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Delaware		7997		20-0640002
(State or other jurisdiction of incorporation or organization)		(Primary standard industrial classification code number)		(I.R.S. employer identification number)

Julie M. Allen, Esq.		William M. Hartnett, Esq.
James P. Gerkis, Esq.		Cahill Gordon & Reindel llp
Proskauer Rose LLP		80 Pine Street
1585 Broadway		New York, New York 10005
New York, New York 10036		Telephone: (212) 701-3000
Telephone: (212) 969-3000		Facsimile: (212) 269-5420
Facsimile: (212) 969-2900

Title of Each Class of			Proposed Maximum			Amount of
Securities to Be Registered			Aggregate Offering Price(1)			Registration Fee(2)
Common Stock, par value $0.001 per share			$172,500,000			$20,303.25

(1)	Estimated solely for purpose of calculating the registration fee for this offering in accordance with Rule 457(o) under the Securities Act of 1933, as amended.
(2)	Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Underwriting

Discounts and

Proceeds to

Price to Public

Commissions

Town Sports

Per share

$

$

$

Total

$

$

$

Credit Suisse First Boston	Deutsche Bank Securities

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		Page
Prospectus Summary			1
The Offering			6
Summary Consolidated Financial and Other Data			7
Risk Factors			11
Forward-Looking Statements			20
Industry and Market Data			20
Use of Proceeds			21
Dividend Policy			22
Capitalization			23
Dilution			24
Selected Consolidated Financial and Other Data			25
Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Business			50
Management			67
Related Party Transactions			74
Principal and Selling Stockholders			76
Description of Capital Stock			78
Shares Eligible for Future Sale			80
Material United States Federal Income and Estate Tax Consequences to Non-U.S. Holders			82
Underwriting			85
Legal Matters			89
Experts			89
Where You Can Find Additional Information			89
Index to Consolidated Financial Statements			F-1
EX-23.1: CONSENT OF PRICEWATERHOUSECOOPERS LLP
EX-23.2: CONSENT OF SQUIRE, LEMKIN + O'BRIEN LLP

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	We may be unable to attract and retain members, which could have a negative effect on our business.

	Our geographic concentration heightens our exposure to adverse regional developments.

	The level of competition in the fitness club industry could negatively impact our revenue growth rates and profits.

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	If we are unable to identify and acquire suitable sites for new clubs, our revenue growth rate and profits may be negatively impacted.

	We may experience prolonged periods of losses in our recently opened clubs.

	We could be subject to claims related to health or safety risks at our clubs.

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	Loss of key personnel and/or failure to attract and retain highly qualified personnel could make it more difficult for us to generate cash flow from operations and service our debt.

	We are subject to extensive government regulation and changes in these regulations could have a negative effect on our financial condition.

	Terrorism and the uncertainty of armed conflicts may have a material adverse effect on clubs and our operating results.

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	Disruptions and failures involving our proprietary information systems could cause customer dissatisfaction and adversely affect our billing and other administrative functions.

	The opening of new clubs by us in existing locations may negatively impact our comparable club revenue increases and our operating margins.

	Our continued growth could place strains on our management, employees, information systems and internal controls, which may adversely impact our business and the value of your investment.

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	Our cash and cash equivalents are concentrated in one bank.

	The requirements of being a company with listed public equity may strain our resources and distract our management.

	Insiders will continue to have substantial control over us after this offering, which could limit your ability to influence the outcome of key transactions, including a change of control.

	Our substantial leverage may impair our financial condition and we may incur significant additional debt.

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	•	making it more difficult for us to satisfy our obligations with respect to our outstanding indebtedness;
	•	increasing our vulnerability to general adverse economic and industry conditions;
	•	limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions of clubs and other general corporate requirements;
	•	requiring a substantial portion of our cash flow from operations for the payment of interest on our debt and reducing our ability to use our cash flow to fund working capital, capital expenditures, acquisitions of new clubs and general corporate requirements; and
	•	limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.

	After giving effect to our use of the net proceeds from this offering, servicing our debt will require, in aggregate, approximately $           million (comprised of principal and interest) of cash, and our ability to generate sufficient cash flows depends upon many factors, some of which are beyond our control.

	We may not have access to the cash flow and other assets of our subsidiaries that may be needed to make payments on our outstanding senior discount notes.

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	Covenant restrictions under our indebtedness may limit our ability to operate our business and, in such an event, we may not have sufficient assets to settle our indebtedness.

	•	borrow money;
	•	pay dividends or make distributions;
	•	purchase or redeem stock;
	•	make investments and extend credit;
	•	engage in transactions with affiliates;
	•	engage in sale-leaseback transactions;
	•	consummate certain asset sales;
	•	effect a consolidation or merger or sell, transfer, lease or otherwise dispose of all or substantially all of our assets; and
	•	create liens on our assets.

	•	a ratio not less than ranging from 2.50:1.00 to 3.50:1.00, depending on the period, of EBITDA, as that term is defined in the credit agreement governing our senior secured revolving credit facility, to interest expense;
	•	a ratio not greater than ranging from 4.00:1.00 to 2.75:1.00, depending on the period, of indebtedness to EBITDA; and
	•	a ratio not greater than 1.00:1.00 of senior secured indebtedness to EBITDA.

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	We cannot assure you that a market will develop for our common stock or what the market price of our common stock will be.

	The price of our common stock may be volatile.

	•	price and volume fluctuations in the overall stock market from time to time;
	•	significant volatility in the market price and trading volume of health and fitness companies;
	•	actual or anticipated changes in our earnings or fluctuations in our operating results;
	•	actual or anticipated changes in the expectations of securities analysts;
	•	general economic conditions and trends;
	•	the seasonality of our business;
	•	the opening of new clubs;
	•	major catastrophic events;
	•	loss of external funding sources;
	•	sales of large blocks of our stock or sales by insiders; or
	•	departures of key personnel.

	We do not anticipate paying cash dividends on our shares of common stock in the foreseeable future.

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	Sales of outstanding shares of our common stock into the market in the future could cause the market price of our common stock to drop significantly, even if our business is doing well.

	If you purchase shares of our common stock in this offering, you will experience immediate dilution.

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	•	on an actual basis; and
	•	on a pro forma basis to give effect to our sale of                      shares of our common stock in this offering at an assumed public offering price of $           per share, after deducting the estimated underwriting discounts and commissions and our estimated offering expenses, and our application of the estimated net proceeds as described in the “Use of Proceeds” section of this prospectus.

		As of March 31, 2005
		Actual				Pro Forma
		(In thousands, except
		share and per share data)
Cash and cash equivalents		$	71,778			$
Senior secured revolving credit facility(1)		$	—			$	—
Long-term debt (senior notes), including current installments			255,000
Long-term debt (senior discount notes), including current installments			141,280
Long-term debt (other), including current installments			3,683
Total long-term debt, including current installments			399,963
Stockholders’ (deficit) equity:
Common stock, $0.001 par value; 2,500,000 shares authorized; 1,309,123 shares issued and outstanding, actual;            shares issued and outstanding, pro forma			1
Additional paid-in capital			(114,087	)
Unearned compensation			(274	)
Accumulated other comprehensive income (currency translation adjustment)			731
Retained earnings (accumulated deficit)			(3,563	)
Total stockholders’ (deficit) equity			(117,192	)
Total capitalization		$	282,771			$

	(1)	$44,500 of available borrowings, net of $5,500 of outstanding letters of credit.

	•	68,446 shares of common stock issuable upon exercise of options at a weighted average exercise price of $84.65 per share; and
	•	an additional 24,177 shares of common stock reserved for issuance under our stock option plan.

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Assumed initial public offering price per share							$
	Pro forma net tangible book value per share as of March 31, 2005		$
	Increase per share attributable to new investors
Pro forma net tangible book value per share after this offering
Dilution per share to new investors							$

										Total
		Shares Purchased								Consideration
																		Average Price
		Number				Percent				Amount				Percent				Per Share
Existing stockholders								%		$						%		$
New investors
																		$
Total							100.0	%		$					100.0	%

	•	68,446 shares of our common stock issuable upon exercise of options outstanding as of March 31, 2005 at a weighted average exercise price of $84.65 per share; and
	•	an additional 24,177 shares of our common stock reserved for issuance under our stock option plan.

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																							Three Months Ended
			Year Ended December 31,																				March 31,
			2000				2001				2002				2003				2004				2004				2005
Statement of Operations Data:
Revenues			$	222,776			$	280,382			$	318,055			$	341,172			$	353,031			$	86,128			$	93,846
Operating expenses:
	Payroll and related			90,801				112,766				129,105				130,585				138,302				36,258				36,396
	Club operating			68,806				88,941				99,113				111,069				116,847				27,898				31,449
	General and administrative			14,626				18,785				21,368				21,995				24,719				6,226				6,677
	Depreciation and amortization(1)			26,248				32,185				31,748				34,927				36,869				9,117				9,739
	Goodwill impairment(2)			—				—				—				—				2,002				2,002				—
Operating income				22,295				27,705				36,721				42,596				34,292				4,627				9,585
Loss on extinguishment of debt(3)				—				—				—				7,773				—				—				—
Interest expense, net of interest income				13,120				14,527				16,421				23,226				38,600				8,638				9,750
Equity in the earnings of investees and rental income				(1,052	)			(1,251	)			(1,372	)			(1,369	)			(1,493	)			(336	)			(470	)
Income (loss) from continuing operations before provision for (benefit from) corporate income taxes				10,227				14,429				21,672				12,966				(2,815	)			(3,675	)			305
Provision for (benefit from) corporate income taxes				5,031				6,853				9,709				5,537				1,090				(1,617	)			126
Income (loss) from continuing operations				5,196				7,576				11,963				7,429				(3,905	)			(2,058	)			179

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																							Three Months Ended
			Year Ended December 31,																				March 31,
			2000				2001				2002				2003				2004				2004				2005
Loss from discontinued operations(4) (including loss on club closure of $996 in 2002), net of income tax benefit of $551				(365	)			(530	)			(767	)			—				—				—				—
Cumulative effect of change in accounting principle, net of income tax benefit of $612(5)				—				—				(689	)			—				—				—				—
Net income (loss)				4,831				7,046				10,507				7,429				(3,905	)			(2,058	)			179
Accreted dividends on preferred stock				(9,016	)			(10,201	)			(11,543	)			(10,984	)			(784	)			(783	)			—
Net income (loss) attributable to common stockholders			$	(4,185	)		$	(3,155	)		$	(1,036	)		$	(3,555	)		$	(4,689	)		$	(2,841	)		$	179
Basic earnings (loss) per share:
	Continuing operations		$	4.24			$	6.09			$	9.59			$	5.95			$	(3.01	)		$	(1.63	)		$	0.14
	Discontinued operations		$	(0.30	)		$	(0.43	)		$	(0.61	)		$	—			$	—			$	—			$	—
	Change in accounting principle		$	—			$	—			$	(0.55	)		$	—			$	—			$	—			$	—
	Net income (loss)		$	(3.42	)		$	(2.53	)		$	(0.83	)		$	(2.85	)		$	(3.61	)		$	(2.26	)		$	0.14
Diluted earnings (loss) per share(6):
	Continuing operations		$	4.24			$	6.09			$	9.18			$	5.95			$	(3.01	)		$	(1.63	)		$	0.14
	Discontinued operations		$	(0.30	)		$	(0.43	)		$	(0.59	)		$	—			$	—			$	—			$	—
	Change in accounting principle		$	—			$	—			$	(0.53	)		$	—			$	—			$	—			$	—
	Net income (loss)		$	(3.42	)		$	(2.53	)		$	(0.76	)		$	(2.85	)		$	(3.61	)		$	(2.26	)		$	0.14
Weighted average number of shares used in calculating earnings (loss) per share:
	Basic			1,225,453				1,244,775				1,247,674				1,247,674				1,299,332				1,259,197				1,312,289
	Diluted(6)			1,225,453				1,244,775				1,307,228				1,247,674				1,299,332				1,259,197				1,314,562

		As of December 31,
																						As of March 31,
		2000				2001				2002				2003				2004				2005
Balance Sheet Data:
Cash and cash equivalents		$	3,365			$	5,458			$	5,551			$	40,802			$	57,506			$	71,778
Working capital (deficit)			(38,414	)			(42,565	)			(43,192	)			(9,087	)			7,259				12,149
Total assets			256,085				296,005				314,250				362,199				384,771				399,596
Long-term debt, including current installments			144,498				163,979				160,943				261,877				396,461				399,963
Redeemable senior preferred stock			48,029				54,687				62,125				—				—				—
Redeemable Series A preferred stock(7)			26,580				30,432				34,841				39,890				—				—
Total stockholders’ deficit(7)(8)			(30,491	)			(32,797	)			(31,740	)			(34,294	)			(117,017	)			(117,192	)

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																							Three Months Ended
			Year Ended December 31,																				March 31,
			2000				2001				2002				2003				2004				2004				2005
Cash Flow Data:
Cash provided by (used in):
	Operating activities		$	42,601			$	45,073			$	54,338			$	58,870			$	57,125			$	19,692			$	24,851
	Investing activities			(72,076	)			(59,083	)			(43,715	)			(43,351	)			(40,686	)			(8,241	)			(10,190	)
	Financing activities			5,715				16,103				(10,530	)			19,732				265				1,410				(389	)
Other Data:
Non-cash rental expense, net of non-cash rental income				2,976				4,224				1,670				1,650				525				332				190
Non-cash compensation expense incurred in connection with stock options				1,836				1,149				1,207				198				64				10				15
EBITDA(9)				49,230				60,611				68,385				71,119				72,654				14,080				19,794
EBITDA margin(10)				22.1	%			21.6	%			21.5	%			20.8	%			20.6	%			16.3	%			21.1	%

																						Three Months Ended
		Year Ended December 31,																				March 31,
		2000				2001				2002				2003				2004				2004				2005
Club and Membership Data:
New clubs opened			9				12				8				3				5				3				3
Clubs acquired(11)			11				2				4				—				3				—				—
Clubs closed, relocated or sold			(1	)			—				(2	)			(3	)			—				—				—
Wholly owned clubs operated at end of period			103				117				127				127				135				130				138
Total clubs operated at end of period(12)			105				119				129				129				137				132				140
Members at end of period(13)			278,000				317,000				342,000				342,000				383,000				365,000				398,000
Comparable club revenue increase (decrease)(14)			22.6	%			14.5	%			5.8	%			3.5	%			2.5	%			(0.1	)%			6.0	%
Mature club revenue increase (decrease)(15)			18.6	%			12.3	%			4.1	%			1.6	%			2.1	%			(0.5	)%			4.8	%
Revenue per weighted average club(16)		$	2,403			$	2,592			$	2,581			$	2,680			$	2,680			$	668			$	685
Average revenue per member(17)			917				937				964				987				960				243				240

	(1)	Effective January 1, 2002 we implemented Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” In connection with this implementation, we no longer amortize goodwill, but rather test it for impairment when circumstances indicate it is necessary, and at a minimum annually. The following table reconciles reported net income to net income adjusted for the impact of SFAS No. 142 for the periods presented:

			Year Ended
			December 31,
			2000				2001
Net income as reported			$	4,831			$	7,046
Goodwill amortization				3,545				4,436
Deferred tax benefit				(1,064	)			(1,344	)
Accreted dividends on preferred stock				(9,016	)			(10,201	)
Net loss attributable to common stockholders as adjusted			$	(1,704	)		$	(63	)
(Loss) per share:
	Basic		$	(1.39	)		$	(0.05	)
	Diluted		$	(1.39	)		$	(0.05	)

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	(2)	In the quarter ended March 31, 2004, we performed our annual impairment test. Goodwill impairment testing requires a comparison between the carrying value and fair value of reportable goodwill. If the carrying value exceeds the fair value, goodwill is considered impaired. The amount of the impairment loss is measured as the difference between the carrying value and the implied fair value of goodwill, which is determined based on purchase price allocation. As a result of this review, we determined that the goodwill at one of our remote clubs was not recoverable. The goodwill impairment associated with this underperforming club amounted to $2,002. A deferred tax benefit of $881 was recorded in connection with this impairment. Since this club is remote from one of our clusters, it does not benefit from the competitive advantage that our clustered clubs have, and as a result it is more susceptible to competition. We have reduced our projections of future cash flows of this club to take into account the impact of a recent opening of a competitor.
	(3)	The $7,773 loss on extinguishment of debt recorded in 2003 is a result of the refinancing of our debt on April 16, 2003. In connection with this refinancing, we wrote off $3,700 of deferred financing costs related to extinguished debt, paid a $3,000 call premium and incurred $1,000 of additional interest on TSI, Inc.’s 93/4% notes representing interest incurred during the 30-day redemption notification period.
	(4)	In the quarter ended December 31, 2002, we closed or sold two remote underperforming, wholly owned clubs. In connection with the closure of one of the clubs, we recorded club closure costs of $996 related to the write-off of fixed assets. We have accounted for these two clubs as discontinued operations and, accordingly, the results of their operations have been classified as discontinued in our consolidated statement of operations and prior periods have been reclassified in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

	Revenues and loss from operations from these discontinued clubs was as follows for the periods presented:

		Year Ended December 31,
		2000				2001				2002
Revenues		$	1,217			$	1,660			$	1,607
Loss from operations of discontinued clubs (including loss on club closure of $996 in 2002)			(597	)			(894	)			(1,318	)
Benefit from corporate income tax			(232	)			(364	)			(551	)
Loss from discontinued operations		$	(365	)		$	(530	)		$	(767	)

	(5)	Effective January 1, 2002, we implemented SFAS No. 142. In connection with the SFAS No. 142 transitional impairment test, we recorded a $1,300 write-off of goodwill. A deferred tax benefit of $612 was recorded as a result of this goodwill write-off, resulting in a net cumulative effect of change in accounting principle of $689 in 2002. The write-off of goodwill related to four remote underperforming clubs. The impairment test was performed with discounted estimated future cash flows as the criteria for determining fair market value. The impairment loss recorded was measured by comparing the carrying value to the fair value of impaired goodwill.
	(6)	The diluted weighted average number of shares used in calculating earnings (loss) per share is the weighted average number of shares of common stock plus the weighted average conversion of any dilutive common stock equivalents, such as the assumed weighted average exercise of dilutive stock options using the treasury stock method. For the years ended December 31, 2000, 2001, 2003 and 2004 and the three months ended March 31, 2004, these common stock equivalents were antidilutive and have been excluded from the diluted weighted average number of shares. For the year ended December 31, 2002 and the three months ended March 31, 2005, the shares issuable upon the exercise of stock options were dilutive. The number of shares excluded from the computation of diluted earnings per share was 64,286, 60,812, 52,807 and 15,191 for the years ended December 31, 2000, 2001, 2003 and 2004, respectively, and 38,710 for the three months ended March 31, 2004. For the year ended December 31, 2002 and the three months ended March 31,

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		2005, non-cash compensation expense of $38 and $9, respectively, has been added back to net income (loss) attributable to common stockholders in determining diluted earnings per share.

