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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			$195,500,000			$22,764.25

(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. $20,303.25 has been paid previously.

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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

Proceeds to

Proceeds to Selling

Discounts and

Town Sports

Stockholders

Price to Public

Commissions

(before expenses)

(before expenses)

Per share

$

$

$

$

Total

$

$

$

$

Credit Suisse	Deutsche Bank Securities

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		Page
Prospectus Summary			1
The Offering			6
Summary Consolidated Financial and Other Data			7
Risk Factors			10
Forward-Looking Statements			19
Industry and Market Data			19
Use of Proceeds			20
Dividend Policy			21
Capitalization			22
Dilution			23
Selected Consolidated Financial and Other Data			24
Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Business			45
Management			62
Related Party Transactions			68
Principal and Selling Stockholders			71
Description of Capital Stock			73
Shares Eligible for Future Sale			75
Material United States Federal Income and Estate Tax Consequences to Non-U.S. Holders			77
Underwriting			80
Legal Matters			84
Experts			84
Where You Can Find Additional Information			84
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.

	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.

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	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.

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

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	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.

	Our cash and cash equivalents are concentrated in one bank.

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	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.

	•	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

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	•	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.

	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.

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	•	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 2.25:1.00 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.

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

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	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.

	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.

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	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 December 31, 2005
		Actual				Pro Forma
		(In thousands, except
		share and per share data)
Cash and cash equivalents		$	51,304			$
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			153,077
Long-term debt (other), including current installments			3,085
Total long-term debt, including current installments			411,162
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			(113,588	)
Unearned compensation			(509	)
Accumulated other comprehensive income (currency translation adjustment)			386
Retained earnings (accumulated deficit)			(1,973	)
Total stockholders’ (deficit) equity			(115,683	)
Total capitalization		$	295,479			$

	(1)	$42,037 of available borrowings, net of $7,693 of outstanding letters of credit.

	•	88,366 shares of common stock issuable upon exercise of options at a weighted average exercise price of $86.26 per share; and
	•	an additional 4,177 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 December 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	%

	•	88,366 shares of our common stock issuable upon exercise of options outstanding as of December 31, 2005 at a weighted average exercise price of $86.26 per share; and
	•	an additional 4,177 shares of our common stock reserved for issuance under our stock option plan.

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			Year Ended December 31,
			2001				2002				2003				2004				2005
Statement of Operations Data:
Revenues			$	280,382			$	318,055			$	341,172			$	353,031			$	388,556
Operating expenses:
	Payroll and related			112,766				129,105				130,585				138,302				151,920
	Club operating			88,941				99,113				111,069				116,847				130,219
	General and administrative			18,785				21,368				21,995				24,719				26,582
	Depreciation and amortization(1)			32,185				31,748				34,927				36,869				39,582
	Goodwill impairment(2)			—				—				—				2,002				—
Operating income				27,705				36,721				42,596				34,292				40,253
Loss on extinguishment of debt(3)				—				—				7,773				—				—
Interest expense, net of interest income				14,527				16,421				23,226				38,600				39,208
Equity in the earnings of investees and rental income				(1,251	)			(1,372	)			(1,369	)			(1,493	)			(1,744	)
Income (loss) from continuing operations before provision for corporate income taxes				14,429				21,672				12,966				(2,815	)			2,789
Provision for corporate income taxes				6,853				9,709				5,537				1,090				1,020
Income (loss) from continuing operations				7,576				11,963				7,429				(3,905	)			1,769
Loss from discontinued operations(4) (including loss on club closure of $996 in 2002), net of income tax benefit of $551				(530	)			(767	)			—				—				—
Cumulative effect of change in accounting principle, net of income tax benefit of $612(5)				—				(689	)			—				—				—
Net income (loss)				7,046				10,507				7,429				(3,905	)			1,769
Accreted dividends on preferred stock				(10,201	)			(11,543	)			(10,984	)			(784	)			—
Net income (loss) attributable to common stockholders			$	(3,155	)		$	(1,036	)		$	(3,555	)		$	(4,689	)		$	1,769
Basic earnings (loss) per share:
	Continuing operations		$	6.09			$	9.59			$	5.95			$	(3.01	)		$	1.35
	Discontinued operations		$	(0.43	)		$	(0.61	)		$	—			$	—			$	—
	Change in accounting principle		$	—			$	(0.55	)		$	—			$	—			$	—
	Net income (loss) attributable to common stockholders		$	(2.53	)		$	(0.83	)		$	(2.85	)		$	(3.61	)		$	1.35
Diluted earnings (loss) per share(6):
	Continuing operations		$	6.09			$	*9.15			$	5.95			$	(3.01	)		$	1.35

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			Year Ended December 31,
			2001				2002				2003				2004				2005
	Discontinued operations		$	(0.43	)		$	(0.59	)		$	—			$	—			$	—
	Change in accounting principle		$	—			$	(0.53	)		$	—			$	—			$	—
	Net income (loss) attributable to common stockholders		$	(2.53	)		$	*(0.79	)		$	(2.85	)		$	(3.61	)		$	1.35
Weighted average number of shares used in calculating earnings (loss) per share:
	Basic			1,244,775				1,247,674				1,247,674				1,299,332				1,309,616
	Diluted(6)			1,244,775				1,307,228				1,247,674				1,299,332				1,312,473

		As of December 31,
		2001				2002				2003				2004				2005
Balance Sheet Data:
Cash and cash equivalents		$	5,458			$	5,551			$	40,802			$	57,506			$	51,304
Working capital (deficit)			(42,565	)			(43,192	)			(9,087	)			7,039				(2,262	)
Total assets			296,005				314,250				362,199				390,956				433,771
Long-term debt, including current installments			163,979				160,943				261,877				396,461				411,162
Redeemable senior preferred stock			54,687				62,125				—				—				—
Redeemable Series A preferred stock			30,432				34,841				39,890				—				—
Total stockholders’ deficit(7)			(32,797	)			(31,740	)			(34,294	)			(117,017	)			(115,683	)

			Year Ended December 31,
			2001				2002				2003				2004				2005
Cash Flow Data:
Cash provided by (used in):
	Operating activities		$	45,073			$	54,338			$	58,870			$	57,125			$	63,256
	Investing activities			(59,083	)			(43,715	)			(43,351	)			(40,686	)			(66,338	)
	Financing activities			16,103				(10,530	)			19,732				265				(3,120	)
Other Data:
Non-cash rental expense, net of non-cash rental income				4,224				1,670				1,650				525				1,461
Non-cash compensation expense incurred in connection with stock options				1,149				1,207				198				64				279
EBITDA(8)				60,611				68,385				71,119				72,654				81,579
EBITDA margin(9)				21.6	%			21.5	%			20.8	%			20.6	%			21.0	%

		Year Ended December 31,
		2001				2002				2003				2004				2005
Club and Membership Data:
New clubs opened			12				8				3				5				5
Clubs acquired			2				4				—				3				2
Clubs closed, relocated or sold			—				(2	)			(3	)			—				(3	)
Wholly owned clubs operated at end of period			117				127				127				135				139
Total clubs operated at end of period(10)			119				129				129				137				141
Members at end of period(11)			317,000				342,000				342,000				383,000				409,000
Comparable club revenue increase(12)			14.5	%			5.8	%			3.5	%			2.5	%			6.9	%
Mature club revenue increase(13)			12.3	%			4.1	%			1.6	%			2.1	%			5.8	%
Revenue per weighted average club(14)		$	2,592			$	2,581			$	2,680			$	2,680			$	2,816
Average revenue per member(15)			937				964				987				960				968

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	(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 pro forma implementation of SFAS No. 142 for the periods presented:

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

	(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 using discounted cash flows. 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,
		2001				2002
Revenues		$	1,660			$	1,607
Loss from operations of discontinued clubs (including loss on club closure of $996 in 2002)			(894	)			(1,318	)
Benefit from corporate income tax			(364	)			(551	)
Loss from discontinued operations		$	(530	)		$	(767	)

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	(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, 2001, 2003 and 2004, these common stock equivalents were antidilutive and have been excluded from the diluted weighted average number of shares. For the years ended December 31, 2002 and 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 60,812, 52,807 and 15,481 for the years ended December 31, 2001, 2003 and 2004, respectively.

