<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 200549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) of
THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) APRIL 6, 1998
TOWN SPORTS INTERNATIONAL, INC.
New York 333-40907 13-2749906
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
888 Seventh Avenue
New York, NY 10106
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (212) 246-6700
(Former name or former address, if changed since last report.) Not
applicable
Page 1 of 2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) & (b) Financial Statements and Pro forma financial information.
The financial statements and pro forma financial information
required are filed herewith in accordance with Rule 3-05 of Regulation S-X.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed by the
undersigned hereunto duly authorized.
TOWN SPORTS INTERNATIONAL, INC.
By: /s/ Richard Pyle
----------------------------
Richard Pyle
Chief Financial Officer
May 14, 1998
Page 2 of 2
<PAGE>
Exhibit 7(a)
ULTRAFIT, INC. AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
For the years ended
December 31, 1997 and 1996
<PAGE>
ULTRAFIT, INC. AND AFFILIATES
TABLE OF CONTENTS
Page
----
Report of independent accountants 1
Combined balance sheets at December 31, 1996 and 1997 2
Combined statements of operations for the years ended
December 31, 1996 and 1997 3
Combined statements of stockholders' equity
for the years ended December 31, 1996 and 1997 4
Combined statements of cash flows for the years
ended December 31, 1996 and 1997 5
Notes to consolidated financial statements 6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Ultrafit, Inc. and Affiliates:
We have audited the accompanying combined balance sheets of Ultrafit, Inc. and
Affiliates (as defined in footnote 1 to the financial statements) (collectively
the "Company") as of December 31, 1997 and 1996, and the related combined
statements of income, stockholders' equity and cash flows for each of the two
years in the period ended December 31, 1997. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Company as of
December 31, 1997 and 1996, and the combined results of its operations and its
cash flows for each of the two years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
New York, New York
March 11, 1998, except for Note 11
as to which the date is April 6, 1998.
1
<PAGE>
ULTRAFIT, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31,
-------------------------
1996 1997
---------- ----------
ASSETS:
Current assets:
Cash and cash equivalents $ 440,048 $ 489,425
Inventory 34,966 22,876
Prepaid expenses and other current assets 24,534 26,322
Advances due from OVOX Corporation 110,374
---------- ----------
Total current assets 499,548 648,997
Fixed assets, net 749,598 1,519,651
Deferred membership costs 123,002 263,559
Other assets 41,461 41,126
Total assets $1,413,609 $2,473,333
---------- ----------
---------- ----------
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Bank overdraft $1,778 $21,297
Current portion of long-term debt 47,887
Accounts payable and accrued expenses 92,029 264,525
Deferred revenue 349,651 293,322
---------- ----------
Total current liabilities 443,458 627,031
Long-term debt 184,564
Deferred lease liabilities 12,116 60,697
Deferred revenue 40,626 84,361
Loan from stockholder 122,019
---------- ----------
Total liabilities 496,200 1,078,672
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock 400 400
Retained earnings 917,009 1,394,261
---------- ----------
Total stockholders' equity 917,409 1,394,661
---------- ----------
Total liabilities and
stockholders' equity $1,413,609 $2,473,333
---------- ----------
---------- ----------
See notes to combined financial statements.
2
<PAGE>
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
1996 1997
---------- ----------
Revenues:
Membership dues - including initiation
fees of $143,139 and $124,189,
respectively $3,292,175 $4,788,983
Merchandise 238,806 254,405
Other services to members 194,942 203,027
Rental income 78,200 69,790
---------- ----------
3,804,123 5,316,205
---------- ----------
Operating expenses:
Payroll and related 1,132,220 1,955,568
Rent and other occupancy cost 507,237 708,806
Other club operating 416,921 566,061
General and administrative 243,068 402,912
Depreciation and amortization 242,000 312,099
Cost of merchandise sold 184,616 202,576
---------- ----------
2,726,062 4,148,022
---------- ----------
Operating Income 1,078,061 1,168,183
Interest income, net of interest expense
of $516 and $15,461, respectively 7,369 9,137
---------- ----------
Income before provision
for corporate income taxes 1,085,430 1,177,320
Provision for corporate income taxes 28,509 30,915
---------- ----------
Net income $1,056,921 $1,146,405
---------- ----------
---------- ----------
See notes to combined financial statements.