	The following table summarizes the weighted average number of shares of common stock outstanding for basic and diluted earnings per share computations:

														Three Months Ended
		Year Ended December 31,												March 31,
		2002				2003				2004				2004				2005
Weighted average number of shares outstanding — basic			1,247,674				1,247,674				1,299,332				1,259,197				1,312,289
Effect of dilutive stock options			59,554				—				—				—				2,273
Weighted average number of shares outstanding — diluted			1,307,228				1,247,674				1,299,332				1,259,197				1,314,562

	(7)	We had 153,637 shares of Series A Redeemable Preferred Stock (“Series A stock”) outstanding at December 31, 2000, 2001, 2002 and 2003. We have reclassified our 2001 financial statements to account for a redemption feature included in the Series A stock, in accordance with the guidance in EITF Topic No. D-98, “Classification and Measurement of Redeemable Securities” (“EITF Topic No. D-98”). EITF Topic No. D-98 provides additional guidance on the appropriate classification of redeemable preferred stock upon the occurrence of an event that is not solely within the control of an issuer. EITF Topic No. D-98 requires retroactive application in the first fiscal quarter ending after December 15, 2001 by reclassifying the financial statements of prior periods. The carrying value of the Series A stock, which was previously presented as a component of stockholders’ deficit, has been reclassified as redeemable preferred stock outside of stockholders’ deficit. The reclassification of the 2001 financial statements for the Series A stock had no effect on our net income, net loss attributable to common stockholders, cash flow provided by operations or total assets. The following sets forth the overall effect of the reclassification on our stockholders’ deficit:

		As of December 31,
		2000				2001
Stockholders’ deficit prior to reclassification		$	(3,911	)		$	(2,365	)
Reclassification of Series A stock			(26,580	)			(30,432	)
Stockholders’ deficit after the reclassification		$	(30,491	)		$	(32,797	)

	The balance sheet data for all periods presented have been adjusted to reflect the above reclassification.

	(8)	In 2004, we paid a common stock distribution totaling $68,900, or $52.50 per share.
	(9)	EBITDA consists of net income (loss) plus interest expense, net of interest income, provision for (benefit from) corporate income taxes and depreciation and amortization. This term, as we define it, may not be comparable to a similarly titled measure used by other companies and is not a measure of performance presented in accordance with generally accepted accounting principles (GAAP). We use EBITDA as a measure of operating performance. EBITDA should not be considered as a substitute for net income, operating income, cash flows provided by operating activities or other income or cash flow data prepared in accordance with GAAP. The funds depicted by EBITDA are not necessarily available for discretionary use if they are reserved for particular capital purposes, to maintain compliance with debt covenants, to service debt or to pay taxes. Additional details related to EBITDA are provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures.”

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	The following table reconciles net income (loss), the most directly comparable GAAP measure, to EBITDA:

																							Three Months Ended
			Year Ended December 31,																				March 31,
			2000				2001				2002				2003				2004				2004				2005
Net income (loss)			$	4,831			$	7,046			$	10,507			$	7,429			$	(3,905	)		$	(2,058	)		$	179
	Interest expense, net of interest income			13,120				14,527				16,421				23,226				38,600				8,638				9,750
	Provision for (benefit from) corporate income taxes			5,031				6,853				9,709				5,537				1,090				(1,617	)			126
	Cumulative effect of change in accounting principle			—				—				689				—				—				—				—
	Loss from discontinued operations			365				530				767				—				—				—				—
	Equity in the earnings of investees and rental income			(1,052	)			(1,251	)			(1,372	)			(1,369	)			(1,493	)			(336	)			(470	)
	Loss on extinguishment of debt			—				—				—				7,773				—				—				—
Operating income				22,295				27,705				36,721				42,596				34,292				4,627				9,585
	Loss from discontinued operations			(365	)			(530	)			(767	)			—				—				—				—
	Equity in the earnings of investees and rental income			1,052				1,251				1,372				1,369				1,493				336				470
	Cumulative effect of change in accounting principle			—				—				(689	)			—				—				—				—
	Loss on extinguishment of debt			—				—				—				(7,773	)			—				—				—
	Depreciation and amortization			26,248				32,185				31,748				34,927				36,869				9,117				9,739
EBITDA			$	49,230			$	60,611			$	68,385			$	71,119			$	72,654			$	14,080			$	19,794

(10)	EBITDA margin is the ratio of EBITDA to total revenue.
(11)	During 2000, we acquired two formerly partly owned clubs and relocated one club upon expiration of its lease.
(12)	Includes wholly owned and partly owned clubs. In addition, as of December 31, 2004 and March 31, 2005, we managed four university fitness clubs in which we did not have an equity interest.
(13)	Represents members at wholly owned and partly owned clubs.
(14)	Total revenue for a club is included in comparable club revenue increase (decrease) beginning on the first day of the thirteenth full calendar month of the club’s operation.
(15)	We define mature club revenue as revenue from clubs operated by us for more than 24 months.
(16)	Revenue per weighted average club is calculated as total revenue divided by the product of the total number of clubs and their weighted average months in operation as a percentage of the period.
(17)	Average revenue per member is total revenue for the period divided by the average number of memberships for the period, where average number of memberships for the period is derived by dividing the sum of the total memberships at the end of each month during the period by the total number of months in the period.

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	•	Our largest sources of revenue are membership revenues consisting of dues and initiation fees paid by our members. This comprises 83.6% and 82.8% of our total revenue for the year ended December 31, 2004 and the three months ended March 31, 2005, respectively. We recognize revenue from membership dues in the month when the services are rendered. Over 90% of our

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		members pay their monthly dues by electronic funds transfer, or EFT, while the balance pay annually in advance. We recognize revenue from initiation fees over the expected average life of the membership, which is 24 months. It is important therefore to operate facilities that are convenient, offer good price/value relationship and have a wide variety of fitness service offerings in order to attract and retain members at each facility. More recently, our initiation fees recognized per new member sale have been depressed by our efforts to combat discounting by competitors in certain of our markets, as well as our offering of commit memberships for a fixed term at a discounted initial fee.
	•	We generated 15.0% and 16.5% of our revenue for the year ended December 31, 2004 and the three months ended March 31, 2005, respectively, from ancillary club revenue. Ancillary club revenue consists of personal training, programming for children, group fitness training and other member activities, as well as sales of miscellaneous sports products. This total ancillary club revenue stream has increased as a percentage of total revenue more recently as we have focused on increasing revenue per member from our maturing club base.

															Three Months Ended
			Year Ended December 31,												March 31,
			2002				2003				2004				2004				2005
			(In thousands)
Membership dues			$	255,501			$	273,334			$	282,716			$	68,981			$	74,577
Initiation fees				14,360				13,892				12,439				3,217				3,078
Membership revenue				269,861				287,226				295,155				72,198				77,655
Personal training revenue				28,450				31,170				34,821				8,489				10,380
Other ancillary club revenue				16,481				17,269				18,199				4,618				4,796
Ancillary club revenue				44,931				48,439				53,020				13,107				15,176
Total club revenue				314,792				335,665				348,175				85,305				92,831
	Fees and Other revenue			2,238				2,707				4,856				823				1,015
	Business interruption insurance proceeds			1,025				2,800				—				—				—
Total revenue			$	318,055			$	341,172			$	353,031			$	86,128			$	93,846

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																							Three Months Ended
			Year Ended December 31,																				March 31,
			2000				2001				2002				2003				2004				2004				2005
															(In thousands)
Operating income			$	22,295			$	27,705			$	36,721			$	42,596			$	34,292			$	4,627			$	9,585
	Increase (decrease) over prior period			n/a				24.3	%			32.5	%			16.0	%			(19.5	)%			(66.4	)%			107.2	%
Net income (loss)			$	4,831			$	7,046			$	10,507			$	7,429			$	(3,905	)		$	(2,058	)		$	179
	Increase (decrease) over prior period			n/a				45.8	%			49.1	%			(29.3	)%			(152.6	)%			(178.7	)%			108.7	%
Cash flows provided by operating activities			$	42,601			$	45,073			$	54,338			$	58,870			$	57,125			$	19,692			$	24,851
	Increase (decrease) over prior period			n/a				5.8	%			20.6	%			8.3	%			(3.0	)%			(16.6	)%			26.2	%
EBITDA			$	49,230			$	60,611			$	68,385			$	71,119			$	72,654			$	14,080			$	19,794
	Increase (decrease) over prior period			n/a				23.1	%			12.8	%			4.0	%			2.2	%			(37.3	)%			40.6	%

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																						Three Months
		Year Ended December 31,																				Ended
																						March 31,
		2000				2001				2002				2003				2004				2005
Wholly owned clubs operated at beginning of period			84				103				117				127				127				135
New clubs opened			9				12				8				3				5				3
Clubs acquired(1)			11				2				4				—				3				—
Clubs closed, relocated or sold			(1	)			—				(2	)			(3	)			—				—
Wholly owned clubs operated at end of period			103				117				127				127				135				138
Total clubs operated at end of period(2)			105				119				129				129				137				140

(1)	During 2000, we acquired two formerly partly owned clubs and relocated one club upon expiration of its lease.
(2)	Includes wholly owned and partly owned clubs. In addition, as of December 31, 2004 and March 31, 2005, we managed four university fitness clubs in which we did not have an equity interest.

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			Mature								Comparable
			Club Revenue								Club Revenue
			Quarter				Full Year				Quarter				Full Year
2002
	Q1			3.8	%							7.4	%
	Q2			4.1	%							6.6	%
	Q3			3.3	%							5.1	%
	Q4			0.9	%			4.1	%			3.9	%			5.8	%
2003
	Q1			1.8	%							6.2	%
	Q2			(0.2	)%							3.6	%
	Q3			(0.5	)%							2.2	%
	Q4			(0.8	)%			1.6	%			1.1	%			3.5	%
2004
	Q1			(0.5	)%							(0.1	)%
	Q2			1.3	%							1.6	%
	Q3			2.8	%							4.1	%
	Q4			3.8	%			2.1	%			4.6	%			2.5	%
2005
	Q1			4.8	%							6.0	%

	•	it is a widely accepted financial indicator of a company’s ability to service its debt and we are required to comply with certain covenants and borrowing limitations that are based on variations of EBITDA in certain of our financing documents;
	•	it is widely used to measure a company’s operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of corporate performance exclusive of our capital structure and the method by which assets were acquired; and
	•	it helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing from our operating results the impact of our capital structure, primarily interest expense from our outstanding debt, and asset base, primarily depreciation and amortization of our properties.

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	•	as a measurement of operating performance because it assists us in comparing our performance on a consistent basis, as it removes from our operating results the impact of our capital structure, which includes interest expense from our outstanding debt, and our asset base, which includes depreciation and amortization of our properties; and
	•	in presentations to the members of our board of directors to enable our board to have the same consistent measurement basis of operating performance used by management.

															Three Months
															Ended
			Year Ended December 31,												March 31,
			2002				2003				2004				2004				2005
Revenues				100.0	%			100.0	%			100.0	%			100.0	%			100.0	%
Operating expenses:
	Payroll and related			40.6				38.3				39.2				42.1				38.8
	Club operating			31.2				32.6				33.1				32.4				33.5
	General and administrative			6.7				6.4				7.0				7.2				7.1
	Depreciation and amortization			10.0				10.2				10.4				10.6				10.4
	Goodwill impairment			—				—				0.6				2.3				—
Operating income				11.5				12.5				9.7				5.4				10.2
Loss on extinguishment of debt				—				2.3				—				—				—
Interest expense				5.1				6.9				11.1				10.3				10.8
Interest income				—				(0.1	)			(0.2	)			(0.2	)			(0.4	)
Equity in the earnings of investees and rental income				(0.4	)			(0.4	)			(0.4	)			(0.4	)			(0.5	)
Income (loss) from continuing operations before provision for (benefit from) corporate income taxes				6.8				3.8				(0.8	)			(4.3	)			0.3
Provision for (benefit from) corporate income taxes				3.1				1.6				0.3				(1.9	)			0.1
Income (loss) from continuing operations				3.7				2.2				(1.1	)			(2.4	)			0.2
Loss from discontinued operations of closed clubs, net of income tax				(0.2	)			—				—				—				—
Cumulative effect of change in accounting principle, net of income tax				(0.2	)			—				—				—				—
Net income (loss)				3.3				2.2				(1.1	)			(2.4	)			0.2
Accreted dividends on preferred stock				(3.6	)			(3.2	)			(0.2	)			(0.9	)			—
Net income (loss) attributable to common stockholders				(0.3	)%			(1.0	)%			(1.3	)%			(3.3	)%			0.2	%

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	Revenues

	Operating Expenses

	•	Payroll costs directly related to personal training, group exclusives and programming for children increased $1.5 million, or 28.2%, to $6.9 million in the quarter ended March 31, 2005, from $5.4 million in the quarter ended March 31, 2004, due to an increase in revenue generated from these programs. Payroll also increased due to a 6.2% increase in the total months of club operation from 387 to 411.
	•	In the first quarter of 2004, we recorded a $492,000 charge related to deferred sales commissions, because at the time the costs incurred exceeded the initial enrollment fees we received. GAAP requires that we must recognize the loss immediately. For the quarter ended March 31, 2005, we did not incur a deferred sales commission write-off because our enrollment fees received exceeded the related costs. This partially offset the increases in payroll discussed above.
	•	Another offset to the increases in payroll related to the $1.1 million one-time bonus paid to vested common stock option holders in the first quarter of 2004 in connection with our restructuring and distribution, while no such bonus payment was made in 2005. See “— Liquidity and Capital Resources.”

	•	A $1.6 million increase in rent and occupancy expenses. Clubs that have opened or expanded since March 31, 2003 contributed $1.0 million of the increase and $663,000 relates to our 124 clubs that have been open for over 24 months.
	•	Club operating supplies and services intended to improve the member experience increased $663,000.
	•	Advertising and marketing increased $623,000, or 27.9%, to $2.9 million in the quarter ended March 31, 2005, from $2.2 million in the quarter ended March 31, 2004, due to increased efforts to attract new members.
	•	Credit card fees increased $265,000, or 15.9%, to $1.9 million in the quarter ended March 31, 2005, from $1.7 million in the quarter ended March 31, 2004, principally due to increases in revenue and processed deferred revenue.
	•	Utilities have increased $255,000, or 7.4%, to $3.7 million in the quarter ended March 31, 2005, from $3.4 million in the quarter ended March 31, 2004, due to an increase in club square footage.

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	•	Accounting consulting expenses increased by $365,000 principally due to increases in consulting with respect to compliance with Section 404 of the Sarbanes-Oxley Act.
	•	Increases in a variety of other general and administrative expenses were offset by a $218,000 decrease in liability insurance.

	Goodwill Impairment

	Interest Expense

	Interest Income

	Equity in the earnings of investees and rental income

	Provision for Income Tax

	Accreted Dividends on Preferred Stock

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	Revenues

	Operating Expenses

	•	In connection with the restructuring and distribution to common stockholders of TSI Holdings, vested common stock option holders, who did not exercise their options, were paid a one-time bonus recorded as payroll expense. This one-time payment totaled $1.1 million. See “— Liquidity and Capital Resources.”
	•	In an effort to increase membership satisfaction and improve our membership retention rates, we have increased the level of in-house training and club support personnel and have moved from third-party contracted equipment maintenance and housekeeping services to in-house supplied labor for these services. These customer service efforts resulted in a $2.4 million increase in payroll expense with a commensurate savings in club operating expenses.
	•	Personal training and Sports Clubs for Kids programming payroll expense increased $2.0 million, or 9.3%, to $23.2 million in 2004 from $21.2 million in 2003 to support increases in revenue generated by these programs and services.
	•	Payroll expense related to management in our legal, marketing, training and development and club operations departments increased a total of $486,000.
	•	Payroll taxes and benefits increased $1.5 million due to increases in total payroll and increases in healthcare costs.

	•	A $4.1 million increase in rent expense principally resulting from increases related to clubs that have opened since, or expanded after, December 2003.
	•	Facility repairs and maintenance costs increased $1.9 million, or 27.0%. Incremental costs to support our initiatives to increase member satisfaction and improve member retention contributed to this increase.
	•	In addition, we experienced a $611,000 increase in utilities due to increases in utility rates, and a 5.1% increase in square footage in operation.

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	•	The aforementioned increases in club operating expense were partially offset by a $789,000 decrease in advertising costs as well as a $314,000 decrease in equipment maintenance costs that were predominately outsourced to third parties in 2003 and moved to in-house labor in 2004.