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

		Year Ended December 31,
		2001				2002				2003				2004				2005
Weighted average number of shares outstanding — basic			1,244,775				1,247,674				1,247,674				1,299,332				1,309,616
Effect of dilutive stock options			—				59,554				—				—				2,857
Weighted average number of shares outstanding — diluted			1,244,775				1,307,228				1,247,674				1,299,332				1,312,473

	(7)	In 2004, we paid a common stock distribution totaling $68,900, or $52.50 per share.
	(8)	EBITDA consists of net income (loss) plus interest expense, net of interest income, provision for 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:

			Year Ended December 31,
			2001				2002				2003				2004				2005
Net income (loss)			$	7,046			$	10,507			$	7,429			$	(3,905	)		$	1,769
	Interest expense, net of interest income			14,527				16,421				23,226				38,600				39,208
	Provision for corporate income taxes			6,853				9,709				5,537				1,090				1,020
	Cumulative effect of change in accounting principle			—				689				—				—				—
	Loss from discontinued operations			530				767				—				—				—
	Equity in the earnings of investees and rental income			(1,251	)			(1,372	)			(1,369	)			(1,493	)			(1,744	)
	Loss on extinguishment of debt			—				—				7,773				—				—
Operating income				27,705				36,721				42,596				34,292				40,253
	Loss from discontinued operations			(530	)			(767	)			—				—				—
	Equity in the earnings of investees and rental income			1,251				1,372				1,369				1,493				1,744
	Cumulative effect of change in accounting principle			—				(689	)			—				—				—
	Loss on extinguishment of debt			—				—				(7,773	)			—				—
	Depreciation and amortization			32,185				31,748				34,927				36,869				39,582
EBITDA			$	60,611			$	68,385			$	71,119			$	72,654			$	81,579

	(9)	EBITDA margin is the ratio of EBITDA to total revenue.

(10)	Includes wholly owned and partly owned clubs. In addition, as of December 31, 2005, we managed five university fitness clubs in which we did not have an equity interest.
(11)	Represents members at wholly owned and partly owned clubs.
(12)	Total revenue for a club is included in comparable club revenue increase beginning on the first day of the thirteenth full calendar month of the club’s operation.
(13)	We define mature club revenue as revenue from clubs operated by us for more than 24 months.
(14)	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.
(15)	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 82.8% of our total revenue for the year ended December 31, 2005. We recognize revenue from membership dues in the month when the services are rendered. Approximately 93% of our members pay their monthly dues by electronic funds transfer, or EFT, while the remaining 7% of our members pay annually in advance. We recognize revenue from initiation fees over the expected average life of the membership. It is important therefore to operate

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		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.
	•	We generated 16.1% of our revenue for the year ended December 31, 2005 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.

			Year Ended December 31,
			2003				2004				2005
			(In thousands)
Membership dues			$	273,334			$	282,716			$	309,811
Initiation fees				13,892				12,439				11,916
Membership revenue				287,226				295,155				321,727
Personal training revenue				31,170				34,821				42,277
Other ancillary club revenue				17,269				18,199				20,139
Ancillary club revenue				48,439				53,020				62,416
Total club revenue				335,665				348,175				384,143
	Fees and Other revenue			2,707				4,856				4,413
	Business interruption insurance proceeds			2,800				—				—
Total revenue			$	341,172			$	353,031			$	388,556

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			Year Ended December 31,
			2001				2002				2003				2004				2005
			(In thousands)
Operating income			$	27,705			$	36,721			$	42,596			$	34,292			$	40,253
	Increase (decrease) over prior period			24.3	%			32.5	%			16.0	%			(19.5	)%			17.4	%
Net income (loss)			$	7,046			$	10,507			$	7,429			$	(3,905	)		$	1,769
	Increase (decrease) over prior period			45.8	%			49.1	%			(29.3	)%			(152.6	)%			145.3	%
Cash flows provided by operating activities			$	45,073			$	54,338			$	58,870			$	57,125			$	63,256
	Increase (decrease) over prior period			5.8	%			20.6	%			8.3	%			(3.0	)%			10.7	%
EBITDA			$	60,611			$	68,385			$	71,119			$	72,654			$	81,579
	Increase over prior period			23.1	%			12.8	%			4.0	%			2.2	%			12.3	%

		Year Ended December 31,
		2001				2002				2003				2004				2005
Wholly owned clubs operated at beginning of period			103				117				127				127				135
New clubs opened			12				8				3				5				5
Clubs acquired			2				4				—				3				2
Clubs closed, relocated or sold(1)			—				(2	)			(3	)			—				(3	)
Wholly owned clubs operated at end of period			117				127				127				135				139
Total clubs operated at end of period(2)			119				129				129				137				141

(1)	In 2005, we temporarily closed a club for a renovation and expansion. This club reopened in February 2006.

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(2)	Includes wholly owned and partly owned clubs. In addition, as of December 31, 2005, we managed five university fitness clubs in which we did not have an equity interest.

			Comparable								Mature
			Club Revenue								Club Revenue
			Quarter				Full Year				Quarter				Full Year
2003
	Q1			6.2	%							1.8	%
	Q2			3.6	%							(0.2	)%
	Q3			2.2	%							(0.5	)%
	Q4			1.1	%			3.5	%			(0.8	)%			1.6	%
2004
	Q1			(0.1	)%							(0.5	)%
	Q2			1.6	%							1.3	%
	Q3			4.1	%							2.8	%
	Q4			4.6	%			2.5	%			3.8	%			2.1	%
2005
	Q1			6.0	%							4.8	%
	Q2			7.0	%							5.7	%
	Q3			6.1	%							5.1	%
	Q4			8.5	%			6.9	%			7.1	%			5.8	%

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	•	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.

	•	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.

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			Year Ended December 31,
			2003				2004				2005
Revenues				100.0	%			100.0	%			100.0	%
Operating expenses:
	Payroll and related			38.3				39.2				39.1
	Club operating			32.6				33.1				33.5
	General and administrative			6.4				7.0				6.8
	Depreciation and amortization			10.2				10.4				10.2
	Goodwill impairment			—				0.6				—
Operating income				12.5				9.7				10.4
Loss on extinguishment of debt				2.3				—				—
Interest expense				6.9				11.1				10.7
Interest income				(0.1	)			(0.2	)			(0.6	)
Equity in the earnings of investees and rental income				(0.4	)			(0.4	)			(0.4	)
Income (loss) before provision for corporate income taxes				3.8				(0.8	)			0.7
Provision for corporate income taxes				1.6				0.3				0.3
Net income (loss)				2.2				(1.1	)			0.4
Accreted dividends on preferred stock				(3.2	)			(0.2	)			—
Net income (loss) attributable to common stockholders				(1.0	)%			(1.3	)%			0.4	%

	Revenues

	Operating Expenses

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	•	Payroll costs directly related to personal training, Group Exclusives and programming for children increased $5.5 million, or 23.6%, due to an increase in demand for these programs.
	•	An offset to the increases in payroll related to a $1.1 million one-time bonus received by vested option holders in the first quarter of 2004 in connection with a common stock distribution, while no such bonus payment was made in 2005.

	•	A $7.6 million increase in rent expense. Rent expense related to our clubs that have been open less than 24 months increased $5.2 million, and rent expense at our clubs open over 24 months increased $2.4 million, or 3.9%.
	•	Gas and electric costs increased by $2.6 million, or 19.9%, from $13.0 million in 2004 to $15.6 million in 2005. While overall square footage under management increased by 4.8% during 2005, a significant portion of the increase in our gas and electric costs was due to the increase in natural gas prices, principally in the fourth quarter, which is the underlying natural resource used for electricity generation in the northeastern United States.
	•	Advertising expense increased $1.3 million. Advertising expense, as a percent of revenue, increased to 2.7% of total revenue for the year ended December 31, 2005 from 2.5% of total revenue during the same period in 2004.

	•	Accounting and consulting fees and expenses increased by $468,000 principally due to increases in audit and consulting fees with respect to preparedness for compliance with Section 404 of the Sarbanes-Oxley Act.
	•	Legal and related costs increased $1.0 million due to an increase in costs relating to new club leases, as well as increased litigation for both new and existing matters incurred in the normal course of business.
	•	Costs incurred in connection with the examination of financing alternatives totaled $928,000.
	•	These increases were offset by a $372,000 or 8.2% decrease in liability insurance costs.