3
<PAGE>
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
Total
Common Retained Stockholders'
Stock Earnings Equity
---------- ---------- ----------
Opening balance as of January 1, 1996 $400 $ 435,559 $ 435,959
Net income for the year 1,056,921 1,056,921
Dividend distribution to stockholders 575,271 575,271
Balance for the year ended
December 31, 1996 400 917,009 917,409
---------- ---------- ----------
Net income for the year 1,146,405 1,146,405
Dividend distribution to stockholders 669,253 669,353
---------- ---------- ----------
Balance for the year ended
December 31, 1997 $ 400 $1,394,261 $1,394,661
---------- ---------- ----------
---------- ---------- ----------
See notes to combined financial statements.
4
<PAGE>
ULTRAFIT, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
COMBINED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996 and 1997
Increase (Decrease) in Cash and Cash Equivalents
1996 1997
---------- ----------
Cash flows from operating activities:
Net income $1,056,921 $1,146,405
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 242,000 312,099
Change in certain working capital
components (12,654) (18,968)
Increase in deferred membership costs (58,165) (140,557)
Other (428) (25)
---------- ----------
Total adjustments 170,753 152,549
---------- ----------
Net cash provided by operating
activities 1,227,674 1,298,954
---------- ----------
Cash flows from investing activities:
Capital expenditures (183,504) (954,413)
---------- ----------
Net cash used in investing
activities (183,504) (954,413)
---------- ----------
Cash flows from financing activities:
Increase (decrease) in bank overdraft (39,117) 19,519
Issuance of stock 100
Proceeds from borrowings 0 485,000
Repayments of borrowings (54,904) (130,530)
Dividend distribution to shareholders (575,271) (669,353)
---------- ----------
Net cash provided by financing
activities (669,192) (295,364)
---------- ----------
Net increase in cash and cash
equivalents 374,778 49,377
Cash and cash equivalents at beginning of period 65,270 440,048
---------- ----------
Cash and cash equivalents at end of period $440,048 $489,425
---------- ----------
---------- ----------
Summary of the change in certain working
capital components:
Decrease (Increase) in inventory $(15,148) $12,090
Decrease (Increase) in prepaid expenses 2,567 (1,788)
Increase in amounts due from affiliated
companies (110,374)
Increase in accounts payable and accrued
expenses 7,476 93,698
Decrease in deferred revenue 7,549 (12,594)
---------- ----------
Net change working capital $(12,654) $(18,968)
---------- ----------
---------- ----------
See notes to consolidated financial statements.
5
<PAGE>
ULTRAFIT, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS:
The combined financial statements of Ultrafit, Inc. and affiliates include
the accounts of Ultrafit, Inc., Maxifit Ltd., Exercise, Inc. and VIP
Fitness, Inc. (collectively referred to as "the Company" or the "Clubs").
The Clubs own and operate four fitness clubs in New Jersey. The Clubs are
owned and operated by a common group of investors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. PRINCIPLES OF COMBINATION:
The accompanying combined financial statements include the accounts of
the Clubs. All significant intercompany accounts and transactions have
been eliminated in combination.
b. REVENUE RECOGNITION:
The Company receives a one-time non-refundable initiation fee and dues
from its members. With the exception of special short-term
memberships, substantially all of the Clubs' members sign membership
contracts for one year after which the membership is automatically
extended for another year unless notice of cancellation is given 30
days prior to expiration date. Initiation fees and related expenses
(referred to herein as membership costs), including sales commissions
payable to membership consultants, are deferred and recognized, on a
straight-line basis over an estimated membership period of two years.
Dues that are received in advance are recognized on a pro-rata basis
over the periods in which services are to be provided.