	•	Liability insurance expense increased by $690,000. Premiums increased $327,000 coupled with a favorable adjustment of $363,000 recorded in the first quarter of 2003, where we had adjusted our reserves related to premium audits.
	•	We also experienced an increase of $700,000 in data communication lines costs. This related in part to the correction of our service provider’s billing errors in the first half of 2004 that amounted to a $429,000 increase. These costs also increased due to data-line redundancies created at our clubs to safeguard against single line outages. Furthermore, data-line traffic increased in 2004 due to the completion of our Club Network systems rollout that began in 2003.
	•	Accounting and tax consulting fees increased $622,000 principally due to an increase in accounting services related to our senior discount note offering in February 2004, and increases in consulting with respect to compliance with Section 404 of the Sarbanes-Oxley Act.
	•	Legal fees increased by $447,000 principally due to an increase in the number of new club leases and expansions executed.
	•	In an effort to increase member satisfaction and improve member retention rates, we have increased staff development and recruiting costs. These customer service efforts resulted in an increase of $292,000 over the prior year.

	Goodwill Impairment

	Interest Expense

	Interest Income

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	Equity in the earnings of investees and rental income

	Provision for Income Tax

	•	A $597,000 increase in the deferred tax valuation allowance to reserve for state net operating losses that may not be utilized in future periods.
	•	Change in the allocation factors used in the computation of our New York State taxes, caused by revenue, payroll and asset growth outside of New York State, resulting in a deferred tax charge of approximately $340,000.
	•	Relief of our deferred tax asset totaling $1.1 million, associated with deferred compensation expense related to exercised stock options.

	Accreted Dividends on Preferred Stock

	Revenues

	Operating Expenses

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	•	Increases in depreciation related to our clubs built or acquired in 2002 and 2003 amounting to $1.8 million.
	•	Increases in depreciation related to our 2002 and 2003 club expansions and remodels amounting to $1.6 million.
	•	These increases were offset by a $164,000 decrease in amortization of intangible assets. The membership lists of the 11 clubs acquired in 2000 were fully amortized during 2002 and this gave rise to a $735,000 decrease offset by $571,000 of additional amortization of clubs acquired subsequent to 2000.

	Loss on Extinguishment of Debt

	Equity in the earnings of investees and rental income

	Interest Expense

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	Interest Income

	Provision for Income Tax

	Accreted Dividends on Preferred Stock

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	February 4, 2004 Restructuring

Redemption of Series A and Series B preferred stock		$	50,635
Common stock distribution, net of option exercise proceeds			68,404
Underwriting fees and other closing costs			4,378
Bonus paid to employees in lieu of distribution			1,144
Available for general corporate purposes			246
Total use of funds		$	124,807

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	April 16, 2003 Refinancing Transaction

Redemption of senior notes, principal and interest		$	126,049
Call premium on senior notes			3,048
Redemption of senior preferred stock, at liquidation value			66,977
Repayment of line of credit principal borrowings and interest			4,013
Repayment of subordinated credit principal borrowings and interest			9,060
Underwriting fees and other closing costs			9,578
Available for general corporate purposes			36,275
Total use of funds		$	255,000

	•	Making it more difficult to satisfy our obligations;
	•	Increasing our vulnerability to general adverse economic and industry conditions;
	•	Limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions of new clubs and other general corporate requirements;
	•	Requiring cash flow from operations for the annual payment of $24.5 million interest on our Senior Notes and reducing our ability to use our cash flow to fund working capital, capital expenditures, acquisitions of new clubs and general corporate requirements; and
	•	Limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.

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			Payments due by Period
							Less than												After
Contractual Obligations			Total				1 Year				1-3 Years				4-5 Years				5 Years
			(In thousands)
Long-term debt(1)			$	399,963			$	1,237			$	1,453			$	410			$	396,863
Operating lease obligations(2)				685,942				55,045				117,666				110,029				403,202
	Total contractual cash obligations		$	1,085,905			$	56,282			$	119,119			$	110,439			$	800,065

(1)	The long-term debt contractual cash obligations include principal payment requirements only. Interest on TSI, Inc.’s senior notes amounts to $24.5 million annually. Interest accrued on our senior discount notes will amount to approximately $15.5 million in 2005.
(2)	Operating lease obligations include base rent only. Certain leases provide for additional rent based on real estate taxes, common area maintenance and defined amounts based on the operating results of the lessee.

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	•	the proximity of our clubs to concentrated commercial and residential areas convenient to where target members live and work;
	•	the obligation on the part of the enrollee;
	•	the price/value relationship of a Town Sports membership; and
	•	access to value-added services.

	•	The Passport membership, ranging in price from $47 to $95 per month, is our higher priced membership and entitles members to use any of our clubs at any time. This membership is held by approximately 50% of our members. We are currently offering our Passport memberships at $95 per month for month-to-month memberships and $89 per month for one-year commit memberships. In addition, we have introduced a Passport Premium membership at two select clubs, that includes a greater array of member services and facilities, at a price of $115 per month.
	•	The Gold membership, ranging in price from $38 to $86 per month based on the market area of enrollment, enables members to use a specific club, or a group of specific clubs, at any time and any of our clubs during off-peak times. This membership is held by approximately 49% of our members.
	•	The Off-Peak membership, ranging in price from $39 to $75 per month, is the least expensive membership, and allows members to use any of our clubs only during off-peak times. This membership is held by approximately 1% of our members.

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		Number of
Market		Clubs				Position
Boston metro			19			Leading operator
New York metro			94			Leading operator
Philadelphia metro			6			#3 operator
Washington, D.C. metro			18			#2 operator, although leader in urban center
Switzerland			3			Local operator only

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Location		Address		Date Opened or Management Assumed
New York Sports Clubs:
Manhattan		151 East 86th Street		January 1977
Manhattan		61 West 62nd Street		July 1983
Manhattan		614 Second Avenue		July 1986
Manhattan		151 Reade Street		January 1990
Manhattan		1601 Broadway		September 1991
Manhattan		50 West 34th Street		August 1992
Manhattan		349 East 76th Street		April 1994
Manhattan		248 West 80th Street		May 1994
Manhattan		502 Park Avenue		February 1995
Manhattan		117 Seventh Avenue South		March 1995
Manhattan		303 Park Avenue South		December 1995
Manhattan		30 Wall Street		May 1996
Manhattan		1635 Third Avenue		October 1996
Manhattan		575 Lexington Avenue		November 1996
Manhattan		278 Eighth Avenue		December 1996
Manhattan		200 Madison Avenue		February 1997
Manhattan		131 East 31st Street		February 1997
Manhattan		2162 Broadway		November 1997
Manhattan		633 Third Avenue		April 1998
Manhattan		1657 Broadway		July 1998
Manhattan		217 Broadway		March 1999
Manhattan		23 West 73rd Street		April 1999
Manhattan		34 West 14th Street		July 1999
Manhattan		503-511 Broadway		July 1999
Manhattan		1372 Broadway		October 1999
Manhattan		300 West 125th Street		May 2000
Manhattan		102 North End Avenue		May 2000

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Location		Address		Date Opened or Management Assumed
Manhattan		14 West 44th Street		August 2000
Manhattan		128 Eighth Avenue		December 2000
Manhattan		2521-23 Broadway		August 2001
Manhattan		3 Park Avenue		August 2001
Manhattan		19 Irving Place		November 2001
Manhattan		160 Water Street		November 2001
Manhattan		230 West 41st Street		November 2001
Manhattan		1221 Avenue of the Americas		January 2002
Manhattan		200 Park Avenue		December 2002
Manhattan		232 Mercer Street		September 2004
Brooklyn, NY		110 Boerum Place		October 1985
Brooklyn, NY		1736 Shore Parkway		June 1998
Brooklyn, NY		179 Remsen Street		May 2001
Brooklyn, NY		453 Fifth Avenue		August 2003
Brooklyn, NY		7118 Third Avenue		May 2004
Queens, NY		69-33 Austin Street		April 1997
Queens, NY		153-67 A Cross Island Parkway		June 1998
Queens, NY		2856-2861 Steinway Street		February 2004
Staten Island, NY		300 West Service Road		June 1998
Scarsdale, NY		696 White Plains Road		October 1995
Mamaroneck, NY		124 Palmer Avenue		January 1997
White Plains, NY		1 North Broadway		September 1997
Croton-on-Hudson, NY		420 South Riverside Drive		January 1998
Larchmont, NY		15 Madison Avenue		December 1998
Nanuet, NY		58 Demarest Mill Road		May 1998
Great Neck, NY		15 Barstow Road		July 1989
East Meadow, NY		625 Merrick Avenue		January 1999
Commack, NY		6136 Jericho Turnpike		January 1999
Oceanside, NY		2909 Lincoln Avenue		May 1999
Long Beach, NY		265 East Park Avenue		July 1999
Garden City, NY		833 Franklin Avenue		May 2000
Huntington, NY		350 New York Avenue		February 2001
Syosset, NY		49 Ira Road		March 2001
West Nyack, NY		3656 Palisades Center Drive		February 2002
Woodmere, NY		158 Irving Street		March 2002
Hartsdale, NY		208 E. Hartsdale Avenue		September 2004
Somers, NY		Somers Commons, 80 Route 6		February 2005
White Plains, NY		4 City Center		Opening 2005 (replaces existing location)
Hawthorne, NY		24 Saw Mill River Road		Opening 2005
Stamford, CT		6 Landmark Square		December 1997
Stamford, CT		16 Commerce Road		January 1998
Danbury, CT		38 Mill Plain Road		January 1998
Stamford, CT		1063 Hope Street		November 1998
Norwalk, CT		250 Westport Avenue		March 1999

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Location		Address		Date Opened or Management Assumed
Greenwich, CT		6 Liberty Way		May 1999
Westport, CT		427 Post Road, East		January 2002
Greenwich, CT		67 Mason Street		February 2004
East Brunswick, NJ		8 Cornwall Court		January 1990
Princeton, NJ		301 North Harrison Street		May 1997
Freehold, NJ		200 Daniels Way		April 1998
Matawan, NJ		163 Route 34		April 1998
Old Bridge, NJ		Gaub Road and Route 516		April 1998
Marlboro, NJ		34 Route 9 North		April 1998
Fort Lee, NJ		1355 15th Street		June 1998
Ramsey, NJ		1100 Route 17 North		June 1998
Mahwah, NJ		7 Leighton Place		June 1998
Parsippany, NJ		2651 Route 10		August 1998
Springfield, NJ		215 Morris Avenue		August 1998
Colonia, NJ		1250 Route 27		August 1998
Franklin Park, NJ		3911 Route 27		August 1998
Plainsboro, NJ		10 Schalks Crossing		August 1998
Somerset, NJ		120 Cedar Grove Lane		August 1998
Hoboken, NJ		221 Washington Street		October 1998
West Caldwell, NJ		913 Bloomfield Avenue		April 1999
Jersey City, NJ		147 Two Harborside Financial Center		June 2002
Newark, NJ		1 Gateway Center		October 2002
Ridgewood, NJ		129 S. Broad Street		June 2003
Westwood, NJ		35 Jefferson Avenue		June 2004
Livingston, NJ		39 W. North Field Rd.		February 2005
Princeton, NJ		4250 Route 1 North		April 2005
Hoboken, NJ		1225 Willow Avenue		Opening 2006
Montclair, NJ		56 Church Street		Opening 2007
Boston Sports Clubs:
Boston, MA		561 Boylston Street		November 1991
Boston, MA		1 Bulfinch Place		August 1998
Boston, MA		201 Brookline Avenue		June 2000
Boston, MA		361 Newbury Street		November 2001
Boston, MA		350 Washington Street		February 2002
Boston, MA		501 Boylston Street		Opening 2005 (replaces existing location)
Boston, MA		560 Harrison Avenue		Opening 2006
Boston, MA		695 Atlantic Avenue		Opening 2006
Allston, MA		15 Gorham Street		July 1997
Natick, MA		Sherwood Plaza, 124 Worcester Rd		September 1998
Weymouth, MA		553 Washington Street		May 1999
Wellesley, MA		140 Great Plain Avenue		July 2000
Andover, MA		307 Lowell Street		July 2000
Lynnfield, MA		425 Walnut Street		July 2000

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Location		Address		Date Opened or Management Assumed
Lexington, MA		475 Bedford Avenue		July 2000
Franklin, MA		750 Union Street		July 2000
Framingham, MA		1657 Worcester Street		July 2000
Danvers, MA		50 Ferncroft Road		July 2000
Cambridge, MA		625 Massachusetts Avenue		January 2001
West Newton, MA		1359 Washington Street		November 2001
Waltham, MA		840 Winter Street		November 2002
Watertown, MA		311 Arsenal Street		Opening 2005
Washington Sports Clubs:
Washington, D.C.		214 D Street, S.E.		January 1980
Washington, D.C.		1835 Connecticut Avenue, N.W.		January 1990
Washington, D.C.		1990 M Street, N.W.		February 1993
Washington, D.C.		2251 Wisconsin Avenue, N.W.		May 1994
Washington, D.C.		1211 Connecticut Avenue, N.W.		July 2000
Washington, D.C.		1345 F Street, N.W.		August 2002
Washington, D.C.		5346 Wisconsin Ave., N.W.		February 2002
Washington, D.C.		1990 K Street, N.W.		February 2004
Washington, D.C.		783 Seventh Street, N.W.		October 2004
Washington, D.C.		3222 M Street, N.W.		February 2005
Bethesda, MD		4903 Elm Street		May 1994
North Bethesda, MD		10400 Old Georgetown Road		June 1998
Germantown, MD		12623 Wisteria Drive		July 1998
Silver Spring, MD		8506 Fenton Street		Opening 2005
Bethesda, MD		6800 Wisconsin Avenue		Opening 2007
Alexandria, VA		3654 King Street		June 1999
Sterling, VA		21800 Town Center Plaza		October 1999
Fairfax, VA		11001 Lee Highway		October 1999
West Springfield, VA		8430 Old Keene Mill		September 2000
Clarendon, VA		2700 Clarendon Boulevard		November 2001
Philadelphia Sports Clubs:
Philadelphia, PA		220 South 5th Street		January 1999
Philadelphia, PA		2000 Hamilton Street		July 1999
Chalfont, PA		One Highpoint Drive		January 2000
Cherry Hill, NJ		Route 70 and Kings Highway		April 2000
Philadelphia, PA		1735 Market Street		October 2000
Ardmore, PA		34 W. Lancaster Avenue		March 2002
Swiss Sports Clubs:
Basel, Switzerland		St. Johanns-Vorstadt 41		August 1987
Zurich, Switzerland		Glarnischstrasse 35		August 1987
Basel, Switzerland		Gellerstrasse 235		August 2001

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Name		Age				Position
Mark N. Smith(2)			46			Chairman and Director
Robert J. Giardina			47			Chief Executive Officer, Office of the President
Alexander A. Alimanestianu			46			Chief Development Officer, Office of the President
Richard G. Pyle			46			Chief Financial Officer, Office of the President
Randall C. Stephen			48			Chief Operating Officer
Keith E. Alessi(1)			50			Director
Paul N. Arnold(2)			58			Director
Bruce C. Bruckmann(2)			51			Director
J. Rice Edmonds(1)			34			Director
Jason M. Fish(1)			47			Director

(1)	Member of the Audit Committee
(2)	Member of the Compensation Committee

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															Long-Term
															Compensation
															Awards
							Annual Compensation (1)								Securities
															Underlying
Name and Principal Position			Year				Salary ($)				Bonus ($)(2)				Options (#)
Mark N. Smith				2004				443,286				429,000				4,800	(3)
	Chairman			2003				434,594				511,133				1,200
				2002				426,072				429,224				—
Robert J. Giardina				2004				420,423				349,710				4,800	(3)
	Chief Executive Officer,			2003				412,179				406,227				1,200
	Office of the President			2002				404,097				327,312				—
Richard G. Pyle				2004				312,395				212,474				4,000	(3)
	Chief Financial Officer,			2003				306,270				251,746				1,000
	Office of the President			2002				236,539				252,815				—
Alexander A. Alimanestianu				2004				312,395				212,474				4,000	(3)
	Chief Development Officer,			2003				306,270				251,746				1,000
	Office of the President			2002				236,539				252,815				—
Randall C. Stephen				2004				229,500				116,413				3,200	(3)
	Chief Operating Officer			2003				225,000				95,755				800
				2002	(4)			72,740				36,000				—

(1)	The aggregate amount of perquisites and other personal benefits did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported for each named executive officer and has therefore been omitted.
(2)	Includes annual bonus payments under our Annual Bonus Plan.
(3)	See “— Option Grants in Last Fiscal Year” below.
(4)	Mr. Stephen joined us in September 2002. His annualized salary for 2002 was $225,000.

						Number of
						Shares				Market Price												Length of Original
						Underlying				of Stock				Exercise Price								Option Term
						Options				at Time of				at Time of				New Exercise				Remaining at
Name		Date				Repriced (#)				Repricing ($)(1)				Repricing ($)				Price ($)				Date of Repricing
Mark N. Smith			February 4, 2004				4,800			$	39.30			$	144.00			$	91.50				114 months
Robert J. Giardina			February 4, 2004				4,800			$	39.30			$	144.00			$	91.50				114 months
Richard G. Pyle			February 4, 2004				4,000			$	39.30			$	144.00			$	91.50				114 months
Alexander A. Alimanestianu			February 4, 2004				4,000			$	39.30			$	144.00			$	91.50				114 months
Randall C. Stephen			February 4, 2004				3,200			$	39.30			$	144.00			$	91.50				114 months

(1)	Fair market value was determined in good faith by the Board of Directors to be $39.30 per share of common stock and was based upon an independent valuation dated February 4, 2004.

