001-13997, dated November 14, 2005).                                                                                                                                                                                                                          

36



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##### Table of Contents



| |    |    |  |                                                                                                                                                                                                               
| | -- | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 31 | .1 |  | Certification of the Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002, filed
    herewith.                                                                               
|
| | 31 | .2 |  | Certification of the Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002, filed
    herewith.                                                                               
|
| | 32 | .1 |  | Certification of the Chief Executive Officer and Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
    filed herewith.

37



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##### Table of Contents






SIGNATURE PAGE






| |                            
| | ---------------------------
| | BALLY TOTAL FITNESS HOLDING
| | CORPORATION                
| | Registrant                 



| |     |                    
| | --- | -------------------
| | By: | /s/ Carl J. Landeck

| |                                               
| | ----------------------------------------------
| |                                               
| | Carl J. Landeck                               
| | Senior Vice President, Chief Financial Officer
| | (principal financial officer)                 



38