Revenues from merchandise sales and other membership services are
recognized as income at the time of sale or upon performance of the
services, respectively.
c. INVENTORY:
Inventory consists primarily of athletic equipment, refreshments and
supplies for sale to members and club supplies. Inventories are
valued at the lower of cost or market by the first-in, first-out
method.
d. FIXED ASSETS:
Fixed assets are recorded at cost. The Clubs record depreciation in
accordance with methods permissible for tax purposes. These methods
approximate the straight-line basis over the estimated useful lives of
the assets, which are five years for equipment and the shorter of
their estimated useful lives or the remaining period of the
lease for leasehold improvements. Expenditures for maintenance and
repairs are charged to operations as incurred. The cost and related
accumulated depreciation or amortization of assets retired or sold are
removed from the respective accounts and any gain or loss is
recognized in operations.
Continued 6
<PAGE>
ULTRAFIT, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
e. ADVERTISING COSTS
Advertising costs are charged to operations during the period in which
they are incurred. Total advertising costs incurred by the Company
during the years ended December 31, 1996 and 1997 totaled $108,583 and
$115,738, respectively.
f. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could
differ from those estimates.
The most significant assumptions and estimates relate to the useful
lives of fixed assets and the estimated membership period.
g. CORPORATE INCOME TAXES:
The Clubs have filed elections with the Federal and state taxing
authorities to be treated as S Corporations for tax purposes.
Accordingly, the tax obligations of the Company flow through to the
individual stockholders. The Clubs are subject to a corporate income
tax in New Jersey of approximately 3% for the years ending December
31, 1996 and 1997. Deferred taxes were not material.
h. STATEMENTS OF CASH FLOWS:
Supplemental disclosure of cash flow information:
DECEMBER 31,
1996 1997
-------- --------
Cash paid during the year for:
Interest $ 516 $ 15,461
Taxes 31,973 48,538
Noncash investing activities:
Fixed asset additions included in
accounts payable at December 31 41,306 169,045
i. CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments which have
maturities of three months or less when acquired to be cash
equivalents. The carrying amounts reported in the balance sheets for
cash and cash equivalents approximate fair value.
Continued 7
<PAGE>
ULTRAFIT, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
Financial instruments which potentially subject the Company to
concentrations of credit risk are cash and cash equivalents. Such
amounts are held, primarily, in a single commercial bank. The Company
holds no collateral for these financial instruments.
j. DEFERRED LEASE LIABILITIES AND NONCASH RENTAL EXPENSE:
The Company recognizes rental expense from leases with scheduled rent
increases on the straight-line basis.
3. FIXED ASSETS:
Fixed assets as of December 31, 1996 and 1997 are shown at cost, less
accumulated depreciation and amortization, and are summarized below:
1996 1997
---------- ----------
Leasehold improvements $ 81,508 $ 443,430
Club and office equipment 1,525,747 2,218,602
---------- ----------
1,607,255 2,662,032
Less, Accumulated depreciation
and amortization 857,657 1,142,381
---------- ----------
$ 749,598 $1,519,651
---------- ----------
---------- ----------
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
DECEMBER 31,
1996 1997
---------- ----------
Accounts payable and other accrued expenses $ 59,890 $ 199,265
Accrued payroll 29,953 65,260
Accrued rent 14,302 60,697
---------- ----------
$ 104,145 $ 325,222
---------- ----------
---------- ----------
5. LONG-TERM DEBT:
During 1997, the Company borrowed $250,000 (the "Note") from its principal
bank. Outstanding borrowings accrue interest at a rate of 8.75%. The Note
is payable in monthly installments of principle and interest of $3,990
through April 2002. The Note is collateralized
Continued 8
<PAGE>
ULTRAFIT, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
by the Company's equipment and related other assets. Additionally, the
repayment of the note has been personally guaranteed by the stockholders of
the Clubs. The estimated fair value of the Company's Note as of December
31, 1997 approximated its carrying value. The fair value was estimated
based on the current rate offered to the Company for debt with similar
terms.