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										Number of Securities								Value of Unexercised
										Underlying Unexercised								In-the-Money
										Options at								Options at
										December 31, 2004 (#)								December 31, 2004 ($)(2)
		Shares Acquired				Value
Name		on Exercise (#)				Realized ($)(1)				Exercisable				Unexercisable				Exercisable				Unexercisable
Mark N. Smith			8,830				852,978				1,200				4,800
Robert J. Giardina			8,829				852,881				1,200				4,800
Richard G. Pyle			8,828				852,785				1,000				4,000
Alexander A. Alimanestianu			8,828				852,785				1,000				4,000
Randall C. Stephen			—				—				800				3,200

(1)	Value realized is defined as the fair market price of our common stock on the date of exercise less the exercise price, multiplied by the number of shares underlying the exercised options. The fair market price for these exercises was determined in good faith by the Board of Directors to be $91.60 per share of common stock and was based upon an independent valuation dated February 6, 2004.
(2)	Value is defined as the fair market price of our common stock at December 31, 2004 less the exercise price, multiplied by the number of shares underlying the specific options.

	•	who will receive awards,
	•	the type, size and terms of awards,
	•	the time when awards will be granted and
	•	vesting criteria, if any, of the awards.

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						Number of Shares of
		Number of Shares of				Common Stock
		Common Stock				Underlying the
Name		Currently Held				Options
Mark N. Smith			74,955				6,000	(1)
Robert J. Giardina			59,480				6,000	(1)
Richard G. Pyle			51,410				5,000	(2)
Alexander A. Alimanestianu			50,839				5,000	(2)
Randall C. Stephen			—				4,000	(3)

(1)	The exercise price for 1,200 options, each to purchase one underlying share of our common stock, is $144.00 and the exercise price for 4,800 options, each to purchase one underlying share of our common stock, is $91.50.
(2)	The exercise price for 1,000 options, each to purchase one underlying share of our common stock, is $144.00 and the exercise price for 3,000 options, each to purchase one share of underlying share of our common stock, is $91.50.
(3)	The exercise price for 800 options, each to purchase one underlying share of our common stock, is $144.00 and the exercise price for 3,200 options, each to purchase one underlying share of our common stock, is $91.50.

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	•	Two members designated by BRS — currently, Bruce C. Bruckmann and J. Rice Edmonds;
	•	One member designated by the Farallon Entities — currently, Jason M. Fish;
	•	Mark N. Smith (for so long as he is the Chairman of TSI Holdings); and
	•	Two members designated by holders of the common stock of TSI Holdings — currently, Keith E. Alessi and Paul N. Arnold.

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	•	each person or group of affiliated persons whom we know to beneficially own more than five percent of our common stock;
	•	each of our directors;
	•	each named executive officer; and
	•	all of our directors and executive officers as a group.

		Shares Beneficially Owned												Shares Beneficially Owned
		Before the Offering												After the Offering
										Shares
Name of Beneficial Owner		Number				Percentage				Offered				Number				Percentage
5% Stockholders
Bruckmann, Rosser, Sherrill(1)			504,456				38.4	%												%
The Farallon Entities(2)			270,091				20.6	%												%
The Canterbury Entities(3)			139,437				10.6	%												%
Directors and Executive Officers
Mark N. Smith(4)			76,155				5.8	%												%
Robert J. Giardina(4)			60,680				4.6	%												%
Richard G. Pyle(4)			52,410				4.0	%												%
Alexander A. Alimanestianu(4)			51,839				4.0	%												%
Randall C. Stephen(4)			800				*												*
Bruce C. Bruckmann(5)			517,642				39.4	%												%
J. Rice Edmonds			—				*												*
Jason M. Fish(6)			23,000				1.8	%												%
Paul N. Arnold			2,857				*												*
Keith E. Alessi			2,857				*												*
Directors and officers as a group (29 persons)(7)			1,103,924				83.3	%												%

	*	Less than 1%.

(1)

Excludes shares held individually by Mr. Bruckmann and other individuals (and affiliates and family members thereof), each of whom are employed by BRS. Mr. Bruckmann, Hal Rosser, Stephen Sherrill and Stephen Edwards, as individuals, are the sole shareholders of BRSE Associates, Inc., which is the General Partner of BRS Partners, LP, which is the General Partner of Bruckmann, Rosser, Sherrill & Co., LP. All major investment and other decisions of Bruckmann, Rosser, Sherrill & Co., LP are vested in BRS Partners, LP.

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(2)	Includes approximately 14,366 shares held by Farallon Capital Partners, L.P. (“FLP”), approximately 16,418 shares held by Farallon Capital Institutional Partners, L.P. (“FCIP”), approximately 8,209 shares by Farallon Capital Institutional Partners II, L.P. (“FCIPII”) and approximately 2,052 shares held by R.R. Capital Partners, L.P. (collectively with FLP, FCIP, FCIPII, the “Farallon Entities”). As the general partner of each of the Farallon Entities, Farallon Partners, L.L.C. (“FPLLC”), may, for purposes of Rule 13d-3 under the Exchange Act, be deemed to own beneficially the shares held by the Farallon Entities. As the managing members of FPLLC, David I. Cohen, Chun R. Ding, Joseph F. Downes, William F. Duhamel, Charles E. Ellwein, Richard B. Fried, Monica R. Landry, William F. Mellin, Stephen L. Millham, Rajiv A. Patel, Derek C. Schrier, Thomas F. Steyer and Mark C. Wehrly may each, for purposes of Rule 13d-3 under the Exchange Act, be deemed to own beneficially the shares owned by the Farallon Entities. Each of FPLLC and each of its managing members disclaim any beneficial ownership of such shares. All of the above-mentioned entities disclaim group attribution.
(3)	Includes approximately 121,529 shares held by Canterbury Mezzanine Capital, L.P. (“CMC”) and approximately 17,908 shares held by Canterbury Detroit Partners, L.P. (“CDP”, and together with CMC, the “Canterbury Entities”). For purposes of Rule 13d-3, Patrick N.W. Turner and Nicholas B. Dunphy may be deemed to own beneficially all shares held by the Canterbury Entities. Messrs. Turner and Dunphy disclaim beneficial ownership of such shares.
(4)	Includes options to acquire common stock that are exercisable within 60 days. Messrs. Smith, Giardina, Pyle, Alimanestianu and Stephen each hold such options on 1,200, 1,200, 1,000, 1,000 and 800 shares of common stock, respectively. The address for Mr. Smith is the same as the address of our principal executive offices.
(5)	Includes 504,456 shares held by BRS, and approximately 2,276 shares held by certain other family members and partnership investments of Mr. Bruckmann. Mr. Bruckmann disclaims beneficial ownership of such shares held by BRS.
(6)	Includes shares held by CS Equity, LLC. Mr. Fish is a co-founder and president of CapitalSource Inc., the 100% owner of CS Equity, LLC. Mr. Fish disclaims beneficial ownership of such shares.
(7)	Includes 16,068 shares of common stock issuable upon the exercise of options which are currently vested or which vest within 60 days of June 1, 2005. Includes (i) shares held by BRS, which may be deemed to be owned beneficially by Mr. Bruckmann, and (ii) shares held by CapitalSource, which may be deemed to be owned beneficially by Mr. Fish.

	Excluding the shares beneficially owned by BRS and CapitalSource, the directors and named executive officers as a group beneficially own 517,689 shares of common stock (which represents approximately 39.3% of the common stock on a fully diluted basis).

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Number of Shares		Date
		After the date of this prospectus, freely tradable shares sold in this offering and shares saleable under Rule 144(k) that are not subject to the 180-day lock-up
		90 days or more from the date of this prospectus, shares saleable under Rule 144 or Rule 701 that are not subject to the 180-day lock-up
		After 180 days from the date of this prospectus, the 180-day lock-up is released and these shares are saleable under Rule 144 (subject, in some cases, to volume limitations), Rule 144(k) or Rule 701
		After 180 days from the date of this prospectus, restricted securities that are held for less than one year are not yet saleable under Rule 144

	Lock-up Agreements

	Rule 144

	Rule 144(k)

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	Rule 701

	Registration Rights

	Stock Plans

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	•	a non-resident alien individual;
	•	a foreign corporation; or
	•	a foreign estate or foreign trust.

	•	dealers in securities or currencies;
	•	traders in securities;
	•	persons holding shares as part of a conversion, constructive sale, wash sale or other integrated transactions or a hedge, straddle or synthetic security;
	•	persons subject to the alternative minimum tax;
	•	certain United States expatriates;
	•	financial institutions;
	•	insurance companies;
	•	controlled foreign corporations, foreign personal holding companies, passive foreign investment companies and regulated investment companies and shareholders of such corporations;
	•	entities that are tax-exempt for United States federal income tax purposes and retirement plans, individual retirement accounts and tax-deferred accounts; and
	•	pass-through entities, including partnerships and entities and arrangements classified as partnerships for United States federal tax purposes and beneficial owners of pass-through entities.

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			Number of
Underwriter			Shares
Credit Suisse First Boston LLC
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
	Total

Per Share

Total

Without

With

Without

With

Over-

Over-

Over-

Over-

Allotment

Allotment

Allotment

Allotment

Underwriting Discounts and Commissions paid by us

$

$

$

$

Expenses payable by us

$

$

$

$

Underwriting Discounts and Commissions paid by selling stockholders

$

$

$

$

Expenses payable by the selling stockholders

$

$

$

$

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	•	Stabilizing transactions permit bids to purchase the shares so long as the stabilizing bids do not exceed a specified maximum.
	•	Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market.
	•	Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over- allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created

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		if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
	•	Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.
	•	In passive market making, market makers in the common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchases of our common stock until the time, if any, at which a stabilizing bid is made.

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			Page
Consolidated Annual Financial Statements of Town Sports International Holdings, Inc.:
	Report of Independent Registered Public Accounting Firm			F-2
	Consolidated balance sheets at December 31, 2003 and 2004 and March 31, 2005 (unaudited)			F-3
	Consolidated statements of operations for the years ended December 31, 2002, 2003 and 2004 and for the three months ended March 31, 2004 and 2005 (unaudited)			F-4
	Consolidated statements of stockholders’ deficit for the years ended December 31, 2002, 2003 and 2004 and for the three months ended March 31, 2004 (unaudited)			F-5
	Consolidated statements of cash flows for the years ended December 31, 2002, 2003 and 2004 and for the three months ended March 31, 2004 and 2005 (unaudited)			F-7
	Notes to consolidated financial statements			F-8
Consolidated Annual Financial Statements of Kalorama Sports Management Associates:
	Independent Auditors’ Report			F-46
	Consolidated balance sheets at December 31, 2004 and December 31, 2003			F-47
	Consolidated statements of income and expenses for the years ended December 31, 2004, 2003 and 2002			F-48
	Consolidated statements of partners’ capital for the years ended December 31, 2004, 2003 and 2002			F-49
	Consolidated statements of cash flows for the years ended December 31, 2004, 2003 and 2002			F-50
	Notes to consolidated financial statements			F-51

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	/s/ PRICEWATERHOUSECOOPERS LLP

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				December 31,				December 31,				March 31,
				2003				2004				2005
												(Unaudited)
				(All figures in $’000s, except share
				and per share data)
ASSETS
Current assets:
	Cash and cash equivalents			$	40,802			$	57,506			$	71,778
	Accounts receivable (less allowance for doubtful accounts of $822 and $2,647 at December 31, 2003 and 2004, respectively and $2,492 at March 31, 2005)				1,469				1,955				3,092
	Inventory				750				655				574
	Prepaid corporate income taxes				4,062				5,645				2,887
	Prepaid expenses and other current assets				5,322				6,871				8,655
		Total current assets			52,405				72,632				86,986
Fixed assets, net					223,599				226,253				223,083
Goodwill					45,864				47,494				47,455
Intangible assets, net					630				931				814
Deferred tax assets, net					16,771				12,735				16,235
Deferred membership costs					13,038				12,017				12,717
Other assets					9,892				12,709				12,306
		Total assets		$	362,199			$	384,771			$	399,596
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities:
	Current portion of long-term debt and capital lease obligations			$	3,486			$	1,225			$	1,237
	Accounts payable				5,379				10,555				4,252
	Accrued expenses				26,006				25,299				34,253
	Deferred revenue				26,621				28,294				35,095
		Total current liabilities			61,492				65,373				74,837
Long-term debt and capital lease obligations					258,391				395,236				398,726
Deferred lease liabilities					25,856				27,098				27,482
Deferred revenue					3,002				3,298				3,421
Other liabilities					7,862				10,783				12,322
		Total liabilities			356,603				501,788				516,788
Commitments and contingencies (Note 15)
Redeemable preferred stock:
	Series A redeemable preferred stock, $1.00 par value; at liquidation value; authorized 200,000 shares; 153,637 shares issued and outstanding at December 31, 2003 and none issued and outstanding at December 31, 2004 and March 31, 2005, respectively				39,890				—				—
					39,890				—				—
Stockholders’ deficit:
	Series B preferred stock, $1.00 par value; at liquidation value; 109,540 shares issued and outstanding at December 31, 2003 and none issued and outstanding at December 31, 2004 and March 31, 2005, respectively				9,961				—				—
	Class A common stock, $.001 par value; issued and outstanding 1,176,043 and 1,312,289 shares at December 31, 2003 and 2004, respectively, and 1,309,123 shares at March 31, 2005				1				1				1
	Paid-in capital				(45,627	)			(113,900	)			(114,087	)
	Unearned compensation				(172	)			(292	)			(274	)
	Accumulated other comprehensive income (currency translation adjustment)				596				916				731
	Retained earnings (deficit)				947				(3,742	)			(3,563	)
		Total stockholders’ deficit			(34,294	)			(117,017	)			(117,192	)
		Total liabilities, redeemable preferred stock and stockholders’ deficit		$	362,199			$	384,771			$	399,596

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																For the
																Three Months Ended
				For the Year Ended December 31,												March 31,
				2002				2003				2004				2004				2005
																(Unaudited)
				(All figures in $’000s)
Revenues:
	Club operations			$	314,792			$	335,665			$	348,175			$	85,363			$	93,149
	Fees and Other				3,263				5,507				4,856				765				697
					318,055				341,172				353,031				86,128				93,846
Operating expenses:
	Payroll and related				129,105				130,585				138,302				36,258				36,396
	Club operating				99,113				111,069				116,847				27,898				31,449
	General and administrative				21,368				21,995				24,719				6,226				6,677
	Depreciation and amortization				31,748				34,927				36,869				9,117				9,739
	Goodwill impairment				—				—				2,002				2,002				—
					281,334				298,576				318,739				81,501				84,261
		Operating income			36,721				42,596				34,292				4,627				9,585
Loss on extinguishment of debt					—				7,773				—				—				—
Interest expense					16,559				23,670				39,343				8,812				10,119
Interest income					(138	)			(444	)			(743	)			(174	)			(369	)
Equity in the earnings of investees and rental income					(1,372	)			(1,369	)			(1,493	)			(336	)			(470	)
		Income (loss) from continuing operations before provision for corporate income taxes			21,672				12,966				(2,815	)			(3,675	)			305
Provision for corporate income taxes					9,709				5,537				1,090				(1,617	)			126
		Income (loss) from continuing operations			11,963				7,429				(3,905	)			(2,058	)			179
Loss from discontinued operations (including loss on club closure of $996 net of income tax benefits of $551)					(767	)			—				—				—				—
Cumulative effect of a change in accounting principle, net of income tax benefit of $612					(689	)			—				—				—				—
		Net income (loss)			10,507				7,429				(3,905	)			(2,058	)			179
Accreted dividends on preferred stock					(11,543	)			(10,984	)			(784	)			(783	)			—
		Net (loss) income attributable to common stockholders		$	(1,036	)		$	(3,555	)		$	(4,689	)		$	(2,841	)		$	179
Basic earnings (loss) per share:
		Continuing operations		$	9.59			$	5.95			$	(3.01	)		$	(1.63	)		$	0.14
		Discontinued operations		$	(0.61	)		$	—			$	—			$	—			$	—
		Change in accounting principle		$	(0.55	)		$	—			$	—			$	—			$	—
		Net income (loss)		$	(0.83	)		$	(2.85	)		$	(3.61	)		$	(2.26	)		$	0.14
Diluted earnings (loss) per share:
		Continuing operations		$	9.18			$	5.95			$	(3.01	)		$	(1.63	)		$	0.14
		Discontinued operations		$	(0.59	)		$	—			$	—			$	—			$	—
		Change in accounting principle		$	(0.53	)		$	—			$	—			$	—			$	—
		Net income (loss)		$	(0.76	)		$	(2.85	)		$	(3.61	)		$	(2.26	)		$	0.14
Dividend per common share				$	—			$	—			$	52.50			$	52.50			$	—
Weighted average number of shares used in calculating earnings (loss) per share:
		Basic			1,247,674				1,247,674				1,299,332				1,259,197				1,312,289
		Diluted			1,307,228				1,247,674				1,299,332				1,259,197				1,314,562