	Interest Expense

	Interest Income

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	Provision for Income Tax

	Accreted Dividends on Preferred Stock

	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.

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	•	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.
	•	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

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	Interest Expense

	Interest Income

	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

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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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	Senior Credit Facility

			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)			$	1,127,212			$	25,811			$	50,595			$	94,306			$	956,500
Operating lease obligations(2)				727,133				61,695				125,634				117,777				422,027
	Total contractual cash obligations		$	1,854,345			$	87,506			$	176,229			$	212,083			$	1,378,527

(1)	The long-term debt contractual cash obligations include principal and interest payment requirements. Interest on TSI, Inc.’s senior notes amounts to $24.5 million annually.
(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 45% of our members. 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 $81 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 55% of our members.

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		Number of
Market		Clubs				Position
Boston metro			18			Leading operator
New York metro			95			Leading operator
Philadelphia metro			6			#3 operator
Washington, D.C. metro			19			#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
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

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Location		Address		Date Opened or Management Assumed
Manhattan		1221 Avenue of the Americas		January 2002
Manhattan		200 Park Avenue		December 2002
Manhattan		232 Mercer Street		September 2004
Manhattan		225 Varick Street		Future Opening
Manhattan		885 Second Avenue		Future Opening
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		1609 Kings Highway		Future Opening
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
Queens, NY		8000 Cooper Avenue		Future Opening
Staten Island, NY		300 West Service Road		June 1998
Scarsdale, NY		696 White Plains Road		October 1995
Mamaroneck, NY		124 Palmer Avenue		January 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		September 2005
Hawthorne, NY		24 Saw Mill River Road		January 2006
Dobbs Ferry, NY		Lawrence Street		Future Opening
Smithtown, NY		Browns Road		Future Opening
Stamford, CT		6 Landmark Square		December 1997
Stamford, CT		16 Commerce Road		Reopened February 2006
Danbury, CT		38 Mill Plain Road		January 1998
Stamford, CT		1063 Hope Street		November 1998
Norwalk, CT		250 Westport Avenue		March 1999
Greenwich, CT		6 Liberty Way		May 1999
Westport, CT		427 Post Road, East		January 2002
Greenwich, CT		67 Mason Street		February 2004

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Location		Address		Date Opened or Management Assumed
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		210 14th Street		Future Opening
Montclair, NJ		56 Church Street		Future Opening
Englewood, NJ		34-36 South Dean Street		Future Opening
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		505 Boylston Street		January 2006
Boston, MA		560 Harrison Avenue		February 2006
Boston, MA		695 Atlantic Avenue		Future Opening
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
Lexington, MA		475 Bedford Avenue		July 2000
Franklin, MA		750 Union Street		July 2000
Framingham, MA		1657 Worcester Street		July 2000

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Location		Address		Date Opened or Management Assumed
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		January 2006
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
Washington, D.C.		14th Street, NW		Future Opening
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		November 2005
Bethesda, MD		6800 Wisconsin Avenue		Future Opening
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
Radnor, PA		555 East Lancaster		Future Opening
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
Robert J. Giardina(2)			48			Chief Executive Officer and Director
Alexander A. Alimanestianu			47			President and Chief Development Officer
Richard G. Pyle			47			Chief Financial Officer
Randall C. Stephen			49			Chief Operating Officer
Keith E. Alessi(1)			51			Director
Paul N. Arnold(2)			59			Director
Bruce C. Bruckmann(2)			52			Director
J. Rice Edmonds(1)			35			Director
Jason M. Fish(1)			48			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(3)				2005				452,152				448,565				—
	Chairman			2004				443,286				429,000				4,800
				2003				434,594				511,133				1,200
Robert J. Giardina				2005				428,831				354,701				—
	Chief Executive Officer			2004				420,423				349,710				4,800
				2003				412,179				406,227				1,200
Richard G. Pyle				2005				318,643				212,181				—
	Chief Financial Officer			2004				312,395				212,474				4,000
				2003				306,270				251,746				1,000
Alexander A. Alimanestianu(4)				2005				318,643				212,181				—
	President and Chief			2004				312,395				212,474				4,000
	Development Officer			2003				306,270				251,746				1,000
Randall C. Stephen				2005				245,565				97,520				4,000	(5)
	Chief Operating Officer			2004				229,500				116,413				3,200
				2003				225,000				95,755				800

(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)	Effective March 23, 2006, Mr. Smith resigned, and he is no longer an employee, executive officer or director.
(4)	Mr. Alimanestianu was appointed President in March 2006.
(5)	See “— Option Grants in Last Fiscal Year” below.

Number

of Options

Length of

Granted

Exercise Price(1)

Option Term

Name

Date

(#)

($)

at Grant Date

Randall C. Stephen

April 1, 2005

4,000

$

91.50

120 months

(1)	The exercise price exceeds the fair market value of $33.00 per share on the grant date. Fair market value was based on an independent valuation.

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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 ($)(1)
		Shares Acquired				Value
Name		on Exercise (#)				Realized ($)				Exercisable				Unexercisable				Exercisable				Unexercisable
Mark N. Smith(2)			—				—				1,200				4,800			$	0			$	60,349
Robert J. Giardina			—				—				1,200				4,800			$	0			$	60,349
Richard G. Pyle			—				—				1,000				4,000			$	0			$	50,291
Alexander A. Alimanestianu			—				—				1,000				4,000			$	0			$	50,291
Randall C. Stephen			—				—				1,600				6,400			$	10,058			$	80,466

(1)	Value is based upon the fair market value of the stock minus the exercise price. The fair market value was determined to be $104.07 per share of common stock and was based upon the historical and projected financial performance of the Company.
(2)	Effective March 23, 2006, Mr. Smith resigned, and he is no longer an employee, executive officer or director of the Company.

	•	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	(1)			6,000	(1)
Robert J. Giardina			59,480				6,000	(2)
Richard G. Pyle			51,410				5,000	(3)
Alexander A. Alimanestianu			50,839				5,000	(3)
Randall C. Stephen			—				8,000	(4)

(1)	Effective March 23, 2006, Mr. Smith resigned, and he is no longer an employee, executive officer or director of the Company. Pursuant to the Equity Rights Letter between the Company and Mr. Smith, we agreed not to exercise our repurchase rights with respect to his common stock. 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 $100.76.
(2)	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.
(3)	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 4,000 options, each to purchase one share of underlying share of our common stock, is $91.50.
(4)	The exercise price for 800 options, each to purchase one underlying share of our common stock, is $144.00 and the exercise price for 7,200 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												Shares Beneficially								Additional Shares
		Owned Before the												Owned After the								to be Sold if
		Offering												Offering								Over-Allotment
										Shares												Option is
Name of Beneficial Owner		Number				Percentage				Offered				Number				Percentage				Exercised in Full
5% Stockholders
Bruckmann, Rosser, Sherrill(1)			504,456				38.5	%												%
The Farallon Entities(2)			270,091				20.6	%												%
The Canterbury Entities(3)			139,437				10.7	%												%
Directors and Executive Officers
Mark N. Smith(4)			76,155				5.8	%												%
Robert J. Giardina(5)			60,680				4.6	%												%
Richard G. Pyle(5)			52,410				4.0	%												%
Alexander A. Alimanestianu(5)			51,839				4.0	%												%
Randall C. Stephen(5)			800				*												*
Bruce C. Bruckmann(6)			517,642				39.5	%												%
J. Rice Edmonds(7)			504,546				38.5	%												%
Jason M. Fish(8)			23,000				1.8	%												%
Paul N. Arnold			2,857				*												*
Keith E. Alessi			2,857				*												*
Directors and executive officers as a group (26 persons)(9)			1,089,376				82.1	%												%