As of December 31, 1997, minimum payments on the Note during the next five
years are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT DUE
------------ ----------
1998 $ 47,887
1999 47,887
2000 47,887
2001 47,887
2002 40,903
--------
$232,451
--------
--------
As of December 31, 1997, the Company has a line of credit with its
principal Bank for direct borrowings and letters of credit of up to
$150,000. The line of credit bears interest at prevailing interest rates
based upon the bank's prime rates There were no outstanding borrowings
against this line of credit as of December 31, 1997. The line of credit
expires on August 1, 1998.
6. RELATED PARTY TRANSACTIONS:
Advances and amounts due from related parties and employees and loans from
shareholders as of December 31, 1996 and 1997 consist of the following:
1997
---------
Advances due from OVOX Corporation (a) $110,374
---------
---------
Loan from Stockholder, net of receivables of $15,273 (b) $122,019
---------
---------
a. In 1997, OVOX Corporation ("OVOX") was formed as the management
company and franchiser for OVOX Gyms. Starting in 1998, all payroll
and payroll related expenses as well as other general and
administrative expenses will be administered by OVOX and the Clubs
will be allocated their share of expenses incurred by the management
company. Advances to OVOX, which are held primarily in cash as of
December 31, 1997, represent the initial funding provided by the Clubs
to cover payroll payments to be made by OVOX on behalf of the Clubs
during 1998.
Continued 9
<PAGE>
ULTRAFIT, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
b. In connection with the opening of Exercise, Inc. in late 1997, the
Clubs received a non-interest bearing stockholder loan. The loan has
no specific due date and will be repaid from operating cash flows of
the Clubs. For 1996 and 1997, an entity which is owned by a
stockholder of the Company occupies space at Ultrafit, Inc. and pays
rent in the amount of $2,500 per month.
Starting in 1997, the Clubs began to pay salaries to two of the
stockholders for their services provided to the Clubs as Chief Executive
Officer and as President totaling $116,185.
7. LEASES:
The Company leases office and multi-recreational facilities under
noncancelable operating leases. In addition to base rent, the facility
leases generally provide for additional rent based on increases in real
estate taxes and other costs. One lease provides for additional rent based
upon defined formulas of revenue. Leases are guaranteed by stockholders of
the Company.
The leases expire at various times through December 13, 2006, and some may
be extended at the Company's option for periods ranging from 5 to 10 years.
VIP Fitness Inc. has the option to purchase the leased property during the
lease term at fixed prices stated in the lease or at prices to be
determined by the parties at "arm's length" after the lease has expired.
Future minimum rental payments under noncancelable operating leases are as
follows:
YEAR ENDING MAY 31, MINIMUM ANNUAL RENTAL
------------------ ---------------------
1998 $ 643,738
1999 643,738
2000 528,928
2001 471,523
2002 471,523
Aggregate thereafter 1,432,744
----------
$4,192,194
----------
----------
Rent expense for the years ended December 31, 1996 and 1997 was $507,237
and $708,806, respectively, including other occupancy cost of $145,104 and
$201,603, respectively.
Continued 10
<PAGE>
ULTRAFIT, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
8. STOCKHOLDERS' EQUITY:
Common stock issued has no par value and a stated value of $0.5 per share.
Common stock at December 31, 1996 and 1997 is as follows:
NUMBER OF
NUMBER OF SHARES
SHARES ISSUED AND COMMON
AUTHORIZED OUTSTANDING STOCK
---------- ----------- ------
Ultrafit, Inc. 2,500 200 $100
Maxifit, Ltd. 2,500 200 100
VIP Fitness, Inc. 2,500 200 100
Exercise, Inc. 2,500 200 100
------ --- ----
10,000 800 $400
------ --- ----
------ --- ----
Exercise, Inc. incorporated in November 1996.
9. CONTINGENCIES:
As of December 31, 1997, the Company was party to a number of claims
arising in the ordinary course of business. Management believes that these
claims are covered by the Company's insurance policies and that the
ultimate outcome of these matters will not have a material effect on the
Company's combined financial position or results of operations.
10. EMPLOYEE BENEFIT PLAN:
During 1997, the Company implemented a 401(k) salary deferral plan (the
"Plan") which is available to eligible employees, as defined. The Plan
provides for the Company to make discretionary contributions, however, the
Company elected not to make contributions for the year ended December 31,
1997.