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Table of Contents

			Preferred Stock								Common Stock
			Series B								Class A																Accumulated				Accumulated
			($1.00 par)								($.001 par)																Other				(Deficit)/				Total
																			Paid-in				Unearned				Comprehensive				Retained				Stockholders’
			Shares				Amount				Shares				Amount				Capital				Compensation				Income				Earnings				Deficit
			(All figures in $’000s)
Balance at January 1, 2002				3,822			$	265				1,028,698			$	1			$	(22,245	)		$	(422	)		$	21			$	(10,417	)		$	(32,797	)
Common stock issued in connection with warrant exercises												147,345								1																1
Vesting of restricted common stock issued in connection with subordinated credit facility																				917																917
Compensation expense incurred in connection with Series B Preferred stock options																				1,137																1,137
Amortization of unearned compensation																								70												70
Accretion of Series B preferred stock dividend ($10.20 per share)								38												(38	)															—
Accretion of Series A redeemable preferred stock dividend ($28.71 per share)																				(4,409	)															(4,409	)
Accretion of redeemable senior preferred stock dividend ($177.40 per share plus accretion to liquidation value)																				(7,438	)															(7,438	)
Forfeiture of unvested options																				(74	)			74												—
Other comprehensive income:
	Net income																															10,507				10,507
	Foreign currency translation adjustment																											272								272
	Total comprehensive income																																			10,779
Balance at December 31, 2002				3,822			$	303				1,176,043			$	1			$	(32,149	)		$	(278	)		$	293			$	90			$	(31,740	)
Series B preferred stock issued in connection with the exercise of stock options				106,267				8,618												(8,618	)															—
Repurchase of stock				(549	)			(43	)											(540	)															(583	)
Compensation expense incurred in connection with Series B Preferred stock options																				177																177
Amortization of unearned compensation																								21												21
Accretion of Series B preferred stock dividend ($9.84 per share)								1,083												(305	)											(778	)			—
Accretion of Series A redeemable preferred stock dividend ($32.86 per share)																				(1,219	)											(3,830	)			(5,049	)
Accretion of redeemable senior preferred stock dividend ($121.30 per share plus accretion to liquidation value)																				(2,888	)											(1,964	)			(4,852	)
Forfeiture of unvested options																				(85	)			85												—
Other comprehensive income:
	Net income																															7,429				7,429
	Foreign currency translation adjustment																											303								303
	Total comprehensive income																																			7,732
Balance at December 31, 2003				109,540			$	9,961				1,176,043			$	1			$	(45,627	)		$	(172	)		$	596			$	947			$	(34,294	)

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			Preferred Stock								Common Stock
			Series B								Class A																Accumulated				Accumulated
			($1.00 par)								($.001 par)																Other				(Deficit)/				Total
																			Paid-in				Unearned				Comprehensive				Retained				Stockholders’
			Shares				Amount				Shares				Amount				Capital				Compensation				Income				Earnings				Deficit
			(All figures in $’000s)
Exercise of common stock warrants												71,631				—				—																—
Exercise of common stock options												65,936								539																539
Common stock distribution ($52.50 per share)																				(68,943	)															(68,943	)
Repurchase of common stock												(1,321	)							(53	)															(53	)
Deferred compensation issued in connection with the issuance of common stock options																				184				(184	)											—
Amortization of unearned compensation																								64												64
Accretion of Series B preferred stock dividend ($1.43 per share)								157																								(157	)			—
Accretion of Series A redeemable preferred stock dividend ($15.69 per share)																																(627	)			(627	)
Series B preferred stock redemption				(109,540	)			(10,118	)																											(10,118	)
Other comprehensive income:
	Net loss																															(3,905	)			(3,905	)
	Foreign currency translation adjustment																											320								320
	Total comprehensive loss																																			(3,585	)
Balance at December 31, 2004				—			$	—				1,312,289			$	1			$	(113,900	)		$	(292	)		$	916			$	(3,742	)		$	(117,017	)
Repurchase of common stock (unaudited)												(3,166	)							(184	)															(184	)
Amortization of unearned compensation (unaudited)																								15												15
Forfeiture of stock options (unaudited)																				(3	)			3												—
Other comprehensive income:
	Net income (unaudited)																															179				179
	Foreign currency translation adjustment (unaudited)																											(185	)							(185	)
	Total comprehensive loss (unaudited)																																			(6	)
Balance at March 31, 2005 (unaudited)				—			$	—				1,309,123			$	1			$	(114,087	)		$	(274	)		$	731			$	(3,563	)		$	(117,192	)

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																	For the
																	Three Months Ended
					For the Year Ended December 31,												March 31,
					2002				2003				2004				2004				2005
																	(Unaudited)
					(All figures in $’000s)
Cash flows from operating activities:
Net income (loss)					$	10,507			$	7,429			$	(3,905	)		$	(2,058	)		$	179
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization					32,025				34,927				36,869				9,117				9,739
	Goodwill impairment					1,301				—				2,002				2,002				—
	Fixed asset impairment charge					—				—				406				—				—
	Club closure costs					996				—				—				—				—
	Non cash interest expense on Senior Discount Notes					—				—				12,758				2,137				3,707
	Amortization of debt issuance costs					1,928				1,627				1,584				400				408
	Loss on extinguishment of debt					—				7,773				—				—				—
	Non-cash rental expense, net of non-cash rental income					1,670				1,650				525				322				190
	Compensation expense incurred in connection with stock options					1,207				198				64				10				15
	Net change in certain working capital components					2,413				(227	)			(1,292	)			8,271				13,734
	Decrease (increase) in deferred tax asset					(1,162	)			3,483				4,036				(1,854	)			(3,500	)
	Decrease (increase) in deferred membership costs					340				1,370				1,021				506				(700	)
	Increase in reserve for self-insured liability claims					—				—				—				—				466
	Landlord contributions to tenant improvements					3,533				617				2,508				762				786
	Other					(420	)			23				549				77				(173	)
		Total adjustments				43,831				51,441				61,030				21,750				24,672
		Net cash provided by operating activities				54,338				58,870				57,125				19,692				24,851
Cash flows from investing activities:
	Capital expenditures, net of effect of acquired businesses					(41,393	)			(43,397	)			(36,816	)			(8,241	)			(10,190	)
	Proceeds from sale of equipment					—				176				7				—				—
	Acquisition of businesses, net of cash acquired					(2,322	)			(130	)			(3,877	)			—				—
		Net cash used in investing activities				(43,715	)			(43,351	)			(40,686	)			(8,241	)			(10,190	)
Cash flows from financing activities:
	Book overdraft					—				—				2,778				—				—
	Proceeds from 11.0% Senior Discount Note Offering					—				—				120,487				121,429				—
	Redemption of Series A and Series B preferred stock					—				—				(50,635	)			(50,635	)			—
	Common stock distribution					—				—				(68,943	)			(68,943	)			—
	Repurchase of common stock					—				—				(53	)			—				(184	)
	Proceeds from stock option exercises					—				—				539				539				—
	Repayments of other borrowings					(5,095	)			(5,566	)			(3,908	)			(980	)			(205	)
	Proceeds from 95/8% Senior Note Offering					—				255,000				—				—				—
	Repayment of 93/4% Senior Notes					—				(125,000	)			—				—				—
	Premium paid on extinguishment of debt and other costs					—				(4,064	)			—				—				—
	Redemption of redeemable senior preferred stock					—				(66,977	)			—				—				—
	Transaction costs related to 95/8% Senior Notes					—				(9,578	)			—				—				—
	Net line of credit (repayments) borrowings					(8,245	)			(14,500	)			—				—				—
	Net subordinated credit (repayments) borrowings					2,810				(9,000	)			—				—				—
	Repurchase of Series B preferred stock					—				(583	)			—				—				—
			Net cash provided by (used in) financing activities			(10,530	)			19,732				265				1,410				(389	)
			Net increase in cash and cash equivalents			93				35,251				16,704				12,861				14,272
Cash and cash equivalents at beginning of period						5,458				5,551				40,802				40,802				57,506
			Cash and cash equivalents at end of period		$	5,551			$	40,802			$	57,506			$	53,663			$	71,778
Summary of the change in certain working capital components, net of effects of acquired businesses:
Increase in accounts receivable					$	(443	)		$	(136	)		$	(486	)		$	(1,209	)		$	(1,542	)
Decrease in inventory						194				382				95				39				81
(Increase) decrease in prepaid expenses, prepaid income taxes and other current assets						(3,539	)			(1,187	)			(2,428	)			1,216				975
Increase in accounts payable and accrued expenses						3,751				1,036				515				3,783				7,296
(Increase) decrease in deferred revenue						2,450				(322	)			1,012				4,442				6,924
		Net change in certain working capital components			$	2,413			$	(227	)		$	(1,292	)		$	8,271			$	13,734

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1.	The Company and its Significant Accounting Policies

	Principles of Consolidation

	Interim Financial Statements (Unaudited)

	Revenue Recognition

F-8

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Table of Contents

	Inventory

	Accounts Receivable and Allowance for Doubtful Accounts

	Receivables and Allowance for Doubtful Accounts

		December 31,
		2003				2004
Membership receivables		$	1,845			$	3,645
Landlord receivables			60				412
Other			386				545
		$	2,291			$	4,602

		Balance Beginning								Write-offs				Balance at
		of the Year				Additions				Net of Recoveries				End of Year
December 31, 2004		$	822			$	5,497			$	(3,672	)		$	2,647
December 31, 2003			120				1,537				(835	)			822
December 31, 2002			—				120				—				120

	Fixed Assets

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Table of Contents

	Advertising and Club Preopening Costs

	Insurance

	Use of Estimates

	Corporate Income Taxes

F-10

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	Statements of Cash Flows

			2002				2003				2004
Cash paid
	Interest (net of amounts capitalized)		$	15,035			$	24,004			$	25,399
	Income taxes			13,187				3,104				1,706
Non-cash investing and financing activities
	Acquisition of fixed assets included in accounts payable and accrued expenses			3,901				7,287				8,372
	Acquisition of equipment and software financed by lessors			2,575				—				—
See Notes 6, 9, 10 and 11 for additional non-cash investing and financing activities

	Cash and Cash Equivalents

	Deferred Lease Liabilities and Non-cash Rental Expense

	Foreign Currency

	Comprehensive Income

	Investments in Affiliated Companies

F-11

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														For the
														Three Months Ended
		For the Year Ended December 31,												March 31,
		2002				2003				2004				2004				2005
														(Unaudited)
Revenue		$	3,549			$	3,657			$	3,542			$	928			$	889
Income from operations			1,790				1,634				1,545				418				412
Net income			1,685				1,526				1,459				380				391

	Intangible Assets, Goodwill and Debt Issuance Costs

	Accounting for the Impairment of Long-Lived Assets

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	Concentrations of Credit Risk

	Earnings (Loss) Per Share

														Three Months Ended
		Year Ended December 31,												March 31,
		2002				2003				2004				2004				2005
														(Unaudited)
Weighted average number of common shares outstanding — basic			1,247,674				1,247,674				1,299,332				1,259,197				1,312,289
Effect of dilutive stock options			59,554				—				—				—				2,273
Weighted average number of common shares outstanding — diluted			1,307,228				1,247,674				1,299,332				1,259,197				1,314,562

	Stock-Based Employee Compensation

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															For the
															Three Months Ended
			For the Year Ended December 31,												March 31,
			2002				2003				2004				2004				2005
															(Unaudited)
Net (loss) income attributed to common stockholders, as reported			$	(1,036	)		$	(3,555	)		$	(4,689	)		$	(2,841	)		$	179
Add:
	Stock-based employee compensation expense included in reported net loss attributed to common stockholders, net of related tax effects			38				12				37				7				9
Deduct:
	Total stock-based employee compensation expense determined under fair value based method for all stock option awards, net of related tax effects			(142	)			(167	)			(99	)			(10	)			(28	)
Pro forma net (loss) income attributed to common stockholders			$	(1,140	)		$	(3,710	)		$	(4,751	)		$	(2,844	)		$	160
Basic earnings (loss) per share:
	As reported		$	(0.83	)		$	(2.85	)		$	(3.61	)		$	(2.26	)		$	0.14
	Pro forma		$	(0.91	)		$	(2.97	)		$	(3.66	)		$	(2.26	)		$	0.12
Diluted earnings (loss) per share:
	As reported		$	(0.76	)		$	(2.85	)		$	(3.61	)		$	(2.26	)		$	0.14
	Pro forma		$	(0.87	)		$	(2.97	)		$	(3.66	)		$	(2.26	)		$	0.12

						Weighted
		Risk-Free				Average								Expected				Fair Value
		Interest				Expected				Expected				Dividend				at Date of
Class A Common		Rate				Life				Volatility				Yield				Grant
1999 Grants			5.7	%			5 years				60	%			—			$	30.10
2000 Grants			6.6				5 years				69				—				47.11
2001 Grants			4.6				5 years				72				—				111.89
2003 Grants			3.8				6 years				55				—				14.50

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2.	Recent Accounting Pronouncements

F-15

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3.	Fixed Assets

			December 31,
			2003				2004
Leasehold improvements			$	234,560			$	257,552
Club equipment				58,376				62,172
Furniture, fixtures and computer equipment				34,703				39,912
Computer software				7,838				9,893
Building and improvements				4,995				4,995
Land				986				986
Construction in progress				13,836				14,479
				355,294				389,989
	Less: Accumulated depreciation and amortization			131,695				163,736
			$	223,599			$	226,253

4.	Goodwill and Intangible Assets

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Balance at January 1, 2003			$	45,531
	Changes due to:
	Currency translation adjustments			203
	Acquisitions			130
Balance at December 31, 2003			$	45,864
	Changes due to:
	Goodwill impairment			(2,002	)
	Currency translation adjustments			68
	Acquisitions			3,564
Balance at December 31, 2004			$	47,494
	Changes due to:
	Currency translation adjustments (Unaudited)			(39	)
Balance at March 31, 2005 (Unaudited)			$	47,455

		December 31, 2003
		Gross
		Carrying				Accumulated				Net
		Amount				Amortization				Intangibles
Acquired intangible assets
Membership lists		$	10,205			$	(9,630	)		$	575
Covenants-not-to-compete			876				(871	)			5
Beneficial lease			223				(173	)			50
		$	11,304			$	(10,674	)		$	630

		December 31, 2004
		Gross
		Carrying				Accumulated				Net
		Amount				Amortization				Intangibles
Acquired intangible assets
Membership lists		$	11,008			$	(10,372	)		$	636
Covenants-not-to-compete			1,150				(894	)			256
Beneficial lease			223				(184	)			39
		$	12,381			$	(11,450	)		$	931

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		March 31, 2005 (Unaudited)
		Gross
		Carrying				Accumulated				Net
		Amount				Amortization				Intangibles
Acquired intangible assets
Membership lists		$	11,008			$	(10,472	)		$	536
Covenants-not-to-compete			1,150				(908	)			242
Beneficial lease			223				(187	)			36
		$	12,381			$	(11,567	)		$	814

		Amortization
Year Ending December 31,		Expense
2005		$	467
2006			300
2007			65
2008			62
2009			37
		$	931

5.	Accrued Expenses

		December 31,
		2003				2004
Accrued payroll		$	6,086			$	5,472
Accrued interest			5,157				5,217
Accrued construction in progress and equipment			5,300				3,200
Accrued occupancy costs			4,002				4,621
Accrued other			5,461				6,789
		$	26,006			$	25,299

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6.	Long-Term Debt and Capital Lease Obligations

			December 31,
											March 31,
			2003				2004				2005
											(Unaudited)
Senior Notes 95/8%			$	255,000			$	255,000			$	255,000
Senior Discount Notes 11%				—				137,572				141,280
Notes payable for acquired businesses				4,358				3,874				3,683
Capital lease obligations				2,519				15				—
				261,877				396,461				399,963
Less: Current portion due within one year				3,486				1,225				1,237
	Long-term portion		$	258,391			$	395,236			$	398,726

Year Ending December 31,		Amount Due
2005		$	1,225
2006			847
2007			734
2008			216
2009			235
Thereafter			393,204
		$	396,461

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	April 16, 2003 Refinancing Transactions

	February 4, 2004 Restructuring

F-20

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		Years Ended December 31,
		2002				2003				2004
Interest costs expensed		$	16,559			$	23,670			$	39,343
Interest costs capitalized			354				322				429
Total interest paid		$	16,913			$	23,992			$	39,772

7.	Related Party Transactions

8.	Leases

F-21

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		Minimum
Year Ending December 31,		Annual Rental
2005		$	54,457
2006			57,884
2007			56,271
2008			54,302
2009			52,400
Aggregate thereafter			395,331
		$	670,645

		Minimum
Year Ending December 31,		Annual Rental
2005		$	2,459
2006			2,266
2007			2,015
2008			1,278
2009			1,025
Aggregate thereafter			4,698
		$	13,741

9.	Redeemable Preferred Stock

	Redeemable Senior Preferred Stock

F-22

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	Series A Redeemable Preferred Stock

10.	Stockholders’ Deficit

	Common Stock

	Series B Preferred Stock

F-23

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Table of Contents

	Restructuring

	b. Stock Options

	Series B Preferred Stock Options

F-24

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	Class A Common Stock Options

						Weighted								Weighted
						Average								Average
		Class A				Exercise				Series B				Exercise
		Common				Price				Preferred				Price
Balance at January 1, 2002			98,782			$	29.32				158,306			$	10.00
Exercised			(3,100	)			22.93				—
Forfeited			(2,200	)			84.57				—
Balance at December 31, 2002			93,482				28.23				158,306				10.00
Granted			46,400				144.00	(i)			—
Exercised			(1,740	)			36.14				(158,306	)		$	10.00
Forfeited			(7,610	)			24.48				—
Balance at December 31, 2003			130,532				69.49				—				—
Reinstated(ii)			5,750				2.15
Exercised			(65,936	)			8.22
Forfeited			(1,460	)			48.22
Balance at December 31, 2004(iii)			68,886			$	84.42

(i)		Option exercise price was greater than market price on the grant date.

F-25

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(ii)		Option reinstated as a result of inadvertent forfeiture on behalf on TSI.
(iii)		In connection with the restructuring of the Company’s capitalization, a total of 50,238 vested common stock options with a weighted average exercise price of $127.42 were amended to decrease the exercise price by $52.50, equivalent to the distribution that common stock holders received in March 2004. As of December 31, 2004, the 50,238 outstanding common stock options have a weighted average exercise price of $74.92.