	*	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,

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	Rosser, Sherrill & Co., LP. All major investment and other decisions of Bruckmann, Rosser, Sherrill & Co., LP are vested in BRS Partners, LP.
(2)	Consists of approximately 94,532 shares held by Farallon Capital Partners, L.P. (“FCP”), approximately 108,037 shares held by Farallon Capital Institutional Partners, L.P. (“FCIP”), approximately 54,018 shares by Farallon Capital Institutional Partners II, L.P. (“FCIPII”) and approximately 13,504 shares held by RR Capital Partners, L.P. (collectively with FCP, 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, 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 and individuals disclaim group attribution.
(3)	Consists of 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 1,200 options to acquire common stock that are exercisable within 60 days. Effective March 23, 2006, Mr. Smith resigned, and he is no longer an employee, executive officer or director of the Company.
(5)	Includes options to acquire common stock that are exercisable within 60 days. Messrs. Giardina, Pyle, Alimanestianu and Stephen each hold such options on 1,200, 1,000, 1,000 and 1,600 shares of common stock, respectively.
(6)	Includes 504,456 shares held by BRS, and approximately 2,971 shares held by certain other family members and partnership investments of Mr. Bruckmann. Mr. Bruckmann disclaims beneficial ownership of such shares held by BRS.
(7)	Consists of shares held by BRS. Mr. Rice disclaims beneficial ownership of such shares.
(8)	Consists of shares held by CS Equity, LLC. Mr. Fish is a co-founder, president and director of CapitalSource Inc., the 100% owner of CS Equity, LLC. Mr. Fish disclaims beneficial ownership of such shares.
(9)	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 Messrs. Bruckmann and Edmonds, and (ii) shares held by CS Equity, LLC, which may be deemed to be owned beneficially by Mr. Fish.

	Excluding the shares beneficially owned by BRS and CS Equity, LLC, the directors and named executive officers as a group beneficially own 518,489 shares of common stock (which represents approximately 39.4% 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 Securities (USA) 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

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		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 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, 2004 and 2005			F-3
	Consolidated statements of operations for the years ended December 31, 2003, 2004 and 2005			F-4
	Consolidated statements of stockholders’ deficit for the years ended December 31, 2003, 2004 and 2005			F-5
	Consolidated statements of cash flows for the years ended December 31, 2003, 2004 and 2005			F-6
	Notes to consolidated financial statements			F-7
Consolidated Annual Financial Statements of Kalorama Sports Management Associates:
	Independent Auditors’ Report			F-38
	Consolidated balance sheets at December 31, 2004 and December 31, 2005			F-39
	Consolidated statements of income and expense for the years ended December 31, 2005, 2004 and 2003			F-40
	Consolidated statements of partners’ capital for the years ended December 31, 2005, 2004 and 2003			F-41
	Consolidated statements of cash flows for the years ended December 31, 2005, 2004 and 2003			F-42
	Notes to consolidated financial statements			F-43

F-1

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	/s/ PRICEWATERHOUSECOOPERS LLP

F-2

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				December 31,
				2004				2005
				(All figures in $’000s,
				except share and per
				share data)
ASSETS
Current assets:
	Cash and cash equivalents			$	57,506			$	51,304
	Accounts receivable (less allowance for doubtful accounts of $2,647 and $1,984 at December 31, 2004 and 2005, respectively)				1,955				7,103
	Inventory				655				421
	Prepaid corporate income taxes				5,645				4,518
	Prepaid expenses and other current assets				8,971				13,907
		Total current assets			74,732				77,253
Fixed assets, net					226,253				253,131
Goodwill					47,494				49,974
Intangible assets, net					931				741
Deferred tax assets, net					12,735				24,378
Deferred membership costs					12,017				11,522
Other assets					16,794				16,772
		Total assets		$	390,956			$	433,771
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
	Current portion of long-term debt and capital lease obligations			$	1,225			$	1,267
	Accounts payable				10,555				8,333
	Accrued expenses				22,402				31,620
	Accrued interest				5,217				5,267
	Deferred revenue				28,294				33,028
		Total current liabilities			67,693				79,515
Long-term debt and capital lease obligations					395,236				409,895
Deferred lease liabilities					36,009				48,898
Deferred revenue					3,298				2,905
Other liabilities					5,737				8,241
		Total liabilities			507,973				549,454
Commitments and contingencies (Note 14)
Stockholders’ deficit:
	Class A voting common stock, $.001 par value; issued and outstanding 1,312,289 shares at December 31, 2004 and 1,309,123 shares at December 31, 2005				1				1
	Paid-in capital				(113,900	)			(113,588	)
	Unearned compensation				(292	)			(509	)
	Accumulated other comprehensive income (currency translation adjustment)				916				386
	Retained earnings (accumulated deficit)				(3,742	)			(1,973	)
		Total stockholders’ deficit			(117,017	)			(115,683	)
		Total liabilities and stockholders’ deficit		$	390,956			$	433,771

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				For the Year Ended December 31,
				2003				2004				2005
				(All figures in $’000s)
Revenues:
	Club operations			$	335,665			$	348,175			$	384,143
	Fees and Other				5,507				4,856				4,413
					341,172				353,031				388,556
Operating expenses:
	Payroll and related				130,585				138,302				151,920
	Club operating				111,069				116,847				130,219
	General and administrative				21,995				24,719				26,582
	Depreciation and amortization				34,927				36,869				39,582
	Goodwill impairment				—				2,002				—
					298,576				318,739				348,303
		Operating income			42,596				34,292				40,253
Loss on extinguishment of debt					7,773				—				—
Interest expense					23,670				39,343				41,550
Interest income					(444	)			(743	)			(2,342	)
Equity in the earnings of investees and rental income					(1,369	)			(1,493	)			(1,744	)
		Income (loss) before provision for corporate income taxes			12,966				(2,815	)			2,789
Provision for corporate income taxes					5,537				1,090				1,020
		Net income (loss)			7,429				(3,905	)			1,769
Accreted dividends on preferred stock					(10,984	)			(784	)			—
		Net income (loss) attributable to common stockholders		$	(3,555	)		$	(4,689	)		$	1,769
Earnings (loss) per share:
		Basic		$	(2.85	)		$	(3.61	)		$	1.35
		Diluted		$	(2.85	)		$	(3.61	)		$	1.35
Dividend per common share				$	—			$	52.50			$	—
Weighted average number of shares used in calculating earnings (loss) per share:
		Basic			1,247,674				1,299,332				1,309.616
		Diluted			1,247,674				1,299,332				1,312,473

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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)
Balance at January 1, 2003					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	)
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													(3,166	)							(184	)															(184	)
Amortization of unearned compensation																					(3	)			282												279
Deferred compensation charges related to outstanding stock options																					499				(499	)
Other comprehensive income:
	Net income																																1,769				1,769
	Foreign currency translation adjustment																												(530	)							(530	)
		Total comprehensive income																																			1,239
Balance at December 31, 2005					—			$	—				1,309,123			$	1			$	(113,588	)		$	(509	)		$	386			$	(1,973	)		$	(115,683	)