11. SUBSEQUENT EVENTS:
On April 6, 1998, the stockholders entered into an agreement with Town
Sports International, Inc. ("TSI") to sell the clubs.
11
<PAGE>
Exhibit 7(b)
Unaudited Pro Forma Financial Data
The following unaudited pro forma condensed consolidated financial data gives
effect to the acquisition of Ultrafit Inc. and Affiliates ("Ovox") pursuant to
various Asset Purchase Agreements and a Purchase Option Agreement (collectively
the "Transactions".) The unaudited condensed consolidated balance sheet
reflects the Transactions as if they had occurred on February 28, 1998. The
unaudited pro forma condensed consolidated statements of operations combine the
historical operating results of the Company and Ovox for the year ended May 31,
1997 and the nine months ended February 28, 1998 as if Transactions had occurred
on June 1, 1996.
The unaudited pro forma condensed consolidated financial data does not reflect
cost savings, synergies or other financial benefits which may be achieved from
the acquisition of Ovox, nor do they purport to be indicative of the operating
results or the financial position that would have been realized had the
Transactions been consummated as of the date or for the period for which the pro
forma data is presented. The unaudited pro forma adjustments described in the
notes are based upon current preliminary estimates and contain assumptions that
the Company and Ovox management believe are reasonable in such circumstances.
The unaudited pro forma condensed consolidated financial data is based on and
should be read in conjunction with the Company's Registration Statement on Form
S-4, dated January 6, 1998, and its Quarterly Report on Form 10-Q, for the
fiscal quarter ended February 28, 1998, previously filed with the Securities and
Exchange Commission and the combined financial statements of Ovox included in
this report.
The following pro forma financial data is provided:
1. Unaudited Pro Forma Condensed Consolidated Balance Sheet at February
28, 1998.
2. Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended May 31, 1997.
3. Unaudited Pro Form Condensed Consolidated Statement of Operations for
the nine months ended February 28, 1998.
4. Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Data.
<PAGE>
<TABLE>
<CAPTION>
Town Sports International Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Balance Sheet
at February 28, 1998
(all figures in $'000)
Pro Forma
The Company Ovox Pro Forma for the
Historical Historical Adjustments Note Transactions
---------- ---------- ----------- ---- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 38,291 $ 645 $ (8,586) 1 $ 30,350
Other current assets 1,623 25 (25) 2 1,623
-------- -------- -------- --------
Total current assets 39,914 670 (8,611) 31,973
Fixed assets 44,602 1,588 46,190
Intangible assets 5,260 945 3 6,205
Goodwill 6,865 5,644 3 12,509
Other assets 12,496 282 (282) 2 12,496
-------- -------- -------- --------
Total assets $109,137 $ 2,540 $ (2,304) $109,373
-------- -------- -------- --------
-------- -------- -------- --------
Liabilities and Stockholders' Deficit
Current Liabilities:
Current portion of long-term debt $ 2,289 $48 (48) 2 2,289
Accounts payable and accrued expenses 9,498 111 (111) 2 9,498
Deferred revenue 5,714 331 (331) 2 5,714
-------- -------- -------- --------
Total current liabilities 17,501 490 (490) 17,501
Long-term debt 86,446 180 (180) 2 86,446
Deferred revenue 1,815 88 (88) 2 1,815
Other liabilities 9,133 83 153 4 9,369
-------- -------- -------- --------
Total liabilities 114,895 841 (605) 115,131
-------- -------- -------- --------
Stockholders' deficit (5,758) 1,699 (1,699) 5 (5,758)
-------- -------- -------- --------
Total liabilities and
stockholders' deficit $109,137 $ 2,540 $ (2,304) $109,373
-------- -------- -------- --------
-------- -------- -------- --------
The accompanying notes are an integral part of the pro forma condensed consolidated balance sheet.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Town Sports International Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Year ended May 31, 1997
(all figures in $'000)
Pro Forma
The Company Ovox Pro Forma for the
Historical Historical Adjustments Note Transactions