			Options Outstanding												Options Exercisable
							Weighted-
							Average				Weighted-								Weighted-
							Remaining				Average								Average
			Number				Contractual				Exercise				Number				Exercise
			Outstanding				Life				Price				Exercisable				Price
Class A Common
	1999 grants			880				48 months			$	53.00				880			$	53.00
	2000 grants			9,388				60 months			$	75.00				9,388			$	75.00
	2003 grants			9,240				96 months			$	144.00				9,240			$	144.00
	2004 amended and repriced 1999 grants			1,680				48 months			$	0.50				—			$	0.50
	2004 amended and repriced 2000 grants			6,338				60 months			$	22.50				—			$	22.50
	2004 amended and repriced 2001 grants			4,400				89 months			$	47.50				—			$	47.50
	2004 amended and repriced 2003 grants			36,960				96 months			$	91.50				—			$	91.50
Total Grants				68,886							$	84.42				19,508			$	106.69

11.	Asset Acquisitions

			Years Ended
			December 31,
			2002				2004
Number of clubs acquired				4				3
Purchase prices payable in cash at closing			$	2,322			$	3,877
Issuance and assumption of notes payable				4,725				920
	Total purchase prices		$	7,047			$	4,797

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				Years Ended
				December 31,
				2002				2004
Allocation of purchase prices
	Goodwill			$	4,479			$	3,563
	Fixed assets				1,955				1,155
	Membership lists				1,432				803
	Non-compete agreement				—				275
	Other net liabilities acquired				(108	)			(42	)
	Deferred revenue				(711	)			(957	)
		Total allocation of purchase prices		$	7,047			$	4,797

12.	Revenue from Club Operations

		Years Ended December 31,
		2002				2003				2004
Membership dues		$	255,501			$	273,334			$	282,716
Initiation fees			14,360				13,892				12,439
Personal training revenue			28,450				31,170				34,821
Other club ancillary revenue			16,481				17,269				18,199
Total club revenue			314,792				335,665				348,175
Other Revenue			2,238				2,707				4,856
Business interruption insurance proceeds			1,025				2,800				—
Total revenue		$	318,055			$	341,172			$	353,031

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13.	Corporate Income Taxes

		Year Ended December 31, 2002
						State and
		Federal				Local				Total
Current		$	6,483			$	4,388			$	10,871
Deferred			(536	)			(626	)			(1,162	)
		$	5,947			$	3,762			$	9,709

		Year Ended December 31, 2003
						State and
		Federal				Local				Total
Current		$	463			$	1,591			$	2,054
Deferred			3,017				466				3,483
		$	3,480			$	2,057			$	5,537

		Year Ended December 31, 2004
						State and
		Federal				Local				Total
Current		$	(5,221	)		$	2,275			$	(2,946	)
Deferred			4,956				(920	)			4,036
		$	(265	)		$	1,355			$	1,090

				December 31,
				2003				2004
Deferred tax assets
	Deferred lease liabilities			$	9,998			$	8,781
	Deferred revenue				5,156				4,367
	Fixed assets and intangible assets				4,054				—
	Deferred compensation expense incurred in connection with stock options				1,489				42
	State net operating loss carry-forwards				1,431				1,684
	Interest accretion				—				4,051
	Accruals, reserves and other				517				1,766
					22,645				20,691
Deferred tax liabilities
	Fixed assets and intangible assets				—				(2,735	)
	Deferred costs				(5,490	)			(4,240	)
					(5,490	)			(6,975	)
		Net deferred tax assets, prior to valuation allowance			17,155				13,716
Valuation allowance					(384	)			(981	)
		Net deferred tax assets		$	16,771			$	12,735

F-28

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		Years Ended
		December 31,
		2002				2003				2004
Federal statutory tax rate			35	%			35	%			(35	)%
State and local income taxes, net of federal tax benefit			9				8				7
Change in state effective income tax rate			—				—				12
Deferred compensation							—				41
State tax benefit related to self insurance			—				—				(8	)
Foreign rate differential			—				—				(3	)
Valuation allowance			—				—				21
Other permanent differences			1				—				4
			45	%			43	%			39	%

	The American Jobs Creation Act of 2004

14.	September 11, 2001 Events

F-29

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Table of Contents

15.	Contingencies

16.	Employee Benefit Plan

17.	Discontinued Operations

F-30

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Table of Contents

18.	Subsequent Events

19.	Guarantors

F-31

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Table of Contents

																Non-
												Subsidiary				Guarantor
				TSI Holdings				TSI				Guarantors				Subsidiaries				Eliminations				Consolidated
				(All figures in $’000s)
ASSETS
Current assets
	Cash and cash equivalents			$	—			$	420			$	39,006			$	1,376			$	—			$	40,802
	Accounts receivable, net				—				2,230				1,235				133				(2,129	)			1,469
	Inventory				—				—				720				30				—				750
	Prepaid corporate income taxes				—				4,062				—				—				—				4,062
	Intercompany receivable (payable)				—				7,068				(5,451	)			(1,617	)			—				—
	Prepaid expenses and other current assets				—				6,493				2,329				—				(3,500	)			5,322
		Total current assets			—				20,273				37,839				(78	)			(5,629	)			52,405
Investment in subsidiaries					—				238,166				—				—				(238,166	)			—
Fixed assets, net					—				11,671				210,477				1,451				—				223,599
Goodwill					—				—				45,058				806				—				45,864
Intangible assets, net					—				—				630				—				—				630
Deferred tax assets, net					—				17,399				(491	)			(137	)			—				16,771
Deferred membership costs					—				—				13,038				—				—				13,038
Other assets					—				9,005				887				—				—				9,892
		Total assets		$	—			$	296,514			$	307,438			$	2,042			$	(243,795	)		$	362,199
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities
	Current portion of long-term debt and capital lease obligations			$	—			$	3,486			$	—			$	—			$	—			$	3,486
	Accounts payable				—				220				5,159				—				—				5,379
	Accrued expenses				—				6,261				13,960				628								20,849
	Accrued interest				—				5,155				2,131				—				(2,129	)			5,157
	Deferred revenue				—				—				26,621				—				—				26,621
		Total current liabilities							15,122				47,871				628				(2,129	)			61,492
Long-term debt and capital lease obligations									274,947				(13,056	)			—				(3,500	)			258,391
Deferred lease liabilities					—				563				25,293				—				—				25,856
Deferred revenue					—				(64	)			2,973				93				—				3,002
Other liabilities					—				350				7,512				—				—				7,862
		Total liabilities			—				290,918				70,593				721				(5,629	)			356,603
Redeemable preferred stock Series A preferred stock					—				39,890				—				—				—				39,890
					—				39,890				—				—				—				39,890
Stockholders’ deficit
	Series B preferred stock				—				9,961				—				—				—				9,961
	Common stockholders’ deficit				—				(44,851	)			236,845				725				(237,570	)			(44,851	)
	Accumulated other comprehensive income				—				596				—				596				(596	)			596
		Total stockholders’ deficit			—				(34,294	)			236,845				1,321				(238,166	)			(34,294	)
		Total liabilities, redeemable preferred stock and stockholders’ deficit		$	—			$	296,514			$	307,438			$	2,042			$	(243,795	)		$	362,199

F-32

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																	Non-
					TSI								Subsidiary				Guarantor
					Holdings				TSI				Guarantors				Subsidiaries				Eliminations				Consolidated
					(All figures in $’000s)
ASSETS
Current assets
	Cash and cash equivalents				$	274			$	3,425			$	51,327			$	2,480			$	—			$	57,506
	Accounts receivable, net					—				3,199				1,121				114				(2,479	)			1,955
	Inventory					—				—				623				32				—				655
	Prepaid corporate income taxes					—				5,645				—				—				—				5,645
	Intercompany receivable (payable)					1,075				8,636				(8,083	)			(1,628	)			—				—
	Prepaid expenses and other current assets					—				7,740				2,631				—				(3,500	)			6,871
			Total current assets			1,349				28,645				47,619				998				(5,979	)			72,632
Investment in subsidiary						8,862				267,350				—				—				(276,212	)			—
Fixed assets, net						—				11,478				213,464				1,311				—				226,253
Goodwill						—				—				46,619				875				—				47,494
Intangible assets, net						—				—				931				—				—				931
Deferred tax assets, net						6,266				7,108				(491	)			(148	)			—				12,735
Deferred membership costs						—				—				12,017				—				—				12,017
Other assets						4,106				7,519				1,084				—				—				12,709
			Total assets		$	20,583			$	322,100			$	321,243			$	3,036			$	(282,191	)		$	384,771
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
	Current portion of long-term debt and capital lease obligations				$	—			$	—			$	1,225			$	—			$	—			$	1,225
	Accounts payable					—				3,732				6,823				—				—				10,555
	Accrued expenses					28				6,353				13,189				512				—				20,082
	Accrued interest					—				5,215				2,481				—				(2,479	)			5,217
	Deferred revenue					—				—				28,294				—				—				28,294
			Total current liabilities			28				15,300				52,012				512				(2,479	)			65,373
Long-term debt and capital lease obligations						137,572				295,865				(34,701	)			—				(3,500	)			395,236
Deferred lease liabilities						—				485				26,613				—				—				27,098
Deferred revenue						—				60				3,137				101				—				3,298
Other liabilities						—				1,528				9,255				—				—				10,783
			Total liabilities			137,600				313,238				56,316				613				(5,979	)			501,788
Stockholders’ deficit
	Common stockholders’ deficit					(117,933	)			7,946				264,919				1,515				(274,380	)			(117,933	)
		Accumulated other comprehensive income				916				916				8				908				(1,832	)			916
			Total stockholders’ deficit			(117,017	)			8,862				264,927				2,423				(276,212	)			(117,017	)
			Total liabilities, redeemable preferred stock and stockholders’ deficit		$	20,583			$	322,100			$	321,243			$	3,036			$	(282,191	)		$	384,771

F-33

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																	Non-
					TSI								Subsidiary				Guarantor
					Holdings				TSI				Guarantors				Subsidiaries				Eliminations				Consolidated
					(All figures in $’000s)
ASSETS
Current assets
	Cash and cash equivalents				$	239			$	329			$	68,859			$	2,351			$	—			$	71,778
	Accounts receivable, net					—				3,723				1,682				257				(2,570	)			3,092
	Inventory					—				—				543				31				—				574
	Prepaid corporate income taxes					—				2,887				—				—				—				2,887
	Intercompany receivable (payable)					915				14,865				(14,155	)			(1,625	)			—				—
	Prepaid expenses and other current assets					—				5,350				6,805				—				(3,500	)			8,655
			Total current assets			1,154				27,154				63,734				1,014				(6,070	)			86,986
Investment in subsidiary						11,569				275,801				—				—				(287,370	)			—
Fixed assets, net						—				10,809				211,118				1,156				—				223,083
Goodwill						—				—				46,620				835				—				47,455
Intangible assets, net						—				—				814				—				—				814
Deferred tax assets, net						7,367				9,501				(491	)			(142	)			—				16,235
Deferred membership costs						—				—				12,717				—				—				12,717
Other assets						4,035				7,190				1,081				—				—				12,306
			Total assets		$	24,125			$	330,455			$	335,593			$	2,863			$	(293,440	)		$	399,596
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
	Current portion of long-term debt and capital lease obligations				$	—			$	—			$	1,237			$	—			$	—			$	1,237
	Accounts payable					—				70				4,182				—				—				4,252
	Accrued expenses					41				3,713				18,947				321				—				23,022
	Accrued Interest					—				11,228				2,573				—				(2,570	)			11,231
	Deferred revenue					—				—				35,095				—				—				35,095
			Total current liabilities			41				15,011				62,034				321				(2,570	)			74,837
Long-term debt and capital lease obligations						141,279				300,526				(39,579	)			—				(3,500	)			398,726
Deferred lease liabilities						—				450				27,032				—				—				27,482
Deferred revenue						—				910				2,415				96				—				3,421
Other liabilities						—				1,989				10,333				—				—				12,322
			Total liabilities			141,320				318,886				62,235				417				(6,070	)			516,788
Stockholders’ deficit
	Common stockholders’ deficit					(117,926	)			10,838				273,352				1,721				(285,908	)			(117,923	)
		Accumulated other comprehensive income				731				731				6				725				(1,462	)			731
			Total stockholders’ deficit			(117,195	)			11,569				273,358				2,446				(287,370	)			(117,192	)
			Total liabilities, redeemable preferred stock and stockholders’ deficit		$	24,125			$	330,455			$	335,593			$	2,863			$	(293,440	)		$	399,596

F-34

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															Non-
			TSI								Subsidiary				Guarantors
			Holdings				TSI				Guarantors				Subsidiary				Eliminations				Consolidated
			(All figures in $’000s)
Revenue:
	Club operations		$	—			$	241			$	310,723			$	3,828			$	—			$	314,792
	Fees and Other							1,610				5,698				—				(4,045	)			3,263
				—				1,851				316,421				3,828				(4,045	)			318,055
Operations expense:
	Payroll and related			—				22,184				105,390				1,531				—				129,105
	Club operating			—				564				101,088				945				(3,484	)			99,113
	General and administrative			—				437				21,149				343				(561	)			21,368
	Depreciation and amortization			—				2,857				28,509				382				—				31,748
				—				26,042				256,136				3,201				(4,045	)			281,334
	Operating income			—				(24,191	)			60,285				627				—				36,721
Interest expense				—				16,548				351				10				(350	)			16,559
Interest Income				—				(488	)			—				—				350				(138	)
Equity in the earnings of investees & rental income				—				(577	)			(795	)			—				—				(1,372	)
	Income (loss) before provision (benefit) for corporate income taxes			—				(39,674	)			60,729				617				—				21,672
Provision (benefit) for corporate income taxes				—				(17,766	)			27,296				179				—				9,709
	Income (loss) before equity earnings			—				(21,908	)			33,433				438				—				11,963
Equity earnings from subsidiaries				—				33,871				—				—				(33,871	)			—
Loss on discontinued operations, net of income tax benefit of $551				—				(767	)			(767	)			—				767				(767	)
Cumulative effect of a change in accounting principles, net of income tax benefit of $812				—				(689	)			(689	)			—				689				(689	)
	Net income (loss)		$	—			$	10,507			$	31,977			$	438			$	(32,415	)		$	10,507

F-35

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															Non-
			TSI								Subsidiary				Guarantor
			Holdings				TSI				Guarantors				Subsidiaries				Eliminations				Consolidated
			(All figures in $’000s)
Revenues:
	Club operations		$	—			$	427			$	330,627			$	4,611			$	—			$	335,665
	Fees and Other							3,376				6,306				—				(4,175	)			5,507
				—				3,803				336,933				4,611				(4,175	)			341,172
Operating expenses:
	Payroll and related			—				21,439				107,364				1,782				—				130,585
	Club operating			—				772				112,800				1,112				(3,615	)			111,069
	General and administrative			—				(123	)			22,291				387				(560	)			21,995
	Depreciation and amortization			—				3,890				30,661				376				—				34,927
				—				25,978				273,116				3,657				(4,175	)			298,576
	Operating Income			—				(22,175	)			63,817				954				—				42,596
Loss of extinguishment of debt				—				7,773				—				—				—				7,773
Interest expense				—				23,891				130				(1	)			(350	)			23,670
Interest Income				—				(794	)			—				—				350				(444	)
Equity in the earnings of investees and rental income				—				(614	)			(755	)			—				—				(1,369	)
	Income (loss) before provision (benefit) for corporate income taxes			—				(52,431	)			64,442				955				—				12,966
Provision (benefit) for corporate income taxes				—				(24,100	)			29,401				236				—				5,537
	Income (loss) before equity earnings			—				(28,331	)			35,041				719				—				7,429
Equity earnings from subsidiaries				—				35,760				—				—				(35,760	)			—
	Net income (loss)		$	—			$	7,429			$	35,041			$	719			$	(35,760	)		$	7,429

F-36

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															Non-
			TSI								Subsidiary				Guarantor
			Holdings				TSI				Guarantors				Subsidiaries				Eliminations				Consolidated
			(All figures in $’000s)
Revenues:
	Club operations		$	—			$	19			$	343,244			$	4,912			$	—			$	348,175
	Fees and Other			—				1,710				6,901				8				(3,763	)			4,856
				—				1,729				350,145				4,920				(3,763	)			353,031
Operating expenses:
	Payroll and related			—				21,709				114,649				1,944				—				138,302
	Club operating			—				1,368				117,546				1,136				(3,203	)			116,847
	General and administrative			50				609				24,210				410				(560	)			24,719
	Depreciation and amortization			—				3,994				32,478				397				—				36,869
	Goodwill impairment			—				—				2,002				—				—				2,002
				50				27,680				290,885				3,887				(3,763	)			318,739
	Operating income (loss)			(50	)			(25,951	)			59,260				1,033				—				34,292
Interest expense				13,037				27,629				(969	)			(4	)			(350	)			39,343
Interest income				(60	)			(1,031	)			(2	)			—				350				(743	)
Equity in the earnings of investees and rental income				—				(788	)			(705	)			—				—				(1,493	)
	Income (loss) before provision (benefit) for corporate income taxes			(13,027	)			(51,761	)			60,936				1,037				—				(2,815	)
Provision (benefit) for corporate income taxes				(6,267	)			(18,140	)			25,250				247				—				1,090
	Income (loss) before equity earnings			(6,760	)			(33,621	)			35,686				790				—				(3,905	)
Equity earnings from Subsidiaries				2,855				36,476				—				—				(39,331	)			—
	Net income (loss)		$	(3,905	)		$	2,855			$	35,686			$	790			$	(39,331	)		$	(3,905	)