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					For the Year Ended December 31,
					2003				2004				2005
					(All figures in $’000s)
Cash flows from operating activities:
Net income (loss)					$	7,429			$	(3,905	)		$	1,769
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization					34,927				36,869				39,582
	Goodwill impairment					—				2,002				—
	Fixed asset impairment charge					—				406				—
	Non cash interest expense on Senior Discount Notes					—				12,758				15,505
	Amortization of debt issuance costs					1,627				1,584				1,644
	Loss on extinguishment of debt					7,773				—				—
	Non-cash rental expense, net of non-cash rental income					1,650				525				1,461
	Compensation expense incurred in connection with stock options					198				64				279
	Net change in certain working capital components					(227	)			(1,292	)			4,221
	Decrease (increase) in deferred tax asset					3,483				4,036				(11,623	)
	Decrease in deferred membership costs					1,370				1,021				495
	Landlord contributions to tenant improvements					617				2,508				8,590
	Increase in insurance reserves					—				1,399				1,837
	Other					23				(850	)			(504	)
		Total adjustments				51,441				61,030				61,487
		Net cash provided by operating activities				58,870				57,125				63,256
Cash flows from investing activities:
	Capital expenditures, net of effect of acquired businesses					(43,397	)			(36,816	)			(62,393	)
	Proceeds from sale of equipment					176				7				—
	Acquisition of businesses, net of cash acquired					(130	)			(3,877	)			(3,945	)
		Net cash used in investing activities				(43,351	)			(40,686	)			(66,338	)
Cash flows from financing activities:
	Change in book overdraft					—				2,778				(1,792	)
	Proceeds from 11.0% Senior Discount Note Offering					—				120,487				—
	Redemption of Series A and Series B preferred stock					—				(50,635	)			—
	Common stock distribution					—				(68,943	)			—
	Repurchase of common stock					—				(53	)			(184	)
	Proceeds from stock option exercises					—				539				—
	Repayments of other borrowings					(5,566	)			(3,908	)			(1,144	)
	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					(14,500	)			—				—
	Net subordinated credit repayments					(9,000	)			—				—
	Repurchase of Series B preferred stock					(583	)			—				—
			Net cash provided by (used in) financing activities			19,732				265				(3,120	)
			Net increase (decrease) in cash and cash equivalents			35,251				16,704				(6,202	)
Cash and cash equivalents at beginning of period						5,551				40,802				57,506
			Cash and cash equivalents at end of period		$	40,802			$	57,506			$	51,304
Summary of the change in certain working capital components, net of effects of acquired businesses:
Increase in accounts receivable					$	(136	)		$	(486	)		$	(2,334	)
Decrease in inventory						382				95				230
Increase in prepaid expenses and other current assets						(137	)			(845	)			(3,774	)
(Increase) decrease in prepaid corporate income taxes						(1,050	)			(1,583	)			1,127
Increase in accounts payable and accrued expenses						1,036				515				4,920
(Decrease) increase in deferred revenue						(322	)			1,012				4,052
		Net change in certain working capital components			$	(227	)		$	(1,292	)		$	4,221

F-6

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Table of Contents

1.	The Company and Summary of Significant Accounting Policies

	Principles of Consolidation

	Revenue Recognition

	Inventory

	Accounts Receivable and Allowance for Doubtful Accounts

F-7

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Table of Contents

	Receivables and Allowance for Doubtful Accounts

		December 31,
		2004				2005
Membership receivables		$	3,645			$	4,426
Landlord receivables			412				3,241
Other			545				1,420
		$	4,602			$	9,087

		Balance Beginning								Write-offs Net of				Balance at
		of the Year				Additions				Recoveries				End of Year
December 31, 2005		$	2,647			$	6,165			$	(6,828	)		$	1,984
December 31, 2004			822				5,497				(3,672	)			2,647
December 31, 2003			120				1,537				(835	)			822

	Fixed Assets

	Advertising and Club Preopening Costs

	Insurance

F-8

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Table of Contents

	Use of Estimates

	Corporate Income Taxes

	Statements of Cash Flows

			2003				2004				2005
Cash paid
	Interest (net of amounts capitalized)		$	24,004			$	25,399			$	25,251
	Income taxes			3,104				1,706				10,718
Non-cash investing and financing activities
	Acquisition of fixed assets included in accounts payable and accrued expenses			7,287				8,372				10,479
See Notes 6, 9, 10 and 11 for additional non-cash investing and financing activities

	Cash and Cash Equivalents

F-9

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Table of Contents

	Deferred Lease Liabilities and Non-cash Rental Expense

	Foreign Currency

	Comprehensive Income

	Investments in Affiliated Companies

		For the Year Ended
		December 31,
		2003				2004				2005
Revenue		$	3,657			$	3,560			$	3,526
Income from operations			1,634				1,563				1,452
Net income			1,526				1,459				1,373

	Intangible Assets, Goodwill and Debt Issuance Costs

F-10

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Table of Contents

	Accounting for the Impairment of Long-Lived Assets

	Concentrations of Credit Risk

	Earnings (Loss) Per Share

		Year Ended December 31,
		2003				2004				2005
Weighted average number of common shares outstanding — basic			1,247,674				1,299,332				1,309,616
Effect of dilutive stock options			—				—				2,857
Weighted average number of common shares outstanding — diluted			1,247,674				1,299,332				1,312,473

	Stock-Based Employee Compensation

F-11

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Table of Contents

			For the Year Ended December 31,
			2003				2004				2005
Net income (loss) attributed to common stockholders, as reported			$	(3,555	)		$	(4,689	)		$	1,769
Add:
	Stock-based employee compensation expense included in reported net loss attributed to common stockholders, net of related tax effects			12				37				177
Deduct:
	Total stock-based employee compensation expense determined under fair value based method for all stock option awards, net of related tax effects			(167	)			(99	)			(128	)
Pro forma net income (loss) attributed to common stockholders			$	(3,710	)		$	(4,751	)		$	1,818
Basic earnings (loss) per share:
	As reported		$	(2.85	)		$	(3.61	)		$	1.35
	Pro forma		$	(2.97	)		$	(3.66	)		$	1.39
Diluted earnings (loss) per share:
	As reported		$	(2.85	)		$	(3.61	)		$	1.35
	Pro forma		$	(2.97	)		$	(3.66	)		$	1.39

F-12

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Table of Contents

						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
2005 Grants			4.1				6 years				49				—				8.00

2.	Recent Accounting Pronouncements

F-13

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Table of Contents

3.	Fixed Assets

			December 31,
			2004				2005
Leasehold improvements			$	257,552			$	287,171
Club equipment				62,172				68,420
Furniture, fixtures and computer equipment				39,912				45,338
Computer software				9,893				11,261
Building and improvements				4,995				4,995
Land				986				986
Construction in progress				14,479				29,045
				389,989				447,216
	Less: Accumulated depreciation and amortization			163,736				(194,085	)
			$	226,253			$	253,131

4.	Goodwill and Intangible Assets

Balance at January 1, 2004			$	45,864
	Goodwill impairment			(2,002	)
	Currency translation adjustments			69
	Acquisitions			3,563
Balance at December 31, 2004			$	47,494
	Other			(15	)
	Currency translation adjustments			(114	)
	Acquisitions			2,609
Balance at December 31, 2005			$	49,974

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		December 31, 2004
		Gross
		Carrying				Accumulated				Net
		Amount				Amortization				Intangibles
Acquired intangible assets
Membership lists		$	11,008			$	(10,372	)		$	636
Covenants-not-to-compete			1,151				(895	)			256
Beneficial lease			223				(184	)			39
		$	12,382			$	(11,451	)		$	931

		December 31, 2005
		Gross
		Carrying				Accumulated				Net
		Amount				Amortization				Intangibles
Acquired intangible assets
Membership lists			11,450				(10,939	)			511
Covenants-not-to-compete			1,151				(949	)			202
Beneficial lease			223				(195	)			28
		$	12,824			$	(12,083	)		$	741

		Amortization
Year Ending December 31,		Expense
2006		$	521
2007			120
2008			64
2009			36
2010			—
		$	741

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Table of Contents

5.	Accrued Expenses

		December 31,
		2004				2005
Accrued payroll		$	5,472			$	6,447
Accrued construction in progress and equipment			3,200				7,848
Accrued occupancy costs			4,621				5,783
Accrued insurance claims			2,319				4,091
Accrued other			6,790				7,451
		$	22,402			$	31,620

6.	Long-Term Debt and Capital Lease Obligations

			December 31,
			2004				2005
Senior Notes 95/8 %			$	255,000			$	255,000
Senior Discount Notes 11%				137,572				153,077
Notes payable for acquired businesses				3,874				3,085
Capital lease obligations				15				—
				396,461				411,162
Less: Current portion due within one year				1,225				1,267
	Long-term portion		$	395,236			$	409,895

Year Ending December 31,		Amount Due
2006		$	1,267
2007			775
2008			732
2009			311
2010			—
Thereafter			408,077
		$	411,162

F-16

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Table of Contents

	April 16, 2003 Refinancing Transactions

	Senior Credit Facility

	February 4, 2004 Restructuring

F-17

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	Fair Market Value

	Interest Expense

		Year Ended December 31,
		2003				2004				2005
Interest costs expensed		$	23,670			$	39,343			$	41,550
Interest costs capitalized			322				429				899
Total interest expense and amounts capitalized		$	23,992			$	39,772			$	42,449

7.	Related Party Transactions

8.	Leases

F-18

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Table of Contents

		Minimum
Year Ending December 31,		Annual Rental
2006		$	61,695
2007			63,279
2008			62,355
2009			60,373
2010			57,404
Aggregate thereafter			422,027

		Minimum
Year Ending December 31,		Annual Rental
2006		$	3,308
2007			3,056
2008			2,324
2009			2,028
2010			1,909
Aggregate thereafter			9,998

9.	Redeemable Preferred Stock

	Redeemable Senior Preferred Stock

F-19

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	Series A Redeemable Preferred Stock

10.	Stockholders’ Deficit

	Common Stock

	Series B Preferred Stock

F-20

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Table of Contents

	Restructuring

	b. Stock Options

	Series B Preferred Stock Options

F-21

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Table of Contents

	Class A Common Stock Options

						Weighted								Weighted
						Average								Average
		Class A				Exercise				Series B				Exercise
		Common				Price				Preferred				Price
Balance at January 31, 2003			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
Granted			20,000				91.50	(i)
Exercised(iv)			(240	)			75.00
Forfeited			(280	)			19.36
Balance at December 31, 2005			88,366				86.26

(i)		Option exercise price was greater than market price on the grant date.
(ii)		Option reinstated as a result of inadvertent forfeiture on behalf on TSI.