---------- ---------- ----------- ---- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Club Operations $ 54,164 $ 4,241 $ 58,405
Management Fees 1,288 1,288
Rental Income 936 90 1,026
Share of net income in affiliated companies 179 179
-------- -------- -------- --------
56,567 4,331 60,898
-------- -------- -------- --------
Operating expenses:
Payroll and related 23,321 1,404 24,725
Compensation expense incurred in connection
with stock options 5,933 5,933
Club operating 18,044 1,183 19,227
General and administrative 3,774 360 4,134
Depreciation and amortization 4,219 215 $ 1,009 6 5,443
-------- -------- -------- --------
55,291 3,162 1,009 59,462
-------- -------- -------- --------
Operating income 1,276 1,169 (1,009) 1,436
-------- -------- -------- --------
Interest (expense) income, net (2,455) 11 (18) 7 (2,462)
-------- -------- -------- --------
Income (loss) before taxes $ (1,179) $ 1,180 $ (1,027) $ (1,026)
-------- -------- -------- --------
-------- -------- -------- --------
The accompanying notes are an integral part of the pro forma condensed consolidated statement of operations.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Town Sports International Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Nine Months ended February 28, 1998
(all figures in $'000)
Pro Forma
The Company Ovox Pro Forma for the
Historical Historical Adjustments Note Transactions
---------- ---------- ----------- ---- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Club Operations $ 55,975 $ 4,228 $ 60,203
Management Fees 1,294 1,294
Rental Income 589 50 639
Share of net income in affiliated companies 70 70
-------- -------- -------- --------
57,928 4,278 62,206
-------- -------- -------- --------
Operating expenses:
Payroll and related 23,421 1,285 24,706
Compensation expense incurred in connection
with stock options 519 519
Club operating 17,847 1,552 19,399
General and administrative 3,858 290 4,148
Depreciation and amortization 5,361 193 $ 757 6 6,311
-------- -------- -------- --------
51,006 3,320 757 55,083
-------- -------- -------- --------
Operating income 6,922 958 (757) 7,123
-------- -------- -------- --------
Interest (expense) income, net (4,413) 8 (14) 7 (4,419)
-------- -------- -------- --------
Income (loss) before taxes $ 2,509 $ 966 $ (771) $ 2,704
-------- -------- -------- --------
-------- -------- -------- --------
The accompanying notes are an integral part of the pro forma condensed consolidated statement of operations.
</TABLE>
<PAGE>
Town Sports International Inc. and Subsidiaries
Unaudited Notes to Pro Forma Condensed Consolidated Financial Data
(all figures in $'000)
1. Reflects cash paid of $6,575 and cash of $1,175 to be paid over the next 60
days in consideration for the Transactions plus $645 cash held by Ovox
which was not acquired by the Company.
2. Adjustment to eliminate Ovox's assets and liabilities not acquired.
3. Certain assets of Ovox were acquired in a series of transactions on April
6, 1998, (collectively the "Transactions".) For the purpose of preparing
the pro forma data, the Transactions have been accounted for as a purchase
whereby the assets acquired have been reflected in the accompanying
unaudited condensed consolidated pro forma balance sheet at their estimated
fair market values on the date acquired. The purchase price totaled $8,177,
which included $7,750 of cash and notes payable of $236. Transaction costs
amounted to $191. The excess of the purchase price over the net book value
of the assets acquired ($6,589) has been allocated to the following assets
to record them at their respective estimated fair values at the date
acquired.
Purchase price $8,177
Net assets acquired (1,588)
------
Excess purchase price 6,589
------
Membership List 945
Goodwill $5,644
------
------
4. Reflects the notes payable of $236 incurred in connection with the
Transactions net of other liabilities of Ovox not acquired.
5. The adjustment to stockholders' deficit reflects the elimination of Ovox's
historical stockholders' equity.
6. Increased operating expenses represent the amortization of goodwill
($5,644) over an estimate life of between 5.5 and 15 years and of
membership lists ($945) over an estimated life of 2 years.
7. The note payable incurred in connection with the Transactions bears
interest at prime rate plus 2%.