F-37

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Table of Contents

															Non-
			TSI								Subsidiary				Guarantor
			Holdings				TSI				Guarantors				Subsidiaries				Eliminations				Consolidated
			(All figures in $’000s)
Revenues:
	Club operations		$	—			$	91			$	83,986			$	1,286			$	—			$	85,363
	Fees and Other			—				326				1,281				—				(842	)			765
				—				417				85,267				1,286				(842	)			86,128
Operating expenses:
	Payroll and related			—				6,112				29,678				468				—				36,258
	Club operating			—				175				28,124				301				(702	)			27,898
	General and administrative			—				144				6,108				114				(140	)			6,226
	Depreciation and amortization			—				1,019				8,000				98				—				9,117
	Goodwill impairment			—				—				2,002				—				—				2,002
				—				7,450				73,912				981				(842	)			81,501
	Operating income (loss)			—				(7,033	)			11,355				305				—				4,627
Interest expense				2,209				6,663				28				—				(88	)			8,812
Interest income				(57	)			(205	)			—				—				88				(174	)
Equity in the earnings of investees and rental income				—				(154	)			(182	)			—				—				(336	)
	Income (loss) before provision (benefit) for corporate income taxes			(2,152	)			(13,337	)			11,509				305				—				(3,675	)
Provision (benefit) for corporate income taxes				(947	)			(5,868	)			5,132				66				—				(1,617	)
Equity earnings from Subsidiaries				(853	)			6,616				—				—				(5,763	)			—
	Net income (loss)		$	(2,058	)		$	(853	)		$	6,377			$	239			$	(5,763	)		$	(2,058	)

F-38

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Table of Contents

															Non-
			TSI								Subsidiary				Guarantor
			Holdings				TSI				Guarantors				Subsidiaries				Eliminations				Consolidated
			(All figures in $’000s)
Revenues:
	Club operations		$	—			$	12			$	91,861			$	1,276			$	—			$	93,149
	Fees and Other			—				146				1,699				—				(1,148	)			697
				—				158				93,560				1,276				(1,148	)			93,846
Operating expenses:
	Payroll and related			—				5,442				30,479				475				—				36,396
	Club operating			—				346				31,810				301				(1,008	)			31,449
	General and administrative			13				431				6,264				109				(140	)			6,677
	Depreciation and amortization			—				1,137				8,498				104				—				9,739
				13				7,356				77,051				989				(1,148	)			84,261
	Operating income (loss)			(13	)			(7,198	)			16,509				287				—				9,585
Interest expense				3,787				6,333				89				—				(90	)			10,119
Interest income				(1	)			(457	)			(1	)			—				90				(369	)
Equity in the earnings of investees and rental income				—				(268	)			(202	)			—				—				(470	)
	Income (loss) before provision (benefit) for corporate income taxes			(3,799	)			(12,806	)			16,623				287				—				305
Provision (benefit) for corporate income taxes				(1,637	)			(5,224	)			6,906				81				—				126
Equity earnings from Subsidiaries				2,341				9,923				—				—				(12,264	)			—
	Net income (loss)		$	179			$	2,341			$	9,717			$	206			$	(12,264	)		$	179

F-39

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Table of Contents

																Non-
				TSI								Subsidiary				Guarantor
				Holdings				TSI				Guarantors				Subsidiaries				Eliminations				Consolidated
				(All figures in $’000s)
Cash flows from operating activities:
	Net income			$	—			$	10,507			$	31,977			$	438			$	(32,415	)		$	10,507
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				—				2,857				28,786				382				—				32,025
	Goodwill impairment write-off and club closure costs				—				—				2,297				—				—				2,297
	Compensation expense in connection with stock options				—				1,207				—				—				—				1,207
	Noncash rental expense, net of noncash rental income				—				(78	)			1,748				—				—				1,670
	Amortization of debt issuance costs				—				1,928				—				—				—				1,928
	Changes in operating assets and liabilities				—				(3,483	)			8,301				306				—				5,124
	Other								(32,061	)			(742	)			(32	)			32,415				(420	)
		Total adjustments			—				(29,630	)			40,390				656				32,415				43,831
		Net cash provided by operating activities			—				(19,123	)			72,367				1,094								54,338
		Net cash used in investing activities			—				(3,128	)			(40,338	)			(249	)			—				(43,715	)
		Net cash used in financing activities			—				23,636				(33,586	)			(580	)			—				(10,530	)
		Net Increase in cash and cash equivalents			—				1,385				(1,557	)			265				—				93
Cash and cash equivalents at beginning of period					—				190				5,192				76				—				5,458
	Cash and cash equivalents at end of period			$	—			$	1,575			$	3,635			$	341			$	—			$	5,551

F-40

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Table of Contents

																Non-
				TSI								Subsidiary				Guarantor
				Holdings				TSI				Guarantors				Subsidiaries				Eliminations				Consolidated
				(All figures in $’000s)
Cash flows from operating activities:
	Net income			$	—			$	7,429			$	35,041			$	719			$	(35,760	)		$	7,429
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				—				3,890				30,661				376				—				34,927
	Compensation expense in connection with stock options				—				198				—				—				—				198
	Noncash rental expense, net of noncash rental income				—				(84	)			1,734				—				—				1,650
	Loss on extinguishment of debt				—				7,773				—				—				—				7,773
	Amortization of debt issuance costs				—				1,627				—				—				—				1,627
	Changes in operating assets and liabilities				—				4,011				1,166				66				—				5,243
	Other				—				(36,277	)			485				55				35,760				23
		Total adjustments			—				(18,862	)			34,046				497				35,760				51,441
		Net cash provided by operating activities			—				(11,433	)			69,087				1,216				—				58,870
		Net cash used in investing activities			—				(4,288	)			(38,737	)			(326	)			—				(43,351	)
		Net cash provided by financing activities			—				14,566				5,021				145				—				19,732
		Net Increase in cash and cash equivalents			—				(1,155	)			35,371				1,035				—				35,251
Cash and cash equivalents at beginning of period					—				1,575				3,635				341				—				5,551
	Cash and cash equivalents at end of period			$	—			$	420			$	39,006			$	1,376			$	—			$	40,802

F-41

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Table of Contents

																Non-
				TSI								Subsidiary				Guarantor
				Holdings				TSI				Guarantors				Subsidiaries				Eliminations				Consolidated
				(All figures in $’000s)
Cash flows from operating activities:
	Net income			$	(3,905	)		$	2,855			$	35,686			$	790			$	(39,331	)		$	(3,905	)
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				—				3,994				32,478				397				—				36,869
	Goodwill impairment write-off				—				—				2,002				—				—				2,002
	Fixed Asset impairment charges				—				406				—				—				—				406
	Compensation expense in connection with stock options				—				64				—				—				—				64
	Noncash rental expense, net of noncash rental income				—				(99	)			624				—				—				525
	Noncash interest expense				12,758				—				—				—				—				12,758
	Amortization of debt issuance costs				272				1,312				—				—				—				1,584
	Changes in operating assets and liabilities				(7,340	)			9,412				4,270				(69	)			—				6,273
	Other				(2,885	)			(37,590	)			1,552				141				39,331				549
		Total adjustments			2,805				(22,501	)			40,926				469				39,331				61,030
		Net cash provided by operating activities			(1,100	)			(19,646	)			76,612				1,259				—				57,125
		Net cash used in investing activities			—				(3,800	)			(36,731	)			(155	)			—				(40,686	)
		Net cash provided by financing activities			1,374				26,451				(27,560	)			—				—				265
		Net Increase in cash and cash equivalents			274				3,005				12,321				1,104				—				16,704
Cash and cash equivalents at beginning of period					—				420				39,006				1,376				—				40,802
	Cash and cash equivalents at end of period			$	274			$	3,425			$	51,327			$	2,480			$	—			$	57,506

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Table of Contents

																Non-
												Subsidiary				Guarantor
				TSI Holdings				TSI				Guarantors				Subsidiaries				Eliminations				Consolidated
				(All figures in $’000s)
Cash flows from operating activities:
	Net income			$	(2,058	)		$	(853	)		$	6,377			$	239			$	(5,763	)		$	(2,058	)
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				—				1,019				8,000				98				—				9,117
	Goodwill impairment write-off				—				—				2,002				—				—				2,002
	Compensation expense in connection with stock options				—				10				—				—				—				10
	Noncash rental expense, net of noncash rental income				—				(23	)			345				—				—				322
	Noncash interest expense				2,137				—				—				—				—				2,137
	Amortization of debt issuance costs				72				328				—				—				—				400
	Changes in operating assets and liabilities				(2,112	)			(4,847	)			14,713				(69	)			—				7,685
	Other				853				(6,484	)			2				(57	)			5,763				77
		Total adjustments			950				(9,997	)			25,062				(28	)			5,763				21,750
		Net cash provided by operating activities			(1,108	)			(10,850	)			31,439				211				—				19,692
		Net cash used in investing activities			—				(454	)			(7,712	)			(75	)			—				(8,241	)
		Net cash provided by financing activities			2,390				11,379				(12,359	)			—				—				1,410
		Net Increase in cash and cash equivalents			1,282				75				11,368				136				—				12,861
Cash and cash equivalents at beginning of period					—				420				39,006				1,376				—				40,802
	Cash and cash equivalents at end of period			$	1,282			$	495			$	50,374			$	1,512			$	—			$	53,663

F-43

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Table of Contents

																Non-
												Subsidiary				Guarantor
				TSI Holdings				TSI				Guarantors				Subsidiaries				Eliminations				Consolidated
				(All figures in $’000s)
Cash flows from operating activities:
	Net income			$	179			$	2,341			$	9,717			$	206			$	(12,264	)		$	179
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				—				1,137				8,498				104				—				9,739
	Compensation expense in connection with stock options				—				15				—				—				—				15
	Noncash rental expense, net of noncash rental income				—				(40	)			230				—				—				190
	Noncash interest expense				3,707				—				—				—				—				3,707
	Amortization of debt issuance costs				80				328				—				—				—				408
	Changes in operating assets and liabilities				(1,624	)			3,336				8,979				(370	)			(1	)			10,320
	Other				(2,350	)			(9,465	)			22				(179	)			12,265				293
		Total adjustments			(187	)			(4,689	)			17,729				(445	)			12,264				24,672
		Net cash provided by operating activities			(8	)			(2,348	)			27,446				(239	)			—				24,851
		Net cash used in investing activities			—				(468	)			(9,832	)			110				—				(10,190	)
		Net cash provided by financing activities			(27	)			(280	)			(82	)			—				—				(389	)
		Net Increase in cash and cash equivalents			(35	)			(3,096	)			17,532				(129	)			—				14,272
Cash and cash equivalents at beginning of period					274				3,425				51,327				2,480				—				57,506
	Cash and cash equivalents at end of period			$	239			$	329			$	68,859			$	2,351			$	—			$	71,778

F-44

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Table of Contents

			Page
Independent Auditors’ Report				F-46
Financial Statements:
	Consolidated Balance Sheets			F-47
	Consolidated Statements of Income and Expenses			F-48
	Consolidated Statements of Partners’ Capital			F-49
	Consolidated Statements of Cash Flows			F-50
Notes to Consolidated Financial Statements				F-51

F-45

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Table of Contents

		SQUIRE, LEMKIN + O’BRIEN LLP
		CERTIFIED PUBLIC ACCOUNTANTS
		111 ROCKVILLE PIKE
		SUITE 475
JOHN T SQUIRE CPA		ROCKVILLE MARYLAND 20850
SUSAN A LEMKIN CPA		301 424 6800 TELEPHONE
TIMOTHY M O’BRIEN CPA		301 424 6892 FACSIMILE
CHRISTOPHER J MATHEWS CPA		EMAIL SUPPORT@MYCPAS.COM
JAN SEALOVER CPA		WWW.MYCPAS.COM

F-46

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Table of Contents

				December 31,
				2004				2003
ASSETS
CURRENT ASSETS:
	Accounts receivable			$	163,482			$	52,138
	Inventory				4,139				2,498
	Prepaid expenses and other				32,432				38,388
	Deposits and other				19,766				—
		TOTAL CURRENT ASSETS		$	219,819			$	93,024
PROPERTY, PLANT AND EQUIPMENT				$	255,467			$	517,075
OTHER ASSETS:
	Prepaid rent			$	11,395			$	11,395
	Deferred member costs				98,900				131,958
	Deposits and other deferred charges				92,130				96,294
		TOTAL OTHER ASSETS		$	202,425			$	239,647
TOTAL ASSETS				$	677,711			$	849,746
LIABILITIES AND PARTNERS’ CAPITAL
CURRENT LIABILITIES:
	Bank overdraft			$	9,449			$	23,383
	Accounts payable and accrued expenses				259,276				266,187
	Deferred revenue				193,979				185,296
	Deferred lease benefit				20,781				70,531
		TOTAL CURRENT LIABILITIES		$	483,485			$	545,397
OTHER LIABILITIES:
	Deferred revenue			$	31,621			$	29,705
	Deferred lease benefit				—				20,774
		TOTAL OTHER LIABILITIES		$	31,621			$	50,479
TOTAL LIABILITIES				$	515,106			$	595,876
COMMITMENTS AND CONTINGENCIES
PARTNERS’ CAPITAL					162,605				253,870
TOTAL LIABILITIES AND PARTNERS’ CAPITAL				$	677,711			$	849,746

F-47

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Table of Contents

				For the Years Ended December 31,
				2004				2003				2002
INCOME:
	Membership and facility fees			$	3,527,462			$	3,634,208			$	3,527,250
	Pro shop sales and other				14,603				22,739				21,909
		TOTAL INCOME		$	3,542,065			$	3,656,947			$	3,549,159
EXPENSES:
	Personnel and related costs			$	794,533			$	856,443			$	814,071
	Occupancy				409,602				383,453				381,757
	Subsidiary rent accrual				—				—				(202,533	)
	Other operating expenses				471,117				447,879				427,846
	Depreciation and amortization				318,968				323,324				326,000
	Cost of sales — pro shop				2,718				11,816				11,768
		TOTAL EXPENSES		$	1,996,938			$	2,022,915			$	1,758,909
INCOME FROM OPERATIONS				$	1,545,127			$	1,634,032			$	1,790,250
OTHER INCOME (EXPENSES):
	Interest and other income			$	17,697			$	3,748			$	4,101
	Interest expense				—				—				(1,751	)
	State income taxes				(104,089	)			(111,284	)			(107,699	)
		TOTAL OTHER INCOME (EXPENSES)		$	(86,392	)		$	(107,536	)		$	(105,349	)
NET INCOME				$	1,458,735			$	1,526,496			$	1,684,901

F-48

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Table of Contents

														General
														Partners and
						Class I				Class II				Class III
						Limited				Limited				Limited
		Totals				Partners				Partners				Partners
BALANCE DECEMBER 31, 2001		$	242,473			$	(10,414	)		$	343,711			$	(90,824	)
NET INCOME			1,684,901				190,990				290,235				1,203,676
DISTRIBUTIONS			(1,500,000	)			(172,500	)			(262,500	)			(1,065,000	)
BALANCE DECEMBER 31, 2002		$	427,374			$	8,076			$	371,446			$	47,852
NET INCOME			1,526,496				175,150				266,474				1,084,872
DISTRIBUTIONS			(1,700,000	)			(192,500	)			(292,500	)			(1,215,000	)
BALANCE DECEMBER 31, 2003		$	253,870			$	(9,274	)		$	345,420			$	(82,276	)
NET INCOME			1,458,735				168,374				256,310				1,034,051
DISTRIBUTIONS			(1,550,000	)			(177,500	)			(270,000	)			(1,102,500	)
BALANCE DECEMBER 31, 2004		$	162,605			$	(18,400	)		$	331,730			$	(150,725	)

F-49

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Table of Contents

					For the Years Ended December 31,
					2004				2003				2002
CASH FLOWS FROM OPERATING ACTIVITIES:
	Cash received from members and guests				$	3,480,472			$	3,689,664			$	3,529,208
	Cash paid to suppliers and employees					(1,757,470	)			(1,769,738	)			(1,722,556	)
	Interest received					1,004				2,748				4,101
	Interest paid					—				—				(1,751	)
	Income taxes paid					(102,209	)			(139,133	)			(127,224	)
		NET CASH PROVIDED BY OPERATING ACTIVITIES			$	1,621,797			$	1,783,541			$	1,681,778
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property, plant and equipment				$	(63,204	)		$	(103,552	)		$	(183,883	)
	Proceeds from sale of fixed assets					5,341				—				—
		NET CASH USED IN INVESTING ACTIVITIES			$	(57,863	)		$	(103,552	)		$	(183,883	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Principal payments of long-term debt borrowings				$	—			$	—			$	(47,864	)
	Distributions to partners					(1,550,000	)			(1,700,000	)			(1,500,000	)
	Change in bank overdraft					(13,934	)			20,011				3,372
		NET CASH USED IN FINANCING ACTIVITIES			$	(1,563,934	)		$	(1,679,989	)		$	(1,544,492	)
NET INCREASE (DECREASE) IN CASH					$	—			$	—			$	(46,597	)
CASH, BEGINNING OF YEAR						—				—				46,597
CASH, END OF YEAR					$	—			$	—			$	—
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
	Net income				$	1,458,735			$	1,526,496			$	1,684,901
	Adjustments:
		Depreciation and amortization				318,968				323,324				326,000
		Loss on disposal of assets				503				—				3,468
		Changes in assets and liabilities:
			Accounts receivable			(111,344	)			21,198				(21,321	)
			Inventory, prepaid expenses and other			4,315				(25,156	)			(5,045	)
			Deposits and other deferred charges			(15,602	)			—				(586	)
			Deferred member costs			33,058				10,519				1,370
			Accounts payable and accrued expenses			(6,911	)			30,458				(172,595	)
			Deferred liabilities			(59,925	)			(103,298	)			(134,414	)
NET CASH PROVIDED BY OPERATING ACTIVITIES					$	1,621,797			$	1,783,541			$	1,681,778

F-50

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Note 1.	Organization and Significant Accounting Policies

F-51

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Note 2.	Concentration of Credit Risk

Note 3.	Property, Plant and Equipment

			December 31,
			2004				2003
Leasehold improvements			$	1,777,492			$	1,768,886
Equipment and fixtures				953,931				914,731
	Totals		$	2,731,423			$	2,683,617
Less: Accumulated depreciation and amortization				2,475,956				2,166,542
	Totals		$	255,467			$	517,075

Note 4.	Income Taxes

Note 5.	Commitments and Contingencies

F-52

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Year		Amount
2005		$	102,939
Total		$	102,939

F-53

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Note 6.	Related Party Transactions

Note 7.	Partners’ Allocations

F-54

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Item 13.	Other Expenses of Issuance and Distribution

			Amount to
			be Paid
SEC registration fee			$	20,304
NASD filing fee				17,750
NASDAQ National Market listing fee				*
Legal fees and expenses				*
Accounting fees and expenses				*
Printing and engraving expenses				*
Blue Sky fees and expenses				*
Transfer agent and registrar fees and expenses				*
Miscellaneous				*
	Total			*
			$	*

*	To be filed by amendment.