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(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.
(iv)		The shares related to the exercise of these options were immediately repurchased and retired by the company.

			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				36 months			$	53.00				880			$	53.00
	2000 grants			9,148				48 months			$	75.00				9,148			$	75.00
	2003 grants			9,240				84 months			$	144.00				9,240			$	144.00
	2004 amended and repriced 1999 grants			1,640				36 months			$	0.50				—			$	0.50
	2004 amended and repriced 2000 grants			6,098				48 months			$	22.50				—			$	22.50
	2004 amended and repriced 2001 grants			4,400				77 months			$	47.50				—			$	47.50
	2004 amended and repriced 2003 grants			36,960				84 months			$	91.50				—			$	91.50
	2005 grants			20,000				108 months			$	91.50				4,000			$	91.50
Total Grants				88,366							$	86.26				23,268			$	104.41

F-23

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Table of Contents

11.	Asset Acquisitions

			Years Ended
			December 31,
			2004				2005
Number of clubs acquired				3				2
Purchase prices payable in cash at closing			$	3,877			$	3,945
Issuance and assumption of notes payable				920				340
	Total purchase prices		$	4,797			$	4,285

				Years Ended
				December 31,
				2004				2005
Allocation of purchase prices
	Goodwill			$	3,563			$	2,609
	Fixed assets				1,155				1,483
	Membership lists				803				442
	Non-compete agreement				275				—
	Other net liabilities acquired				(42	)			—
	Other net assets acquired				—				40
	Deferred revenue				(957	)			(289	)
		Total allocation of purchase prices		$	4,797			$	4,285

F-24

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12.	Revenue from Club Operations

		Years Ended December 31,
		2003				2004				2005
Membership dues		$	273,334			$	282,716			$	309,811
Initiation fees			13,892				12,439				11,916
Personal training revenue			31,170				34,821				42,277
Other club ancillary revenue			17,269				18,199				20,139
Total club revenue			335,665				348,175				384,143
Other Revenue			2,707				4,856				4,413
Business interruption insurance proceeds			2,800				—				—
Total revenue		$	341,172			$	353,031			$	388,556

13.	Corporate Income Taxes

		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				Foreign				Local				Total
Current		$	(5,468	)		$	247			$	2,275			$	(2,946	)
Deferred			4,956				—				(920	)			4,036
		$	(512	)		$	247			$	1,355			$	1,090

		Year Ended December 31, 2005
										State and
		Federal				Foreign				Local				Total
Current		$	9,761			$	318			$	2,584			$	12,663
Deferred			(8,557	)			—				(3,086	)			(11,643	)
		$	1,204			$	318			$	(502	)		$	1,020

F-25

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				December 31,
				2004				2005
Deferred tax assets
	Deferred lease liabilities			$	8,781			$	10,973
	Deferred revenue				4,367				5,697
	Deferred compensation expense incurred in connection with stock options				42				149
	State net operating loss carry-forwards				1,684				1,835
	Interest accretion				4,051				10,198
	Accruals, reserves and other				1,766				2,277
					20,691				31,129
Deferred tax liabilities
	Fixed assets and intangible assets				(2,735	)			(496	)
	Deferred costs				(4,240	)			(4,548	)
					(6,975	)			(5,044	)
		Net deferred tax assets, prior to valuation allowance			13,716				26,085
Valuation allowance					(981	)			(1,707	)
		Net deferred tax assets		$	12,735			$	24,378

		Years Ended
		December 31,
		2003				2004				2005
Federal statutory tax rate			35	%			(35	)%			35	%
State and local income taxes, net of federal tax benefit			8				7				17
Change in state effective income tax rate			—				12				(11	)
Deferred compensation			—				41				—
State tax benefit related to self insurance			—				(8	)			(22	)
Foreign rate differential			—				(3	)			(3	)
Valuation allowance			—				21				13
Swiss repatriation cost			—				—				4
Other permanent differences			—				4				4
			43	%			39	%			37	%

F-26

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Table of Contents

	The American Jobs Creation Act of 2004

14.	Contingencies

15.	Employee Benefit Plan

F-27

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Table of Contents

16.	Subsequent Event

17.	Guarantors

F-28

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Table of Contents

																Non-
												Subsidiary				Guarantor
				TSI Holdings				TSI				Guarantors				Subsidiary				Eliminations				Consolidated
				(All figures in $’000s)
ASSETS
Current assets
	Cash and cash equivalents			$	274			$	3,425			$	51,327			$	2,480			$	—			$	57,506
	Accounts receivable				—				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				4,731				—				(3,500	)			8,971
		Total current assets			1,349				28,645				49,719				998				(5,979	)			74,732
Investment in subsidiaries					8,862				267,350				—				—				(276,212	)			—
Fixed assets, net of accumulated depreciation					—				11,478				213,464				1,311				—				226,253
Goodwill					—				—				46,619				875				—				47,494
Intangible assets, net					—				—				931				—				—				931
Deferred tax assets					6,266				7,108				(491	)			(148	)			—				12,735
Deferred membership costs					—				—				12,017				—				—				12,017
Other assets					4,106				7,519				5,169				—				—				16,794
		Total assets		$	20,583			$	322,100			$	327,428			$	3,036			$	(282,191	)		$	390,956
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 and corporate income taxes payable				28				6,353				15,509				512				—				22,402
	Accrued interest				—				5,215				2,481				—				(2,479	)			5,217
	Deferred revenue				—				—				28,294				—				—				28,294
		Total current liabilities			28				15,300				54,332				512				(2,479	)			67,693
Long-term debt and capital lease obligations					137,572				295,865				(34,701	)			—				(3,500	)			395,236
Deferred lease liabilities					—				485				35,524				—				—				36,009
Deferred revenue					—				60				3,137				101				—				3,298
Other liabilities					—				1,528				4,209				—				—				5,737
		Total liabilities			137,600				313,238				62,501				613				(5,979	)			507,973
Stockholders’ deficit:
	Common Stockholder’s deficit				(117,933	)			7,946				264,919				1,515				(274,380	)			(117,933	)
	Accumulated other comprehensive income				916				916				8				908				(1,832	)			916
	Other				—				—				—				—				—				—
		Total Stockholder’s deficit			(117,017	)			8,862				264,927				2,423				(276,212	)			(117,017	)
		Total liabilities and Stockholder’s deficit		$	20,583			$	322,100			$	327,428			$	3,036			$	(282,191	)		$	390,956

F-29

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																Non-
												Subsidiary				Guarantor
				TSI Holding				TSI				Guarantors				Subsidiary				Eliminations				Consolidated
				(All figures in $’000s)
ASSETS
Current assets:
	Cash and cash equivalents			$	1			$	1,359			$	48,682			$	1,262			$	—			$	51,304
	Accounts receivable				—				3,664				6,144				133				(2,838	)			7,103
	Inventory				—				—				395				26				—				421
	Prepaid corporate income taxes				—				4,550				(32	)			—				—				4,518
	Intercompany receivable (payable)				1,137				(1,137	)			—				—				—				—
	Prepaid expenses and other current assets				—				5,425				10,195				(1,713	)			—				13,907
		Total current assets			1,138				13,861				65,384				(292	)			(2,838	)			77,253
Investment in subsidiaries					18,941				253,703				—				—				(272,644	)			—
Fixed assets, net					—				10,114				242,149				868				—				253,131
Goodwill					—				—				49,215				759				—				49,974
Intangible assets					—				—				741				—				—				741
Deferred tax assets					13,560				11,354				(492	)			(44	)			—				24,378
Deferred membership costs					—				94				11,428				—				—				11,522
Other assets					3,755				11,833				1,184				—				—				16,772
		Total assets			37,394				300,959				369,609				1,291				(275,482	)			433,771
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
	Current portion of long-term debt and capital lease obligations				—				—				1,267				—				—				1,267
	Accounts payable				—				(82	)			8,415				—				—				8,333
	Accrued expenses				—				13,364				17,864				392				—				31,620
	Accrued Interest				—				5,265				2,840				—				(2,838	)			5,267
	Deferred revenue				—				—				32,940				88				—				33,028
		Total current liabilities			—				18,545				63,327				480				(2,837	)			79,515
Long-term debt and capital lease obligations					153,077				255,000				1,818				—				—				409,895
Deferred lease liabilities					—				452				48,446				—				—				48,898
Deferred revenue					—				—				2,905				—				—				2,905
Other liabilities					—				8,019				222				—				—				8,241
		Total liabilities			153,077				282,018				116,717				480				(2,838	)			549,454
Stockholders’ deficit:
	Common Stockholders’ deficit				(116,069	)			18,941				252,882				435				(272,258	)			(116,069	)
	Accumulated other Comprehensive income				386				—				10				376				(386	)			386
		Total stockholders’ deficit			(115,683	)			(18,941	)			252,892				811				(272,644	)			(115,683	)
		Total liabilities and stockholders’ deficit		$	37,394			$	300,959			$	369,609			$	1,291			$	(275,482	)		$	433,771

F-30

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Table of Contents

															Non-
											Subsidiary				Guarantor
			TSI Holdings				TSI				Guarantors				Subsidiary				Eliminations				Consolidated
			(All figures in $’000s)
Revenue:
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
Operations expense:
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-31

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															Non-
											Subsidiary				Guarantor
			TSI Holdings				TSI				Guarantors				Subsidiary				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-32

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															Non-
											Subsidiary				Guarantor
			TSI Holdings				TSI				Guarantors				Subsidiary				Eliminations				Consolidated
			(All figures in $’000s)
Revenues:
Club operations			$	—			$	—			$	379,539			$	4,604			$	—			$	384,143
Fees and other				—				1,009				8,509				—				(5,105	)			4,413
				—				1,009				388,048				4,604				(5,105	)			388,556
Operating expenses:
Payroll and related				—				22,780				127,624				1,879				(363	)			151,920
Club operating				—				1,304				131,944				1,153				(4,182	)			130,219
General and administrative				22				1,335				25,442				343				(560	)			26,582
Depreciation and amortization				—				4,334				34,876				372				—				39,582
				22				29,753				319,886				3,747				(5,105	)			348,303
	Operating income (loss)			(22	)			(28,744	)			68,162				857				—				40,253
Interest expense				15,836				22,742				3,299				—				(326	)			41,550
Interest income				(6	)			(2,652	)			(10	)			—				326				(2,342	)
Equity in the earnings of investees and rental income				—				(1,059	)			(685	)			—				—				(1,744	)
	Income (loss) before provision (benefit) for corporate income taxes			(15,852	)			(47,775	)			65,558				857				—				2,789
Provision (benefit) for corporate income taxes				(7,828	)			(15,719	)			24,256				311				—				1,020
Net Income before extraordinary items				(8,024	)			(32,055	)			41,302				546				—				1,769
Equity earnings from Subsidiaries				9,793				41,848				—				—				(51,641	)			—
	Net income (loss)		$	1,769			$	9,793			$	41,302			$	546			$	(51,641	)		$	1,769

F-33

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																Non-
												Subsidiary				Guarantor
				TSI 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
	Goodwill impairment write-off and club closure costs				—				198				—				—				—				198
	Compensation expense in connection with stock options				—				(84	)			1,734				—				—				1,650
	Noncash rental expense, net of noncash rental income				—				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 used in 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-34

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																Non-
												Subsidiary				Guarantor
				TSI Holdings				TSI				Guarantors				Subsidiaries				Eliminations				Consolidated
				(All figures in $’000s)
Cash flows from operating activities:				$	(3,905	)		$	2,855			$	35,686			$	790			$	(39,331	)		$	(3,905	)
Net income
	Adjustments to reconcile net income to net cash provided by operating activities:				—				3,994				32,478				397				—				36,869
	Depreciation and amortization				—				—				2,002				—				—				2,002
	Goodwill impairment write-off				—				406				—				—				—				406
	Fixed Asset impairment charges				—				64				—				—				—				64
	Compensation expense in connection with stock options
	Noncash rental expense, net of noncash rental income				—				(99	)			624				—				—				525
	Loss on extinguishment of debt				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

F-35

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																Non-
												Subsidiary				Guarantor
				TSI Holdings				TSI				Guarantors				Subsidiary				Eliminations				Consolidated
				(All figures in $’000s)
Cash flows from operating activities:
Net income				$	1,769			$	9,793			$	41,302			$	546			$	(51,641	)		$	1,769
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				—				4,334				34,876				372				—				39,582
	Compensation expense in connection with stock options				—				279				—				—				—				279
	Noncash rental expense, net of noncash rental income				—				(162	)			1,623				—				—				1,461
	Noncash interest expense				15,505				—				—				—				—				15,505
	Amortization of debt issuance costs				331				1,313				—				—				—				1,644
	Increase in insurance reserves				—				1,837				—				—				—				1,837
	Landlord Contributions				—				—				8,590				—				—				8,590
	Changes in operating assets and liabilities				(93	)			4,314				—				—				—				4,221
	Other				(17,601	)			45,500				(89,036	)			(2,136	)			51,641				(11,632	)
		Total adjustments			(1,858	)			57,415				(43,947	)			(1,764	)			51,641				61,487
		Net cash provided by operating activities			(89	)			67,208				(2,645	)			(1,218	)			—				63,256
Net cash used in investing activities					—				(66,338	)			—				—				—				(66,338	)
Net cash provided by financing activities					(184	)			(2,936	)			—				—				—				(3,120	)
		Net increase (decrease) in cash and cash equivalents			(273	)			(2,066	)			(2,645	)			(1,218	)			—				(6,202	)
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			$	1			$	1,359			$	48,682			$	1,262			$	—			$	51,304

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			Page
Independent Auditors’ Report				F-38
Financial Statements:
	Consolidated Balance Sheets			F-39
	Consolidated Statements of Income and Expenses			F-40
	Consolidated Statements of Partners’ Capital			F-41
	Consolidated Statements of Cash Flows			F-42
Notes to Consolidated Financial Statements				F-43

F-37

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	/s/ Squire, Lemkin & O’Brien LLP

F-38

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				December 31,
				2005				2004
				(In thousands of
				dollars)
ASSETS
CURRENT ASSETS:
	Accounts receivable			$	142			$	163
	Inventory				1				4
	Prepaid expenses and other				31				33
	Deposits and other				—				20
		TOTAL CURRENT ASSETS			174				220
PROPERTY, PLANT AND EQUIPMENT					158				255
OTHER ASSETS:
	Prepaid rent				11				12
	Deferred member costs				73				99
	Deferred tax benefit				105				64
	Deposits and other deferred charges				57				28
		TOTAL OTHER ASSETS			246				203
TOTAL ASSETS				$	578			$	678
LIABILITIES AND PARTNERS’ CAPITAL
CURRENT LIABILITIES:
	Bank overdraft			$	6			$	9
	Accounts payable and accrued expenses				249				259
	Deferred revenue				195				194
	Deferred lease benefit				—				21
		TOTAL CURRENT LIABILITIES			450				483
OTHER LIABILITIES:
	Deferred revenue				42				32
	Deferred lease benefit				300				—
		TOTAL OTHER LIABILITIES			342				32
TOTAL LIABILITIES					792				515
COMMITMENTS AND CONTINGENCIES
PARTNERS’ CAPITAL					(214	)			163
TOTAL LIABILITIES AND PARTNERS’ CAPITAL				$	578			$	678