Item 14.	Indemnification of Directors and Officers

II-1

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Item 15.	Recent Sales of Unregistered Securities

Item 16.	Exhibits and Financial Statement Schedules

Exhibit Number				Description of Exhibit
	1	.1*		Form of Underwriting Agreement
	3	.1		Amended and Restated Certificate of Incorporation of Town Sports International Holdings, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-4, File. No. 333-114210 (the “S-4 Registration Statement”))
	3	.2*		Form of Certificate of Incorporation to be in effect upon closing of this offering
	3	.3		Bylaws of Town Sports International Holdings, Inc. (incorporated by reference to Exhibit 3.3 of the S-4 Registration Statement)

II-2

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Exhibit Number				Description of Exhibit
	3	.4*		Form of Bylaws to be in effect upon closing of this offering
	4	.1		Indenture dated as of February 4, 2004 by and among Town Sports International Holdings, Inc. and The Bank of New York (incorporated by reference to Exhibit 4.1 of the S-4 Registration Statement)
	4	.2		Registration Rights Agreement, dated as of February 4, 2004, by and between Town Sports International Holdings, Inc. and Deutsche Bank Securities Inc. (incorporated by reference to Exhibit 4.3 of the S-4 Registration Statement)
	4	.3*		Form of Common Stock Certificate
	4	.4		See Exhibits 3.1 and 3.2 for provisions defining the rights of holders of common stock
	5	.1*		Opinion of Proskauer Rose LLP
	10	.1		Credit Agreement dated as of April 16, 2003 by and among Town Sports International, Inc., the financial institutions referred to therein and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 10.1 of the Registration Statement on Form S-4 of Town Sports International, Inc., File No. 333-82607)
	10	.2		First Amendment, dated as of January 27, 2004, to the Credit Agreement by and among Town Sports International, Inc., the financial institutions referred to therein and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 10.2 of the S-4 Registration Statement)
	10	.3		Restructuring Agreement, dated as of February 4, 2004, by and among Town Sports International, Inc., Town Sports International Holdings, Inc., Bruckmann, Rosser, Sherrill & Co., L.P., the individuals and entities listed on the BRS Co-Investor Signature Pages thereto, Farallon Capital Partners, L.P., Farallon Capital Institutional Partners, L.P., RR Capital Partners, L.P., and Farallon Capital Institutional Partners II, L.P., Canterbury Detroit Partners, L.P., Canterbury Mezzanine Capital, L.P., Rosewood Capital, L.P., Rosewood Capital IV, L.P., Rosewood Capital IV Associates, L.P., CapitalSource Holdings LLC, Keith E. Alessi, Paul N. Arnold, and certain stockholders of the Company listed on the Executive Signature Pages thereto (incorporated by reference to Exhibit 10.3 of the S-4 Registration Statement)
	10	.4		Stockholders Agreement, dated as of February 4, 2004, by and among Town Sports International Holdings, Inc., Town Sports International, Inc., Bruckmann, Rosser, Sherrill & Co., L.P. the individuals and entities listed on the BRS Co-Investor Signature Pages thereto, Farallon Capital Partners, L.P., Farallon Capital Institutional Partners, L.P., RR Capital Partners, L.P., and Farallon Capital Institutional Partners II, L.P., Canterbury Detroit Partners, L.P., Canterbury Mezzanine Capital, L.P., Rosewood Capital, L.P., Rosewood Capital IV, L.P., Rosewood Capital IV Associates, L.P., CapitalSource Holdings LLC, Keith E. Alessi, Paul N. Arnold, and certain stockholders of the Company listed on the Executive Signature Pages thereto (incorporated by reference to Exhibit 10.4 of the S-4 Registration Statement)
	10	.5		Registration Rights Agreement, dated as of February 4, 2004, by and among Town Sports International Holdings, Inc., Town Sports International, Inc., Bruckmann, Rosser, Sherrill & Co., L.P., the individuals and entities listed on the BRS Co-Investor Signature Pages thereto, Farallon Capital Partners, L.P., Farallon Capital Institutional Partners, L.P., RR Capital Partners, L.P., and Farallon Capital Institutional Partners II, L.P., Canterbury Detroit Partners, L.P., Canterbury Mezzanine Capital, L.P., Rosewood Capital, L.P., Rosewood Capital IV, L.P., Rosewood Capital IV Associates, L.P., CapitalSource Holdings LLC, Keith E. Alessi, Paul N. Arnold, and certain stockholders of the Company listed on the Executive Signature Pages thereto (incorporated by reference to Exhibit 10.5 of the S-4 Registration Statement)
	10	.6		Tax Sharing Agreement, dated as of February 4, 2004, by and among Town Sports International Holdings, Inc., Town Sports International, Inc., and the other signatories thereto (incorporated by reference to Exhibit 10.6 of the S-4 Registration Statement)
	10	.7		2004 Common Stock Option Plan (incorporated by reference to Exhibit 10.7 of the S-4 Registration Statement)

II-3

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Exhibit Number				Description of Exhibit
	10	.8		Pledge Agreement, dated as of February 4, 2004, between Town Sports International Holdings, Inc. and Deutsche Bank Trust Company Americas, as collateral agent, for the benefit of the Secured Creditors (as defined therein) (incorporated by reference to Exhibit 10.8 of the S-4 Registration Statement)
	10	.9		Security Agreement, dated as of February 4, 2004, made by Town Sports International Holdings, Inc., in favor of Deutsche Bank Trust Company Americas, as collateral agent, for the benefit of the Secured Creditors (as defined therein) (incorporated by reference to Exhibit 10.9 of the S-4 Registration Statement)
	10	.10		Holdco Guaranty, dated as of February 4, 2004, made by Town Sports International Holdings, Inc (incorporated by reference to Exhibit 10.10 of the S-4 Registration Statement)
	10	.11		Professional Services Agreement, dated as of December 10, 1996, by and among TSI, Inc. and Bruckmann, Rosser, Sherrill & Co., L.P. (“BRS”) (incorporated by reference to Exhibit 10.11 of the S-4 Registration Statement)
	10	.12		First Amendment to Professional Services Agreement, dated June 1, 2004, by and between Town Sports International Inc., and Bruckmann, Rosser, Sherrill and Co. (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004)
	10	.13		2003 Executive Stock Agreement, dated July 23, 2003, among TSI, Inc., BRS, the Farallon Entities and Randall C. Stephen (incorporated by reference to Exhibit 10.12 of the S-4 Registration Statement)
	10	.14		Executive Stock Agreement, dated as of December 10, 1996, between TSI, Inc., BRS, the Farallon Entities and Mark N. Smith (incorporated by reference to Exhibit 10.13 of the S-4 Registration Statement)
	10	.15		Executive Stock Agreement, dated as of December 10, 1996, between TSI, Inc., BRS, the Farallon Entities and Robert J. Giardina (incorporated by reference to Exhibit 10.14 of the S-4 Registration Statement)
	10	.16		Executive Stock Agreement, dated as of December 10, 1996, between TSI, Inc., BRS, the Farallon Entities and Richard G. Pyle (incorporated by reference to Exhibit 10.15 of the S-4 Registration Statement)
	10	.17		Executive Stock Agreement, dated as of December 10, 1996, between TSI, Inc., BRS, the Farallon Entities and Alexander A. Alimanestianu (incorporated by reference to Exhibit 10.16 of the S-4 Registration Statement)
	10	.18		Purchase Agreement dated as of January 28, 2004 by and among Town Sports International Holdings, Inc. and Deutsche Bank Securities Inc. (incorporated by reference to Exhibit 10.17 of the S-4 Registration Statement)
	10	.19*		Form of Director and Officer Indemnification Agreement
	21	*		Subsidiaries
	23	.1**		Consent of PricewaterhouseCoopers LLP
	23	.2**		Consent of Squire, Lemkin + O’Brien LLP
	23	.3*		Consent of Proskauer Rose LLP (contained in the opinion filed as Exhibit Number 5.1 to this registration statement)
	24	.1**		Powers of Attorney (contained on the signature page to this registration statement)

	*	To be filed by amendment.

	**	Filed herewith.

(b)	Financial Statement Schedules. None.

II-4

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Item 17.	Undertakings

II-5

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	TOWN SPORTS INTERNATIONAL
	HOLDINGS, INC.

	By:	/s/ ROBERT J. GIARDINA

	Robert J. Giardina
	Chief Executive Officer

Signature				Title
/s/ MARK N. SMITH   Mark N. Smith				Chairman and Director
/s/ ROBERT J. GIARDINA   Robert J. Giardina				Chief Executive Officer, Office of the President (Principal Executive Officer)
/s/ RICHARD G. PYLE   Richard G. Pyle				Chief Financial Officer, Office of the President (Principal Financial and Accounting Officer)
/s/ KEITH E. ALESSI   Keith E. Alessi				Director
/s/ PAUL N. ARNOLD   Paul N. Arnold				Director

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Signature				Title
Bruce C. Bruckmann				Director
/s/ J. RICE EDMONDS   J. Rice Edmonds				Director
/s/ JASON M. FISH   Jason M. Fish				Director

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Exhibit Number				Description of Exhibit
	1	.1*		Form of Underwriting Agreement
	3	.1		Amended and Restated Certificate of Incorporation of Town Sports International Holdings, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-4, File. No. 333-114210 (the “S-4 Registration Statement”))
	3	.2*		Form of Certificate of Incorporation to be in effect upon closing of this offering
	3	.3		Bylaws of Town Sports International Holdings, Inc. (incorporated by reference to Exhibit 3.3 of the S-4 Registration Statement)
	3	.4*		Form of Bylaws to be in effect upon closing of this offering
	4	.1		Indenture dated as of February 4, 2004 by and among Town Sports International Holdings, Inc. and The Bank of New York (incorporated by reference to Exhibit 4.1 of the S-4 Registration Statement)
	4	.2		Registration Rights Agreement, dated as of February 4, 2004, by and between Town Sports International Holdings, Inc. and Deutsche Bank Securities Inc. (incorporated by reference to Exhibit 4.3 of the S-4 Registration Statement)
	4	.3*		Form of Common Stock Certificate
	4	.4		See Exhibits 3.1 and 3.2 for provisions defining the rights of holders of common stock
	5	.1*		Opinion of Proskauer Rose LLP
	10	.1		Credit Agreement dated as of April 16, 2003 by and among Town Sports International, Inc., the financial institutions referred to therein and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 10.1 of the Registration Statement on Form S-4 of Town Sports International, Inc., File No. 333-82607)
	10	.2		First Amendment, dated as of January 27, 2004, to the Credit Agreement by and among Town Sports International, Inc., the financial institutions referred to therein and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 10.2 of the S-4 Registration Statement)
	10	.3		Restructuring Agreement, dated as of February 4, 2004, by and among Town Sports International, Inc., Town Sports International Holdings, Inc., Bruckmann, Rosser, Sherrill & Co., L.P., the individuals and entities listed on the BRS Co-Investor Signature Pages thereto, Farallon Capital Partners, L.P., Farallon Capital Institutional Partners, L.P., RR Capital Partners, L.P., and Farallon Capital Institutional Partners II, L.P., Canterbury Detroit Partners, L.P., Canterbury Mezzanine Capital, L.P., Rosewood Capital, L.P., Rosewood Capital IV, L.P., Rosewood Capital IV Associates, L.P., CapitalSource Holdings LLC, Keith E. Alessi, Paul N. Arnold, and certain stockholders of the Company listed on the Executive Signature Pages thereto (incorporated by reference to Exhibit 10.3 of the S-4 Registration Statement)
	10	.4		Stockholders Agreement, dated as of February 4, 2004, by and among Town Sports International Holdings, Inc., Town Sports International, Inc., Bruckmann, Rosser, Sherrill & Co., L.P. the individuals and entities listed on the BRS Co-Investor Signature Pages thereto, Farallon Capital Partners, L.P., Farallon Capital Institutional Partners, L.P., RR Capital Partners, L.P., and Farallon Capital Institutional Partners II, L.P., Canterbury Detroit Partners, L.P., Canterbury Mezzanine Capital, L.P., Rosewood Capital, L.P., Rosewood Capital IV, L.P., Rosewood Capital IV Associates, L.P., CapitalSource Holdings LLC, Keith E. Alessi, Paul N. Arnold, and certain stockholders of the Company listed on the Executive Signature Pages thereto (incorporated by reference to Exhibit 10.4 of the S-4 Registration Statement)

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Exhibit Number				Description of Exhibit
	10	.5		Registration Rights Agreement, dated as of February 4, 2004, by and among Town Sports International Holdings, Inc., Town Sports International, Inc., Bruckmann, Rosser, Sherrill & Co., L.P., the individuals and entities listed on the BRS Co-Investor Signature Pages thereto, Farallon Capital Partners, L.P., Farallon Capital Institutional Partners, L.P., RR Capital Partners, L.P., and Farallon Capital Institutional Partners II, L.P., Canterbury Detroit Partners, L.P., Canterbury Mezzanine Capital, L.P., Rosewood Capital, L.P., Rosewood Capital IV, L.P., Rosewood Capital IV Associates, L.P., CapitalSource Holdings LLC, Keith E. Alessi, Paul N. Arnold, and certain stockholders of the Company listed on the Executive Signature Pages thereto (incorporated by reference to Exhibit 10.5 of the S-4 Registration Statement)
	10	.6		Tax Sharing Agreement, dated as of February 4, 2004, by and among Town Sports International Holdings, Inc., Town Sports International, Inc., and the other signatories thereto (incorporated by reference to Exhibit 10.6 of the S-4 Registration Statement)
	10	.7		2004 Common Stock Option Plan (incorporated by reference to Exhibit 10.7 of the S-4 Registration Statement)
	10	.8		Pledge Agreement, dated as of February 4, 2004, between Town Sports International Holdings, Inc. and Deutsche Bank Trust Company Americas, as collateral agent, for the benefit of the Secured Creditors (as defined therein) (incorporated by reference to Exhibit 10.8 of the S-4 Registration Statement)
	10	.9		Security Agreement, dated as of February 4, 2004, made by Town Sports International Holdings, Inc., in favor of Deutsche Bank Trust Company Americas, as collateral agent, for the benefit of the Secured Creditors (as defined therein) (incorporated by reference to Exhibit 10.9 of the S-4 Registration Statement)
	10	.10		Holdco Guaranty, dated as of February 4, 2004, made by Town Sports International Holdings, Inc (incorporated by reference to Exhibit 10.10 of the S-4 Registration Statement)
	10	.11		Professional Services Agreement, dated as of December 10, 1996, by and among TSI, Inc. and Bruckmann, Rosser, Sherrill & Co., L.P. (“BRS”) (incorporated by reference to Exhibit 10.11 of the S-4 Registration Statement)
	10	.12		First Amendment to Professional Services Agreement, dated June 1, 2004, by and between Town Sports International Inc., and Bruckmann, Rosser, Sherrill and Co. (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004)
	10	.13		2003 Executive Stock Agreement, dated July 23, 2003, among TSI, Inc., BRS, the Farallon Entities and Randall C. Stephen (incorporated by reference to Exhibit 10.12 of the S-4 Registration Statement)
	10	.14		Executive Stock Agreement, dated as of December 10, 1996, between TSI, Inc., BRS, the Farallon Entities and Mark N. Smith (incorporated by reference to Exhibit 10.13 of the S-4 Registration Statement)
	10	.15		Executive Stock Agreement, dated as of December 10, 1996, between TSI, Inc., BRS, the Farallon Entities and Robert J. Giardina (incorporated by reference to Exhibit 10.14 of the S-4 Registration Statement)
	10	.16		Executive Stock Agreement, dated as of December 10, 1996, between TSI, Inc., BRS, the Farallon Entities and Richard G. Pyle (incorporated by reference to Exhibit 10.15 of the S-4 Registration Statement)
	10	.17		Executive Stock Agreement, dated as of December 10, 1996, between TSI, Inc., BRS, the Farallon Entities and Alexander A. Alimanestianu (incorporated by reference to Exhibit 10.16 of the S-4 Registration Statement)
	10	.18		Purchase Agreement dated as of January 28, 2004 by and among Town Sports International Holdings, Inc. and Deutsche Bank Securities Inc. (incorporated by reference to Exhibit 10.17 of the S-4 Registration Statement)
	10	.19*		Form of Director and Officer Indemnification Agreement
	21	*		Subsidiaries
	23	.1**		Consent of PricewaterhouseCoopers LLP

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Exhibit Number				Description of Exhibit
	23	.2**		Consent of Squire, Lemkin + O’Brien LLP
	23	.3*		Consent of Proskauer Rose LLP (contained in the opinion filed as Exhibit Number 5.1 to this registration statement)
	24	.1**		Powers of Attorney (contained on the signature page to this registration statement)

	*	To be filed by amendment.

**	Filed herewith.