F-39

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				For the Years Ended
				December 31,
				2005				2004				2003
				(In thousands of dollars)
INCOME:
	Membership and facility fees			$	3,508			$	3,527			$	3,634
	Pro shop sales				8				15				23
	Advertising and other income				10				18				4
		TOTAL INCOME			3,526				3,560				3,661
EXPENSES:
	Personnel and related costs				779				794				857
	Occupancy				683				410				384
	Other operating expenses				367				377				340
	Depreciation and amortization				156				319				323
	Advertising				84				94				108
	Cost of sales — pro shop				6				3				12
		TOTAL EXPENSES			2,075				1,997				2,024
NET INCOME BEFORE INCOME TAXES					1,451				1,563				1,637
	State income taxes				(78	)			(104	)			(111	)
NET INCOME				$	1,373			$	1,459			$	1,526

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																General
																Partners
																and
								Class I				Class II				Class III
								Limited				Limited				Limited
				Totals				Partners				Partners				Partners
				(In thousands of dollars)
BALANCE
		DECEMBER 31, 2002		$	428			$	8			$	372			$	48
NET INCOME					1,526				175				266				1,085
DISTRIBUTIONS					(1,700	)			(192	)			(293	)			(1,215	)
BALANCE
		DECEMBER 31, 2003			254				(9	)			345				(82	)
NET INCOME					1,459				169				256				1,034
DISTRIBUTIONS					(1,550	)			(178	)			(269	)			(1,103	)
BALANCE
	DECEMBER 31, 2004				163				(18	)			332				(151	)
NET INCOME					1,373				160				243				970
DISTRIBUTIONS					(1,750	)			(198	)			(300	)			(1,252	)
BALANCE
		DECEMBER 31, 2005		$	(214	)		$	(56	)		$	275			$	(433	)

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						For the Years Ended December 31,
						2005				2004				2003
						(In thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Cash received from members and guests					$	3,572			$	3,480			$	3,690
	Cash paid to suppliers and employees						(1,686	)			(1,757	)			(1,770	)
	Interest received						1				1				3
	Income taxes paid						(76	)			(102	)			(139	)
		NET CASH PROVIDED BY OPERATING ACTIVITIES					1,811				1,622				1,784
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property, plant and equipment						(58	)			(63	)			(104	)
	Proceeds from sale of fixed assets						—				5				—
		NET CASH USED IN INVESTING ACTIVITIES					(58	)			(58	)			(104	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Distributions to partners						(1,750	)			(1,550	)			(1,700	)
	Change in bank overdraft						(3	)			(14	)			20
		NET CASH USED IN FINANCING ACTIVITIES					(1,753	)			(1,564	)			(1,680	)
NET INCREASE IN CASH							—				—				—
CASH, BEGINNING OF YEAR							—				—				—
CASH, END OF YEAR						$	—			$	—			$	—
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
		Net income				$	1,373			$	1,459			$	1,526
		Adjustments:
			Depreciation and amortization				156				319				323
			Loss on disposal of assets				—				1				—
			Changes in assets and liabilities:
				Accounts receivable			21				(111	)			21
				Inventory, prepaid expenses and other			5				4				(25	)
				Deposits and other deferred charges			(9	)			(1	)			—
				Deferred member costs			26				33				11
				Deferred tax benefit			(41	)			(15	)			—
				Accounts payable and accrued expenses			(10	)			(7	)			31
				Deferred liabilities			290				(60	)			(103	)
NET CASH PROVIDED BY OPERATING ACTIVITIES						$	1,811			$	1,622			$	1,784

F-42

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Note 1.	Organization and Significant Accounting Policies

F-43

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Note 2.	Concentration of Credit Risk

Note 3.	Property, Plant and Equipment

			December 31,
			2005				2004
Leasehold improvements			$	1,792			$	1,777
Equipment and fixtures				979				954
	Totals		$	2,771			$	2,731
Less: Accumulated depreciation and amortization				2,613				2,476
	Totals		$	158			$	255

Note 4.	Income Taxes

			2005				2004				2003
Current			$	120			$	119			$	128
Deferred				(42	)			(15	)			(17	)
	Totals		$	78			$	104			$	111

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			2005				2004
Deferred tax assets			$	110			$	71
Less, valuation allowance				—				—
	Totals		$	110			$	71
Deferred tax liabilities				(5	)			(7	)
	Totals		$	105			$	64

Note 5.	Commitments and Contingencies

F-45

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Year			Amount
2006			$	551
2007				564
2008				576
2009				590
2010				627
Thereafter				6,868
	Total		$	9,776

Note 6.	Related Party Transactions

Note 7.	Partners’ Allocations

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Item 13.	Other Expenses of Issuance and Distribution

			Amount to
			be Paid
SEC registration fee			$	20,919
NASD filing fee				20,050
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		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	.15		Form of Executive Stock Agreement, dated as of February 4, 2004, between Town Sports International Holdings, Inc., BRS, the Farallon Entities and each of Mark Smith, Robert Giardina, Richard Pyle, Alex Alimanestianu, and Randall Stephen, respectively (incorporated by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 (the “2005 10-K”))
	10	.16		Separation Agreement and General Release between Mark Smith and Town Sports International Holdings, Inc. dated March 23, 2006 (incorporated by reference to Exhibit 10.18 of the 2005 10-K)
	10	.17		Equity Agreement between Mark Smith and Town Sports International Holdings, Inc. dated March 23, 2006 (incorporated by reference to Exhibit 10.19 of the 2005 10-K)
	10	.18		Amendment No. 1 to the Stockholders Agreement and Consent Agreement dated March 23, 2006 (incorporated by reference to Exhibit 10.20 of the 2005 10-K)
	10	.19		Amendment No. 1 to the Registration Rights Agreement dated as of March 23, 2006 (incorporated by reference to Exhibit 10.21 of the 2005 10K)
	10	.20*		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

	*	To be filed by amendment.

	**	Filed herewith.

***	Previously filed.
(b)	Financial Statement Schedules. None.

II-4

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Item 17.	Undertakings

II-5

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Table of Contents

	TOWN SPORTS INTERNATIONAL
	HOLDINGS, INC.

	By:	/s/ ROBERT J. GIARDINA

	Robert J. Giardina
	Chief Executive Officer

Signature				Title
/s/ ROBERT J. GIARDINA Robert J. Giardina				Chief Executive Officer and Director (Principal Executive Officer)
/s/ RICHARD G. PYLE Richard G. Pyle				Chief Financial Officer (Principal Financial and Accounting Officer)
* Keith E. Alessi				Director
* Paul N. Arnold				Director
* Bruce C. Bruckmann				Director
* J. Rice Edmonds				Director
* Jason M. Fish				Director
*By:		/s/ RICHARD G. PYLE Richard G. Pyle Attorney-in-fact

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Table of Contents

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		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	.15		Form of Executive Stock Agreement, dated as of February 4, 2004, between Town Sports International Holdings, Inc., BRS, the Farallon Entities and each of Mark Smith, Robert Giardina, Richard Pyle, Alex Alimanestianu, and Randall Stephen, respectively (incorporated by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 (the “2005 10-K”))
	10	.16		Separation Agreement and General Release between Mark Smith and Town Sports International Holdings, Inc. dated March 23, 2006 (incorporated by reference to Exhibit 10.18 of the 2005 10-K)
	10	.17		Equity Agreement between Mark Smith and Town Sports International Holdings, Inc. dated March 23, 2006 (incorporated by reference to Exhibit 10.19 of the 2005 10-K)
	10	.18		Amendment No. 1 to the Stockholders Agreement and Consent Agreement dated March 23, 2006 (incorporated by reference to Exhibit 10.20 of the 2005 10-K)
	10	.19		Amendment  No. 1 to the Registration Rights Agreement dated as of March 23, 2006 (incorporated by reference to Exhibit 10.21 of the 2005 10-K)
	10	.20*		Form of Director and Officer Indemnification Agreement

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Exhibit Number				Description of Exhibit
	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

	*	To be filed by amendment.

	**	Filed herewith.

***	Previously filed.